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The Bank is Selling a
House - What Now?
Part II: The bank is selling As-Is, what does
this mean to the buyer if something fails before closing?
by Brad Boyd, Esq., Thomsen & Nybeck,
PA |
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This will depend on what is meant by "As-Is". An "As-Is"
sale typically refers to a sale of property where the parties
have contractually agreed to have an As-Is Addendum as part of
the purchase agreement. What these addenda say can vary, but the
MNAR standard form has a few provisions that you should be aware
of. First, it voids lines 210-212 of the MNAR standard form
purchase agreement. Those lines are a warranty by the seller
that the air conditioning, heating, plumbing and wiring systems
will be in working order on the day of closing.
It also states that the property will be sold in its current
condition, subject to the fact that if there is a "material
change in the condition of the property" between the purchase
agreement and closing date, the Seller will have to restore the
property to the condition it was in at the date of purchase
agreement. However, it shifts the "risk of loss" to the buyer
for those items listed above that are normally warranted in the
purchase agreement. That means that if the furnace, plumbing or
other named items fail between the date of agreement and
closing, it is now the responsibility of the buyer to take the
property with those faults, and the seller is not required to
repair or replace those items.
Clearly such an addendum could create concern for a buyer,
and the buyer should only enter such an addendum fully aware of
the possible repercussions. One provision that could provide
some security to a buyer is that if the property is destroyed or
substantially damaged before the closing date, the purchase
agreement is cancelled at buyer's option. This could offer buyer
justification to cancel if something goes significantly
awry.
Keep in mind, however, not all "As-Is" sales use the MNAR
As-Is Addendum. Particularly in sales of foreclosed properties,
banks often create their own version of an As-Is Addendum, which
often tend to be extremely favorable to the seller (bank), and
extremely problematic or risky for buyers. A buyer must
carefully read (and ideally review with their attorney) what the
bank is asking them to "sign away" with such an Addendum, and
they should fully understand the risks of such an agreement
before they sign it. It is just as fair for a buyer to condition
the purchase on the bank using an MNAR "As-Is" Addendum, as it
is for a bank seller to instruct the buyer that their bank form
has to be used.
Consequently, before a buyer enters an "As-Is" sale, they not
only need to know what that Addendum says and what it means, but
how it could impact the value of the property or condition of
the property that they purchase. Purchasing a foreclosed
property is not an "ordinary" transaction. Although it has
certain and definite potential advantages, particularly with the
possibility of a discounted price, it comes with a set of risks.
This type of transaction is one that buyers should enter
cautiously, and with the help of their attorney.
Questions? Contact Brad Boyd bboyd@tn-law.com.
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