The world of commercial real estate oftentimes moves quickly, and it’s usually impossible to know everything about a property before you put in an offer. Assuming that you know what you’re doing or you work with a real estate agent, your offer will come with some contingencies that allow you to have some flexibility in the event that title issues are discovered after your offer has been accepted but before closing day has officially arrived. This will typically allow you to adjust your offer if needed, but you have other ways of dealing with these title defects if you want to keep the purchase agreement on track. Below, we talk about your legal options for ensuring title defects discovered after getting an accepted offer are resolved prior to closing.
Managing Title Defects After An Accepted Offer
It’s quite common to discover title defects after getting an accepted offer but before closing. In fact, this is when you should expect to discover them. This period between acceptance and closing is known as the due diligence period, and as the name implies, it’s the time when you should do your research into a property to see if there are any lingering issues that need to be resolved before closing arrives.
Written into your purchase agreement will be a clause that states that you have the power to amend or retract your offer in the event certain issues are discovered during the due diligence period. One of those issues will be the discovery of title defects. These title defects can take many forms. You may discover:
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Outstanding liens
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Boundary disputes
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Conflicting ownership claims
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Easements or encumbrances
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Outstanding judgments or unpaid dues, like HOA fees or fines
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Errors in the public record
These issues can allow you to exit a purchase agreement without penalty, but if you still want to move forward with the purchase, you have some options to resolve these issues. If you don’t address these title defects, they can become your financial responsibility after closing. So what are your options for resolving these title defects? Common fixes include:
- Have Seller Fix Them - Part of your contract may require the seller to address certain issues if the sale is to go through. In most instances with a motivated seller, they understand that they may incur additional costs to get a property ready to sell, and they are willing to clear title defects to keep the sale on track.
- Lowering Your Offer - You can reduce your offer in the event that you’ll need to pay money to address outstanding title defects, like paying for a new survey to settle a mechanic’s lien after closing.
- Requiring An Escrow Holdback - Your agent may require an escrow holdback in order to proceed with the sale. This means a portion of funds from the sale go directly to a third party, who then uses these funds to settle outstanding debts. This ensures that proceeds from the sale go to clearing necessary debts.
- Walking Away - You can threaten to walk away or actually walk away if title defects remain addressed. Just be sure that you’re willing to follow through in the event that the seller doesn’t acquiesce.
Let the team at Commercial Partners keep your purchase on track and ensure any issues discovered during the due diligence process are handled appropriately. For more information on any aspect of the commercial real estate buying process, reach out to the team at Commercial Partners today at (612) 337-2470.