Part 3 – Closing day headaches: What to do when things go wrong?

While most real estate transactions close on time without any issues, there are those rare instances when things pop up on or before the closing date that can be quite stressful to both homebuyers and to sellers.

In part three of this three part series, we will identify a common instance and how the situation can play out.

Fact Situation 3 - Discovering problems on move in

There is nothing more disconcerting to homebuyers than for them to discover a problem in the home once they obtain the keys. In the relatively rare instance where this does arise, we usually learn after closing that the Seller had removed fixtures or appliances that they were intended to be included in the agreement or that there is some physical damage in the property or fixtures that did not exist (or was not noticed) when the Buyer first viewed the property. We also see situations where outstanding utility bills were not paid and instances where the Seller left old appliances behind or failed to remove garbage from the property. These situations leave the Buyer looking to his lawyer for an explanation and a satisfactory solution.

Unfortunately, the Buyer's lawyer is not in any legal position to insist upon a holdback of money from the Seller's lawyer prior to closing, making it virtually impossible to prevent these problems from arising. Any requirement for a monetary holdback prior to closing must be set out in the agreement of purchase and sale. Unfortunately, most Sellers and their realtors would not agree to such a provision, at least in Ottawa.

I always recommend that the Buyer clearly identify in the agreement every appliance or fixture that they want included and for every item to be excluded also be specified. If a home is cluttered or dirty, the agreement should specifically require a Seller to leave the home cleaned and vacuumed or to have any old furniture or appliances to be removed by a certain date. A warranty on the appliances should also be inserted.  Moreover, a Buyer should insist upon an opportunity to visit the property at least a few days before closing to view the state of the property. If there are issues that are discovered during that viewing, at least they may be brought to the lawyer's attention before closing in the hopes that a satisfactory solution can be negotiated. 

I also recommend to my clients that upon taking possession of the home that they immediately run all faucets, toilets, and other appliances to ensure that they are in good working condition. If they are not working or they are damaged, then they should advise both their realtor and lawyer of the problem, pictures should be taken and, if necessary, a few estimates of repair obtained that can be forwarded to the Seller's lawyer. A written statement or affidavit from a realtor concerning the state of the property both before and after closing is also useful evidence to obtain. 

It is not advisable to wait more than a day or two to notify a Seller of any alleged damages that may be discovered. Otherwise it can be alleged that the appliances were in fact working on closing and that any such damage was caused by the Buyer. If there are any outstanding tax or utility bills that show up, these should also be forwarded to the lawyer for follow up and possible submission to the Title Insurance company who typically cover such liabilities for the Buyer.

In those cases where damages are discovered after closing, a demand letter can be sent by your lawyer, seeking compensation from the Seller. Some lawyers may charge for this additional service as such legal work may be considered  beyond the normal scope of a lawyer's retainer. This is because the lawyer's task is to convey good title to the property, not to guaranty that the appliances are working. In the event the Seller is unable or unwilling to compensate the Buyer, the only recourse is for the Buyer to pursue a claim in the Small Claims Court. Such court claims are relatively easy and inexpensive for a Buyer to pursue without the necessity of using a paralegal or a lawyer.

It goes without saying that it is never too early for a Buyer or a Seller to engage the services of a real estate lawyer in order to obtain information and advice that will help protect their interests before an Offer to purchase is negotiated. Alternatively, a provision can be inserted into the Offer that would make the agreement conditional upon your lawyer's review of the agreement. While there is never any guaranty that a newly purchased home will be problem free, there are certainly steps that can be taken to minimize the risk of a closing day headache.