Over the weekend, our community suffered an historic flood event that took lives and caused significant property damage currently estimated to be in the tens of millions of dollars. Here at Prime Title, our thoughts and prayers go out to the victims of this flood, and we are truly moved by how our community has banded together to aid those affected by the storm. We know that your primary concern, as is ours, remains focused on helping those immediately impacted by the flood. But we also recognize a growing concern, especially among Realtors, as to how this natural disaster will impact their clients who were under contract to buy or sell a home when the flood occurred.
To start, let’s address those houses under contract that were damaged by the flood. Unfortunately, the reality is that many buyers will have the right to terminate the transaction under the purchase agreement. The standard Louisiana Residential Agreement to Buy or Sell does not have a force majeure (or “Act of God”) clause that protects sellers against unforeseeable disastrous events such as the flood. If the damage is minor and can be repaired before the closing date set forth in the agreement, then the buyer may not have the right to terminate. But for those homes under contract with significant damage, the buyers will likely have several grounds to back out of the deal unless the contract can be renegotiated.
Hopefully, your client’s home under contract was not damaged by the flood. You may assume that your client’s pending real estate transaction will not be affected. But that assumption may be wrong – especially where a mortgage company or other lender is involved. If a lender is involved and the home under contract was appraised before the flood, the lender in most cases will require the appraiser to re-inspect the home and verify there was no damage. This could cause delays because there may be several hundreds, if not thousands, of homes under contract in your area that have to be re-inspected by a finite group of certified appraisers. And this assumes that the loan officer and appraiser are not tied up with their own personal flood problems.
Buyers should also be aware that they will likely bear the additional cost of this re-inspection unless an agreement is made otherwise. What’s more, under the new TRID guidelines that went into effect in October 2015, this increased cost may require the lender to reissue the Loan Estimate (LE) and Closing Disclosure (CD), which can also cause delays since the TRID rules generally provide that a closing cannot commence within 7 days from the LE’s issuance and within 3 days from the CD’s issuance.
There are several things that you, the Realtor, can do to ensure that your client’s pending real estate transaction reaches the closing table.
If your client’s home under contract was damaged by the flood, communicate with your client to determine the extent of the damage and get a realistic time frame for repairs. Also, now is the time to call on your builder contacts if your client needs a referral. Refer your client to a reputable and licensed contractor who can perform the repairs in a proper and timely fashion. Don’t let your client hire an unlicensed contractor. Advise your client that they can verify a contractor’s license on the Louisiana Licensing Board for Contractors’ website.
If your clients do not have sufficient flood insurance coverage, they may be eligible for relief from the Federal Disaster Management Agency (FEMA) if they are in a declared disaster area. FEMA provides an online source for all declared disaster areas. The declared disaster areas for 2016 can be found online at http://www.fema.gov/disasters/grid/year. And the application for disaster assistance can be found online at https://www.disasterassistance.gov/.
Once you and your clients have an established plan and time frame for repairs, do your best to see if you can renegotiate the purchase agreement with the buyer pending repairs to your client’s home. Don’t get discouraged if the buyer backs out. Your efforts will not have gone to waste, because you’ve been instrumental in helping your client get their home back on the market as quickly as possible.
If your client’s home under contract was not damaged and a lender is involved, contact the lender ASAP to determine whether a re-inspection is required. If the answer is yes (and it likely will be), coordinate with the lender to get this scheduled immediately. Prepare your client for the additional delays, and obtain amendments to the purchase agreement accounting for the potential delays discussed herein above.
Keep in mind that real estate transactions are very complicated and the above discussion is not meant to be legal advice in any way, and therefore should not be taken as such. If you or your client’s home under contract sustained damage from the flood, then it would be advisable to contact an attorney for thorough legal advice about your rights and obligations.