Home Closings During the COVID-19 HEALTH CRISIS

by Michael H. Wasserman

We are now four full weeks into the Illinois Stay-at-Home regimen. Hopefully, the last of winter’s snowfalls are finally behind us. I’m not bike-commuting on the lakefront these days, but the firm is still actively engaged in real estate transactions. Here is our take on the current real estate closing landscape and where we think it is heading.

The good news is that (some) buyers are still buying. (Some) sellers are still selling. Lenders are still lending out (some) money, and Realtors are still out in the neighborhoods putting contracts together. The firm is still closing clients’ contracts.

The market shrugged off first reports about the corona virus in January and February. The office was quite busy, and we were hearing many optimistic reports for a robust spring, even as the global stock markets began to swoon on February 20^th. The stock market tanked, and the governor declared Illinois a disaster area on March 9th. In the two weeks that followed, stock markets fell hard again on the 12^th, the state banned large groups from assembling on the 13^th, bars and restaurants were closed as of the 16^th, and the stay-at-home order was imposed on 20^th.  

That initial wave COVID-19 executive actions and stock market corrections sent a surging tidal wave of fear and panic thru the hearts of many home buyers. Hundreds of contracts cancelled. Many buyers cut bait and recouped earnest money deposits without penalty. A startling number quit their contracts without legal justification and voluntarily gave up some or all of their earnest deposits. In some instances, tens of thousands of dollars willingly forfeited. A smaller number of buyers simply refuse to close or give up their earnest money and their contracts remain unsettled. Thanks to a lot of hard work from my associate John Aylesworth and our brokers partners, most all of the contracts we were working on held together. I really think we did well here, taking time with each of our clients to make sure they were well informed about their contract rights, that they understood their options at all times and that they made good decisions on their deals. In spite of March’s upheavals most all of our client contracts hung tough and have closed or remain pending.

New contract activity hit the brakes hard for us over the last 30 days. We track new files opened on a weekly basis. I have not seen numbers this bleak since the last financial melt-down. We know many buyers are side-lined, unwilling to take the perceived health risks attendant to going out house-hunting and pending better news from the health authorities. We know many sellers de-listed or put holds on their marketing efforts. All understandable consequences of the pandemic.

Clients whose contracts survived the initial panic and clients presenting new contracts to us are facing two main problems above all others: a severe tightening in the jumbo mortgage markets and buyer cancellations due to loss of employment, whether by furlough, termination or businesses that have closed their doors and turned the lights off for good. It remains an immutable rule in this business – no job, no income, no mortgage financing. As for jumbo loans, mortgage lenders facing greater risks and increasing liquidity issues are far less willing to make large loans these days. This will likely spread to other mortgage lending niches too. A number of buyers have been able to reconfigure their financing using co-borrowers, gift funds, family loans and other devices to overcome changes in lending guidelines. We love finding solutions like these when problems arise.

Some of our closings over the past month have not be as elegant as strive for but where there is a will, there is a way. Conveyancing of properties remains fundamentally the same as it ever was but they ways we accomplish that conveyancing have evolved quite rapidly. Each lender, each title company, each municipality, every participant in the closing process has established new or revised rules and protocols since the virus appeared. These changes are happening day to day, some better publicized than others. As a result, we in the office are devoting considerable hours towards keeping up with our service partners to stay abreast of new developments and analyzing the ways the new rules will impact our buyers and our sellers. We obsess over contract language and closing operations for precisely this reason. Our clients deserve and look to us for guidance and direction in order to make the best of current market conditions.

An encouraging number of new opportunities for us so far this week. The freeze in new contracts seems to be thawing somewhat. Demand is building among the buyers and brokers we have been speaking to and we expect that more and more buyers will continue to re-enter the market as weather warms, COVID stats glide downward, leases end and school years wind down. A window of opportunity is emerging from which we expect more contracts being signed and in greater numbers. Still, we remain concerned by the large numbers of newly unemployed in our community, the risks of virus resurgence and the longer-term implications for both sellers and buyers.

Again, it bears repeating. With so many changes in lending rules and guidelines, so many new title company procedures and requirements, and so local governmental restrictions all resulting from the recent market volatility, health worries, buyers and sellers need face an increasing number of risks obstacles and threats to their real estate plans. We understand these challenges. 

We know how much in on the line. We know how important quality legal representation will be for all Chicagoland home sellers and buyers as we all move forward into the months ahead.