Executory Period Flashcards
Buyers’ Responsibilities When Entering into a Real Estate Contract?
- Secure the Finances
(a) Must make a good faith effort to secure financing. - Do a Title Search on the Property
- Give the Seller Written Notice of the Title Defect/ encumbrance and give the Seller Reasonable Time to Cure it.
2 Types of Breaches
- Good Faith Breach: Party did NOT intentionally break the contract for his own benefit.
- Bad Faith Breach: Party intentionally breaks the contract for his own benefit
(This party will likely have to perform/ execute the contract)
Seller’s Responsibilities when entering into a Real Estate Contract?
- Cure any Title Defect/ Incumbrances
- Needs to act in Good Faith
- Needs to cure before Settlement Day
(a)If the seller cannot cure before settlement day, the buyer gets his money back and the contract is VOID.
(b)Seller is not required to disclose but if asked, must be truthful.
Marketable Title
Definition: Title that is free of any encumbrances
- Seller is the property owner in FSA and there are no encumbrances
- All buyers are entitled to receive a marketable title at settlement day.
What are the Standard Norms for Contract Performance?
- By Settlement date, the buyer needs to tender the finances and the seller needs to tender the deed. If either is NOT tendered, either one can walk away and there is NO breach.
2.*A party cannot claim the other party is in breach UNLESS claiming party is ready, willing and able to perform. *
What are the seller’s options
- Seller does not have to provide marketable title until settlement date (He has this time to cure any defects)
- A buyer cannot rescind a contract merely because of lack of title prior to settlement date EXCEPT: When the seller defrauds the buyer, buyer can rescind.
- A buyer’s agreement to accept a Quit Claim deed does not equal a waiver of Marketable title
Buyer’s Options
BLACK LETTER LAW:
a. Knowledge and acceptance of one title defect doesn’t mean the buyer is bound to accept all title defects.
b. A buyer is required to accept a defective title if they do not advise the seller of defects.
c. Buyer CANNOT demand marketable title before the settlement date.
Assignments
Rule: Rights can transfer but the party’s duties remain
- Seller is free to assign his right to payment to someone else but not his duty to tender title
- Buyer is free to assign his right to deed/receive the property, but not his duty to pay
( IF the assignee does NOT perform, the original buyer is suable and then the assignee*)
No-Assignment Clause
The court will enforce a no-assignment clause if
1. the other party violated it or
2. if the party that is suing was harmed/suffered damage.
What are the Remedies for Breach of Contract?
- Legal Remedies (Money damages/ Restitution) amount of $ is based on jurisdiction
* Restitution is monetary damages that can be down payment, incidental expenses and/or interest) - Equitable Remedies (Specific Performance OR Injunctive Relief)
* Specific Performance is a buyer’s remedy because land is unique but money is not unique.
What is the Buyer’s Remedy if the seller breaches?
- If Seller NON-willfully defaults: Buyer keeps his deposit + any interest.
- If Seller Willfully defaults: Buyer can request specific performance
Benefit of the Bargain
*When the seller and buyer agree to sign a real estate contract and sometime prior to settlement the seller takes the property off the market due to a good faith breach, the buyers’ remedy is restitution.
*If the buyer could prove that the fair market price went up (On settlement day) and if the settlement would have gone through and the buyer would have profited, then that benefit has to be awarded.
BLACK LETTER LAW for Benefit of the Bargain:
- 2 Jurisdictional Views (Split of Authority)
- English Rule (Majority Rule)
(a) When a seller breaches an executory land contract in BAD faith, the buyer is entitled to the benefit of the bargain damages.
(b) When a seller breaches that same contract but in GOOD faith, no benefit of the bargain damages.
- American Rule (Minority Rule
(a) Buyer can still collect the benefit of the bargain damages even if the seller committed a GOOD faith breach.
*If a buyer breaches the contract or rescinds and the property depreciates, the seller would not get the benefit of his losses from the buyer because this is only a buyer’s remedy.
