So here’s a scenario: You have entered into an Agreement of Purchase and Sale to buy a home. The closing date is fast approaching. You have a home of your own that you are trying to sell but for any one of a number of reasons, either the home hasn’t sold or you can’t get a closing date that coincides with the one for your new purchase.
Your realtor calls the realtor for the Seller to canvas the possibility of an extended closing….
I deal with this scenario frequently every year and offer the following thoughts to Buyers.
Bridging the Gap
The real estate market can be tough. If you’ve been in a bidding war to buy your new home, basically you gave the Seller what they asked for and that can include a firm closing date. But if the market hasn’t been kind, selling your old home has presented you with a few challenges. As a result you can’t close the sale of your old home before the closing date on the new one. Now you have to figure out your next move.
The first solution that comes to mind is bridge financing. The bank lends you short term money to close your purchase, to be repaid from the proceeds of the sale of your old home. This loan is usually unsecured (not registered on title). This option works if you have already sold your property and can show the lender when they can expect to be repaid.
But, what if you have not sold your property and your closing date is fast approaching?
A second option is to ask the bank for a blanket mortgage on both properties, the new one and the existing one. If this is a second mortgage, it will be discharged from both properties when it is repaid. The costs will be higher and you will have to qualify financially to get this mortgage because there is no fixed date for repayment and you may have to carry it for a while.
Asking for an Extension
If you are turned down by the bank and have no other source of money to close, you have no choice but to ask the Seller for an extension. The Seller can say no, which will put your deposit at risk. If they agree, they may impose some terms such as:
- Increase the deposit to an amount that would be “painful” to walk away from;
- Agree to be responsible for all expenses including taxes and property insurance from the original date of closing forward;
- Agree to reimburse you for all mortgage carrying charges from the original date of closing forward until closing;
- Agree to reimburse you for all of your bridging costs;
- Agree to release the deposit to you immediately if the closing does not happen on the extended closing date;
- Reimburse you for your additional legal costs;
- If you will have money left over to be invested, the Buyer may be asked to pay you a “lost opportunity” cost.
The foregoing are just points to ponder and are not legal advice. If you are faced with an extension of closing situation, consult your lawyer immediately. Every situation is different and proper legal advice and guidance is essential.
This article is for information purposes only. It is not meant to be relied on as legal advice.