Divergent Hurricane Strategies: First Keep the Deposit

What Should You Do? ... After the two recent Dispatches (Sep 13 and Sep 15) on the impact of Katrina -- and now Rita -- on real estate transactions, Marx Sterbcow at the Sterbcow Law Group in New Orleans vividly framed the issues faced by real estate attorneys in the aftermath. (Sterbcow is temporarily officed in Baton Rouge.)

"What happens when a residential or commercial purchase agreement sets forth a date, and, due to fortuitous events (Hurricane Katrina), the courthouses are destroyed or closed for a prolonged period of time? Lenders and banks are out of commerce or are unable to fund a loan. Title companies are out of commerce or their records are destroyed. Appraisers have fled for parts unknown and can’t be reached.

"Entire real estate brokerages are destroyed overnight or, at the very least, entire offices are under ten feet of water. Sellers and/or purchasers can’t be found or, in some circumstances, have perished with the flood waters. Real estate agents are missing and can’t be found. Computers, cell phones and the Internet are down for days, weeks, months, and, in some cases, a year or more. Insurance companies have halted new policies or insurance agents have fled for good to parts unknown. ...

"Let's say that purchasers Pre-K (Pre-Katrina) put down 20% on a home ($20,000) and their purchase agreement said they must close on September 10, 2005. Yet due to one or more of the above scenarios listed above, the closing date comes and goes. Luckily, that home was not damaged at all or suffered minor damage at worst, but not enough to materially alter the structure of the home. The Seller then proclaims that the purchaser is in breach and pockets the $20,000. Then due to the overexcited real estate market, in which over 200,000 homes were completely destroyed, the Seller puts that same house back on the market and sells it that day for $50,000 more than the original contract to another party.

"Now let's add a twist. Assume that the original purchaser completely lost his home and possessions in the flooding and the house he was ready, willing, and able to buy was sold -- and, to add insult to injury, the seller kept the $20,000 deposit. Is this scenario real or fictional? Well, for hundreds of families in Louisiana this scenario is a factual nightmare, and legally attorneys and law professors are at odds over whether these people have any recourse. (Some are now homeless because of this.)

"The question that everyone is asking is: Can the government toll or suspend a private purchase agreement contract in the event of a natural disaster, and, if so, how long can the government toll or suspend the date listed in the purchase agreement contract? Unfortunately, no one ever addressed a doomsday scenario like this in Louisiana..."

-- Peter Pike