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March 28, 2017  -  Stay Connected!
 
    

 
QUESTION:  Using Form 22AD, the additional down payment is negotiated up front, at the time of mutual acceptance. Later the issue arises, after the low appraisal comes in, that buyer could have and is willing to pay MORE money (in addition to the previously agreed amount) to make up the difference. However, Form 22AD, paragraph 2, requires notice from the buyer to the seller which automatically gives the seller a termination right with full refund of the buyer’s earnest money deposit. Pretty black and white ... except if the 2nd guessing buyer now wishes to pay an additional amount to make it to the purchase price. Is it true that there is no way for the buyer to increase the additional amount down once 22AD is signed around and the appraisal is back?


ANSWER: Not entirely. Broker is correct in all of the factual analysis related to Form 22AD and its requirement that buyer give notice.
 
However, it is important to note that Form 22AD states that the provisions of Form 22AD modify the low appraisal provision of the Financing Contingency. In other words, Form 22AD is not a stand-alone addendum. Rather, it is part of the buyer's financing contingency and replaces paragraph 7 of Form 22A. As a result, if buyer wants to avoid the obligation of Form 22AD, paragraph 2, then buyer must waive the financing contingency. By waiving the financing contingency, buyer eliminates Form 22A, paragraph 7 and the paragraph 7 replacement which is Form 22AD.
 
It is important for buyer's broker to explain this situation to buyer up front. Form 22AD contemplates that buyer will identify, in paragraph 1, the full amount that buyer is willing to pay as additional down in the event of a low appraisal. If buyer includes a lesser amount in that provision than buyer is actually willing to pay and it turns out that buyer ultimately wants to pay more than is identified in paragraph 1 of Form 22AD, then the consequence to buyer is that buyer will have to waive the financing contingency rather than risk giving seller the right to terminate the PSA.
 

 

The Legal Hotline Lawyer does not represent Washington REALTORS or its members. To browse through our database of past Q & A's, visit www.warealtor.org. Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. Please submit questions to legalhotline@warealtor.org . Please tell us your NRDS number when you e-mail the Hotline with your question.



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APRIL 27TH - HILTON SEATTLE AIRPORT & CONFERENCE CENTER
The 2017 Washington REALTOR Business Symposium is proud to announce nationally recognized speaker Jackie Leavenworth will be spending the day with us and sharing her knowledge, energy, and passion for real estate. Jackie will present two of her most demanded classes: Negotiations: The Games People Play and It's a Price War to the Door. Lunch and parking included! [Get more info and register today.]
 
 
 
 
 

 
 
MAY 24TH - SEATTLE AIPORT MARRIOTT
The 2017 Washington REALTOR Legal Symposium is back and better than ever!  This event has outgrown our original venue so we've relocated to the Marriott Hotel across from the airport.  This event gathers leading real estate attorneys in Washington to share current legal issues affecting the industry & to help our members to stay out of trouble! This year, we have; Annie Fitzsimmons, Justin Haag, Lars Leste, Doug Tingvall, Chris Osborn, Jeannie Simpson, and Mark Schedler. [Get more info and register today.]
 

 
 
UPCOMING CLASSES
 
Current Issues in Residential WA Real Estate
Wednesday, March 29, 2017 (8:30 AM to 12:00 PM) 3.0 CE Hours
The Bellingham Golf & Country Club, Bellingham

NAR Code of Ethics - 3.0
Wednesday, March 29, 2017 (1:00 PM to 4:00 PM) 3.0 CE Hours
The Bellingham Golf & Country Club, Bellingham
 
Current Issues in Residential WA Real Estate
Thursday, March 30, 2017 (8:30 PM to 12:00 PM) 3.0 CE Hours
Yakima Association of Realtors, Yakima

Real Estate Safety Matters
Thursday, March 30, 2017 (1:00 PM to 4:00 PM) 3.5 CE Hours
Yakima Association of Realtors, Yakima

Statewide Forms - Full Day
Monday, April 3, 2017 (8:30 AM to 5:30 PM) 7.5 CE Hours
Silverdale Beach Hotel, Silverdale

 


 
 
QUESTION from 4/18/2016 - As I audit files, I seem to get a handful of forms that do not have one of the buyer or seller names typed in at the top. Trying to get one of the parties to fill this out properly can be challenging after mutual acceptance. What affect does this have on the contract? Who can fill out the names? Do all parties need to initial this addition?


  
ANSWER - Brokers are held to the standard of care of a lawyer when filling in the blanks on a purchase and sale agreement. Addenda are part of the purchase and sale agreement. This question illustrates unacceptably sloppy practices by brokers who are NOT conforming to the standard of care required of them when practicing law ... which brokers are absolutely doing when they fill in the blanks on purchase agreements.
 
How difficult can it be to write the last name of each of the parties at the top of the addenda, along with the property address and the date of the purchase agreement? Guaranteed, an expert witness at any trial where a broker's practice of law, in completing purchase agreements, is questioned, will testify that a lawyer would properly identify the purchase agreement to which any addendum is attached.
 
The question is, if the purchase agreement to which the addendum is attached is not properly identified, then is the addendum actually part of the purchase agreement. A court would ultimately answer that question, ruling in favor of one of the broker's client and against the client of another broker. Answering that question today is not possible because a court would have to review all of the facts associated with the particular transaction in order to answer that question.
 
The lesson that is the relevant by-product of that question, however, is that brokers should be completing all of the blanks at the top of any addendum that is part of the purchase agreement. By engaging in that very simple practice, brokers avoid litigation, for their clients, as to the impact of broker failing to include the identifying information. After all, if a party is involved in litigation, a broker is in trouble if the litigation was necessitated by actions that the broker took or failed to take. Failing to completely fill in the identifying blanks at the top of an addendum is a simple and required action that prevents the risk of litigation on this issue.
 
With that said, answering the question actually asked is not easy. To some degree, identifying the contract to which the addendum is attached is secretarial in nature. Identifying the contract is not a "term" of the agreement so perhaps it should be simple for reviewing broker to simply add the party names to addenda when the defect is noticed during contract review. But, it is possible for a party to argue that they never intended this particular addendum to be attached to this particular contract. In some cases, that argument would be strained at best. There are fact patterns, however, where that argument could be viable. At the same time, it makes no sense to have parties initial and date the inclusion of the identifying information because it would not constitute a counter offer and would not contribute to the calculation determining the date of mutual acceptance.
 
DB's first effort should be to solve this problem through education. All brokers should be including all identifying information on every addendum. If DB is confronted with this issue nevertheless, then the identifying information should be added and both parties should be provided a new copy of the purchase agreement, including the addendum with the newly added identifying information at the top, and notification that the missing information was included for clarification only.
 
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The Legal Hotline Lawyer does not represent Washington REALTORS or its members. To browse through our database of past Q & A's, visit www.warealtor.org. Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. Please submit questions to legalhotline@warealtor.org. Please tell us your NRDS number when e-mail the Hotline with your question.