Imagine for a moment the following scenario: After months of searching for the perfect place to call home, you wrote an offer on a picture perfect lakeshore rambler in Ham Lake, Minnesota. After a little negotiation, the offer was accepted and with the inspection over, you are on schedule to close in 60 days.
Three weeks prior to the closing, straight-line winds blow through Anoka County. Concerned, you drive up to your dream home and see that the picturesque oak trees that had given the home character have been uprooted. Worse yet, one of the huge trees fell onto the house severely damaging the roofline. You are devastated as this was no longer the dream home you wrote an offer on a few weeks ago. So, what happens now?
Risk of Loss is one of those "boiler plate" clauses on page four of the purchase agreement used most often in the State of Minnesota. Being preprinted, some agents and/or their clients will gloss over this clause but it is very important to understand, as is every other line in the document you sign to buy a home.
Line 147 clearly states that the risk of loss due to any reason whether an act of God or the acts of vandals will be the responsibility of the seller from the time the purchase agreement is signed until the date of closing. That means if there is a fire or accident the seller is required to bring the home into the condition that it was in at the time the contract was written and signed.
So if that temperamental decade old dishwasher goes out, the seller would replace it. If a neighbor backs over the mailbox at the end of your driveway, it is the seller who must repair the post and replace with a new one. Final walkthroughs are essential to ascertain the condition of the home prior to signing the closing documents. But what happens to those irreplaceable picturesque trees that have fallen on the roof?
Three weeks prior to a closing, there could be plenty of time for the seller to call their insurance company and have the home repaired. But is it the same house? And more importantly, does the buyer still have to buy the home? In a word, no.
The clause goes on to say that in the case where there is substantial damage to the home or property, it is the buyer's option to cancel or continue with the purchase agreement. In the situation outlined above, which was a real situation that occurred last summer, the landscaping was changed and could not be replaced. The damage to the home caused an insurance claim that would now be reflected in a CLUE insurance report that could affect the ability to insure the home. The buyers opted to cancel the contract as was their option in the clause with all earnest money refunded.
Risk of loss can come up when buying or selling a home during severe weather season in Minnesota. In most cases the repairs are made quickly to both the buyer's and seller's satisfaction and the contract will close on time. But when the property sustains significant damage, the buyer has the option of continuing to closing or walking away from the deal. Boilerplate or not, Risk of Loss is an important clause to understand when buying or selling a home.
Copyright 2009 Teri Eckholm