COVID-19 Addendum to Purchase Contract is Helpful

Question: In your recent column the buyer of an expensive Carefree home no longer wanted to close escrow on the home because the COVID-19 crisis caused a change in the buyer’s financial circumstances. The buyer wanted to cancel the transaction and forfeit the $25,000 earnest money. Under the standard Arizona Association of Realtors (“AAR”) Purchase Contract, however, the seller had the right to either accept the $25,000 earnest money, or to release the $25,000 earnest money and sue the buyer for actual damages. The seller had released the $25,000 to the buyer and filed a lawsuit against the buyer for $100,000 in damages because of the COVID-19 crisis. The home allegedly lost $100,000 in value. We have a small Chandler brokerage firm and we use the AAR COVID-19 Addendum (“COVID-19 Addendum”) in every transaction to bring awareness to both the seller and the buyer about this COVID-19 crisis. Wouldn’t the COVID-19 Addendum have avoided “the mess” these folks are going through?

Answer: Probably. The beginning language of the COVID-19 Addendum is similar in effect to the Buyer’s Advisory that advises a buyer to do a termite inspection and investigate for registered sex offenders. In other words, the COVID-19 Addendum is excellent to bring an awareness to both the seller and buyer of potential COVID-19 problems, e.g., the escrow company or the County Recorder’s office is closed because of COVID-19. The COVID-19 Addendum has basically four options. The first option on line 17 extends the close of escrow date. The next two options on line 18 and line 24 relate to COVID-19 issues, e.g., closing of the escrow company or County Recorder’s office, and providing for different time periods to extend the close of escrow. These two options are basically the existing law. Under the existing law, whether the escrow company’s office or the County Recorder’s office is closed because of COVID-19, a fire, or flooding, the doctrine of impossibility of performance should automatically extend the close of escrow a reasonable time. The final option on line 32 is to release the earnest money to the buyer. Therefore, if line 32 of the COVID-19 Addendum had been checked, “the mess” between the seller and the buyer would have been avoided. The seller could not sue for $100,000, but would have had to accept the $25,000 earnest money as the seller’s only claim against the buyer.