TIME TO BE HEARD – VOTE!
I HAVE A QUESTION!
IS HE A BUYER OR NOT?
This is a very recent real case scenario, the purpose of this discourse is to alert Buyers, Sellers and Real Estate Agents that it is important that the standard fill-in-the-blanks forms used in a real estate transaction reflect the correct intentions of the parties.
Jane, the original sole Buyer in our transaction, cannot qualify for the loan. Her loan broker asked her to find a co-borrower to help her qualify. Although the transaction had been running for two months with no finalization of Buyer’s loan approval, 3 days before the actual closing date we received a CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R) form called “Assignment of Agreement Addendum” (form AOAA). Jane added a Michael to the transaction and Seller signed and agreed.
Like all C.A.R. forms developed and designed by their attorneys, it is a fill-in-the-blanks and/or check mark form for ease of use by real estate agents. Pre-printed on the AOAA is “The following terms and conditions are hereby incorporated and made a part of the Purchase Agreement dated ________…”. It also provides for a box to be checked, stating that it is a “Partial Assignment (adding a Buyer): Buyer is adding the Assignee named below to the Agreement and granting to such Assignee a partial interest in the Agreement.”
Upon receipt we questioned how Jane and Michael would take title on the ownership Deed. Emails from the loan broker and Buyer’s real estate agent insisted that Michael would only be a “co-borrower” and not show on the final Grant Deed. They also advised us that the Lender was aware of this twist. So, why did they use this AOAA form if Michael was only a “co-borrower”?
Apparently, the AOAA form was the loan broker and real estate agent’s solution to adding a co-borrower so that the Lender would approve the loan. Their intent was that Michael would only sign the loan documents and be responsible for the loan, but he would not sign any escrow paperwork and his name would not appear on the Deed.
But how does this work from our escrow standpoint? We have been handed this form, signed by all the parties, and it states that Michael is part of the contract now and he is one of the Buyers. As an added Buyer, to conform with this new written change to the contract, we needed to include him in the transaction going forward and that included the Deed.
After irate phone calls and emails to us from the loan broker and real estate agent, we advised them flat out that sending us this AOAA form means Michael is now one of the Buyers and will own the property together with Jane. If this is not the intent then someone did not read the form to advise Jane and Michael correctly. Bottom line – either we add Michael as Buyer or they rescind the AOAA form, which might put the new loan in jeopardy. After consideration the Buyers agreed to leave Michael as one of the Buyers and show him on the Deed with ownership after closing.
Readers, I am sure you know where I am going with this. If you are going to use a standard fill-in-the-blanks form that the REALTORS® organization has available, you and your clients still need to read it and make sure you know what you are asking your client to sign. Is it the correct form to use? Did you check the correct boxes or fill out the correct information? Does it correctly reflect the intent of the parties? Will there be any unintended consequences? For instance, Jane must understand that Michael will forever have ownership unless he agrees to sign a Quitclaim Deed in the future. An assignment of Buyer’s interest in a contract is not a small thing. Shouldn’t you or your client get legal counsel before the form is used?
I and my escrow industry thank you for your attention in this matter.
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Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
“Escrow is my FOREMOST language!”
The opinions expressed in this blog are solely the author’s.
Your comments and viewpoints are always welcome.
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