Escape Clauses And Getting Out Of Contracts

Hi all,
I need some guidance. My agent told me that on HUD offers, generally you can't get your EM back because of "Inspection" when you back out because they are really thorough. It this true or do I just need to put "Subject to buyer's approval of inspection" or some other similar change? And will HUD accept the offer if I change the wording on the contract? Many thanks for your assistance with this.

Jason

Make sure you do at least one thing today that puts you closer to your goals then it will never be a wasted day.

I keep on hearing about the escape clauses and I understand what they are saying
(ie: 14 Day Whole Home Inspection Clause) but when I go and read through the document(s) I can't seem to find where my way out would be... can someone please use the above mentioned document, which is provided here on DG site. I really like to know where the exit clause is located.

(ie: http://www.deangraziosi.com/documents/Agreement-to-Purchase.pdf)

What I found is the area that mentions the inspection, it goes into detail about how the seller has the right to fix etc.... but I wouldn't want that. If I want a way out... and I say hey this door squeaks (just using silly example) and they say hey I'll fix it... there goes my way out? Where does it say I have the right to get out of this given any reason I find during an inspection?

It's possible I'm missing something but I don't see it?

Very interesting post. Thank you for the information.

You can use a host of contingencies, youu just have to figure out the right one that fits your situation. Here are some from a earlier post...

1. The ability to back out for whatever reason. The amount of time (20 days) is notated in another section of the contract. The wording here is crucial. Notice it says, "Buyer's Satisfactory Inspection". The standard state clause requires you to have a 'licensed' individual inspect the property and submit in writing the reasons why the property is not acceptable. We have also changed the contract on page three "Inspections, Repair and Maintenance" to reflect the same.

2a. Forty-five days from acceptance. Lets face it, this is a very cut-throat business. I am a very nice person, but I don't like losing money. If you are not able to close within the forty-five days but can close on the 47th, 'Acceptance' is defined as the date of the final signature to the contract. If necessary you may sign the 'Final Corporate Approval' and extend the contract as needed.

2b. This is a what I like to call a 'friend-builder' clause. By signing the contract they are agreeing to get the tenant out before closing. You will help them along the way but essentially they are committing themselves to a closing date sometime in the future after the tenant is out. This keeps them from letting the contract expire because they were unable to evict their tenant.
Important to notate: Your preliminary and final corporate approval will only hold up in court if you remember to sign the 'final' corporate approval on every contract before closing. Not doing so could subject you to liability in a court case. In other words a judge may consider this only a weasel clause if you do not practice it throughout your business. Still, 80% of all court cases never make it in front of a judge and it will cost a seller $1,500 to start a lawsuit for $1,000.

Some of my recommendations may sound harsh. You need to keep in mind that this is business, not a popularity contest. Just like you, I don't like surprises, but when they come, I like to be prepared. Being prepared can mean the difference between handling the situation with a phone call or losing $25,000 in a lawsuit.

Our clauses were developed over time through trial and error. Error meaning they cost us money. For those of you that have fear about putting properties under contract, I fully understand. Hopefully as cowboys we have Pioneered before you and 'caught the arrows' so you are now able to setup camp.

One of the stories I used to relate to new investors is an analogy of Brinks armored car service. Funny, because here in Bogota, when Brinks makes a pickup, they completely triangulate the place, three guards with fingers on triggers. It feels more like a robbery than a courier service.

This one is from Matt Gerchow, not me.

These are contingencies that you as a seller put in your contract with a buyer. I protect myself from buyers that want put in contingencies. I won't accept any. When I am wholesaling to another investor/buyer. I allow them to do their due diligence before they sign my contract. My contracts are non assignable and feature a non refundable earnest money deposit.
When I retail, the buyer has inspection, appraisal and financing contingencies only.

When I buy, my only contingency is the inspection period. I want my offer to be accepted, not laughed at!

Michael Mangham
MD Home Acquisitions LLC

The term "as is" is reference to the condition of the property. In other words, the seller is not willing to fix or replace anything or give the buyer credit for those items so that the buyer can fix or replace them after escrow.

My advise is to have a good inspection of the property and get at least one bid and hopefully, three bids on how much time and cost would be involved to replace or fix the problems. Once you have that information, you can then discount your offer by that amount. So, in other words, the seller is really paying for the items weather they acknowledge it or not.

Adjust with the changes but be sure that you DO NOT tie up a property without a contingency clause. You MUST protect yourself!

Hi!

I'm New, I just want to make some clarification,
1.When am I going to put an Earnest Money, Is it during the the submission of the offer? Once my offer will be accepted by the seller, Then i sign the The Residential Purchase agreement The deal is now lock, is it necessary for me to hire a Home inspector? This is what The RE-Agent told me to hire a Home inspector at my expend because it is a requirement!
2. What is an effective approach on how can a small amount of Earnest money be accepted? The RE-agent is worried if we put in a very small amount because the selling agent might not forward it to the seller.
3. The standard Loan contingency in California is only 17 days, can i request for 45 or 60 days? What is an effective approach here?

