Steps can be taken when repair delays threaten closing

Q. My contract to buy includes an addendum listing requested repairs. The seller (a Realtor) agreed that some items had been corrected and that others would be done. Now, two days before closing is scheduled, there are windows that he agreed to replace “when they arrive” that won’t be available until after the closing.

Is the seller held to contractual obligations, like this, after closing, or does closing wipe away all vestiges of the contractual commitment?

A. You raise an issue of which all parties to a real estate contract should be aware, called the Doctrine of Merger.

Essentially, the Doctrine of Merger provides that any agreements or contracts involved in the conveying of property are “merged” with the deed, or, more accurately, superseded by the deed. Whatever promises are not expressed in the deed are effectively nullified under the Merger Doctrine.

Over the past number of years, however, the harshness of the Doctrine has been relaxed. Courts have recognized an exception or qualification to the merger rule where the contract contains provisions that delivery of the deed does not fulfill. As to those provisions, courts have ruled the contract is not merged in the deed and the contract remains in force until the provisions contained in the contract have been fully performed.

As this issue has not yet been entirely resolved by Illinois courts, parties to real estate contracts should take additional steps to ensure contractual agreements (such as replacing windows) remain enforceable after closing. The two common methods are:

Ÿ To include a provision in the contract, or through attorney review, stating obligations that cannot be performed prior to the closing shall remain enforceable and shall not merge with the deed.

Ÿ To create a “repair escrow” whereby, in this case, the seller would deposit sufficient funds in an escrow account to guaranty the delivery and installation of the windows. An escrow agreement would be drafted that would provide, among other things, that in the event the windows were not installed on or before a certain date, the purchasers could use the escrow funds to have the work performed themselves. Obviously, it would be essential to have enough of the seller’s funds deposited in the escrow to cover the cost and installation of the windows in the event the seller failed to honor the agreement.

Many, if not most, attorneys would employ both the above in addressing this issue.

Q. I have entered into a short sale contract on my property. My mortgage company has told me numerous times over the phone that they will not pursue me for any deficiency. Is this something I should get in writing?

A. My guess is you knew the answer to that question before you asked it. You should obtain what is sometimes referred to as a “no deficiency” letter from your lender (or lenders) prior to closing. The letter will state the amount of the deficiency and will specifically provide that the lender will not pursue the homeowner for the deficiency once the short sale is completed.

For those unfamiliar with short sales, the “deficiency” is the difference between what amount of money the seller’s lender has agreed to accept to release their mortgage lien on the property and the amount actually owed.

Ÿ Send your questions to attorney Tom Resnick, 345 N. Quentin Road, Palatine, IL 60067, by email to tdr100@hotmail.com or call (847) 359-8983.