Buyer’s of a “bank owned” property, or REO sale as they are often referred to, may come across some verbiage in the Banks Addendum to the Real Estate Purchase Contract that catches their eye: Per Diem Penalty. Escrow Officers are often asked, what does this mean?
Latin for “per day”, per diem has many uses. What per diem is referring to in this instance is in the event escrow does not close by the date set forth in the contract, the Seller can impose a daily penalty to the Buyer for each day beyond the initial agreed upon closing date until the day the escrow officially closes.
The amount of this penalty differs depending on terms of the contract. It can be a percentage of the purchase price or a set daily amount (ie $100 per day). It is important to note, agreements can be made between the Buyer and Seller to waive the penalty when applicable.
One way a Buyer can strive to close escrow on time and avoid penalties is to complete escrow and mortgage paperwork and provide requested documents in a timely manner. However, circumstances may still arise that are beyond the Buyer’s control. In this event, a Buyer should ask their agent to renegotiate the terms of the contract to extend the closing date or to waive the penalty with the Seller and Seller’s agent.
In REO transactions, as with any real estate transaction, it is very important to be sensitive to all time frames in order to alleviate unnecessary charges.
If you have further questions about the Per Diem Penalty, do not hesitate to contact your escrow officer for further clarification or leave us a note in the comments.
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Regarding your article about lender-imposed per diem penalties for buyer’s delay of closing date, does that work both ways? I’m involved in a contract where the lender is responsible for the delay because the title to the property has not been recorded in their name yet, following the Trustee’s Sale. They specified the closing date, which I agreed to. Now, they say they can’t close on time, and want me to sign off on that. I maintain that the situation is no different from a construction contract, where it is stipulated that a contractor must pay a daily fine if he doesn’t complete his work by a specified date. The courts have held that this clause works both ways. If the contractor finishes early, he is entitled to a bonus per day, equal to what the penalty would have been if he was late. Also, I’m living in a motel while I wait to move in, so I’m going to incur additional costs now.