I read an extremely interesting real estate story that poses a lot of questions regarding real estate contracts. In 2005 a New York woman signed a contract to purchase a co-op for $2.3 million in an 89-unit building in Manhattan. She put 10% down, or $230,000. Unfortunately, before she closed on the home, she suffered a stroke and died. Her heirs asked the sellers for the return of the deposit and they said no. They said that the estate needed to go through with the purchase or they would be in default of the contract.
The heirs went to court and after a few appeals, the New York Supreme Court ruled that the heirs were indeed in default. The Court ruled in favor of the sellers and the case was dismissed. That $230,000 was long gone.
I was appalled when I read this. Especially considering the sellers sold the unit to another couple for $2.125 million. So it wasn’t a money issue – well, it will be now after all their attorneys’ fees and court costs. So I’m thinking, “Well, at least that’s not an issue in Illinois.”
So I went through the real estate contract that I use here in Illinois and I was wrong! Nowhere is there a clause that states that in the event of death the buyer is not obligated to go through with the contract. There is a mortgage contingency where if you can’t obtain a mortgage by the deadline and you serve proper notice to the sellers, the contract becomes null and void and you’ll get your deposit (earnest money) back.
There is an attorney review contingency where within 5 days of signing the contract by the buyer and seller you can disapprove the contract for any reason except the purchase price.
But nowhere does it say you don’t have to go through the sale if you become incapacitated, ill, or die. You’d just have to hope it happens within 5 days of signing. Neil Garfinkel, a New York attorney, suggests adding this clause to real estate contracts: “In the event of the death of Purchaser before closing, then the executor or administrator of Purchaser’s estate, shall have the sole right to terminate this Contract provided written notice of termination is sent within thirty (30) days after the occurrence of such death. All respective obligations of the parties under the Contract shall thereupon cease and be of no further force and effect and Purchaser’s estate(s) shall immediately obtain a full refund of the Contract Deposit.”
I think this language should be added to contracts. Just be sure to always read the fine print before signing anything. Obviously, in most cases, death isn’t something you know about or plan ahead for. So this clause can help your heirs and your estate from losing money.
I’m curious to hear what you think. Would you have sided with the New York Supreme Court? Or do you agree with the buyer’s heirs? Please leave me a comment or visit me online.