Home closings often proceed smoothly, on time and without surprises. But there are occasions when a closing may need to be delayed, including when a hurricane or other serious storm, or an unexpected event, prevents the deal from being finalized.
Still, with the right preparation and contingency plans in place, you should be able to complete the transaction even if the closing needs to be postponed. Here’s how these events can impact the closing process, and what you can do to stay the course.
Why closing delays happen
The real estate closing process involves the coordination of several different independent parties, including the buyer, seller, lender, title company, insurance company and any attorneys or closing agents. Any of these parties can be impeded by a sudden event like a hurricane, earthquake, wildfire or other circumstance.
“People may be physically prevented from getting to the closing table,” explains Rajeh Saadeh, a real estate attorney based in Somerville, New Jersey. “Electricity, internet, telephone and cellular service and mail delivery may be disrupted, making it challenging to communicate with the parties affected.”
Saadeh adds like while “it’s rare for a closing to be delayed as a result of these circumstances, it can and does happen.”
Mother Nature isn’t the only force that can interrupt closing matters, however.
“In my career, I’ve seen a party arrested at closing, had a client suffer a heart attack on the way to closing and saw a seller’s home burn to the ground the morning of closing,” says Bruce Ailion, an Atlanta-based Realtor and property attorney.
How a hurricane might postpone the transaction
Closing delays due to a hurricane or other significant event could have negative consequences on many parts of the financing and home sale process, including:
- Mortgage rate lock – “Missing a closing date by even a mere day might result in the expiration of a rate lock in place,” cautions Ailion. If you locked in a low rate and mortgage rates have moved higher since, your monthly mortgage payment will increase and could make the home no longer affordable.
- Homeowners insurance – Insurance companies issue moratoriums on new policies when a named storm is bearing down on a particular area, and don’t write new policies until the event and any damage to the home has been resolved. “With a hurricane approaching, for example, insurance companies may stop taking new applications or issuing and binding new policies,” says Alison Hecht-Catanese, a real estate agent with Coldwell Banker in Greenwich, Connecticut, and Katonah, New York. Without insurance, your lender won’t allow the loan funds to be disbursed, preventing the deal from closing.
- Appraisal and inspection – There’s a chance a lengthy closing delay could mean that a new appraisal or home inspection may be required. “If the sale is delayed to the point where the lender requires a new appraisal, the buyer will have to get one and will likely be the person who pays for it,” Ailion says.
- Documents and move-in – If the deed or other physical documentation needed to complete the transaction was lost or damaged due to a storm, this could cause further delays in the transaction while new documents are prepared. In addition, if the home was considerably damaged, the buyer may not be able to take possession of or occupy the property until it is fixed.
How you’re protected
If the closing is delayed for reasons beyond your control, like a hurricane or other type of storm, the terms of your real estate contract dictate whether and to what extent you’re protected. In most cases, the “risk of loss” section of your contract indicates who pays for what and when.
Most real estate contracts also have a “force majeure” clause. This is a legal term used to describe events outside the control of a party that prevent the party from fulfilling its obligations in the contract.
“A force majeure clause enables a party to cancel a transaction if they cannot close due to an extreme unexpected event like an act of war, act of God or otherwise,” Saadeh says, adding that more often than not, the transaction won’t be called off in this case, but simply postponed for a short amount of time.
If the home was damaged as a result of a storm or other event, your real estate contract should also state who has the risk of loss before closing — usually the seller, Saadeh says.
“Depending on the extent of the repairs needed, the seller will probably be required to make and pay for those repairs,” Saadeh says. “Hopefully, their existing homeowners insurance will cover the event and reimburse them.”
That may not always be the case if, say, the event was a flood or earthquake and the seller didn’t have adequate policies in place and can’t make the repairs. That could trigger a force majeure of the contract, releasing the buyer from any legal obligation to purchase.
What if the home is so seriously damaged that it requires a rebuild, but the municipality determines it is unsafe to rebuild in that location and refuses to issue permits?
“In this case, the seller cannot complete the contract and would be excused from having to rebuild and sell to the buyer,” Ailion says.
What you can do to keep things on track
Preplanning for many of the possible scenarios that could disrupt the closing is a smart strategy, especially if it’s peak storm season in your area. You want to sidestep the more common mistakes that could delay a closing, as well.
“It’s a good idea to speak with your real estate agent and lender and come up with a contingency plan to ensure that the home-buying process can continue smoothly,” advises Bryce Linden, a closing attorney with Cook & James in Alpharetta, Georgia.
If you’re worried about a mortgage rate lock expiring, pursue a rate lock extension, which your lender may provide free or for a cost.
Alternatively, “if that locked rate was necessary for the buyer to qualify, the seller could choose to buy down the new rate to keep the transaction on track,” Ailion suggests.
Get a head start on securing homeowners insurance, too.
“It’s wise for buyers to apply for homeowners insurance early in the process, prepay the policy to bind early and get insurance that covers replacement costs,” Catanese says.
If the home suffers damage, the buyer needs to determine how long the repairs will take and if it’s worth waiting for them to be completed.
“In this scenario, having another professional inspection performed is a good idea,” Ailion recommends.
Lastly, try to be fair and accommodating to the other party, assuming the closing is salvageable.
“If your closing is on hold for reasons beyond the control of the parties, you should work together to reschedule the closing in a timely manner,” Linden says, adding that “if the closing doesn’t occur or the other party refuses to close in a reasonable timeframe, you should retain the services of an attorney.”