Your sharing is highly appreciated,

Peter

From what i have learned you do not want to pay for an home inspector if you are using a bank, most times they will use their own and yours will not be accepted and you will waste your money.

If you are not using a bank for your money then it will be who ever your lender is if they require a home inspector ( your contractor may be all you need ). If its your own money then its up to you.

As for the Earnest money, you can tell them that it is not like you are going to be able to spend it, you cant touch it until the deal is done anyway, so it will not matter how much i put down. All earnest money goes into escrow until after the deal is done.

If I am wrong please correct me

I'll add my 2 cents as I've bought and sold a number of properties, and hope this clarifies.

- Home inspection: you don't need to hire a home inspector and you can do it yourself. The inspection contingency is almost a free pass to get out of the contract and that's why it's so short.

- Earnest money (EM). Typically I submit a copy of a check with each offer. If the offer is accepted, then you sign the Purchase and Sales (P&S) contract, and submit the physical check at that time and that opens escrow. The check will be cashed generally within 2-3 days after that. If it's an REO (bank owned), a cashiers check will need to be submitted at the signing of the P&S.

- The EM amount varies: can be $100-$500 for a FSBO, or $2,500 for an REO. My average overall has been $1,000.

Hope that helps!

- Tom

Thanks Tom!

When working with bank REO listings, I like to use a contingency clause that says, "This offer is contingent upon my contractor inspecting the property and providing a report for my review and approval within 14 days". Since the property will need fix up, you have to know how much that is going to cost you and since getting bids from sub contractors takes time the 14 days is not unreasonable. This will work with banks selling property that is vacant and needs work.

The contingency clause I like to use for bank REO property is: “This offer is contingent on the buyer’s contractor inspecting the property and providing a report for the buyer’s review and approval within 14 days.” Since the buyer needs to know what the rehab cost will be as part of his due diligence this is acceptable. Also, in order for a contractor to give him an estimate he will have to contact several sub-contractors to give him bids, making 14 days a reasonable amount of time to get the information back to the buyer. The banks will understand and approve this contingency clause as reasonable.

Sometimes banks require a 1-2% earnest money deposit when making offers on their properties. When they do this and you do not have that much money to tie up, make the offer with $100 earnest money deposit and say you will increase the amount to the required 2-3K after the 14 day contingency period. The banks know you can walk away before that time anyway and usually don't care about the amount of earnest money until it becomes non-refundable. Then get your buyer in place and have he or she put up the balance of EM deposit.

Hi Spellbound,

You are right, more then often banks will use a home inspector of their own. The one think you should keep in mind it’s that you normally do not worry about this unless you’re the one who is going to purchase the property. It is the end buyers responsibility to inspect the property of interest. If you follow our formulas normally we take care of everything there; and if you ever need an actual dollar amount its best if we simply as the realtor you may be working with, often they already know how much the rehab it’s going to cost or at least have a general idea. If you feel/think that you need to get a contractor to give you an actual bid, then do so… Another thing you could do, it’s call the help line, as long as you have a list of what needs to get done and pictures, chances are we can more less tell you how much its going to cost you to rehab it.

Something that I’d like to add to what (jcpumb123) said it’s that, this it’s just one example of the many contingency clauses you could all use. At the end of the day, as long as you’re protecting yourself you’ll be fine. Also, note that the example he is using it’s very easy to read, and there may be times where you’ll need to use a contingency clause with a little more complicated wording, if you ever find yourself in a deal where they don’t take your contingency clause call the help line and ask for Edwin (I’m one of the official trainers there) and I’d be more than happy to help you come up with something that will still work for you.

Good information ezinearticles.com

This offer is contingent upon approval and/or inspection of the property by buyer and or buyers partners within 15 days of acceptance.

This simple statement will allow anyone get out of any contract.

I prefer to use "buyer has X days from offer acceptance to preform due diligence before earnest money is non-refundable." because there is no room left or interpretation. In addition I like to have the title company respond via email confirming the date that the due diligence expires after receiving and reviewing the contract. That way there is no way they are going to try to keep your earnest money and will pressure the seller to sign the earnest money release if it is ever brought into questions.

Hope this helps.

Cheers,

Dave

Outstanding..... I love how the coaches came on this threat and help clear up something that could be confusing to the average reader looking at this.....

This is a great way for us new comers to look and approach it professionally, thanks for adding it and it helps build legal defense (not a lawyer but common sense in case the seller is not so forth coming)

The Importance of an EXIT CLAUSE

It is sad to see sometimes how some new investors forget to enter their exit clauses, even after we tell them to make sure to put proper clauses for a quick exit in case the deal doesn't go through, so they don’t lose their earnests money. Yes, you will lose your earnest money if you do not have an exit clause or an good reason to get out of it.
Remember, ask for 14 days of inspection and base on that inspection if by day 13 you don’t have a buyer, exit out of the contract and you’ll earnest money will be safe. For ideas or assistance filling out your contract, IF you have a real estate agent who is working with you, have them fill it out for you, if you don’t; call us at the advisory line & we’ll help you out.

BUMP