Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

24
Real Estate Law The Basic Real Estate Contract

Transcript of Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Page 1: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

                                    

Real Estate Law

The Basic Real Estate Contract

Real Estate Law

The Basic Real Estate Contract

Page 2: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

The Basic Real Estate ContractThe Basic Real Estate Contract

Subjects Covered:Subjects Covered:

Common Contractual TermsCommon Contractual Terms

Special Types of Real Estate Special Types of Real Estate ContractsContracts

Page 3: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Introduction to ContractsIntroduction to Contracts

DEFINITIONDEFINITION

A contract is a promise or set of promises A contract is a promise or set of promises which constitute a legally enforceable which constitute a legally enforceable agreement between two or more people.agreement between two or more people.

Page 4: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Types of ContractsTypes of Contracts

Unilateral or BilateralUnilateral or Bilateral

Unilateral ContractUnilateral Contract

"I offer to give you $100 if "I offer to give you $100 if you cross the Brooklyn you cross the Brooklyn Bridge.“Bridge.“

Offer calls for acceptance to Offer calls for acceptance to occur by performance of an occur by performance of an act.act.

The unilateral contract is The unilateral contract is accepted by actually accepted by actually performing duties requested performing duties requested by the offer.by the offer.

Bilateral ContractBilateral Contract

"I "I promisepromise to give you $100 if to give you $100 if you you promisepromise to cross the to cross the Brooklyn Bridge“Brooklyn Bridge“

Form of contract when an offer Form of contract when an offer requires acceptance in form of requires acceptance in form of a promise to perform.a promise to perform.

Page 5: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Types of Contracts (cont’d)Types of Contracts (cont’d)

Express or ImpliedExpress or Implied

ExpressExpress - parties state the terms and - parties state the terms and show intentions in words, either orally or show intentions in words, either orally or in writing. (i.e., most listing in writing. (i.e., most listing agreements)agreements)

ImpliedImplied - Prior conduct - agreement - Prior conduct - agreement formed by acts and conduct of parties in formed by acts and conduct of parties in past. ALSO --partial performancepast. ALSO --partial performance

Page 6: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Elements of a Valid ContractElements of a Valid Contract

1.1. Competent PartiesCompetent Parties

All parties entering into contract must have All parties entering into contract must have legal capacitylegal capacity to contract. to contract.

2.2. Mutual AssentMutual Assent

All parties must be mutually willing All parties must be mutually willing to enter into contract and contract to enter into contract and contract must be signed as the "free and must be signed as the "free and voluntary" act of each party. voluntary" act of each party.

(i.e., "(i.e., "meeting of mindsmeeting of minds")")

Page 7: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Elements of a Valid Contract (cont’d)Elements of a Valid Contract (cont’d)

3.3. ConsiderationConsideration

Consideration is any promise or Consideration is any promise or performance that is made in exchange for performance that is made in exchange for a promise or performance by the other a promise or performance by the other party to a contract.party to a contract.

Real Estate ContractsReal Estate Contracts -- promise by owner to -- promise by owner to convey title to B and promise by B to pay convey title to B and promise by B to pay purchase price for propertypurchase price for property

4.4. LegalityLegality

Page 8: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Mutual AssentMutual Assent

Offer is accepted when offeree (Seller) signs Offer is accepted when offeree (Seller) signs agreement and communicates acceptance to agreement and communicates acceptance to offeror (Buyer). offeror (Buyer).

Counter Offer - If any terms of original offer are Counter Offer - If any terms of original offer are changed, changes constitute total rejection, changed, changes constitute total rejection, relieves original offeror of liability - Offeree has NOT relieves original offeror of liability - Offeree has NOT accepted offer BUT MAKES NEW offer.accepted offer BUT MAKES NEW offer.

Contract Modification - Original contract stays once Contract Modification - Original contract stays once contract is signed by both parties unless both contract is signed by both parties unless both parties agree to modification, and modification is parties agree to modification, and modification is supported by separate consideration.supported by separate consideration.

NONO MUTUAL ASSENT MUTUAL ASSENT IFIF: : Misrepresentation. Fraud, Misrepresentation. Fraud, Mistake, Mistake, oror Duress, Undue Influence or Menace. Duress, Undue Influence or Menace.

Page 9: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Mutual Assent (cont’d)Mutual Assent (cont’d)

Misrepresentation Misrepresentation - - Innocent misstatement of material Innocent misstatement of material fact upon which someone relies and causes that person fact upon which someone relies and causes that person to suffer damagesto suffer damages..

FraudFraud - - Misrepresentation of material fact knowing it to be Misrepresentation of material fact knowing it to be false upon which another relies and causes that person false upon which another relies and causes that person to suffer damages.to suffer damages.

Silent FraudSilent Fraud - - Broker must affirmatively disclose Broker must affirmatively disclose information regarding defects in property in whether or information regarding defects in property in whether or not Buyer inquires - not Buyer inquires - Massachusetts Consumer Protection Massachusetts Consumer Protection ActAct..

