Falling Through at the Table
Even Solid-Looking Deals Can Collapse at Closing

By Tomoeh Murakami Tse
Washington Post Staff Writer
Saturday, June 17, 2006

Ah, summer. The time for beach vacations, piña coladas and suntan lotion. And for home buyers and sellers, a period of much nail-biting and hand-wringing, the start of that most stressful of times: closing season.

Every spring brings an uptick in the number of contracts signed between buyer and seller. Now, with lawyers, inspectors and appraisers in tow, both sides must head to the settlement table and collect the rewards of their house-hunting or curb-appeal-enhancing efforts.

But as any veteran real estate agent can attest, even the most solid-looking of transactions can crumble like plaster. And the stakes are rising for home sellers, who in a cooling market face the possibility of selling for less if they have to put their homes back on the market after a closing gone bad.

Here are a few tales from the settlement table, one of the most high-stakes, annoying, humorous, stress-filled, intimidating, blissful and frightening places in the real estate universe.

Brett West, 36, saw no sign that things were about to go terribly wrong as he drove to Baltimore on a balmy summer day two years ago. He was about to close on a single-family house there, which he planned to renovate with proceeds from the Dupont Circle condominium he had just sold.

But disturbing news awaited him at the settlement table: The seller owed $210,000 to the Internal Revenue Service, $12,000 to the State of Maryland and $8,000 to a contractor. The liens against the property were well above the $140,000 West had agreed to pay for the house.

"I wasn't even outraged. I was just numb," he said, recalling the last-minute phone calls to the IRS that day. "I was sitting at the settlement table . . . and thinking, you know, 'I don't have a place to live in two weeks.' "

West saw no point in suing. He collected his deposit and walked away. The house went into foreclosure shortly afterward, and West eventually purchased a house in College Park -- a process he says he micromanaged.

He blames the settlement lawyer and his real estate agent for not having caught the problem earlier. "Boy, did I get burned," said West, now a vice president of Live Wire Media Relations LLC in Alexandria, whose clients include companies in the real estate industry.

Because one house sale is often tied to another -- buyers must sell their current home to get the money to purchase their next one -- a problem in one transaction can send a domino wave of horror to unsuspecting others.

There were so many moving parts to Dan and Chris Fisher's real estate ordeal that in retrospect, something was bound to go wrong. They were selling their condo in Rockville, buying a place in Tampa, finding a renter for that house and moving to Italy, during what proved to be a turning point in the local real estate market last fall.

It started off splendidly. Their two-bedroom condo went on the market on a Saturday in late September. Several buyers immediately expressed interest. By Monday, Dan Fisher, a naval officer, was meeting with a real estate agent whose buyers were offering $3,100 above the asking price to ensure the condo would be theirs.

The Fishers signed a contract and flew to Tampa that weekend. They found a two-story colonial near the bay and put down a deposit. They hoped to move there after Dan's two-year tour in Italy.

The couple arranged for movers, and coordinated with the two title companies to have the Tampa closing take place following the settlement on the Rockville condo, scheduled for November.

"I was in heaven," Dan Fisher, 46, recalled last week in a telephone interview from Italy. "Within two weeks, I sold a house and I bought a house. All the dates matched. We were just ecstatic."

In mid-October, however, just days before he was to take off for Panama for work, the couple's real estate agent told them the buyers of the Rockville condo had been dropped by their lender. As far as Fisher could tell, the buyers had misstated their net worth. They also were not selling their current residence to help finance the condo.

And so the deal foundered. The earnest money deposit? The Fishers did not get to keep it, because the buyers had technically not backed out of the deal. But the couple were in danger of forfeiting the money they had put down on the Tampa house if they did not quickly find another buyer for the condo.

"It was kind of scary," said Chris Fisher, 37. "I thought we were going to lose the house" in Tampa.

The Rockville condo went back on the market. Dan e-mailed from Panama for updates. After several nervous open houses, they received an offer. This time, it was below the asking price. But they took it.

