chapter 13: Contracts for Sale and Closing Flashcards
contract for sale
- 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
contract terms
refers to the arrangements agreed to by the parties, such as price and date of closing
contract conditions
circumstances that MUST prevail
closing
event at which possession and title to real estate normally are transferred from buyer to seller
required elements of a contract
-competent parties
-legal objective
-offer and acceptance
-consideration
-no defects to mutual assent
FOR REAL ESTATE:
- in writing
-proper description of property
competent parties
must be of legal age and not incapacitated at time if sigining
-a minor can sign a contract but it is generally voidable
power of attorney
acting for another person
mutual assent
both agree, meeting of the minds
seller has 3 options when given an offer
- reject the offer outright
- reject the offer and present a counteroffer
- accept the offer outright
consideration
the value given up, or promise made by each party to a contract
-both parties must provide it
examples of defects to mutual assent
- 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
legal title
ownership of a freehold estate
equitable title
right to obtain legal title
-buyer obtains equitable title when a contract of sale of real estate is fully signed
advantages of form contracts
- neutral
- ready-made treatment of details
- local real estate boards are a good source
risks with standard form contracts
- may treat issues too lightly
- inappropriate/inadequate application of a form contract
components of a form contract
- points particular to the deal
- items to be negotation (price, date, expenses)
- items that characterize the property - items that must be clear
- provisions
- proration
- disbursement of funds
- recourses if defaulted
contract form also covers
- 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
handling of funds
- broker handles funds for a transaction
- broker puts deposits in escrow
- at closing, money is disbursed in accordance with a closing statement
escrow account
an account holding funds dedicated for a particular purpose
contingent contract
obligation of a party to perform depends on one or more conditions being met
-contingent on a condition
assignment
one party’s contractual rights and obligations are transferred to someone else
- does not relieve assignor of liability
- can be explicitly prohibited
personal performance
cannot be assigned without that party’s permission
escrow agent
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
remedies for nonperformance
- sue for damages
- specific performace
- liquidated damages (seller can retain deposit)
- recission
specific performance
buyer can force seller to convey title
recession
mutual agreement to cancel
roles of selling broker
no legal role after contract is signed
-facilitator/moral support for the buyer
roles of listing broker
may handle closing if no lender is involved
- may assist in retaining services for seller
- has legal responsibility through closing
roles of the lender
- requirements
- often handles closing
- protect their security interest
real estate settlement procedure act
- 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
Financial Items in a Closing
slides 44 and 45
earnest money
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
prorating
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
proration property tax example
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
estimated closing costs
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
recording
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
preclosing steps of buyers
- 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
preclosing steps of sellers
- order owners title policy
- order termite inspection
- order discontinuation of hazard insurance and utilities
preclosing steps of closing agent
- 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
