I attended a Forms Update Training Class put on by the NWMLS recently and learned about a bunch of changes that are coming down the pike on October 15, 2007. And while I posted some class notes and sample Purchase and Sale Agreement documents over on my site, I thought I’d summarize things below.
Highlights
- Coldwell Banker Bain (and I assume others) will drop the usage of their “own” optional clauses forms which will make co-op transactions smoother and easier for all agents.
- Lots of discussion was given to the Washington State Supreme Court decision Alejandre v. Bull, which was the impetus for many of these changes. I won’t bore you with the details here. But they ruled “economic loss rule” prohibits the Buyer from suing the Seller for negligent misrepresentation regarding the condition of real property when the parties relationship is governed by a contract. The courts want to see the allocation of risk of economic loss in the Purchase and Sale Agreements – Hence the changes.
Purchase and Sale Agreement
- Legal description must be attached as Exhibit A
- No more counter-offer expiration date (use the counter-offer form)
- Paragraph 9 – Buyer to waive or not waive the right to remedy in Form 17
- Homeowners Policy is new default in P&S
- Closing date and Possession date same – or use NWMLS forms 65A or 65B
- New provisions address charges and assessments against the property
- Page 5, item x: 10 day contingency for buyer to verify all information provided by Seller or Listing Agent.
Form 17
These have been in effect since July, but for clarification sake were covered in the updates class. There are several changes here, but the “Environmental Section” is the main one. Buyer can still waive the right to receive unless one of the items in the Environmental Section is checked yes. In that case, the form can not be waived.
As a side note, foreclosure properties are no longer exempt. No one has a clue why the legislature took that one out.
Financing Contingency
- Buyer must seek Sellers consent to change lender or loan type after loan application period lapses (usually 5 days)
Inspection Contingency
- Adds changes for “Environmental” Changes of Form 17
- Advises Buyers to do septic inspection (NWMLS Form 22S)
- Neighborhood Review Contingency is back
Optional Clauses Contingency
- Utilities broadened to include others
- Selling Office Commission moved to NWMLS Form 41C
- Seller to produced HOA documents if available
You made the roster!
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Opps. I meant there to be a disclaimer that says this is for informational purposes only, and I am in no way giving legal advice. I hope that’s clear. I’m not an attorney and do not want to leave the wrong impression.
Jim,
First, Welcome!
Second, it is beyond me why any buyer or seller would agree to pay unknown and unspecificied “charges” after closing at the time the agreement is accepted. Assessments I can see. But this new line 16 forces either the buyer or sell to agree in advance to pay “charges…after closing”.
Seems poorly drafted to me. I wouldn’t sign that if I were a buyer or seller. I’d be striking that line out altogether if there were no anticipated special assessments.
I agree who is paying what should be pinned down. But why would anyone sign an open ended duty to pay unknown and unspecified “charges…after closing”?
Do you remember how they described how one might explain that to buyers and sellers?
Hi Ardell,
I think you are right that they are trying to force the Buyer and Seller to acknowledge and deal with potential post-closing charges that don’t show up on title. I suspect one of the common complaints the DOL received was unresolved utilities or services that were not lien-able, but clearly should have been negotiated or resolved by Buyer and Seller’s agents at the time of the sale. This is probably an area that many agents have been negligent in.
I’m guessing they want agents to get Sellers to think “outside the box
Clearly I wouldn’t want a client of mine to be checking that box saying they will be paying any and all unspecified charges.
If they truly want a State-wide form that everyone can use without modification, they need to think about the people signing them and not just the people writing them. I don’t think this will cause the major firms to drop their own special clauses. I think it will cause every company to need special clauses to clarify who is paying for what exactly, among other things.
Well Ardell, you are not alone. Many agents have expressed concerns over these issues. I think the Paragraph 9 issue has brought the most criticism so far. But I think the optional clauses issues were discussed with the major real estate brokerage firms attorneys with the thought in mind, “lets try to find a common ground so we can use the same forms
Hopefully the clause will help “reduce” post closing problems associated with charges/assessments that occur and the usual response: call escrow.
There are many examples of assessments that were “pending” but not yet put into action until after a transaction has closed. Condominiums are a ripe example of where these problems can be found, although not exclusive.
PS. Since we are talking about forms, could I make a suggestion: please refrain from placing on a BLANK Form 22K: “Per Escrow.” Or, escrow calls the seller to obtain this information only to have the seller say, “oh, my agent told me that is your job” or “you should already have all that.” Wherever agents close their transactions, I think all escrow folks would kindly appreciate it if that sloppiness would end.
