By Jones Osborn II

Let's say you are selling some real estate. Maybe you're not too sure about the buyer--you think he's a little flaky, and you wonder whether he can come up with the purchase price. So you decide you need a good tough contract, one that holds the buyer's feet to the fire. You want it to say that if the buyer doesn't close when he is supposed to, you can terminate the contract immediately, without giving him any notice, and forfeit his earnest money.

So you have your lawyer draft up a contract that says just that. If the closing doesn't occur on the specified closing date, the party not in default can immediately cancel the contract and exercise his remedies. Your lawyer also writes in a provision that deletes the thirteen-day cancellation provision on the back of the escrow instructions, just so there is no mistake about the fact that no notice is required to cancel the contract if the other party doesn't perform.

Now let's assume that your buyer signs the contract and puts his earnest money in escrow. At this point you're feeling pretty good, because you know you have the buyer locked up with a good tough contract that demands immediate performance, with no notices, no excuses. The buyer has to close on time or pay the price. You just sit back and wait for the closing date.

This is fine if you understand one thing--you also have to close on the closing date. Most sellers assume this is not a problem. They figure that all the seller has to do is sign a deed, and know they can easily do that before the closing. The buyer has the tough part--he has to come up with the money.

This is usually true. But not always.

What Can Go Wrong? There are a number of things that can trip up the seller. So many, in fact, that it's impossible to list them all. But a few examples can illustrate the point.

Suppose, for example, that the seller is a corporation. Just before the closing date it is discovered that the corporation's charter has been revoked because someone forgot to file the annual report. If this happens, the seller will have to scramble around to reinstate the corporation in time to close. If the reinstatement can't be completed in time, the seller is in default. Or suppose that the seller holds title in his revocable estate planning trust. Just before the closing the title company reminds the seller that it has to see a certified copy of the trust so that it can verify the authority of the trustee to sign a deed for the property. The seller has to search his records to find a copy of the trust instrument, and he just can't seem to remember where he placed it for safekeeping. If he can't find it in time, he's in default. Or suppose the title company discovers that the wife of a prior owner never signed the deed. The seller will have to try to locate the missing wife and obtain her signature on a quit-claim deed before the closing date. If he can't, he is in default.

These are just a few of the thousands of things that can unexpectedly happen to place the seller in default. Often, the seller has to do more than just sign the deed. He has to do all the things necessary to convey clear title and to provide the assurances the title company needs to insure clear title. If, for some reason, these things are not done by the closing date, the seller can suddenly find himself in default and exposed to the legal remedies of the buyer.

This illustrates that a "tough" contract can sometimes bite the seller as well as the buyer. When notice and time to cure is deleted for the buyer, it is usually deleted for the seller as well.

The Lesson. The lesson is clear. Unless you have a real need to close on a specific date, the safest course of action is to provide in your contract that neither party will be deemed in default until he has been notified and been given a few days to cure. Ten days is usually a reasonable period for this purpose. The thirteen days typically printed on the form for escrow instructions is also reasonable. The worst that can happen, if the buyer doesn't perform, is that you wait a few days longer to forfeit his money. On the other hand, a reasonable notice provision may allow him the time he needs to close, which is not all bad--and it may even prevent you from being in default if the unexpected should happen and you find yourself unable to close on the closing date for reasons beyond your control.