Is this a tract or developer home where you purchase the entire package upon completion? If so you probably have nothing to stand on as they protect themselves quite well with their contract. Have you had your attorney look at the contract to see what it says about delays?

Start by reading your contract. It likely spells out what happens if the builder blows the closing.

I am confused. It is more than 90 days from July 2020 to December 30, so I don't understand why there is a problem.

On the other side, this seems to be an issue related to your chosen financing, so I doubt you would be successful in suing the builder. However, I am not a lawyer, and didn't play one on TV either.

It might be worth an hour of a real estate attorney's time for you to know for sure since the laws in your area may be different that they are where the people who answer your question here might be.

Our contact was created in May and the builder did not have possession of the deeded property till July. You can’t sell something if you don’t actually own it!

"You can’t sell something if you don’t actually own it!"

That's not necessarily true. All sorts of option contracts involving delivering X product on Y date for Z price. The validity of those contracts don't depend on the seller owning the product at the time they sign the contract.

@John Irizarry -- thank for the clarification.

As noted by @millworkman, builder contract usually allow the builder lots of room. They can often miss closing due to the house not being done without penalty, so read your contract to see what it says.

I get your point, but FHA loan regulations don’t allow the contract to be drawn up until 90 days after the property is deeded. So basically the contract is no good. If I was doing a conventional loan it would not be a problem.

I still don't get it...

ETA- after further reading I think the issue was the closing on Dec 30th was halted because they found the issue. It wasn't discovered in July. I get it now. Yeah, that stinks.

Hi John,

The purchase contract was fine. Your financing caused the problem. Of course, the problem may just be your underwriter. Sometimes they are great. Sometimes they are morons. The underwriter's supervisor should be able to offer alternatives. Your mortgage broker will probably need to be involved in helping you resolve this.

You are not grasping the idea that this all happened on the day of my closing, not July. The contract had to be rewritten a new FHA number had to be regenerated, the lender has to reorder a appraisal again, and a new closing date after the appraisal comes back! This is all happening because of the mistake the builder did and the strict guidelines and rules that FHA has

Hi John,

I am sorry this has happened to you. The builder has a house ready to sell to you at the closing. So they have met their obligation.

The problem is that you chose a financing method with strict requirements. The underwriter should have caught this much sooner. But the problem is still with the financing you chose. As you noted upthread, this wouldn't have been a problem with a conventional loan.

Since you don't think the underwriter is going to do anything to facilitate closing, your only remaining option is to consult a real estate attorney.

I wish you the best.

John -

First, this should not be construed as a solicitation for you to engage me as your attorney. This is not legal advice.

As someone stated above, the exact language in the contract with the builder is extremely important re: this issue.

I have over 20 years experience practicing commercial real estate law. All real estate purchase agreements that I’ve drafted (or approved for a client to execute after negotiating a contract initially drafted by another attorney) provide - in detail - what happens if the outside delivery date is missed. Obviously, a commercial real estate purchase/development agreement is much more detailed than a residential one - not only because it can have more “moving parts”/issues - but because home buyers tend to not have an attorney review prior to signing. I don’t know if you had an attorney review yours - I’m assuming that you didn’t because if you did, you would be contacting him/her vs. posting your questions on this forum.

amodernmountainhome is correct that there are times when a seller may enter into a contract to sell property which is not yet owned by seller. An “option contract“ - however - does not mean “seller does not own the property at the time of execution.“ An “option contract“ allows the purchaser the exclusive right to purchase the property for a specific period of time.

In the commercial contracts I’ve drafted/negotiated, I always include a representation and warranty from the seller re: ownership of the property at the time the contract is executed. If the seller does not currently own the property, there will be specific terms added to the agreement to address this situation. I’ve closed many deals where there is a “simultaneous closing“ = seller obtains title to the property and immediately transfers the property to the purchaser.

If your contract has a representation/warranty from the seller re: ownership of the property as of the execution date, seller would have breached the contract if seller did not actually own the property. I’m assuming that your contract does not have such a provision.

Generally, if the performance of a contract is impossible (seller not actually owning the property), the contract will be “voidable“ - however, under the laws of the jurisdictions where I’ve been licensed to practice law (and in many others), once the seller obtained title to the real property, the contact became valid. You would need to confirm that with an attorney in your area.

With respect to the seller missing the closing date, and your right to recover the expenses you’ve incurred, will be determined by the exact terms of your contract. As I stated earlier, I specifically provide for an outside delivery/closing date, and would also include the remedies my client has in the event such date was missed by the seller. I would also include an attorney’s fees provision which would provide for my client to be reimbursed for all costs and expenses related to enforcing the terms of the contract in the event the seller breaches the agreement. Your agreement should provide the remedies available to you in the event seller breaches the agreement - however, that depends upon whether the contract was drafted fairly or in a manner which greatly favors (protects) the seller. In the event that your agreement does not provide for specific remedies, it does not mean you cannot recover your extra expenses. The applicable laws of your jurisdiction will determine your remedies.

Kempek01 - if the actual contract provides for a hard outside date for closing, unless the FHA financing was not included in the contract and some other type of financing was, it wouldn’t be the determining factor as to whether OP can recover the extra expenses incurred. It is true that if a purchaser’s actions/inactions prohibits a seller’s performance under an agreement, the seller won’t be deeme to have committed a breach of contract. If the FHA financing was part of the original contract, seller would be hard pressed to argue that buyer‘s actions caused seller to miss the closing date.

