Chapter 11 - Real Estate Contracts Flashcards
Bilateral contract
Both parties promise to do something; a promise is given in exchange for another. A real estate contract is a bilateral contract because the seller promises to sell and deliver the title who promises to pay a certain sum.
Assignment
Refers to a transfer of rights and/or duties under a contract. Unless a contract specifically forbids it, rights may be assigned to a third party. most contracts either stipulate permission or not. In the case of assignment the assignor maintains secondary liability if the assignee breaches the contract.
Breach of contract
a violation of any of the terms or conditions of a contract without legal excuse, as when a seller breaches a sales contract by not delivering title to the buyer under the conditions in the agreement. If the seller defaults the buyer has three options. (1) Buyer may rescind or cancel and recover the earnest money deposit (2) sue for specific performance, to force the seller to perform the contract and convey the property and (3) the buyer may sue the seller for compensatory damages. If the buyer may pursue one of four courses (1) The seller may declare the contract forfeited and seller may be entitle to retain earnest money and all payments received as liquidated damages, (2) rescind the contract as if it was never made, which requires return of all payments, (3) sue for specific performance which may require the seller to offer,or tender a valid deed to show seller compliance with the contract terms and (4) sue for compensatory damages.
Competent parties
In New jesrey to enter into a binding contract, person must be 18 years and of sound mind. A married person is considered an adult. Persons under age 18 may enter into a valid contract, but the contract is voidable by the minor until a reasonable time after he or she reaches the age of 18.
Consideration
Is what the parties promise in the agreement to give to or receive from each other. May consist of legal tender, exchange in value, or love and affection. the price must be definitively stated and payable in exchange for the deed or right received.
Contingency
Certain happening without which a contract will not be valid (subject to’s)
Counter offer
Any new offer made as a reply to an offer.
Earnest money
The cash deposit customarily but not essential when making an offer to purchase real estate which gives evidence of the buyer’s intention to carry out the terms of the contract. must be deposited by a broker into a trust, escrow, bank account within five business days. This money may not be commingled or mixed with a brokers personal funds. A broker may not use such funds for personal use. This is an illegal act know as conversion. any cash deposit of $10,000 ormore must be reported to the IRS.
Equitable title
The interest held by a vendee (a buyer under a land contract or contract of sale) under a land contract or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another’s name.
Escape clause
Protection for seller with a contract is subject to the sale of buyer’s present home.
Executed contract
Contracts in which both parties have fulfilled their promises and thus performed the contract.
Executory contract
Exists when something reamins to be done by one of the parties. A real estate contract is executory before final settlement and closing.
Express contract
The parties state the terms and show their intentions in words.
Implied contract
The agreement of the parties is demonstrated by their acts and conduct. The patron in a restaurant orders a meal and has implied a promise to pay for the food. A listing agreement is an express contract between principal (buyer and seller) and the broker that names the broker as the principal’s fiduciary representative.
Land contract
Sometimes referred to as a contract for deed or an installment sales contract. land contracts are typically used as a means of seller financing. Typically the seller (vendor), retains fee ownership and the buyer, known as the vendee, secures possession and an equitable interest in the property.
Liquidated damages
An amount agreed to in advance by buyer and seller, that serves as compensation if one of the parties does not live up to the contract. if a contract specifies that the earnest money deposit serves as liquidated damages in case of default by the buyer, the seller is entitled to keep the deposit if buyer refuses to perform for no good reason. The seller who choses to keep the deposit as liquidated damages may not sue for any further damages.
Novation
Modification to a contract or the substitution of a new contract for an existing agreement. the new agreement may be between the same parties or a new party may be substituted for either. In the case of a novation, the old contract no longer has any force.
Offer and acceptance
This is one of the essential elements of a valid contract of sale is a meeting of the minds. An offer is not considered accepted until the person making the offer has been notified of the other partt’s acceptance. The real estate sales broker or salesperson must transmit all written offers, acceptances, or other responses as soon as possible to avoid issues. Legally binding signatures may be obtained via fax machines, but they should be followed up with the original signatures as soon as possible.
Option
An agreement to keep open for a set period of time an offer to sell or or purchase property.
Parol evidence rule
States that the written contract takes presedence over oral agreements or promises
Recission
Purchase of planned unit developments and other developments that are promoted with a comprehensive advertising or incentive programs may be rescinded by the purchaser for any reason within seven calendar days of signing. Applies only to real estate covered under the new Jersey Planned real estate development full Disclosure Act and not to all real estate transactions. In the usual on-to-four bedroom dwelling or condominium transaction the buyer and seller have three days to which to seek attorney review of a contract - no reason required.
Specific performance
Court action asking that the parties complete the the transaction as contracted.
Statue of frauds
States that a contract for sale of real estate (and any lease for more than three years) must be in writing and signed in order to be enforceable. In most other states, the statute requires the same.
Satute of limitations
New Jersey allows a specific time limit of six years during which parties to a contract may bring legal action suit to enforce their rights. This applies to contracts, foreclosures, mortgages, and cases of fraud. lawsuits to recover real property have a ten-year statute of limitations in New Jersrsy
Time is of the essence
A contract that calls for a specific time at which the agreed upon acts must be completed. This means that the contract must be performed within the timeframe and any party who has not performed on time is considered in breach.
Unenforceable contract
Seems on the surface to be valid, however neither party can successfully sue for performance such as when one of the parties was drunk when they agreed to buy another’s property.
Valid contract
Contains the essential elements and is binding on and enforceable by both parties. Competent parties, offer and acceptance, consideration and legality of object.
Voidable contract
Seems valid on its surface to be valid but may be rescinded, or disaffirmed by one of the parties. A contract entered into with a minor is usually voidable. A contract is considered by the courts to be valid if the party who has the option to disaffirm the agreement does not do so within a reasonable period of time.
Void contract
One that has no legal force or effect because it does not meet the essential elements of a contract. One essential element is for a contract to be valid is that it is for a legal purpose. Thus a contract to commit a crime would void in effect, not a contract at all.
Contract
Defined as a voluntary agreement between legally competent parties to perform or refrain from performing some legalact, supported by legal consideration. In New Jersey the contract must stipulate the attorney review period of three days before the contract becomes binding. Days for this purpose do not include Saturdays, Sundays or holidays. The attorney must send notice of disapproved contract by certified mail which is effective upon sending, or effective upon delivery if hand delivered personally.
Unilateral contract
A one-sided agreement whereby one party makes a promise to induce a second party to do something. The second party is not legally obligated to do something. If the second party does comply, the first party is obligated to keep the promise. An offer of a reward is an example of a unilateral contract.
