dotting all the eyes and crossing all the tees

[Twong]

Hi All,

Here is a landmine that I stumbled on. Thought I should share it.

We completed on a property mid last November and I when didn`t get the final statement of adjustment by December, I requested a copy so I can see where all the money went.

Everything looked fine except there was no mention of a $6000 credit the vendor agreed to reimburse me for the cost of anticipated iminent roof repair. Ehen I dug deeper to find out what happened, it appear the vendor`s realtor did not pass on all of the amendments to the offer to the lawyers. The Lawyers couldn`t adjust for something they have no knowledge of so I am out $6000 at this moment.

My realtor assured me that it was not my responsibility to pass on the offer and amendment to my lawyer and that it was the vendor`s realtor`s responsibility. This doesn`t change the fact that I am out $6000 and if I want it, I will have to go through some effort to get it. I can`t help but think if I did my 110% and passed on the offer and amendment to my lawyer, this could have been avoided, so a little effort back then could save me a lot of effort now.

Things could go easy or it can go hard. There is no incentive for the vendor to give me the $6000 now that the deal is complete (other than his honor, integrity and ethics). We are just starting the process of asking for the money so we`ll see who has honor, integrity and good ethics.

Just thought I should post this as my realtor told me she has never seen this happen in her 28 years as a realtor so probability of it happening again is very low, but as we see here, it`s not zero!

Ciao,

Tony Wong

 

[GarthChapman]

Tough lesson. Act quickly and very firmly. Take no guff. Instruct your lawyer to collect this money. Period.

Where is your copy of the amendment? Where is your Realtor`s copy?

My recommendations going forward:
1) Always require of your lawyer that you sign off on the statement of adjustments with your lawyer before you sign the transfer documents. And do the same when you sell too.

2) Always ensure your lawyer is given a copy of the purchase contract - your Realtor should have done that for you. It is not the Vendor`s responsibility to give the contract to the Buyer`s lawyer.

 

[moniq]

QUOTE (Twong @ Jan 7 2009, 10:10 PM) Hi All,

Here is a landmine that I stumbled on. Thought I should share it.

We completed on a property mid last November and I when didn`t get the final statement of adjustment by December, I requested a copy so I can see where all the money went.

Everything looked fine except there was no mention of a $6000 credit the vendor agreed to reimburse me for the cost of anticipated iminent roof repair. Ehen I dug deeper to find out what happened, it appear the vendor`s realtor did not pass on all of the amendments to the offer to the lawyers. The Lawyers couldn`t adjust for something they have no knowledge of so I am out $6000 at this moment.

My realtor assured me that it was not my responsibility to pass on the offer and amendment to my lawyer and that it was the vendor`s realtor`s responsibility. This doesn`t change the fact that I am out $6000 and if I want it, I will have to go through some effort to get it. I can`t help but think if I did my 110% and passed on the offer and amendment to my lawyer, this could have been avoided, so a little effort back then could save me a lot of effort now.

Things could go easy or it can go hard. There is no incentive for the vendor to give me the $6000 now that the deal is complete (other than his honor, integrity and ethics). We are just starting the process of asking for the money so we`ll see who has honor, integrity and good ethics.

Just thought I should post this as my realtor told me she has never seen this happen in her 28 years as a realtor so probability of it happening again is very low, but as we see here, it`s not zero!

Ciao,

Tony Wong

Dear Tony,
I am very sorry to hear that you are going through this experience.... Usually when we receive our paperwork, purchase contract, amendments, our duty is to send all the paperwork to our Brockerage. The Brockerage will send it to the lawyer....
When that happens I usually call the Buyer`s Lawyer to double check if he has received all the paperwork. I never heard such a thing that it is the duty of the vendor to send all the paperwork to the Buyer`s lawyer.... It calls conveyance....

Garth made a good point, where are your copies of the amendment and the purchase contract.... if you have the copies there should be hopefully no issue to get your money somehow back.... It`s in the contract.

