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Hubbard Clauses

A Hubbard Clause is a contingency in a purchase and sale agreement that expressly conditions a Buyer’s purchase of a property upon the Buyer’s ability to sell and close on another piece of real estate (usually their existing home).

There are several elements associated with an agreement containing a Hubbard Clause that are different from a normal agreement. First, the home that a Buyer wants to purchase will continue to be marketed until either (a) the Buyer sells their home or other real estate and satisfies the contingency; or (b) another offer is received by the Seller. Second, if the Seller receives a bonafide offer from a third party, a specific procedure must be followed. Usually, the Seller advises the Buyer, in writing, that another offer has been received and demands that the Buyer release the Hubbard Clause, making it void. There is usually a specific time period for the Hubbard Clause agreed upon during the negotiations for the Buyer to respond to the Seller’s demand. This time period may vary, but it is often 48 to 72 hours after receipt of notice from the Seller.

When this happens, the Buyer must decide whether they are willing to assume the risk that their home will sell in a timely manner if it is not under contract, or if the contingencies in the Buyer’s contract have not been fully satisfied, e.g. mortgage, inspections.

The flaw here is that the Seller should also have the right of election to terminate the contract, particularly if the deposit money is small or if the Seller prefers the new offer. Although the Greater Hartford Association of Realtors’ Hubbard Rider requires Buyers to demonstrate their ability to close, they still may elect not to purchase if they haven’t sold their existing home. Moreover, there is nothing in the GHAR form which requires Buyers to use the GHAR form to demonstrate satisfaction of the Hubbard contingency.

If the Buyer elects to proceed with purchasing the Seller’s property, there is a written waiver of the Hubbard Clause that must be signed by both parties; otherwise, the Seller has the right to void the agreement with the Buyer and return their deposit to them.

Because Hubbard Contracts are not attractive to Sellers, there are several options that a Buyer may have to utilize the selling of their current home. The first option is to tap equity by considering procuring a home equity loan. Although the home owner may end up with a first and second mortgage on the old home and another one on the new home, once the first home is sold, the Buyer is left with one loan only on the new home purchased.

Another option might be a so-called dual property loan. Here, the mortgage company would blanket both properties with a mortgage. This may help the Buyer to increase their buying power and thereby afford to purchase both properties. Once the first home sells, the lien of the blanket mortgage is released from the first home only resulting in a mortgage against the new home only.

Please call me if you have any questions with respect to the foregoing.

Mark S. Steier