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Finance 331 > chapter 13: Contracts for Sale and Closing > Flashcards

chapter 13: Contracts for Sale and Closing Flashcards

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1
Q

contract for sale

A
  • determines price and terms of the transaction
  • defines property interest being conveyed
  • determines the grantee
  • determines financing, date of occupancy, and any repairs or other conditions of the sale
  • most important document in real estate transaction
  • must be in writing
  • creates rights and obligations
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2
Q

contract terms

A

refers to the arrangements agreed to by the parties, such as price and date of closing

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3
Q

contract conditions

A

circumstances that MUST prevail

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4
Q

closing

A

event at which possession and title to real estate normally are transferred from buyer to seller

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5
Q

required elements of a contract

A

-competent parties
-legal objective
-offer and acceptance
-consideration
-no defects to mutual assent
FOR REAL ESTATE:
- in writing
-proper description of property

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6
Q

competent parties

A

must be of legal age and not incapacitated at time if sigining
-a minor can sign a contract but it is generally voidable

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7
Q

power of attorney

A

acting for another person

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8
Q

mutual assent

A

both agree, meeting of the minds

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9
Q

seller has 3 options when given an offer

A
  • reject the offer outright
  • reject the offer and present a counteroffer
  • accept the offer outright
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10
Q

consideration

A

the value given up, or promise made by each party to a contract
-both parties must provide it

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11
Q

examples of defects to mutual assent

A
  • one party attempts to perpetrate a fraud on the other party or makes a misrepresentation
  • a substantial error is made
  • one of the parties is under duress, undue influence or menace
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12
Q

legal title

A

ownership of a freehold estate

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13
Q

equitable title

A

right to obtain legal title

-buyer obtains equitable title when a contract of sale of real estate is fully signed

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14
Q

advantages of form contracts

A
  • neutral
  • ready-made treatment of details
  • local real estate boards are a good source
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15
Q

risks with standard form contracts

A
  • may treat issues too lightly

- inappropriate/inadequate application of a form contract

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16
Q

components of a form contract

A
  1. points particular to the deal
    - items to be negotation (price, date, expenses)
    - items that characterize the property
  2. items that must be clear
    - provisions
    - proration
    - disbursement of funds
    - recourses if defaulted
17
Q

contract form also covers

A
  • type of title evidence
  • time for acceptance by the parties
  • closing date
  • restrictions, easements, and limitations
  • occupancy expenses
  • assignability
  • liens
  • marketable title
  • special assessments
  • expenses
  • inspections, repair, maintenance
18
Q

handling of funds

A
  • broker handles funds for a transaction
  • broker puts deposits in escrow
  • at closing, money is disbursed in accordance with a closing statement
19
Q

escrow account

A

an account holding funds dedicated for a particular purpose

20
Q

contingent contract

A

obligation of a party to perform depends on one or more conditions being met
-contingent on a condition

21
Q

assignment

A

one party’s contractual rights and obligations are transferred to someone else

  • does not relieve assignor of liability
  • can be explicitly prohibited
22
Q

personal performance

A

cannot be assigned without that party’s permission

23
Q

escrow agent

A

third party who holds money or documents on behalf of contract parties

  • distributes items in accordance with contract
  • can be attorney, financial institution or title company
24
Q

remedies for nonperformance

A
  • sue for damages
  • specific performace
  • liquidated damages (seller can retain deposit)
  • recission
25
Q

specific performance

A

buyer can force seller to convey title

26
Q

recession

A

mutual agreement to cancel

27
Q

roles of selling broker

A

no legal role after contract is signed

-facilitator/moral support for the buyer

28
Q

roles of listing broker

A

may handle closing if no lender is involved

  • may assist in retaining services for seller
  • has legal responsibility through closing
29
Q

roles of the lender

A
  • requirements
  • often handles closing
  • protect their security interest
30
Q

real estate settlement procedure act

A
  • requires lenders to provide all info to buyers
  • applies to virtually every home loan
  • requirements:
  • special information booklet
  • good faith estimate of settlement costs
  • mortgage servicing disclosure statement
  • uniform settlement statement (HUD-1 form)
  • kickbacks are prohibited
  • limit to lender escrow deposit requirement
31
Q

Financial Items in a Closing

A

slides 44 and 45

32
Q

earnest money

A

a cash deposit by a buyer at the time of the offer to establish credibility of the offer, and to provide recourse to the seller if the buyer reneges
-usually 5 to 10% of the purchase price

33
Q

prorating

A

allocation of costs and revenues between buyer and seller of real property at closing, based on the time of ownership by each party

  • procedures should reflect actual number of days in the period, number of days during the period the property was owned by the seller, number of days it will be owned by the buyer
  • parties agree on the date for dividing financial responsibilties
  • usually the day of closing belongs to the buyer
34
Q

proration property tax example

A

multiply annual property tax by # of days of share/365

-# of days is the number of days in the year that the share was in their name

35
Q

estimated closing costs

A

an estimate of all the costs to be incurred at a real estate closing. Most commonly, the estimate is provided by a lender, in accordance with the requirements of the RE Settlement Procedures Act

36
Q

recording

A

filing of a document with the appropriate public official or office in order to provide constructive notice to the public of a sales transaction or legal contract

37
Q

preclosing steps of buyers

A
  • had property surveyed for encroachments
  • reviewed private restrictions for violations
  • reviewed zoning for neighborhood
  • examined estimated closing costs
  • ordered lenders title insurance
  • had property inspected
  • verified that seller has performed required tasks
  • arranged utility service transfers
38
Q

preclosing steps of sellers

A
  • order owners title policy
  • order termite inspection
  • order discontinuation of hazard insurance and utilities
39
Q

preclosing steps of closing agent

A
  • prepare or obtain general warranty deed
  • prepare mortgage and note
  • prepare check from lender to seller
  • prepare HUD-1 closing statement
  • obtain satisfaction of mortgage from sellers mortgagee confirming balance

Finance 331 (10 decks)

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