Yesterday, Senate Republicans defeated a bill that would have extended unemployment benefits, provided aid to local and state governments, and also would have extended the home buyer tax credit closing deadline through September 30th. Senators voted 57-41 for the measure, but needed 60 votes to defeat the Republic filibuster based on GOP concerns of the effect of continued extensions of unemployment benefits on the federal budget deficit.
So for now, there’s no extension of the June 30 closing deadline coming up next week. As we’ve discussed before, all real estate professionals will be working diligently to close “tax credit” deals by the end of the week, but we’re all concerned that it will be physically impossible to get everyone closed on time.
What happens if a buyer planning on claiming the credit cannot close on time? Can the buyer just opt out of the contract, since she won’t be getting the tax credit that she counted on? It depends. In some cases, she can get out, but in most cases, I don’t know that the failure to meet the deadline will be a material fact allowing for an unwinding of the contract of sale.
1. What if the buyer has a contingency that she has to close by June 30?
If the contract is specifically conditioned on the buyer closing by the June 30th deadline, then the buyer could use that contingency to break the contract (just like a mortgage contingency). If they have an out, then they are free to take it and unwind the contract. Of course, they could also use the threat of exercising the condition to get a price change on the purchase, and sellers might be likely to be negotiable given the slowdown in the market the past two post-tax credit months.
2. What if the contract is silent?
I would be surprised if many buyers had negotiated a pure contingency. Most likely, the buyer and seller might have negotiated a change in price if they can’t close on June 30th, or the contract, like most contracts, has an “on or about” date on June 30th that is not binding on either party. In that case, the buyer really cannot get out of the deal just because she lost the tax credit.
3. What if the buyer tries to break the contract anyway.
A buyer trying to break a binding sales contract on the ground that she missed the tax credit deadline would be no different from a buyer trying to break a contract because she lost $8,000 in the stock market. In other words, it’s not a valid ground to break a contract. If they try, I’d be surprised if any seller’s attorney let them out.
We’ll keep you posted.
