Generally, "time is of the essence" in meeting deadlines in an earnest money agreement. This means that both parties can insist upon strict compliance with deadlines set forth in the agreement, and neither party is obligated to give the other party a grace period within which to perform. Exceptions to this general rule arise when the party asserting the deadline is guilty of bad faith, lack of diligence, estoppel, or waiver.
A party is guilty of bad faith when the party interferes with the performance of the other party or refuses to cooperate with the other party in fulfilling a requirement of the contract. For example, a seller who refuses to allow an appraiser or inspector access to the property is quily of bad faith.
A party is guilty of lack of diligence if the party fails to take reasonable steps necessary to fulfill a term or condition of the agreement. For example, a purchaser who fails to timely submit information reasonable requested by the lender as a condition of loan approval is quilt of lack of diligence.
Estoppel occurs when a party makes a representation of existing fact upon which the other party relies to their detriment, which representation the first party later denies. For example, a seller who represents that work orders required by the lender have not yet been completed cannot later get out of the transaction on the basis that the work orders in fact where completed. Of course, a lender would not order a re-inspection of the repairs until the seller indicates the repairs have been completed. It would be unfair to allow the seller to get out of the transaction on the basis that the sale failed to close by the agreed date, when the reason for the delay was the seller's own representation that the work orders had not yet been completed.
A waiver of a deadline occurs when the party now asserting the deadline has engaged in conduct inconsistent with the termination of the agreement. For example, if the purchaser continues to pursue financing after the closing date has passed, then the purchaser has waived the closing date. Likewise, if the seller continues to treat the agreement as still in effect, then the seller may not take the position that the agreement has expired when a better offer is presented. Any conduct which treat the agreement as still in effect, and which is inconsistent with termination of the agreement can constitute a waiver of a deadline. Of course, neither party may unilaterally waive a deadline, the waiver is only binding on the party who has engaged in the inconsistent conduct.
Extensions to deadlines in earnest money agreement are common. However, as with any other modification of an existing contract, an extension must be supported by new and independent consideration to be enforceable. The party who requests the extension or for whose benefit the extensions operates must give up something of value or incur a legal detriment, or the other party must receive some additional benefit in order for the extension to be binding. If the party requesting the extension has the legal right to terminate the transaction, but foregoes that right in exchange for the extension, then the extension is binding and enforceable without any additional consideration. However, if the extension benefits only one of the parties, then the extension is not binding on the other party, even if the extension is in writing and signed. For example, a purchaser who requests an extension of the deadline for waiving a financing contingency must give some consideration to the seller in exchange for a binding extension. A seller who grants such an extension without any consideration is not bound by the extension. On the other hand, an extension of a closing date necessitated by lender delay, where the financing contingency has not been waived by the purchaser, is enforceable, because the agreement would have been legally defunct without the extension and the purchaser would not have been in default.
The implied duty of good faith and cooperation does not go so far as to require a party to grant an extension of an express deadline to accommodate the other party. Therefore, the party requesting the extension should be prepared to make some concession in order to obtain the extension.
Deadlines in earnest money agreements are a frequent source of disputes between purchasers and sellers. Such disputes can be avoided by allowing sufficient time periods in the first place, by recognizing as early as possible when extensions might be needed, and by securing written extensions, when needed, supported by sufficient considerations.
Courtesy of:
Doug Tingvall
Attorney at Law
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A judgment lien attaches automatically to non-exempt real property. |
A judgment lien attaches automatically to non-exempt (i.e., non-homestead) real property owned or acquired by the judgment debtor and located in the county in which the judgment is entered, or in which an abstract of judgment is filed, to secure satisfaction of the judgment. RCW 4.56.190-200. The judgment lien is effective for ten years after the date of entry of the judgment. The lien is extinguished upon full satisfaction of the judgment or upon release of specific property encumbered by the lien. Prior to 1984, a judgment lien did not attach to homestead property. Mahalko v. Arctic Trading Co., 99 Wn.2d 30 (1983). However, a judgment lien now does attach to the value of the property in excess of the homestead exemption (presently $40,000 in "net value"). RCW 6.13.090. In other words, a judgment lien does not attach to the debtor's principal residence, unless the debtor's equity exceeds $40,000. With respect to real estate contracts, judgment liens do attach to the purchaser's interest in non-exempt real property being purchased under a real estate contract, Cascade Security Bank v. Butler, 88 Wn.2d 777 (1977), but no longer attach to the seller's interest under the contract. RCW 4.56.190 (effective August 23, 1983). Generally, the priority of a judgment lien is determined by when the judgment is entered or the abstract of judgment is filed. However, a judgment creditor is not a bona fide purchaser or encumbrancer within the meaning of the recording act. Therefore, a judgment lien is junior to a prior unrecorded mortgage or deed. Aberdeen Fed. Sav. & Loan Ass'n v. Empire Mfd. Homes, 36 Wn. App. 81 (1983), cert. denied, 100 Wn.2d 1041 (1984). With respect to judgments against a purchaser, a purchase money security interest has priority over a prior judgment against the purchaser, Bisbee v. Carey, 17 Wash. 224 (1897), although some title insurance companies are reluctant to insure the priority of a purchase money security interest over a prior judgment lien against the purchaser. Appealing an adverse judgment does not in itself stay enforcement of the judgment or preclude the judgment lien from attaching; the judgment creditor must post a supersedeas bond in order to stay the judgment lien pending appeal. Of course, as with most liens, the foreclosure of an underlying encumbrance eliminates a junior judgment lien. Judgment liens cause serious title problems in a pending transaction. However, frequently such problems can be solved. If a judgment lien appears on a title report for a pending sale, and if the property is homestead property in which the seller's equity is $40,000 or less, then the judgment does not constitute a lien against the property and the title insurance company should remove the judgment lien from the exceptions to the title report. Otherwise, the seller must pay the judgment or obtain from the judgment creditor a release of the property. Generally, if the amount of the judgment exceeds the seller's net proceeds from the sale, the judgment creditor is willing to release the judgment lien in exchange for payment of all or most of the seller's net proceeds. This article contains general information only, and should not be used or relied upon as a substitute for competent legal advice in specific situations. RE LAW Bulletin No. 006 Page 1 of 1 Revised 7/28/93 Courtesy of: Doug Tingvall Attorney at Law |
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