HURRICANE IRMA: DAMAGE & PENDING CONTRACTS:
Many properties under contract during Hurricane Irma are now faced with the question of repairs and lender requirements to move forward to the closing date.
Lenders are requiring re-inspections and appraisals of properties under contract prior to closing the loan. What happens if the storm caused damage to the property? Standard M in the FAR/BAR contracts address this issue by providing two options:
1. 1.5% COST CAP: The cost of restoration should be obtained by a licensed professional. If the restoration cost is 1.5% (or less) of the purchase price, the parties proceed to closing with the cost of restoration being the obligation of the seller. BUT what if restoration cannot be completed prior to closing? Then the contract directs 125% of the restoration cost be escrowed at closing and used to complete the restoration.
2. IN EXCESS OF 1.5% COST CAP: If the cost to repair exceeds 1.5% the buyer has the option of (1) taking the property AS IS and receiving 1.5% credit on the purchase price OR (2) canceling the contract and receiving a refund of their deposit.
Sellers and Buyers should take note that the replacement of trees is specifically excluded (but cost of pruning and removal is included).
Jordana Sarrell, Esq., LL.M.