Friday, September 30, 2011

Update - This is No Fun

It's Friday and we should be cruising into closing.  We've got to finish packing and be out of our apartment on Sunday.  One night in a hotel, then close on Monday.  Not fun, but not terrible.

Things began to fall apart today at around 3pm.

Dealing in Bad Faith
A few weeks ago, the house sustained significant flooding in the basement during Hurricane Irene.  The seller described this as a once in a decade type event, and we also confirmed with neighbors that flooding was unusual.  We were concerned though that the washer, dryer, water heater, and central air equipment might have been damaged.

We were told through the seller's attorney that the water heater was being replaced due to damage, and that the seller had paid for the basement to be pumped, cleaned, and treated so that mold wouldn't grow.

We inquired about the other equipment - we were afraid that it might be damaged or destroyed.  We requested that the seller have all the equipment inspected and pay for repairs if necessary.  The seller's attorney stonewalled us saying that it was their duty to deliver the items in "working order".  We want back and forth, but in the end, unfortunately that's the wording of the contract.

Flash forward to today - my attorney sends along the detailed final closing costs (more on that later) and it includes a $200 credit for the dryer.  He contacted the seller's team, and we find out for the first time that the dryer was destroyed.  We had inquired about the equipment and asked for them to be inspected, but we did not specifically ask what condition they were in.
Such a headache!

In the contract, the seller had included a rider which said if any of the equipment was no longer in working order, we'd get a $200 credit per item.  We included a rider subsequent to theirs, which said all equipment must be delivered in working order and that our rider supersedes theirs in all cases.  Therefore, the seller is obligated to deliver the equipment in working order.

So now we are headed to a standoff.

The dryer, new, cost >$1,000 (it really is a high end machine).  We think $750 is fair compensation, as it is a few years old and I found several listings on the internet for the machine ranging from $750 to $1,000.  The language in the contract is clear that the seller needs to deliver a working machine.  Since that is not an option, we're in a bit of a gray area.

The worst part is that we are heading into this standoff with no leverage.  The seller and his team know that we are out of our apartment and will be staying in a hotel.  The dollar difference is only $550, and it's not worth it for us to refuse to close and burn through the $550 in truck rental and hotel costs in a few days.

I think the seller and his team are clearly acting in bad faith - we inquired about the equipment weeks ago but we first hear about this just before closing.  Their $200 offer is ridiculous given the value of the machine and that we are legally in the right.

I can't say I feel that this is going to work out well for us.

Surprises in Closing Costs
We've discussed what closing costs would be for months with our mortgage broker as we knew we'd be tight on cash.  We found out today that we need to pony up several thousand dollars more on Monday, and there's nothing we can do about it.

The first increase in closing costs is expected - at closing you have to pay for the interest due on the loan for the remainder of the first month.  When we had scheduled closing to be in late September, that total was four or five days worth of interest.  Now that we are closing in the very beginning of October, we owe almost a whole months worth.  The good news, though, is that our first mortgage payment won't be until December.

The second area where we were surprised was in the property taxes due up front.  Property taxes can be collected by a municipality annually, semi-annually, or quarterly.  Our broker assumed it would be quarterly.  At closing, the buyer has to reimburse the seller for the property taxes paid that cover the days, weeks, and months after closing.

In our case, White Plains collects taxes semi-annually, not quarterly, so the two payments are much larger and cover longer periods of time.  We found out today that the seller recently made a payment covering many months ahead, so now we have to reimburse him for that.  There wasn't really a way to know this ahead of time, but the end result is a few thousand dollars due Monday that we weren't expecting.

On To Closing
Our attorney and Realtor are contacting the seller's team over the weekend to try and work something out about this dryer.  They are in the wrong, but we have zero leverage, so we'll see how this plays out.  It will be interesting to see the seller and his attorney face to face on Monday - I'd like to sign the final document then tell them both how I really feel.

Tips to Avoid Being Stuck in a Bind
  • Communicate frequently with the seller.  We should have explicitly asked him if anything was no longer in working condition.
  • Avoid being forced to close - if we had our apartment for 15 more days, we could threaten to delay or threaten to walk away if they don't settle
  • Every time an important date changes, make sure you know how that affects all the closing costs
  • Ask the seller or the municipality about taxation policies and due dates

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