The Cure

No, this isn't a post about a rock band or a medical miracle. The "Cure" in real estate terms refers to Section 7a of the Residential Resale Real Estate Contract that gives a party the chance to cure a failure to perform an obligation under the Contract.I often hear the question, "Is there anything that can go wrong in this deal?" or "Are we absolutely, 100% positive that we'll close on the Close of Escrow date?". While I always wish I could answer no to the first question and yes to the second, experience has shown me that there are a number of milestones to reach contractually before both Buyers and Sellers can relax and be absolutely certain that the deal will go through.In 2005, the Arizona Association of Realtors implemented a new purchase contract which included the provision of a "Cure Period". Simply put, a cure period is a second chance to fix a problem before it becomes a breach. This eliminates any automatic breaches since the Cure Period notice is now required before declaring a breach of contract. The intent of creating this cure period was to give all parties guidelines for handling non-performance, to give parties some leverage in gaining compliance to the contract terms, to reinforce the fact that both parties must do certain things within certain timeframes (time is of the essence) and to fairly give each party a chance to rectify a non-compliance with the contract before the contract is cancelled or legal action is taken.A breach of contract is fundamentally a broken promise whereby one of the parties violates one or more of the terms or conditions of a contract without legal excuse. The remedies for a breach may include forfeiting earnest money, cancellation of the contract, forcing the breaching party to keep their promise or actual monetary damages. Many people confuse breaches with contingencies but there is a distinct difference. A contingency is an event that has to happen before a party is obligated to perform a contract. It's a condition, not a promise. Examples of contingencies are the inspection contingency, the loan contingency and the appraisal contingency. If a contingency doesn't happen, the contract automatically terminates. If a breach happens, a Cure Period Notice is required.Let's say that the Buyer has asked and the Seller has agreed to repair a pool motor prior to Close of Escrow. On the closing date, the motor hasn't been fixed. This is a breach and the Seller is contractually obligated to correct it. The Buyer should immediately deliver a Cure Notice to the Seller. The Buyer can either delay closing for up to three days to allow the Seller the chance to repair the pool motor or go ahead and close escrow. So what happens if after three days the Seller still hasn't repaired the motor? If the Buyer has delayed closing, the Seller is in breach of contract and the Buyer may proceed against the Seller subject to the dispute resolutions outlined in the Contract. If the Buyer has gone ahead and closed, the Buyer can pursue the Seller for the breach and recover the cost of repair (either in small claims court or through mediation).On the other side, let's say the Buyer decides to back out of the contract on the closing date. All contingencies of the contract have been met. The Seller must then present the Buyer with a Cure Notice. If, after three days, the Buyer still does not close escrow, then the Seller is entitled to cancel the contract and keep the earnest monies. Should another offer to purchase come in during this three day period, the Seller should be careful to only accept this offer contingent upon the cancellation of the first contract or otherwise be exposed to enormous liability.In an upcoming post, I'll explore some of the in's and outs of contingencies.