Incapacity or Death Before Closing: How It Affects Real Estate Transactions
Whether you're planning to downsize, helping an aging parent with their final move, or assisting a loved one through a major life transition, there are some difficult - but necessary - questions to consider before buying or selling property. One of the most important (and often overlooked) concerns is: what happens if a seller or buyer loses mental capacity or passes away before closing day?
In this post, we explore what happens to a real estate transaction when capacity is lost or a party dies before completion. These are sensitive situations, but understanding the legal and logistical implications is crucial to protecting your interests- and your loved ones’. If you're navigating the complexities of selling or buying property later in life, or want to prepare for the unexpected, read on for essential insights and guidance.
What Happens If a Seller or Buyer Loses Capacity or Passes Away Before Closing?
Buying or selling a property is a significant life event, but what happens if a party involved in the transaction loses capacity or passes away before the deal is finalized? It’s not a situation anyone wants to think about, but understanding the implications is crucial for both buyers and sellers.
In real estate transactions, when one party loses capacity or passes away before closing, the transaction does not automatically fall apart. Instead, the incapacitated or deceased party (or their estate) remains legally bound by the contract. However, completing the transaction can become far more complex and time-consuming, often resulting in delays and legal challenges.
Losing Capacity Before Closing: What You Need to Know
If a party to the transaction loses capacity prior to closing, the ability to proceed hinges on whether a valid Enduring Power of Attorney (POA) was established beforehand. A POA allows a designated individual to act on behalf of the incapacitated party. However, if the buyer loses capacity, even a valid POA may not suffice - lenders often require the borrower themselves to sign loan documents, which can complicate matters significantly.
If no POA is in place, the situation becomes even more daunting. An application must be made to the court to appoint a committee to act on behalf of the incapacitated person. This legal process can be lengthy - often longer than the time available before the closing date - putting the transaction at risk.
Passing Away Before Closing: How It Affects the Transaction
When a party to a real estate transaction passes away before closing, their estate remains responsible for completing the deal. For the estate’s executor to act, a grant of probate must be obtained from the court. Unfortunately, acquiring a grant of probate can take many months, or even years in complex cases.
If the deceased did not leave a valid will, the process becomes even more cumbersome. A grant of administration is needed to give someone legal authority to act on behalf of the deceased’s estate. This process mirrors that of obtaining probate and can also face significant delays.
Time Is Not on Your Side: The Urgency of Legal Preparedness
In both scenarios - whether due to incapacity or death - time is a critical factor. Delays in obtaining necessary legal documents can push closing dates beyond what was initially agreed upon, and without legal authority in place, negotiating extensions becomes nearly impossible.
Real estate professionals, family members, and anyone closely involved must act quickly to determine whether there is a valid POA or will. If not, the transaction may be at risk of falling through.
Consult a Lawyer or Notary - Don’t Wait for the Unexpected
While it’s undoubtedly uncomfortable to discuss the possibility of losing capacity or passing away, it’s essential for buyers and sellers to plan ahead. Consulting with a lawyer or notary to establish a POA and draft a valid will is crucial for protecting your interests and ensuring a smooth transaction, even if the unexpected occurs.
If you are buying or selling a property, take the proactive step of seeking legal guidance. This can save you from stressful, time-consuming legal battles and help protect your real estate transaction from unforeseen disruptions.
Have any questions? We'd be pleased to discuss and if needed put you in touch with a notary or lawyer that can give you specific advise for your situation.