What Happens If a Lender Missed the Closing Date?

A real estate closing date marks the moment property ownership officially transfers. When a lender misses this deadline, it introduces uncertainty and confusion for all parties involved. This disrupts plans and can lead to unexpected challenges. This article explains the typical consequences of such a delay and outlines steps individuals can take to navigate this unforeseen circumstance effectively.

Immediate Implications of a Missed Closing Date

A missed closing date creates immediate financial and logistical repercussions for both buyers and sellers. For buyers, a primary concern is the potential expiration of their mortgage rate lock. If the rate lock expires due to the delay, they may face higher interest rates on their loan, increasing the overall cost of their mortgage, or incur a fee to extend the original rate. Buyers might also face per diem fees, which are daily charges stipulated in some contracts to compensate the seller for ongoing costs, or additional expenses for extending temporary housing and storage for their belongings. There is also a risk of losing their earnest money deposit if the delay leads to contract termination.

Sellers experience their own set of financial burdens when a closing is delayed. They continue to incur carrying costs for the property, including mortgage payments, property taxes, insurance premiums, and utility bills. These ongoing expenses can quickly accumulate, eroding the anticipated proceeds from the sale. Logistical disruptions are also common, as moving plans, temporary housing arrangements, and scheduling for both parties are thrown into disarray. Beyond financial and logistical challenges, the uncertainty and frustration can cause emotional stress for everyone involved.

Understanding Your Purchase Agreement

Understanding your purchase agreement’s terms is important when a closing date is missed. This document outlines the rights and obligations of both the buyer and the seller, providing a framework for how delays are addressed. Carefully review clauses such as “Time Is of the Essence,” which, if present, signifies that all deadlines must be strictly adhered to, and any missed deadline could be considered a breach.

Contingency clauses, like financing or appraisal contingencies, are also highly relevant. These clauses protect parties by allowing them to withdraw from the contract without penalty under certain conditions, and their expiration or non-fulfillment due to a lender’s delay can significantly impact the agreement. The agreement also contains default provisions, specifying what happens if a party fails to meet contractual obligations, even due to a third party like a lender. These provisions often detail the remedies available, such as the right to seek damages or terminate the contract. The contract also clarifies how the earnest money deposit is handled in scenarios of default or contract termination, determining whether it is forfeited or returned.

Steps to Address the Delay

After reviewing the purchase agreement and understanding implications, take procedural actions. Communicate immediately with your real estate agent, lender, and a real estate attorney to learn the reason for the delay, get a new timeline, and discuss solutions. Document all communications, including dates, times, and summaries of conversations, for a clear record.

Formal written notice may be required by your contract to the defaulting party or their agent, outlining the unmet obligation and, if applicable, demanding performance or stating an intent to terminate the agreement. Keep a detailed record of any expenses incurred due to the delay, such as extended housing costs or rate lock extension fees. When negotiating with the other party for an extension, compensation for damages, or other adjustments, reference the terms of your purchase agreement. Consulting with a real estate attorney provides guidance specific to your situation and helps ensure any actions taken align with legal requirements and protect your interests.

Common Resolutions and Next Steps

When a closing date is missed, common resolutions emerge to avoid contract termination and move the transaction forward. One frequent outcome is granting an extension to the closing date, formalized through an addendum to the original purchase agreement. This extension may involve negotiated terms, such as the buyer agreeing to pay per diem credits to the seller to cover ongoing property costs, or the lender offering concessions for their delay.

In situations where a resolution cannot be reached, or the delay is prolonged, either the buyer or seller might choose to terminate the contract. The implications for the earnest money deposit in such cases depend entirely on the specific terms outlined in the purchase agreement and who is deemed to be at fault for the termination. While less common, a party might seek specific performance, a contractual remedy compelling the other party to complete the transaction as agreed. For the lender, repeatedly missing closing dates can negatively impact their reputation and may affect their future business relationships within the real estate community. After navigating the delay, whether through extension or termination, parties can then proceed, either by resuming the transaction or seeking new opportunities in the real estate market.