"I didn't wait," Dan Fisher said. "By that time, I was really at my wits' end here because it was too close to the wire."

The Fishers asked the Tampa sellers to postpone their closing by one week. The last week of November, they settled on the condo. Two days later, Dan Fisher flew to Tampa and closed on the house there.

Veteran real estate agents, who spoke of deals disrupted because houses were struck by lightning hours before closing and a seller who was incarcerated on a federal drug offense, acknowledge that even the most cautious can be blindsided by last-minute curveballs. But they said advance preparation can go a long way toward avoiding many problems.

Donna Evers, president of Evers & Co., a real estate firm in the District, said both parties should push to get an advance copy of the HUD-1 settlement statement, which itemizes all parts of the transaction. Try not to wait until the day of settlement, although sometimes it can be difficult to get a full statement ahead of time. Go over every line item. Ask questions. Mistakes can happen.

Buyers also should closely review the house location survey, which details the property's boundaries. Such information could bring to light any encroachment of the property or easement issues.

One time, Evers said, her buyers discovered that a Montgomery County house's lawn extended 10 feet beyond the property line. "What looked like the back yard was parkland that the owners had been cultivating," she said.

Ann Duff, a real estate agent in the Alexandria office of McEnearney Associates Inc., said using a local lender could help eliminate 11th-hour surprises. An 18-year veteran, Duff can rattle off several instances in which the lender was the primary source of last-minute headaches. Among them is the time an out-of-town lender had called an appraiser in Richmond for a house in Arlington. The appraisal came in about $40,000 below the contract price, which Duff attributed to the appraiser's lack of knowledge of the local market.

"I would always want to look the lender in the eye," Duff said, adding that the deal went through after another lender took over. "Sit down with them in person, know who they are and have their cellphone number."

Perhaps the most difficult revelations are the ones that show up during the final walk-through, because it is so close to settlement.

On a walk-through of a Germantown townhouse the day before the deal was to be finalized, agent Jill Barsky and her buyers realized that the beautiful cherry hardwood floors were discolored where six large area rugs had been. Barsky, of Coldwell Banker Residential Brokerage in Potomac, said she called the seller's agent, who came by, looked at the floors and told the buyers they should have pulled up the rugs during the home inspection. The sellers held their ground; the floors would be sold in their current condition. If the buyers didn't like it, they didn't have to buy the house.

After about an hour of negotiation, Barsky said, the seller's agent broke down, and agreed to set aside $4,000 of her commission to have the floors refinished.

"In all of my years in selling real estate, I honestly have never pulled up rugs during a home inspection," Barsky said in an e-mail. "Lesson learned. I will be pulling up all area rugs from now on."

The shock for Tracy Comstock's buyers came in the form of a cracked driveway. The damage had gone undetected because the drive was covered by snow when they saw the Leesburg townhouse, said Comstock, an agent with Mega Realty & Investment Inc. in Annandale.

Her buyers wanted the sellers to fix the driveway. The sellers pointed out that the buyers had waived home inspection. The buyers, Comstock said, had agreed to forgo inspection to make their offer more attractive during a heated market. The driveway went unfixed, but after some back-and-forth, the sellers threw in extra cash for a cleaning service allowance.

The market has shifted since then, and real estate agents say buyers now have a much better chance of avoiding headaches like those Barsky and Comstock experienced. Post-settlement occupancy agreements -- which allow sellers to stay in the home after settlement and therefore create more opportunities for things to go wrong -- are not as common, Evers said. Buyers can afford to put home inspection contingencies in their bids now as the number of unsold houses on the market swells.

So next time you think you've found the house of your dreams, take a deep breath and take off the rose-colored glasses. Go ahead, lift up that rug. Flush those toilets.

Never mind that it's summer; test that heater. And please peer behind the large painting on the wall. You never know what's behind it.