What type of charges occur post closing?
Good point on the 22K Tim. I totally agree on the “assessments” that were in place at time of closing, but “charges”?
How about a monthly security system fee that the old owner had and the new one doesn’t want to pay $40 a month for until the end of the seller’s contract 9 months after closing?
How about a utility bill where the reading wasn’t done, inadvertently, until the buyer was living there for a month?
I have a milk man? Should the new owner who is lactose intollerant have to pay for my milk that was delivered after closing because I forgot to stop it?
How about the newspaper that keeps coming.
“Charges”? TOO OPEN ENDED! Charges AFTER closing literally can mean just about anything for years! No one in their right mind would agree to pay “charges” after closing without a list of those and stipulating the period of the service for which they are due. Before closing charges due after closing? After closing charges due after closing? Huge difference there, don’t you think?
If they were services from before closing, they should be paid by the seller. If they are services after closing they should be paid by the buyer.
Maybe it covers the real estate company’s butt, but it is ludicrous to think anyone with half a brain would agree to pay something as undefined as that. And any agent who slides it through without explanation or clarifying that by addendum is not thinking about their client.
These forms should not be written by the attorneys for the brokers without input from an attorney representing all sellers as a class, and another representing all buyers as a class. That system is sad and allowed to exist for way too long. The buyers and sellers who sign these things are unrepresented as to the basic forms. Sad and unconscionably negilent regard the public trust and duty.
“OK, the Brokers are covered. Now let’s go out there and get buyers and sellers to sign them”…sucks big time.
Some days I think it’s time to throw the whole damned system in the shredder and start from scratch.
As to Paragrahph 9, gag me with a spoon! Sometimes we don’t even HAVE the Form 17 at the time the offer is written. Thank God these changes aren’t coming in during a hot market.
Personally I think they should change that “effective October 15th” date and move this to November 15th or later, after some feedback and changes. We can always hope. Or is this another Windermere and JLS like it, so everyone else just shut the hell up, like so many other “changes” and rule additions?
..I will never see sausages quite the same way…I hope this vlog report gets a bilion hits!
Thanks for the energy and for sharing, Dustin!
Believe me, I am passing it on.
Some thoughts for those who are drafting the NWMLS Forms to perhaps “broaden” the scope of utilities to be paid by escrow.
1) They probably should consult with PSE & PUD. These utilites DO NOT PROVIDE FINAL BILLS to escrow.
2) Escrow offices commonly charge for the additional processing of paying other people’s bills. As it is, we pay lienable utilities, pay off mortgages, pay off Hummers, Boats, 5 Visa Bills, etc…Again, most escrow companies charge for this consumer credit items.
3) I’m certain that escrow companies, if they are asked to pay more bills will give the customer a choice: Pay an additional $50-100 or handle it themselves.
Tim & Lynlee,
When I first moved to Seattle, I remember telling agents that escrow likely only pays lienable utilities. I was told, “Oh no, they pay EVERYTHING.” I thought to myself…right…no way in hell that’s true 🙂
So, in the newly proposed NWMLS Form 21, Purchase and Sale Agreement, which of the choices is best from an E & O point of view — “Buyer will” or “Buyer will not”?
“Item 9: Disclosures in Form 17: Buyer will
I can’t see why anyone would agree to be liable for Form 17 errors. The form is too poorly designed–people often answer one question thinking they are answering another. I’d guess 90% of Form 17s have some error of some type, and that over half of those are due to the form itself.
Just a knee-jerk reaction to the Bull decision that is totally unnecessary IMHO.
Also, I use the Counteroffer form a lot, but I can’t see the point in removing the line for counter-offer expiration.
I didn’t look at the forms prior to posting. They didn’t include a default for Form 17 liability! I brought that to their attention about a month ago! I’ll take this to mean there’s not an agreement between the parties drafting these forms as to whether or not there really needs to be a change–some want liability and some want it left the way it is.
As to the legal, everyone better remember to write “Exhibit A” on their legal description attachments.
Kary,
What do you think of being responsible for “charges” via the new line 16? Shouldn’t “charges” be better defined? Would YOU agree to being responsible for inspecified charges as a buyer or seller?
Kary,
Like “potable water”? 🙂 Who the heck decided to use the word “potable” there? As if every home owner should run and get a dictionary for that one.
As to line 16, I’d always select “prepaid,” but you’re right that it’s ambiguous. I think that it would be limited to items that ran with the land. Thus, for example, if there’s a charge for an alarm system, that would not be covered here. But if you selected “assumed” arguably it could due to the ambiguity.
