The California Association of Realtors (CAR), in response to the COVID 19 pandemic, reacted quickly and prepared template forms for its trade association members (I am one) to use in response to the myriad of issues Stay in Place (SiP) orders, job losses, banking chaos, and pre-existing contractual obligations created.
The first round of Forms reflected the haste CAR was operating under. There were, I think, more issues created by the potential use of the Forms than the Forms intended. I was not the only one to express concern.
CAR has turned the other cheek and revised the Forms.
Yesterday, April 17, 2020, CAR (and the hard-working committee members within it) released revisions to its “CoronaVirus Forms.” The revisions (4.16.2020) address and eliminate or change only a few of the concerns the first round Forms created. I touch on some of the more significant changes here. You should read both this and the earlier (April 2, 2020) Memo when reviewing the new (4.16.2020) CAR Forms.
As before, I’ll say again, most of these Forms are about protecting the Broker/Agent from claims of Coronavirus contamination when showing a property AND about isolating the Brokers/Agents from claims by a Seller against a Buyer for delivery of the Liquidated Damages amounts in a contract – when the Buyer does not timely perform. And there are millions of dollars at stake there.
As before, this review is not intended to be legal advice. It is my take on what the Forms “do” – intended or otherwise. Almost every one of the CAR Forms cautions the signers to consult with competent real estate attorneys. On that point I absolutely agree with CAR (whether you call me, or Joe McGee down the street; call someone, before you sign off on any document like these CAR Forms).
(Coronavirus Addendum or Amendment)
The observation about new “consideration” in exchange for signing the CVA remains. The Form notes that it is “optional”, and keeps the language about the “obligation to deal fairly with each other.” The fact still remains that many Buyers made “no contingency” offers, and it may be fair, after all, to keep their deposits. No contingency, generally means NO contingency – even a pandemic. Yet the CVA would allow a Buyer an “out” that did not previously exist.
“Fairness” is a relative thing. If a Seller decides to try to keep a liquidated damage amount because of a failed closing, and if a Buyer decides to sue to try to get it back, what will the “legal” vs. “equitable” arguments be? Creative minds will no doubt come up with many.
The revised (4.16.2020) CVA, at best, merely gives a 30 day extension of time to conduct contingencies – or to close escrow. At worst, it allows a Buyer an unintended opportunity to cancel the deal. What the revised CVA provides for, and what the first round CVA did not, is found in Sect. 4.B.(ii):
“… If, after [the extended time] the Buyer or Seller Delivering the NUCC is still unable to close … Buyers deposit shall be returned to Buyer OR □ Buyer’s deposit shall be released to Seller if otherwise allowed in the Agreement.”
That little box □ – is a big change. It is the “Seller keeps liquidated damages” box. That was not included in the first round Form.
Does it make sense to present this CVA to a Seller? Probably. Caution has to be used when explaining it. And – certainly – a Broker/Agent should not make a recommendation as to what box to check or not. That’s a decision for the Seller to make. An Agent’s obligation is to point out the choices available to the client, not to advise which choice to make.
(Notice of Unforseen Conornavirus Condition)
What’s the difference in the NUCC from the first round Form? Only the language that further protects the Broker/Agent.
“Note: Brokers and Agents (i) will not violate any Stay Home Orders, notwithstanding any Party’s instructions, and (ii) will obey all Fair Housing laws while pursuing safe COVID 19 practices. Brokers and Agents cannot and will not determine the legal sufficiency of the good faith use of the stated reasons for purposes of requesting an extension of or a cancellation and/or who is entitled to the funds in escrow.”
Bold in original.
You bet the bold was in the original.
The Broker/Agent will not get into a pissing contest over who is entitled to the liquidated damages amount, and sure as heck is not gunna say if the reason the Buyer gives to get the money back is legit.
Well, thanks for your help.
What was that lawyers name again?
(Coronavisus Property Entry Advisory and Declaration)
The Property Entry Form was changed a lot in the new (4.16.2020) revision. Gone are those
onerous “thou shalt” kinds of proclamations. Instead there are, softer, but still important advisories…
The “purpose” of entry onto the property is defined now (in large part, I think, to comport with the “necessary” or “essential” purpose under SiP orders).
