Q: We plan to settle on our house in the very near future. However, we have recently learned that the plumbing and the roof are not in good condition, despite language in the contract requiring that the roof be free of leaks and the plumbing in working condition at settlement. The sellers, we believe, are making good faith efforts to correct the situation, but they have indicated that the repairs will not be completed prior to settlement. Should we go to settlement under these conditions?
A: In the best of all possible worlds, the ideal arrangement is to go to settlement only after you are completely satisfied with your house. It often happens, however, that you do not have time to delay settlement, if problems develop, since you may be on a tight time schedule, and must move out of your present apartment or home by the settlement date.
The first thing to determine is whether there is a breach of contract. Clearly, if the contract calls for the roof to be free of leaks and your inspection reveals holes in the roof, this is a material breach of the contract.
On the other hand, every home purchaser (whether it be for a new house or an older one) will find a lot of little things wrong during the presettlement inspection. If these are relatively minor matters, my suggestion is to ignore them and make your own corrections after you move in.
After all, we can't expect perfection, and the law permits what we lawyers refer to as "de minimus" deviations from the terms of the contract.
Needless to say, the decision as to whether a problem is major is subjective. You are the only one who will move into the property, and you will have to live with the problems. When in doubt, consult the housing inspector that you used to determine whether the house was structurally sound.
Assuming that the problem areas are significant, you have four basic choices:
First, you can delay settlement until the work is completed. I suggest you give your seller ample notice, well in advance of the settlement date. You want to avoid a situation whereby you will be in breach of contract for failure to show up at the settlement.
If any questions are raised as to the validity of your concerns, or if the sellers take the position that they intend to go to settlement anyway, you are well advised to consult your attorney, and at least show up as scheduled at settlement. At that time, you can discuss your other alternatives.
The second choice is to escrow money to assure that the necessary repairs will, in fact, be completed. If you intend to go this route, it is advisable to obtain estimates, in advance of settlement, of the cost of completing the jobs in question.
It is also recommended that you discuss escrowing money with the seller prior to the actual settlement. While settlement often is an adversary proceeding, it is a good idea to avoid surprises at that late date. The title attorney or title company handling settlement will escrow the funds, and a written agreement spelling out the terms of this escrow will be completed at settlement. It is extremely important to have a written escrow agreement signed by buyer and seller. It is recommended that a time for completion be spelled out in this agreement. If the time has elapsed and the work has not been completed, the money should automatically go to the purchaser. This puts the burden clearly on the seller to complete the work within the estimated time frame.
A third choice is for you to receive a cash credit at settlement for the amount of the work not yet completed. The estimates that you obtain will be important in determining the amount of this credit.
The final option is to have the seller agree, in writing, to complete the work, without any funds being held in escrow. While this is an acceptable arrangement, it relies heavily on good faith.
Needless to say, this discussion points out the necessity of making your initial sales contract contingent on receiving a satisfactory report from a professional housing inspector. Additionally, your contract must include language stating that "the plumbing, heating, electrical and air conditioning systems will be in working order at the time of settlement" and that you will have an opportunity for a presettlement inspection to determine the condition of the house.
And the burden is on you, the purchaser, to have that presettlement inspection--preferably on the day of settlement.