By Lydia Blair
Disaster can strike a home at any time. Even the day before it’s scheduled to be sold. Be it hail, wind, fire or water, a casualty loss to property while it’s under contract can be disastrous.
But, there are remedies. The Texas real estate contract folks thought of many ‘what if’ scenarios and they’ve incorporated them in the standard sales contract. A casualty loss results from a sudden, unexpected event like a storm or fire. Casualty losses are addressed in paragraph 14 of the contract. It states that if any part of the property is damaged or destroyed by casualty loss between the time the contract is executed and the closing, the seller shall restore the property to its previous condition as soon as reasonably possible.
That sounds simple on paper but not so much in real life. Often the damage can’t be repaired prior to closing due to no fault of the seller. For example, when a hail storm hits the neighborhood two days before closing, it isn’t likely the roof will be replaced or repaired that quickly.
The seller has obligations and responsibilities for the property when it is under contract and before closing. They must make efforts to restore the property to its previous condition by the closing date. No messing around here. If the seller doesn’t comply, the seller can be in default. There are options available if the seller cannot restore the property before closing due to factors beyond the seller’s control. Note that I said, “due to factors beyond the seller’s control.”
If the seller cannot restore the property by the closing date due to factors beyond their control, the buyer has three options:
- They may terminate the contract and get their earnest money back.
- Extend the time for performance and the closing date up to 15 days.
- Accept the property in its damaged condition with an assignment of the insurance proceeds and a credit from the seller for the amount of the deductible under the insurance policy. This must be approved by the seller’s insurance carrier.
Many experienced Realtors, like Paige and Curtis Elliott, have helped their clients navigate through real estate disasters – both large and small. “At six in the morning on the day of closing, I got a call that the house caught fire the previous night,” said Paige Elliott. “I called my buyers and we all met at the property.” That couldn’t have been a pretty scene for folks ready to move into a new home.
“Obviously, we couldn’t close. We paused and came up with a new plan for the buyers in order to get them into someplace temporarily,” added Paige. “That was the immediate goal. They ended up finding another house to buy. The sellers had insurance and they were able to fix it and sell it the next year.“
The Elliotts advise that the first thing to do when a real estate disaster strikes is to “keep calm and look at your options.”
Most title companies will recommend that the closing be delayed until the seller has filed a claim with their insurance company and the insurance adjuster has given an estimate for repairs. Then they can move forward if the buyer is comfortable with the amount of the insurance coverage payment AND the seller’s insurance company is willing to assign the claim proceeds directly to the buyer. Some insurance companies will assign a claim and some won’t.
If the insurance company is on board, the insurance assignment paperwork must be signed at closing. The title company will collect from the seller and credit the buyer the amount of the insurance deductible. This must also be approved by the buyer’s mortgage company in advance.
If the insurance company will not assign the proceeds for repairs, then at closing the seller could pay the amount of the insurance claim to the buyer. The seller would collect their claim money from their insurance company. The buyer’s lender must approve this as well.
“Every transaction is different but the end goal remains the same,” Paige said. “Everyone wants to close and move on. Most things can be repaired.”
The opinions expressed are of the individual author for informational purposes only and not for the purpose of providing legal advice. Contact an attorney to obtain advice for any particular issue or problem.
Lydia Blair (formerly Lydia Player) was a successful Realtor for 10 years before jumping to the title side of the business in 2015. Prior to selling real estate, she bought, remodeled and sold homes (before house flipping was an expression). She’s been through the real estate closing process countless times as either a buyer, a seller, a Realtor, and an Escrow Officer. As an Escrow Officer for Allegiance Title at Preston Center, she likes solving problems and cutting through red tape. The most fun part of her job is handing people keys or a check.