Next, rather than “agreeing to” take certain steps, the Seller now “acknowledges being advised to” take those steps – like cleaning and disinfecting, etc.
A prospective Buyer is cautioned that while “others” (i.e. the Seller?) have been advised to clean and disinfect, but having done so might be “impossible” or “may not have occurred.” The Buyer then agrees to ASSUME THE RISK of entry into a contaminated property.
ALL CAPS and bold, in the original.
While more softly stated, the PEAD is clear … inspecting property nowadays is H.A.Z.A.R.D.O.U.S. A.C.T.I.V.I.T.Y.
RLA – CAA
And, finally, we return to the residential Listing Agreement – Coronavirus Addendum or Amendment.
Again, there is the “mutual benefits” language, and, again, I’m still unclear what the Seller’s “benefit” is here.
With regard to showings, the prospective purchase is no longer asked “not” to enter, but will be given the form to sign, and won’t “be given permission” to enter until they do. Even though the Broker/Agents “cannot and will not physically prevent entrance” by someone who has not signed and agreed to the PEAD, the Broker/Agents will “take efforts to prevent such person’s future access to the property.”
So, this was troublesome the first time ‘round, and remains so to me here. The Broker/Agent won’t physically prevent entrance … that makes sense. I wouldn’t want a Broker/Agent straddling the front door with a shotgun in hand – barring entry like some WWI dough boy on sentry duty. But then, what “effort” will the Broker/Agent take to bar “future” entry? BTW, that’s “best effort” (a high threshold indeed…). And, why not use that same methodology, whatever it is, in the first place? Or, is the Broker/Agent going to go into court (presuming one can find an open courthouse) to file a restraining order? We’ll have a vaccine before the court gets around to such a case…
The “necessary” activities get spelled out more clearly in this version of the RLA-CAA, that’s good.
And, finally, the Whopper Clause is gone. That indemnity language from the first round of Forms has been replaced with: “Seller releases Broker and its agents, from any loss, liability, expense, claim or cause of action that may arise from allowing entry upon the Property…” So, while a Seller isn’t indemnifying and holding the Broker/Agent harmless, the Seller is releasing the Broker/Agent from all liability arising form the RLA-CAA.
I don’t know folks. I’d have to think long and hard about recommending a client sign this, even as modified.
Sellers in contract right now, are in deals that had high price tags, no contingencies, and large deposits.
They bargained for those deals. And those bargained-for deals did NOT have contingencies that would allow for a Buyer to back out – without penalty. If the Buyer flakes (for good reason or not – what if the Buyer thinks the house price will drop and simply doesn’t want to ‘overpay’? What if that Buyer waits 6 months and then buys a similar or the same house for thousands, or tens of thousands, less?), can or should the Seller be able to keep those deposits? It would offset the potential losses in value…
A Seller might not want to keep a property on the market right now. For any number of reasons, including the one that most Sellers are thinking about – that potential price drop. With so many Buyers out of work, and with the market in the toilet, is this a “prime time” to sell?
A lot of commentators are talking about the next several months being a “once in a generation” buying opportunity – because prices will be so depressed.
Might it not just be better to cancel the Listing – and re-list later? Clearly, the Brokers/Agents don’t want to hear that. But, can they sell something at last month’s price next month? The last 6 – 8 weeks have shown us that anything is possible – but I’d wager my 6 pack of toilet paper against your emailed grocery pick-up list that there is going to be a significant (and I hope only short term) drop in pricing. Listings are going to get renegotiated, no matter what. This RLA-CVV — doesn’t do it, at least not for me.
Every situation is going to be different. And every single one should be treated differently. The Forms may fit some, or even a lot, of existing listing arrangements. May. While it sounds self serving, I’d suggest every Seller gets themself to a lawyer – and have a discussion that isn’t biased by a Broker/Agent’s desire to maintain a listing agreement.
In the meantime,
If you have small kids, give them a hug (without freaking them out).
If you’ve adult kids, set up a virtual cocktail party, and say hello.
If you’ve got teens – accept my condolences.
And, go wash your hands.
Click Here: 20200418 – CAR Forms Review 2 – v4 for a printable version of this updated Memo