From Principles Workbook Unit 4 Flashcards
a contract is a legally binding agreement
between two or more competent parties to do or not do certain things for consideration
contract that has been put into words, either spoken or written
express contract
implied contract
created by the actions of the parties
in order to comply with statute of frauds (and enforaceable by courts), all contracts for the sale or transfer of real estate must be
express written contracts with the exception of a lease for 12 months or less
a breach of contract occurs when
a party fails, without legal excuse, to perform any promise contained in the agreement.
after a breach, the nonbreaching party has four options:
- acceptance of partial performance
- specific performance
- liquidated damages
- actual money damages
bilateral contract
promise exchanged for a promise
both parties are boudn to perform
I.E. a purchase agreement
unilateral contract
promise exchagned for performance
only one party is bound
I.E. an option
statute of limiations for breach of oral contract
two yeras
statute of limiations for breach of written contract
four years
statute of limiations for fraud
three years from the date of discovery
stages of a contract
- offer
- contract
- termination
the offer stage is
a negotiation period, no contract exists yet
- offers may be countered and new offers made until there is “meeting of the minds”
in the offer stage, earnest money is
not usually deposited because there is not a contract yet
strike-through changes on an offer must be
initialed (and dated for clarity) by all parties to be enforceable
a contract is formed when
a meeting of the minds and communication of acceptance by the parties
termination of an offer can occur through
- counteroffer
- revocation or withdrawl by offeror
- rejection by offeree
- lapse of an unreasonable time
- event that destroys the property
- death of either party
in order for the contract terms ot be changed,
an amendment must be negotiated and signed by all parties
termination of a contract examples
lease - on expiration date or notice as determined by the lease contract
option - on expirationd ate unless option is excercised, then the option will need a purchase contract to close
purchase contranct - either by a party excercising a contingency and termination or at closign with conveyance of the deed
breach - nonbreaching party will have remedies against he breaching party per the contract
ESSENTIALS OF A VALID CONTRACT
CO-CA-CO-LA COnsent/Mutual Agreement CApacity/Legally COnsidersation LAwful objective
when does a contract become binding?
upon communication of acceptance
a counteroffer is a
rejection of the original offer and the creation of a new one
in a counteroffer, the original offerre becomes
the offeror
caveat emptor means
“let the buyer beware”
not common due to disclosure requirements
seller must disclose
all material defects and facts even if selling as is
actual fraud consists of
- lyling
- suppressing known facts
- making a promise with no intention of performing it
to be a competent party, you must be
- 18 years old or an emancipated minor
- must be sane
executory
not yet fully performed
starts upon communication of acceptance of the offer
executed
duties fully performed
purchase agreement is executed once the deed has been delivered and accepted
assignments transfer
contract rights, but not liability
novation transfers
contract rights and liability
this is a new contract that replaces original contract
most contracts are
not terminated by death so a deceased’s estate would have to honor the contract. a contract would terminate when there is no one left to perform.
do listings terminate by death?
yes - personal services contract
mutual recission
return of all parties to their original condition before contract was executed
acceptance of partial performance from a breach
choose not to sue
specific performance from a breach
sue to force to performance - for completion of the contract
available to btoh buyer and seller
liquidated damages from a breach
retain breachign party’s deposit, available only to seller in a purchase contract
actual damanges from a breach
sue for money lost
essential elements of a purchase agreement
- buyer and seller’s signatures
- property description
- price and terms
- is in writing and signed
a lessor has a reversionary interest
which allows the lessor to retake possession
gross/fixed lease
tenant pays fixed rent and landlord pays all expenses
typical for residential property
net lease
commercial lease
tenant pays base rent + expenses (NNN)
tenant pays property taxes, insurance and maintenance costs
percentage lease
rent is baesd on a percentage of gross income/sales
most typical in retail properties
does the sale of a property terminate a lease?
no, the bueyr takes title “subject to” the lease
leases can be terminated in the following ways:
- estate for years (expiration date) NOT DEATH
- periodic estate (Notice) NOT DEATH
- Estate at will (Notice or death
- Actual eviction (if tenant is in breach)
- constructive eviction
before the landlor files the unlawful detainer, the landlord must first deliver
a notice to pay or quit to the tenant in default.
what is constructive eviction?
the lease is terminated if the lessee must vacate due to the lessor’s act or failure to act. it cancels the lease and the tenant’s obligation to pay rent, but the tenant must move.
the TILA-RESPA Rule regulates
lendors, title companies and real estate licensees.
the TILA-RESPA rule standardizes closing practices for
one-to-four family residential propertyes finance by federally-related loans. includes FHA and VA Loans, conventional loans funded by regulated lendors and loans that will be sold on the secondary mortage market.
lenders must give a
loan estimate form of all closing costs (including loan origination and discount points) and a Shopping for Your Home Loan settle costs booklet at the loan application or within 3 business days of application
the loan estimate is used at
the beginning of the loan process to provide the borrower with an estimate of the total closing costs so the borrower knows what funds to bring to closing.
lenders must provide the CLosing Disclosure
at closing (one day before settlement upon request).
the closing disclosure must match
the loan estimate
RESPA restricts
the amount of advance escrow payments (taxes and insurance) and prohibits kickbacks
escrow accounts may not have more than
two months of additional fees plus what is owed.
closings are conducted using
escrow agents
escrow agents may initiate a court procedure called
an interpleader to resolve a dispute over deposit money
two stages of escrow
- perfect escrow
- complete escrow
perfect escrow
the documents and money have been deposited in the escrow and parties are waiting to close
complete escrow
escrow has closed, which is normally upon recordation of deed.
a closing statement is
a detailed accounting of each party’s debits and credits (amounts paid and received)
a debit to the bueyr is
anythign that increases teh amount of meny the buyer must bring to the closing
examples of debits to the buyer
sales price, new loan origination fees, recording the deed, or discount points if paid by bueyr
a credit to the buyer is
anything that decreases the amount of money the bueyr must bring to the closing
examples of credits to the buyer
earnest money, new loan amount (all loans are always a buyer credit), interest on assumed mortgage or seller financing
a debit to the seller is
anything that decreases the amount of money the seller takes from the closing
examples of debti to the seller
brokerage, owner’s title insurance, payoff o existing loan, or seller fnancing
a credit to teh seller is
anything that increase the amount of money the seller takes from the closing
examples of credit to the seller
sales price
examples of prorations
interest on assumed mortgages, rents, utilities, HOA dues and taxes
items paid in advance are
buyer owes seller
items paid in arrears are
seller owes buyer
days used in proration calculation
usually 360 and buyer owns on day of closingnot
not consideration but may be rquired as part of liquidated damages in a purchase contract
earnest money
a contract created by the actions of the paties is
an implied contract
A contract between two parties that legally binds one party to perform, but allows the other party to disaffirm it, is A) executed B) Void C) Voidable D) Bilateral
C) Voidable
In most voidable contract, only one of the paties is legally bound to perform
Upon acceptance and communication of acceptance, an offer is considered to be A) A counteroffer B) Unilateral C) A contract D) Valid
C) A contract
Upon communication of acceptance, the offer becomes a contract. The Offer and contract could be invalid if they were missing an essential element, such as competent parties.
In an executory purchase contract, the buyer’s interest is described as
ownership in equity. Under a purchase agreement or a contract for deed, the bueyr holds equitabl title. The seller holds legal tutle until the seller delivers the deed to the buyer.
earnest money is
a remedy for default and not part of consideration
consideration can be
a promise, money, somethign of value. NOT EARNEST MONEY
specific performance is availabel to
both buyer and seller as a remedy for parties in default