““AS IS’ clause is sometimes used in purchase agreements. AS IS’ clause is sometimes used in purchase agreements. Buyer acknowledges in writing that Seller has made NO Buyer acknowledges in writing that Seller has made NO warranties re: condition of property. “As is” clause does warranties re: condition of property. “As is” clause does not shield Seller from fraud or silent fraud.not shield Seller from fraud or silent fraud.

MistakeMistake - - Mutual misunderstanding in negotiations Mutual misunderstanding in negotiations between partiesbetween parties

Page 10: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Contractual Requirements for the Sale of Contractual Requirements for the Sale of LandLand

1.1. WritingWriting

Every state has a Statute of Frauds which Every state has a Statute of Frauds which requires contracts for the sale of land to be requires contracts for the sale of land to be in in writing writing - verbal contracts for sale of land are - verbal contracts for sale of land are unenforceable.unenforceable.

The Statute of Frauds also requires that the The Statute of Frauds also requires that the “Rule of 4 Ps” be satisfied – contract must “Rule of 4 Ps” be satisfied – contract must contain four essential terms:contain four essential terms:

PartiesParties identified; identified; PropertyProperty described; described; PricePrice stated; and stated; and Date for Date for PerformancePerformance given given

Page 11: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Contractual Requirements for the Sale of Contractual Requirements for the Sale of Land (cont’d)Land (cont’d)

2.2. Description of PartiesDescription of Parties

Contract must contain the names of Contract must contain the names of both Buyer both Buyer

and Sellerand Seller..

3.3. Description of Real EstateDescription of Real Estate

Contract must contain a Contract must contain a reasonably certainreasonably certain

description of the land to be sold.description of the land to be sold.

Page 12: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Contractual Requirements for the Sale of Contractual Requirements for the Sale of Land (cont’d)Land (cont’d)

4.4. Sale Price (i.e., Consideration)Sale Price (i.e., Consideration)

Contract must contain the purchase price and Contract must contain the purchase price and must state how it will be paid. The payment must state how it will be paid. The payment terms are broken down into:terms are broken down into:

a.a. Deposits;Deposits;b.b. Amount to be paid upon delivery of the deed Amount to be paid upon delivery of the deed

(i.e., at closing); and (i.e., at closing); and c.c. Total purchase priceTotal purchase price

Contracts generally also identify the form of any Contracts generally also identify the form of any financing (mortgage assumption, land contract, financing (mortgage assumption, land contract, mortgage)mortgage)

Page 13: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Contractual Requirements for the Sale of Contractual Requirements for the Sale of Land (cont’d)Land (cont’d)

5.5. Signature of PartiesSignature of Parties

The Statute of Frauds provides that the contract The Statute of Frauds provides that the contract can be enforced can be enforced only against parties who signonly against parties who sign. If . If a party does NOT sign, that party is NOT liable a party does NOT sign, that party is NOT liable under contract.under contract.

Page 14: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Other Common TermsOther Common Terms

1.1. Description of personal propertyDescription of personal property to be transferred to be transferred with premises. (i.e., contracts, franchises, with premises. (i.e., contracts, franchises, permits, leases).permits, leases).

2.2. PossessionPossession

3.3. Condition and Inspection of PropertyCondition and Inspection of Property

4.4. Real Estate Broker’s FeeReal Estate Broker’s Fee

5.5. ClosingClosing time and place, responsibility for time and place, responsibility for producing documents, closing expensesproducing documents, closing expenses

6.6. ProrationsProrations – e.g., property taxes and assessments – e.g., property taxes and assessments

7.7. WarrantiesWarranties

Page 15: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Seller’s WarrantiesSeller’s Warranties

Seller’s WarrantiesSeller’s Warranties1.1. Good and marketable title.Good and marketable title.

2.2. Premises and any personal property Premises and any personal property conveyed are sole property of Seller.conveyed are sole property of Seller.

3.3. Seller knows of no claims or Seller knows of no claims or encumbrances upon property.encumbrances upon property.

4.4. No alleged claims or litigation regarding No alleged claims or litigation regarding property.property.

5.5. All taxes and assessments paid.All taxes and assessments paid.

6.6. Seller will indemnify Purchaser as to Seller will indemnify Purchaser as to warranties.warranties.

Page 16: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Seller’s Warranties (cont’d)Seller’s Warranties (cont’d)

Marketable TitleMarketable Title Seller must have Seller must have good titlegood title, , free from liensfree from liens, ,

encumbrances or defects encumbrances or defects other thanother than those those specified in contract.specified in contract.

Title is unmarketable ifTitle is unmarketable if::

1.1. Seller lacks all or part of title alleged ORSeller lacks all or part of title alleged OR2.2. Title subject to encumbrance ORTitle subject to encumbrance OR3.3. Reasonable possibility of 1 or 2Reasonable possibility of 1 or 2..

Title Held By SellerTitle Held By Seller Unless purchase agreement indicates otherwise, Unless purchase agreement indicates otherwise,

purchaser is purchaser is entitled to undivided fee simple entitled to undivided fee simple absoluteabsolute to all property purchased. to all property purchased.

