Contract Flashcards
What are the requirements to transfer a deed?
Execution and delivery
What is a bona fide purchaser?
A bona fide purchaser is entitled to prevail over a transferee in a notice and race notice jurisdiction. The person must be a purchaser or creditor, pay valuable consideration, and not have actual, constructive, or inquiry notice of the prior instrument.
What are the requirements for assuming and subject to mortgage?
C is correct. With a mortgage assumption, a buyer who assumes a mortgage debt becomes primarily liable for that debt. In this case, the man, absent a release by the bank, also is liable, although he is only secondarily liable. This situation can be contrasted with one in which the buyer might have purchased “subject to the mortgage,” in which case only the man would be liable for any deficiency.
A is incorrect. An assumption of a mortgage makes a buyer primarily liable for any deficiency. Thus, in this case, the buyer is primarily liable. Absent a release by the bank, the man also is liable, although he is only secondarily liable. This situation can be contrasted to one in which the buyer might have purchased “subject to the mortgage,” in which case only the man would be liable for any deficiency.
B is incorrect. The agreement in the contract to assume the mortgage created the primary liability for the deficiency in the buyer. The buyer did not have to sign the promissory note to become liable. Absent a release by the bank, the man also is liable, although he is only secondarily liable for any deficiency.
Who is the selling and listing broker?
Most real estate sales involve a real estate broker. The “listing broker” enters a contract with the SELLER directly to list and try to sell the property, usually through marketing efforts. In other words, the listing broker is the one listing and selling the property on the seller’s behalf. The listing broker has a fiduciary duty to the seller.
The “selling broker,” by contrast, has an ongoing relationship primarily with the BUYER, and any relationship between the selling broker and seller is indirect. A selling broker will meet with a potential buyer, show her various properties, and receive compensation out of the listing broker’s commission on the sale. The selling broker’s fiduciary duty, however, is also to the SELLER, even though the selling broker shows properties to the buyer. This is because a selling broker is essentially a sub-agent of the listing broker in the overall deal. In other words, both the selling and listing brokers owe a fiduciary duty ONLY to the seller.
An exclusive right-to-sell listing is a commonly-utilized instrument in real estate sales. It gives the broker the exclusive right to earn a commission by representing the owner and bringing in a buyer, either through another brokerage or directly. The owner pays both the listing and selling broker fees. The owner cannot sell the property himself without paying a commission unless an exception is noted in the contract.
By contrast, in a non-exclusive open listings, an owner may sell his homes by himself. The owner is under no obligation to use one particular listing broker, and he pays only the selling broker who brings the buyer who makes the offer that the owner accepts. A major advantage to an open listing is that the owner is unrepresented (i.e., no listing broker), so the owner only pays a commission to a selling broker, which is about one-half of the typical fees. And, if the owner finds the buyer himself, the owner will not owe anyone a commission. Closing costs and fees for a real estate attorney still apply, but no brokers will receive payment.
Historically, a broker earns his commission when there is a “ready, willing, and able” buyer who wants to purchase the property, even if the sale falls through.
D is correct. The contract between the homeowner and the broker was an exclusive-right-to-sell agreement. The terms stated that if the home sold within six months, the broker would receive a commission. The broker abided by the agreement by undertaking reasonable marketing efforts. By selling the home to his cousin before the six-month listing agreement had expired, the homeowner owes the broker a full commission.
A is incorrect. The contract between the homeowner and the broker stated that there would be “payment of a commission if the home sold.” There was no provision requiring the broker to negotiate with a buyer as a condition to receiving a commission. Under an exclusive right-to-sell agreement, the homeowner may not sell the property himself without having to pay the commission unless a specific provision says otherwise. No such provision existed here. If the homeowner had wanted to contract for the ability to sell it himself or to require the broker’s affirmative involvement in negotiations, he would have had to include that in the original contract.
B is incorrect. Even though the actual closing occurred one month after the listing period had expired, the homeowner entered into the agreement with the buyer to purchase the home just five months into the listing period. This is dispositive in determining whether the homeowner owes a commission to the broker. It is consistent with the traditional rule that a broker earns a commission as soon as he discovers a “ready, willing, and able” buyer, even if the deal later falls through.