When you read your contract, it is important whether it provides an exact closing date, or if it reads like “the closing shall take place on or around December 31, 2020. . .”. If it uses the latter language, a seller will typically be given a reasonable amount of time to close.

The above is a long winded way to tell you that the exact terms of your contract are extremely important in determining the answer to your question re: reimbursement of your extra expenses. If you have questions, you will need to ask a real estate attorney in your jurisdiction.

JuneKnow -

Your response is not actually correct. It would be VERY UNUSUAL in a residential real estate contract for OP’s FHA financing to not be included in the agreement. Everyone who works in this area knows that FHA has special rules/conditions. Seller didn’t disclose that title to the property had not been transferred. When seller entered into the agreement, it was impossible for him/her to transfer the real estate because he/she didn’t actually own the property. In most (if not all) jurisdictions, the contract was voidable because of this impossibility. However, once seller obtained title, the contract became valid.

With respect to COVID-19, in general, real estate contracts (and others) should always have a force majeure clause which excuses the delayed performance by a party under certain circumstances beyond his/her control. For example, typical force majeure clauses include war and acts of insurrection/acts of God/governmental laws and regulations/strikes/riots - which are beyond the reasonable control of the party. While “shortages of labor or materials“ are usually included also, the seller would have to show causation = the reason the closing didn‘t occur as required under the agreement was specifically because of shortages in materials or labor (or some other listed event). Force majeure clauses are STRICTLY CONSTRUED by courts. Based upon what I’ve read, litigants have been unsuccessful in arguing that COVID-19 = force majeure = excused performance. An example of a recent case is one where Kirkland’s tried to argue that their delay in paying was excused by the force majeure clause in their lease agreement. A federal court held that the force majeure clause did not excuse Kirkland’s performance (paying rent) under the lease.

Also, it is dangerous to present opinions as truths when replying to someone’s post - there is nothing that the OP has posted that supports your assertion that the seller could have just cancelled the contract and sold the property to someone else if he wanted to. That is simply not true based upon the facts presented. As stated previously, I have practiced in this area for over 20 years and I am unable to make such blanket statements regarding this situation based upon the facts presented.

JuneKnow- How did my builder meet his responsibilities if he did not have a deed for the Lot/Partial when I signed the official contract. The contract was signed two months prior to the seller having the official deed to lot!

@John Irizarry, you have your lender to blame. If your lender knew about these requirements he should have inquired about the chain of title from your closing attorney/title company. Besides, the dames that you suffered are economic damages but your contract probably states that your earnest money will be the liquidated damages under the contract. So, blame your lender.

Shola Atkins - using earnest money as “liquidated damages“ under a real estate purchase agreement is a remedy for a SELLER - not for a BUYER. This type of remedy is used when damages caused by a breach will be difficult or impossible to prove. While you are correct that the earnest money deposit is often used as liquidated damages, it would not make sense for a buyer’s remedies to be limited this way. The buyer is the party who placed the earnest money into the escrow account - giving the buyer his/her own money back wouldn’t be a remedy at all.

On the other hand, economic damages and non-economic damages are known legally as compensatory damages (actual damages in layman’s terms). Economic damages are the tangible financial losses a party suffers. It is easy to prove these damages in court by supplying bills/receipts.

I doubt the lender is to blame. Lender would not be responsible for checking ownership of the parcel until close to time funding the loan. This 90 day requirement is not unique to this lender as it is an FHA regulation that applies to all FHA loans through all lenders. Seems to me this is an issue starting with the builder

@Lyndee Lee, it was an underwriting requirement from the begining and they should have checked the title before proceeding. I own a title company and we get requests from responsible lenders quite often.

Just because you haven't had a closing doesn't mean you can't move in.

"Just because you haven't had a closing doesn't mean you can't move in."

True Joseph but I get the feeling this is a tract home that the op owns nothing as of yet and would technically be trespassing if he attempted to move in.

Frankly speaking, FHA loans suck pure and simple.

I walked away from every remodeling job which was financed by FHA and as I found out later was the best thing I did after talking to contractors who strapped themselves in doing the projects.

John, the builder has nothing to do with it. FHA always had the 90-day rule that the seller must own the property for 90 days prior to closing. It sounds like your loan commitment expired prior to that 90 day period, and this is why FHA started everything all over again and I hope they will not try to nail you again for the application fees and new appraisal, etc.

Good luck.

You need to be mad that the underwriter hadn’t discovered this issue far earlier in your loan process. The date the underwriter received the preliminary title opinion from the title company is the date you and the builder should have been notified about the issue. It could have been rectified then and the 90 day window started THEN. I guarantee the underwriter received it far sooner than the date of closing on December 30th.

Silly FHA rule. Another FHA appraisal?

added:

I think @GN Builders L.L.C has a good point. Why did the appraisal expire?

Regarding the initial transfer, the builder may have several entities, or options on the lots.

What the builder did 6 months ago shouldn't impact anything.

Was this the builders' provided lender?

I'm seeing all sorts of delays due to covid.