The property was damaged after it went under contract. Now what?
02/18/2016 | Author: Editorial Staff
Last year, Texans experienced severe weather events including flooding and tornadoes that caused damage to their properties. These and other perils can also affect real estate transactions that haven’t closed.
The Casualty Loss Paragraph (Paragraph 14 of the One to Four Family Residential Contract (Resale)) requires the seller to restore the property to its previous condition by closing. If the seller can’t, the buyer has three options:
- Terminate the contract and get her earnest money back.
- Extend the time for the seller to complete the repairs up to 15 days, with the closing date extended accordingly.
- Accept the property in its damaged state with an assignment of insurance proceeds, if permitted by the seller’s insurance carrier. The seller also credits the buyer the amount of the insurance deductible at closing.
However, the buyer cannot cancel the contract without giving the seller the opportunity to remedy the situation. If she attempts to do so, she would likely forfeit her earnest money and could be subject to the specific-performance provision of the contract.
The contract does not address situations in which the parties disagree whether the property has been restored to its prior condition. If a dispute arises, that determination could be made through mediation or in court.
Many of the sales contracts have a casualty loss paragraph, though the specific provisions contained in them may vary.
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