Due to the focus on safe practices of social distancing and avoiding crowd-gathering areas, many Registry of Deeds in Massachusetts have closed public access and allow only electronic recording. Some have apparently closed both public and electronic recording. How do these restrictions and limitations affect the time for performance, more commonly called, “the closing”?
Conveying title in Massachusetts is effective upon the proper execution and delivery of the deed to the grantee (buyer). While it does not have to be recorded at the Registry of Deeds, failure to do so places the grantee at risk that the property could be conveyed to a third party because mere delivery of the deed does not put the public on notice of the conveyance. In that case, the third party may have a paramount claim to title so long as the third party was unaware of the prior unrecorded conveyance.
To address a delay in the recording of the deed, title companies developed what is known as a “gap closing”. In a gap closing, the transaction closes, the deed is delivered and the buyer’s and lender’s (if a loan is involved) funds are released to be disbursed as agreed by the parties. This occurs despite a delay in recording the deed because a title insurance company has committed to issue title insurance to protect against intervening liens or defects that may arise between “delivery” and “recording”. The title company will assume this risk upon the seller executing an agreement agreeing to indemnify the title company for any “intervening liens or encumbrances”. A seller unwilling to perform under a “gap closing” will incur delay in receipt of funds until the deed is recorded. Sellers not willing to wait for the sale proceeds will agree to a “gap closing”.
Since most Massachusetts “closings” are completed the same day as the deed is delivered, “gap closings” are not as common as in other states. And because most purchase and sale agreements require “acceptance and recording” of the deed, the parties agree that the funds to close remain in escrow until title is confirmed to be free and clear of all intervening liens and encumbrances of record since the date title was searched. This common practice in Massachusetts typically avoids “gap closings”.
With the impact of COVID-19 on the Registries of Deed, delay in recording is inevitable. We should anticipate “gap closings” to become the temporary new normal.
Going forward, real estate practitioners should consider revising his or her standard purchase and sale agreement, rider or addendum with respect to delays due to COVID-19, etc. The Real Estate Bar of Massachusetts (“REBA”) just released a “… provisional residential purchase and sale agreement force majeure form or rider for COVID 19 (Coronavirus) delays in performance … [which] can also be used as text for a condition in an offer.” It is available to REBA members. Reviewing this important clause now is essential to avoid potential defaults or disputes.
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