What happens to a real estate contract if a buyer dies before closing?by Lynnette Khalfani-Cox
But what happens to a real estate contract if the ultimate tragedy occurs and the buyer dies prior to the official closing or settlement?
Is the real estate deal just terminated entirely? Or is it possible that another party, such as a surviving relative, will be legally required to go through with the purchase? Also, what about any earnest money, deposit or other funds that may have been paid upfront; how is that money handled?
While the average consumer might assume that a deal to purchase a home is instantly terminated upon a prospective buyer’s death, legal experts say that’s not actually how it works.
“As a legal matter, it isn’t necessarily the case that the contract is automatically terminated if a buyer dies,” says Ralph Holmen, Associate General Counsel for the National Association of Realtors.
“What happens will depend on the particulars of the contract, the other parties to it (particularly if there is a spouse who is also a party), and may also depend on the details of state law of the state to which the contract is subject,” Holmen says.
As a practical matter, however, it may be that sometimes the other party to the contract would treat the contract as terminated even if the law did not require it, Holmen adds.
Not all home sellers, though, are willing to cancel a sale–even in the wake of a buyer’s death. Some sellers may hang onto deposits or try to force the deceased buyer’s estate to go through with the purchase.
Ira Matetsky, an attorney with Ganfer & Shore LLP in New York City, has written about such a case. A woman had put $230,000 down on a $2.3 million Manhattan co-op but died before closing on the property. The seller refused to return the down payment to the deceased buyer’s relatives. The Manhattan Supreme Court ultimately sided with the seller, saying the deposit did not have to be returned.
Matetsky believes the seller won simply because there was no provision built into the contract stating that in the event of the buyer’s death the contract would be completely null and void.
The lesson: In addition to an appraisal, inspection and mortgage contingency clauses, buyers should also include a death contingency clause in real estate contracts.