Home Q&A Forum Purchase and sale agreement and default?
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Loans

Purchase and Sale Agreement

California

Asked on Sep 7, 2023

Purchase and sale agreement and default?

I am in the process of purchasing a commercial property from an individual seller. We have already agreed on the terms of the purchase and signed a Purchase and Sale Agreement. Recently, I have been informed that the seller is in default of their loan agreement with their lender, which could potentially put our agreement in jeopardy. I am seeking legal counsel to understand my rights and the potential implications of the default.

Answers from 1 Lawyer

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Loans

California

Answered 952 days ago

Myrna L.

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August 1, 2023

Potential loan default on the property may or may not impact your Purchase Agreement depending on when you plan to close escrow. First, isn’t the loan being paid off with the sales price? If so, Second, escrow company should have contacted lender requesting pay off amount. Third, lender would stop any pending default action when they know they will be paid off with the sale.

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Contingencies are conditions provided in the contract that need to be met prior to performance or close of escrow. In Purchase and Sale Agreements, it is usually the buyer who negotiates for contingencies to reduce or eliminate their risks prior to close of escrow. Normally, buyer’s contingencies would include appraisal reports, property inspections, mortgages, title reports or sale of another property. More often than not, sellers do not have contingencies in Purchase and Sale Agreements because they want to sell the property in a timely manner; if seller cannot deliver the property, it may deem the property not available for sale in the first place.

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Good morning - I am a WA State attorney. The purchase and sale agreement should, itself, specify the governing law that would be applicable; if that term is not already part of the PSA you were presented, it should be added. If you are buying a business in WA, normally the PSA will say that WA law will apply, but if you are buying a franchise, it's possible that the PSA will say something like that law of Delaware may apply. Washington has good governing law for this type of agreement. I also suggest that you discuss any concerns with your buyer's agent, and possibly request a WA State attorney to review all the documents before you sign anything.

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Good morning. I am a WA State attorney, and I have reviewed numerous purchase and sale agreements (PSA), and have bought and sold numerous pieces of property in WA and CO. You are wise to ask this question. Since you are the buyer, normally your buyer's real estate agent would prepare the PSA for you to use, after discussing with you. Since you said a PSA "was presented to you" I"m wondering whether you are buying a new home from a building contractor. In any event, the purpose to an earnest money payment is to hold the home for you and let the seller know you are interested. In most cases, however, the seller can keep your whole earnest money payment if you back out of a purchase for reasons that are not protected in the PSA. For example, if you write your offer contingent on your subjective approval of an inspection report, or write your offer contingent on obtaining financing at terms you approve of, either one of these terms can get you out of the contract and also have your earnest money returned to you. There should be language in the PSA that clearly states what happens to the earnest money and how much earnest money you are providing. I hope that that is helpful. If you continue to have questions, I urge you to have an attorney review any and all documents, including those for loans, prior to signing anything.

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