We have noticed a recent increase in last minute attempts to “change parties to a contract.” Here are some useful pointers when doing so:
First, make the change as early on in the process as possible. This is particularly important for two reasons. First, if the transaction is a short sale, most short sale lenders approve specific buyers, and as such, adding, deleting, or changing a buyer in many instances requires a new short sale approval from the lender. Furthermore, any lender who is providing financing for a buyer goes through a fairly rigid underwriting process nowadays. Adding, changing, or deleting buyers could result in financing delays as the file will likely need to be underwritten yet again.
Second, if a buyer is being added or deleted, then the change should be made by addendum signed by all parties (including the party being removed from the contract). This is a very common mistake.
Third, if a buyer is being completely replaced by a new buyer, then such change should be effected by an assignment of the contract. And of course, one needs to review the assignment provisions to insure that the contract is assignable.
Fourth, a trust or an LLC in which the buyer holds some degree of control is NOT the same as an individual buyer. In fact, they are completely distinct legally. This is a common mistake, where a buyer decides at the last minute to “put the property in their trust” or put the property in their LLC. This decision should be made early on as a last minute change from an individual buyer to that buyer’s LLC or trust is no different than bringing in a completely new buyer. And if the transaction is a short sale or involves financing, this will certainly result in significant delays.
As always, should you have any questions regarding any of the foregoing, please do not hesitate to contact a member of the Berlin Patten team.
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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