 

[kboughen]

QUOTE (Twong @ Jan 8 2009, 12:10 AM) it appear the vendor`s realtor did not pass on all of the amendments to the offer to the lawyers. The Lawyers couldn`t adjust for something they have no knowledge of so I am out $6000 at this moment.

I`m curious as to why this wasn`t caught before you where reviewing your final Statement of Adjustments after closing.

Did you provide the Amendment to your Mortgage Broker/Lender before you received your Mortgage Commitment and before your Lawyer received instructions from the Lender?

Was this item not reviewed by you and your Lawyer when you met to sign documents before closing?

 

[Mike Milovick]

I completely concur with Garth.Your realtor and your lawyer represents you. The seller and the seller`s lawyer represents the seller. Four copies of offer are always generated. One for you, one for your realtor, one for seller, one for seller`s realtor.

At my office, which I believe is common place in my area, Kitchener-Waterloo, my office sends a copy of the full offer to our client`s lawyer.

I am troubled by how a deal can close without you reviewing the statement of adjustments. I assume that this is probably a single family home purchase. On more complicated deals involving tenancies, it is absolutely essential that you review the statement of adjustments to ensure you receive other credits in your favour - like pre-paid rent and pro-rated rent. When I have purchased, inevitably, the statement of adjustments has almost always been wrong. You, as participant in the transaction, are going to be more familiar with tenant details etc. and the specifics of your deal then you lawyer.

Perhaps more troubling, is that I might also suggest that in some areas, the agreed upon amendment may not actually be considered legal. I assume that if your lawyer was not aware, neither was your bank. Its great to receive cash back on a deal, but its a real downer to have something like this construed as mortgage fraud. Getting away from your original posting, but another example of this is "öff the sale and purchase agreement financing" - where buyer and seller agree to amendment apart from original deal for seller financing. In this tight lending environment, lending institutions are running title searches after purchase on investor mortgages to ensure this has not occurred. I know I am going to take some heat over this last pararage but in real estate my golden rule is always full disclosure. If a cash back scenario is envisioned, I would get your lawyer`s opinion, in writing, that this aspect of the deal, in his opinion, is legal.

Having said this, I would collect the money owed to you by the seller.

Mike

QUOTE (GarthChapman @ Jan 8 2009, 01:03 AM) Tough lesson. Act quickly and very firmly. Take no guff. Instruct your lawyer to collect this money. Period.

Where is your copy of the amendment? Where is your Realtor`s copy?

My recommendations going forward:
1) Always require of your lawyer that you sign off on the statement of adjustments with your lawyer before you sign the transfer documents. And do the same when you sell too.

2) Always ensure your lawyer is given a copy of the purchase contract - your Realtor should have done that for you. It is not the Vendor`s responsibility to give the contract to the Buyer`s lawyer.

 

[Twong]

Hi All,

Thanks for all your comments. They have been informative and points out area where my due diligence has been lacking and thanks to the contributions from all who posted on this thread, I and other members will be more diligent with our due diligence, which is my intent when I posted. My realtor and lawyer is working on my behalf to retrieve the money and since the vendor was very cooperative and honourable with our dealings before possession, I have hopes he will continue to be cooperative and honourable with this issue.

A particularly interesting point is raised by Mike Milovick regarding the vendor`s reimbursement for the roof repair being regarded as a reduction in the selling price. I never thought of it that way but I can see how the lender can. In this case, I am pretty sure I gave the lender the amendment so there was full disclosure. It was only the lawyers, both mine and the vendor`s who did not receive the amendment.

Interesting comment regarding my realtor should have sent my lawyer copies of the offer and amendment. When I originally questioned her, she told me it was the the responsibility of the vendor`s realtor. In hind sight, it would make sense for both realtors to send their copies of the agreement to the repective lawyer so decrepencies has a chance to show up. It doesn`t take me off the hook but will add a level of checks and balances.

