Most real estate agents in California selling residential property use a standard purchase agreement known as a California Residential Purchase Agreement and Joint Escrow Instruction (RPA-CA), which is produced by the California Association of REALTORS®.
I am not an Attorney – I am a licensed Real Estate Broker in California able to advise on real estate issues. This article is written for California real estate, other states will vary, consult a REALTOR® licensed in that state.
The RPA-CA has been developed over the years and is used in the majority of residential real estate transactions in California. It is a very balanced contract with plenty of protection built in for both the buyer and seller, but one could argue it is slightly in the Buyer’s favor, as California tends to be very consumer protection orientated.
In the old days, back when MLS books were king, the purchase contract was structured as “passive removal”. What this simply means, is most of the contengencies within the contract have time frames which would expire with no notice. For instance, let’s say that the Buyer has a financing contingency for the first 15 days from acceptance. For the sake of an example say the deadline for this contingency is September 15th. The Buyer will want to make sure the loan is approved and the appraisal is at value or more. Passive removal simply means that on September 16th that contingency has expired, and the Buyer could not use it to cancel or amend the contract for that issue.
This passive method left a bunch of folks surprised when deadlines passed, and their rights (contingency) disappeared. Some real estate agents didn’t do a very good job of advising Clients of upcoming deadlines and there were plenty of angry buyers. Sellers were many times delighted when a contingency evaporated at the stoke of midnight, while sleepless real estate agents wondered what they might have forgotten.
A number of years ago our standard RPA-CA switched to an “active method” of contingency removal. Using the same example as above with a contingency deadline of September 15th – what do you think happens on September 22nd if no written approval or demand for performance has not been delivered to the Buyer? The contingency continues to exist and the Buyer could still cancel the transaction based on loan issues.
So lets look at some of the contract language regarding “active removal” from Paragraph 14 of the RPA.
14. TIME PERIODS; REMOVAL OF CONTINGENCIES; CANCELLATION RIGHTS: The following time periods may only be extended, altered, modified or changed by mutual written agreement. Any removal of contingencies or cancellation under this paragraph must be in writing (C.A.R. Form CR).
The form referenced above is Contingency Release (CR) which is used to release contingencies.
Continuing on with Paragraph 14 of the RPA-CA:
A. SELLER HAS: 7 (or ____ ) Days After Acceptance to deliver to Buyer all reports, disclosures and information for which Seller is responsible under paragraphs 4, 5A and B, 6A, 7B and 12.
B. BUYER HAS: 17 (or ___ ) Days After Acceptance, unless otherwise agreed in writing, to: (i) complete all Buyer Investigations; approve all disclosures, reports and other applicable information, which Buyer receives from Seller; and approve all matters affecting the Property (including lead-based paint and lead-based paint hazards as well as other information specified in paragraph 5 and insurability of Buyer and the Property); and (ii) return to Seller Signed Copies of Statutory and Lead Disclosures delivered by Seller in accordance with paragraph 5A. (1)
(2) Within the time specified in 14B(1), Buyer may request that Seller make repairs or take any other action regarding the Property (C.A.R. Form RR). Seller has no obligation to agree to or respond to Buyer’s requests. By the end of the time specified in 14B(1) (or 2I for loan contingency or 2J for appraisal contingency), Buyer shall, in writing, remove the applicable contingency (C.A.R. Form CR) or cancel this Agreement. However, if (i) government-mandated inspections/ reports required as a condition of closing; or (ii) Common Interest Disclosures pursuant to paragraph 6B are not made within the time specified in 14A, then Buyer has 5 (or ) Days After receipt of any such items, or the time specified in 14B(1), whichever is later, to remove the applicable contingency or cancel this Agreement in writing.
To explain what all the above language means is beyond the scope of this article. My point is to illustrate the fact that the RPA-CA calls for written active removal.
Now instead of surprised Buyers with vanishing midnight contingencies, there are surprised Seller’s when a buyer cancels deep into the transaction due to some technical aspect of the contingencies not being removed.
Your REALTOR® needs to have a full understanding of the RPA-CA to protect your interests. Visit our contract & disclosure for more information.
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There are bank-owned properties come with an addition from the bank that converts it back to passive method. So if you are a home buyer, you need to ask your agent which method of possibility removal will be applied.
That is a really good point and its true that many banks use addendums that change things to being passive – I have written a post about that here:
http://www.sandiegolifestyle.info/2009/02/bank-owned-bingo-5-tips-for-success/
Most bank addendums are poorly done and play havoc with the underpinnings of the Residential Purchase Agreement.
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