Buyer-Seller

The real estate profession has become increasingly based in legalities. While a handshake can signify an agreement, the contract is the foundation of the real estate transaction today.

With the increased focus on legal issues, NVAR provides members services in the legal arena. Various articles on current and hot legal topics are provided through the weekly NVAR Online News. In addition, the Legal Information Line is available to members.

There are many real estate related questions that arise often. These FAQs (Frequently Asked Questions) by topic are provided to assist you in finding quick answers.

Buyer-Seller

Q: When a seller notified the buyer he/she was terminating the contract because the buyer had breached the contract, the buyer threatened to file a lis pendens on the property. Can the buyer do this?

A: Yes, but only if the buyer first files a law suit affecting the title or possession of the real property. Lis pendens means a pending suit. NRS 14.010 provides that in an action affecting the title or possession of real property, the plaintiff at the time of filing a complaint shall record in the county in which the property is situated a notice of pendency of the action.

Q: Can a buyer receive her earnest money back if she cancels escrow because she cannot obtain financing

A: The answer depends on the terms of the purchase agreement. Most of the purchase agreements provide that the contract is contingent upon the buyer obtaining new financing or financing. This contingency is a condition precedent to the performance of other terms of the contract. If the buyer is unable to obtain financing, her performance under the contract is excused because the condition has not been met and the buyer is entitled receive a refund of her earnest money (less the costs of any inspections she agreed to pay for that have already been performed). The buyer would also need to have complied with any timing or notice requirements that may have been imposed by the purchase agreement (such as providing the rejection notice from the lending company). However, if the contract does not provide that the contract is contingent on financing, she may not be able to receive a refund of her earnest money.

If the seller refuses to sign cancellation instructions to return the earnest money, the only way to require the seller to return the earnest money is to sue him/her and obtain a judgment (or order directing the escrow company to release the earnest money to the buyer).

There is a statutory penalty for a seller who unreasonably refuses to sign the necessary escrow documents to release the money held in escrow. See NRS 645A.175.

Q: Several months ago the buyers refused to close escrow on the sellers’ home. The close of escrow date expired and the sellers refused to sign cancellation instructions. The earnest money is still in dispute. Are the sellers prohibited from selling their home to someone else as long as the earnest money is in dispute?

A: Probably not. The status of disputed earnest money has no effect on a seller’s right to sell their home. The earnest money dispute does not create a lien upon the property, nor does it entitle the buyers to, in any way, prevent a subsequent sale. The seller should, however, contact an attorney if there is any chance that the buyers are still claiming a right to purchase the property.

Q: I represent the Buyer X in a short sale. Buyer X made an offer to the Seller. The Seller accepted Buyer X’s offer by signing the contact and sending it to the lender for approval. Now the Seller is telling me that he has another better offer and wants to send the better offer to the lender. Can the Seller do that?

A: Under standard contract law, no. However, there is a “Short Sale Addendum” provided by GLVAR that may change that answer.

According to general contract law, the key words here are “accepted” and “contract”. In this scenario Buyer X and Seller have had a meeting of the minds and have entered into a contract. Buyer X has promised to pay money for the property and the Seller has promised to deed Buyer X the property. They are in contract; however, the contract is subject to a condition subsequent which makes it voidable by the lender. The contract could be voided by the lender if the lender does not agree with its terms and denies approval.

The Seller can review other offers submitted to him, but should not send any other offers to the lender for approval. “Why not?” you ask. Because sending other offers to the lender would interfere with Buyer X’s contract. Buyer X, who is in contract with the Seller, has an advantage referred to legally as “contractual advantage”. The advantage is that he is in contract with the Seller and the other potential buyers are not. So, if the Seller sends other potential offers to the lender while the bank is still reviewing the contract the Seller has accepted, Buyer X could sue Seller, the brokerage, and the agent for “intentional interference with contractual advantage”. Buyer X could sue for any and all damages incurred by the interference, punitive damages and attorney fees. The seller can tell other potential buyers that he will keep their offers as back up offers if the bank denies Buyer X’s contract.

This answer can be varied by addendum, however. GLVAR has available on Zip Forms the “Short Sale Addendum to Purchase Agreement” (hereinafter Short Sale Addendum). This Short Sale Addendum, if signed by Buyer X, gives Buyer X the “right of first refusal”. If the Seller receives a bona fide written offer from a third party which the Seller wants to accept, Seller must give Buyer X written notice of the better offer including the material financial terms and conditions. Buyer X then has 3 business days after receipt of said notice to meet the price and terms as contained in the third party’s offer. If Buyer X fails to exercise this right within the time specified, Seller reserves the right to terminate the Agreement with Buyer X and accept the third party’s offer and forward it to the Lender for review. THIS APPLIES ONLY IF BUYER X HAS AGREED TO AND SIGNED THE “SHORT SALE ADDENDUM”.

Q: I am an agent for the buyer in a transaction. The neighbor is complaining that a tree on the seller’s property is pushing against the fence between the properties causing the fence to lean onto the neighbor’s property to a point it interferes with the neighbor’s use of his land. The neighbor is threatening to cut down the tree. Can he do that?

A: The answer depends on various facts. Here are three scenarios:

  1. If the tree is on the boundary line, neither adjoining property owner has the right to remove or destroy the tree on the boundary line without the consent of the adjoining landowner (the seller). A landowner who destroys a boundary line tree without consent is liable to his neighbor in damages. However, if the tree is causing sensible injury to the neighbor’s property, the neighbor may request an order from a court requiring the tree be removed. (An example of sensible injury may be the tree roots damaging the neighbor’s sewer system or water system).
  2. If the tree is on the seller’s property but is encroaching on the adjoining neighbor’s property, the adjoining neighbor cannot remove or destroy the tree without the consent of the seller. However, if the tree is causing sensible injury to the neighbor’s property as explained in paragraph 1 above, the neighbor would have the same remedy as above.
  3. If the tree is on the seller’s property but it has roots and/or branches that intrude, grow or overhang onto the neighbor’s property, the neighbor has a right of self-help to remove the branches and/or roots which are on his property as long as he does not harm the tree.
  4. In this scenario where the tree appears to be on the seller’s property and is pushing on the fence so that the fence interferes with the neighbor’s use of his land, the solution may depend on the significance of the interference. If the tree is just pushing the fence into the neighbor’s garden, that may not be significant enough an interference to require the seller to remove the tree. However if the tree is pushing the fence into a power pole or into the side of the neighbor’s house, the court may find that significant and order the tree's removal.