Page 17: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Seller’s Warranties (cont’d)Seller’s Warranties (cont’d)

Title Free From EncumbrancesTitle Free From Encumbrances Unless purchase agreement provides otherwise, Unless purchase agreement provides otherwise,

marketable title is free from all encumbrances. marketable title is free from all encumbrances. Types of encumbrances:Types of encumbrances:

1.1. EasementsEasements2.2. Zoning and Building Restrictions Zoning and Building Restrictions 3.3. Mortgages and Other LiensMortgages and Other Liens4.4. EncroachmentsEncroachments

Page 18: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Buyer’s WarrantiesBuyer’s Warranties

1.1. Authorized to enter into transactions.Authorized to enter into transactions.

2.2. Present proof of ability to complete Present proof of ability to complete transactions. transactions.

Page 19: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

The Real Estate ContractThe Real Estate ContractEquitable ConversionEquitable Conversion Once Once Purchaser Purchaser gets interestgets interest in real estate in real estate by executing a by executing a

purchase agreementpurchase agreement -- -- PurchaserPurchaser becomes becomes equitable equitable ownerowner..

Seller Seller retains legalretains legal title and this title is only held as title and this title is only held as security to receive money from Purchasersecurity to receive money from Purchaser..

Risk of LossRisk of Loss (After contract signed, before closing):(After contract signed, before closing):

1.1. (Majority View) Buyer is regarded as equitable owner and (Majority View) Buyer is regarded as equitable owner and therefore, real owner of property. Therefore, he or she therefore, real owner of property. Therefore, he or she bears risk of BOTH profit and loss during contract period. bears risk of BOTH profit and loss during contract period. Buyer can not withdraw from contract because property Buyer can not withdraw from contract because property damaged. damaged.

2.2. (Minority View) Risk of loss remains with Seller unless (Minority View) Risk of loss remains with Seller unless legal title conveyed to Purchaser or unless Purchaser legal title conveyed to Purchaser or unless Purchaser causes loss -- Uniform Vendor and Purchaser Risk causes loss -- Uniform Vendor and Purchaser Risk Act/Massachusetts Rule.Act/Massachusetts Rule.

Page 20: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Multiple ChoiceMultiple Choice

1.1. The most important property inspections The most important property inspections to be made by the buyer are:to be made by the buyer are:

a.a. roof and termite inspectionsroof and termite inspectionsb.b. termite and plumbing inspectionstermite and plumbing inspectionsc.c. roof and electrical inspectionsroof and electrical inspectionsd.d. none of the abovenone of the above

QuizQuiz

AA

Page 21: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

2.2. Prorated items include all of the following Prorated items include all of the following except:except:

a.a. real property taxesreal property taxesb.b. attorneys’ feesattorneys’ feesc.c. maintenance feesmaintenance feesd.d. none of the abovenone of the above

3.3. Option contracts are most often used inOption contracts are most often used in

a.a. single-family residence transactionssingle-family residence transactionsb.b. apartment complex transactionsapartment complex transactionsc.c. land development transactionsland development transactionsd.d. none of the abovenone of the above

Quiz (cont’d)Quiz (cont’d)

BB

CC

Page 22: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

4.4. In most states, contracts for the transfer of In most states, contracts for the transfer of an interest in real property must be in an interest in real property must be in writing to be legally enforceable, with the writing to be legally enforceable, with the exception ofexception of

1.1. leases for a period of 6 months or longerleases for a period of 6 months or longer2.2. leases for a period of shorter than 2 yearsleases for a period of shorter than 2 years3.3. leases for a period of more than 1 yearleases for a period of more than 1 year4.4. none of the abovenone of the above

5.5. Typically, the seller requires that the Typically, the seller requires that the closing balance be paid by any of the closing balance be paid by any of the following methods except:following methods except:

a.a. cashcashb.b. personal checkpersonal checkc.c. cashier’s checkcashier’s checkd.d. none of the abovenone of the above

Quiz (cont’d)Quiz (cont’d)

DD

BB

Page 23: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Quiz (cont’d)Quiz (cont’d)

True/FalseTrue/False

6.6. If a seller is married and is selling property If a seller is married and is selling property titled singly in his/her own name, the titled singly in his/her own name, the name of the seller’s spouse need not be name of the seller’s spouse need not be included on the contract or closing included on the contract or closing documents.documents.

7.7. In a contract for sale and purchase, only In a contract for sale and purchase, only nominal consideration must be indicated.nominal consideration must be indicated.

FF

FF

Page 24: Real Estate Law The Basic Real Estate Contract Real Estate Law The Basic Real Estate Contract.

Quiz (cont’d)Quiz (cont’d)

8.8. Earnest money deposits from several Earnest money deposits from several buyers may be placed in a single escrow buyers may be placed in a single escrow account.account.

9.9. Purchase money mortgages typically are Purchase money mortgages typically are of shorter duration than institutional of shorter duration than institutional mortgages.mortgages.

10.10. With an assumption of mortgage, the With an assumption of mortgage, the seller remains primarily liable for any seller remains primarily liable for any deficiency judgments if the lending deficiency judgments if the lending institution initiates foreclosure.institution initiates foreclosure.

TT

TT

FF