I did reviewed a preliminary statement of adjustment and was expecting the final to include the missing $6000 but the final statement of adjustment wasn`g given to me before closing. This will now be another issue I intend to be rigourous with in future projects. Again, I accept responsibility for dropping the ball on this and has learned a painful lesson (painless if we do get the money back) to making sure all the eyes are dotted and tees crossed before the signatures goes on.

This is how us rookies learn...by making mistakes. I am sure there`ll be lots of mistakes I`ll be sharing with you in the coming months.

Thanks again for all your comments.

Tony Wong

 

[PeterKinchMortgageTeam]

QUOTE (MikeMilovick @ Jan 8 2009, 08:02 AM) I completely concur with Garth.

Your realtor and your lawyer represents you. The seller and the seller`s lawyer represents the seller. Four copies of offer are always generated. One for you, one for your realtor, one for seller, one for seller`s realtor.

At my office, which I believe is common place in my area, Kitchener-Waterloo, my office sends a copy of the full offer to our client`s lawyer.

I am troubled by how a deal can close without you reviewing the statement of adjustments. I assume that this is probably a single family home purchase. On more complicated deals involving tenancies, it is absolutely essential that you review the statement of adjustments to ensure you receive other credits in your favour - like pre-paid rent and pro-rated rent. When I have purchased, inevitably, the statement of adjustments has almost always been wrong. You, as participant in the transaction, are going to be more familiar with tenant details etc. and the specifics of your deal then you lawyer.

Perhaps more troubling, is that I might also suggest that in some areas, the agreed upon amendment may not actually be considered legal. I assume that if your lawyer was not aware, neither was your bank. Its great to receive cash back on a deal, but its a real downer to have something like this construed as mortgage fraud. Getting away from your original posting, but another example of this is "öff the sale and purchase agreement financing" - where buyer and seller agree to amendment apart from original deal for seller financing. In this tight lending environment, lending institutions are running title searches after purchase on investor mortgages to ensure this has not occurred. I know I am going to take some heat over this last pararage but in real estate my golden rule is always full disclosure. If a cash back scenario is envisioned, I would get your lawyer`s opinion, in writing, that this aspect of the deal, in his opinion, is legal.

Having said this, I would collect the money owed to you by the seller.

Mike

I have to agree with you Mike. The reason that lenders typically do not allow cashbacks at closing, but rather treat it as a reduction to the purchase price, is becuase it affects their LTV ratio. If you agree to purchase a property for 300K, get 80% financing (which with conventional lenders, is the maximum legally allowed without insurance), and you then get a 10K cashback, the purchase price is essentially 290K and your LTV ratio is now above 80% - a situation no lender would want to be in without insurance.

An alternative to this would be to write up the purchase price at 290K and get either a purchase plus improvments mortgage (which granted, are getting tougher to find) or better yet, a readvanceable product that will allow you to acess the equity from the improved value after closing, with only an appraisal cost.

 

[GarthChapman]

QUOTE (CanadianMortgageTeam @ Jan 9 2009, 11:00 AM) An alternative to this would be to write up the purchase price at 290K and get either a purchase plus improvments mortgage (which granted, are getting tougher to find) or better yet, a readvanceable product that will allow you to acess the equity from the improved value after closing, with only an appraisal cost.

Or you could simply have the Seller pay for the roof repair. It`s clean and simple. You can organize it for him, subject to a written quote and have him pay the bill. You could even arrange to have this done and paid for after the closing and protect yourself with a holdback of sufficient funds at your lawyer`s office.

 

[Twong]

Hi all,

It looked like about 250 people have viewed this thread, which makes me feel good as there will be that fewer people who will make my mistake, which was my intent. Several interesting tips and cautions were made by various contributors and we`ll all benefit from that as well. A big thank you to those who took the time to replied for your contribution.

It looks like I didn`t suffer much from this oversight as the vendor honoured his commitment but I sure have it burned into my brain to scrutinize everything closely and put into place practices that eliminate the possibility of this happening again. Ultimately all consequences comes back to you, the investor/business owner, no matter who is at fault.

A painless landmine this time. Yippeee!

Tony Wong