by Christian Ross of Ross Law | Ross Title
Every once in a while, a real estate transaction comes along that makes you wonder how things could possibly have gotten that far.
This was one of those transactions.
A Buyer went under contract to purchase a vacant condominium with plans to renovate it and move in. The contract was the NABOR As-Is Contract and required the Buyer to apply to the condominium association within five days. Unfortunately, the Buyer struggled with the application process and did not get everything submitted until approximately one week before closing.
That created the first problem.
Pro Tip: Condominium applications should never be left until the last minute. Many associations require approximately 21 days to process an application, complete background checks, schedule interviews, and issue an approval.
As closing approached, the Buyer still had not been approved, so the Seller agreed to extend the closing date. That should have been a relatively manageable problem.
Instead, this is where everything went sideways.
The Buyer became frustrated with the delays and, somehow, obtained access to the condominium without the knowledge or permission of the Seller or the Realtors. Once inside, he did not simply inspect the property or take measurements.
He started renovating it.
The problem, of course, was that he did not own the condo yet. Several days later, we received even worse news: the condominium association had formally denied the Buyer.
The listing Realtor then visited the property, presumably to determine what needed to be done to get it back on the market. When they arrived, she discovered that the flooring, cabinets, and appliances had all been removed.
Naturally, I got a call from the Seller’s attorney.
The Buyer was my client, but representing someone does not mean blindly defending every decision they make. Realtors can find themselves in the same position. Sometimes your client or customer does something that is simply wrong, and defending bad behavior often makes the situation worse.
So I called the Buyer and asked him exactly what happened. He initially tried to justify his actions, including telling me that someone had given him a key. I was not particularly interested in that explanation. Having access to a property is not the same thing as having permission to demolish it.
Before I was going to help him find a solution, I needed him to understand that he had made a serious mistake. I needed him to acknowledge it and show some remorse. Frankly, his actions had now dragged me into the middle of the problem too, and I was not going to help him dig the hole any deeper.
Eventually, he got there.
Once I believed that he understood the seriousness of what had happened, we turned our attention to trying to save the transaction. Our best option was to ask the association to reconsider its denial, so I wrote a letter on his behalf.
The letter did not make excuses. We apologized to the association and the homeowners, acknowledged what had happened, and tried to give the association comfort that there would not be future problems. The Buyer even offered to sell the condominium once the renovation was completed and offered to place $5,000 in escrow with the association in the event he later violated the rules or failed to pay amounts due.
Unfortunately, none of it worked.
Three weeks went by, and the association refused to reconsider its decision. I cannot say I blame them.
One unexpected positive did come out of the process. One of the board members called me. I had done some work for his family over the years, and he felt that keeping me involved was the best thing for the community. He was able to answer some of my questions and keep me informed as things progressed.
It was a reminder that your reputation and relationships sometimes become important in transactions long before you ever expect to need them.
So what happened next?
Creatively, the original Buyer found a friend who was willing to buy the condo.
I agreed to stay involved, but only if everyone knew exactly what was happening. I called the Seller’s attorney and the Realtor I was working with and explained everything. There was going to be no attempt to hide the relationship between the original Buyer and the new Buyer.
The association understandably had questions too, including questions about where the new Buyer’s purchase money was coming from. They were likely concerned that the original Buyer might still be behind the transaction.
My advice was simple: tell the truth.
Once a transaction has already gone this far off track, the last thing anyone should do is make matters worse by hiding facts or giving misleading answers.
The Seller’s attorney and I then worked together on a structure that everyone could live with. As part of the new transaction, we drafted a hold harmless agreement and release relating to the original Buyer. The basic deal was that if the property closed with the new Buyer on the terms originally agreed to under the first contract, the original Buyer would be released from liability relating to what had happened.
The new Buyer applied to the association, the association approved him, and we closed the transaction. At the same time, the original Buyer received his release.
It was certainly not anyone’s finest moment, but considering where we had started, it was a remarkably positive result. I give the Seller a tremendous amount of credit, along with the Realtors and Kevin. Everyone could have spent their time pointing fingers and preparing for litigation. Instead, the people involved worked toward a solution.
There were several lessons from the experience.
First, be extremely careful about giving Buyers keys, access codes, or unrestricted access to a property before closing. Realtor lockboxes that track who enters a property and when provide an important layer of accountability.
Second, be honest. When something goes wrong, trying to hide the facts almost always makes the problem worse.
Third, representing someone does not require you to defend conduct that does not deserve defending. Sometimes the best thing you can tell a client is: “You were wrong. Now let’s figure out how to fix it.”
Fourth, stand up for what is right. Getting a transaction closed should never be the only objective. How you conduct yourself while solving the problem matters too.
And finally, work with good people. This situation could very easily have turned into an expensive lawsuit. Instead, the Seller, Realtors, attorneys, condominium representatives, and ultimately a new Buyer found a way to get the transaction closed.
Sometimes the difference between a disaster and a closing is not having a perfect set of facts.
It is having reasonable people who are willing to be honest, communicate, and solve the problem.
And one final pro tip for anyone buying a condo with plans to renovate:
First, get approved. Then close. Then renovate.