I ran into a situation like this last year regarding I think a storm drainage charge in Kent. The seller initially filled out Form 17 indicating something was owing, but then it was somehow changed or crossed it out (I don’t remember exactly what drew our attention to it). We put in a clause indicating that they would pay any outstanding balance, and the contract came back with that crossed out, and a statement that nothing was owing. After going back and forth several times with more precise language, they finally admitted that about $2,300 was owing, but that they didn’t consider it such because the monthly payments were current. This was an item that doesn’t show up as a lien on title, so it wouldn’t have been covered.
Anyway, to the extent this is designed to cover something like that (which I think it is), I think it’s a good idea. But it could be a bit clearer what they are talking about.
Still think the buyer has a right to know EXACTLY what they are assuming, without a blanket acceptance of just about any old thing with the offer, before the charges are even known. You’d have to be a fool to agree to that open ended responsibility with no detail.
Good thing this is coming at this time. During a hot market it would be even worse. Hopefully without multiple bids there will at least be time to define what charges they are talking about. Will be interesting to see how agents deal with this when writing an offer.
Ardell, I’d agree with your comments. I think they were trying to deal with specific situations and used language broad enough to arguably apply to anything that comes in the mailbox after closing.
“Some thoughts for those who are drafting the NWMLS Forms to perhaps “broaden
db,
No we can’t and if we didn’t not much would get done.
I saw a redlined copy of Form 21 today, and paragraph h has language added which says: “Buyer is advised to verify the existence and amount of any local improvement district, capacity or impact charges or other assessments that may be charged against the Property before or after Closing. Seller will pay such charges that are encumbrances at the time of Closing, or that are or become due on or before Closing. Charges levied before Closing, but becoming due after Closing shall be paid as agreed in Specific Term No. 16.”
To me this means that’s the only thing that item 16 pertains to. It doesn’t even pertain to lienable utilities.
Unfortunately, that doesn’t seem to be what’s being taught in the classes, from what I’m hearing.
The more I think about this Form 17 liability issue, the more I think it’s incredibly stupid.
The Washington State Legislature has not imposed any liability for Form 17 negligence (or even intentional errors).
The Washington State Supreme Court has not imposed any liability for Form 17 negligence.
But some attorney fails to prove seemingly decent claims for intentional or even fraudulent errors disclosing the condition of a septic system, and then unsuccessfully tries to fall back on negligence, and that the powers that be think needs to be corrected somehow. If anything needs to be changed it’s the law on proving intentional or fraudulent nondisclosures. That would be a job for the legislature.
One reason I don’t like this is the NWMLS hasn’t even formatted Form 17 properly. Look at question 1.B. It asks: “Is title to the property subject to any of the following?” and then has four subparts, each with an answer. But the question itself has a place for an answer, even though it shouldn’t be answered. So that’s five places to answer four questions! And if you look at the official form from the Legislature, there should only be one answer for all for subparts.
If buyers start insisting on liability (which I’ll resist) I think I’ll have my seller clients fill out the statutory form, which is much better formatted.
The prior version of the state form can be found here:
http://apps.leg.wa.gov/RCW/default.aspx?cite=64.06.020
With regard to utility payoffs by escrow, many escrow officers have mentioned over the past year or so that while in the past they were often able to pay off all utilities many places such as PSE and local utility providers (non-city owned) will no longer provide payoff info to escrow companies so they cannot perform that function. It is up to the buyer and seller to sort that out. We usually discuss this with our clients and remind them during the contract period that they need to call and transfer utilities in name at closing. We also try to send reminders to the other agent to remind them to tell their clients the same thing about closing out all utilities.
I’ll look forward to the class – the Seattle ones have booked out so we’ll be attending one of the others or when they schedule more of them locally.
Kary,
I think it’s time for a mutiny. I think it’s time for a consumer advocate legal group to decide what the contracts should look like.
I wonder what home inspectors will think about this? If you have a contract with Form 17 liability, you have a greater likelihood of a lawsuit. If you have a lawsuit over Form 17 liability, the inspector is likely to be an additional defendant. Inspectors might start wanting to see the P&S agreement before they agree to perform an inspection.
All of the home inspectors we use have disclaimers that the Buyer (or person paying for the inspection) has to sign limiting their liability to the $ cost of the inspection. I think AAA Inspections also offers an “option
I was talking to an inspector about the cost of their insurance, and from that I’d assumed that their limitations didn’t really mean much. Either that, or the insurance companies are making a killing on such insurance.
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