Real Estate Transfers, Purchase Agreements, Due Diligence, Marketable Title

Question 1

What are the 8 parts of the anatomy of a purchase agreement?

Answer 1

1. Oral negotiations/offer in writing
2. Purchase agreement
3. Financing
4. Title analysis
5. Due diligence
6. Closing
7. Record deed and mortgage
8. Secure possession

Question 2

Regarding the anatomy of a real estate transfer, what is meant by oral negotiations/offer in writing?

Answer 2

Showing a letter of credit/commitment letter/pre-approval letter. Verbal negotiations of price, down payment, method of finance, closing date, and time of occupancy.

Question 3

Regarding the anatomy of a real estate transfer, what is meant by financing?

Answer 3

Buyer secures financing (appraisal is approved and credit check conducted)

Question 4

Regarding the anatomy of a real estate transfer, what is meant by title analysis?

Answer 4

The bank must be satisfied. Unsatisfactory defects must be cured.

Question 5

Regarding the anatomy of a real estate transfer, what is meant by closing?

Answer 5

Execution and delivery of deed by seller. Payment of purchase price (including execution of mortgage/note/etc.). Settlement of closing costs.

Question 6

Regarding the anatomy of a real estate transfer, what is meant by secure possession?

Answer 6

May not always happen at closing (i.e. seller can’t move for a month)

Question 7

Who should draft the purchase agreement?

Answer 7

an attorney

Question 8

What is an earnest money deposit?

Answer 8

what the buyer will lose if backs out. Should be big enough to show serious and small enough to be able to walk away.

Question 9

What is the most important provision of a purchase agreement?

Answer 9

A time is of the essence clause

Question 10

What does a “time is of the essence” clause do?

Answer 10

It requires the seller to convey marketable title by the closing date, and if the buyer can’t, the buyer can back out.

Question 11

what is the effect of not having a “time is of the essence” clause?

Answer 11

The seller has a reasonable time post closing to make title marketable.

Question 12

Who bears the risk of loss in a real estate transaction?

Answer 12

Risk of loss is generally on the buyer, so the buyer should buy a homeowner’s insurance policy, but the homeowner’s policies typically do not go into effect until the closing date.

Question 13

For corporation purchase agreements, what should the signature block look like?

Answer 13

For corporations, it needs to be very clear that a corporate entity is the buyer and important to know who has signed and what their role is within the corporation. Type out the full name under the signature block and the capacity of the person within the corporation.

Question 14

What is a corporate resolution?

Answer 14

Allows someone else to sign if the person(s) with the authority is/are unavailable. Tells the story of what they’re trying to do – who to give authority and why.

Question 15

Why is due diligence important?

Answer 15

If a buyer is trying to back out of a sale, the court will ask if the buyer did everything a duly diligent person would do.

Question 16

What are some primary examples of a buyer’s due diligence? (4)

Answer 16

1. certified boundary survey
2. Survey review
3. Compare survey to buyer’s and seller’s deeds, title work, purchase agreement, and mortgage
4. Site visit, home inspection, and radon test
5. Obtain owner’s policy of title insurance an abstract if available
6. Obtain copy of seller’s deed and make sure it’s been recorded

Question 17

In due diligence, why are survey reviews completed?

Answer 17

To look for encroachments, set-backs, and to make sure it matches the legal description

Question 18

What is an encroachment?

Answer 18

When a piece of property extends a short distance over the property line

Question 19

What is a set-back?

Answer 19

How far a main structure is from a property line and/or road, typically governed by zoning laws

Question 20

In due diligence, why should a buyer compare the survey to the deeds, titles, purchase agreement and mortgage?

Answer 20

To make sure the deed is recorded and the legal descriptions all match

Question 21

What is a buyer’s deed?

Answer 21

Shows the buyer owns it

Question 22

What is a seller’s deed?

Answer 22

Shows the seller owns it

Question 23

In due diligence, why should a buyer do a site visit to determine occupancy?

Answer 23

It may effect ownership rights (i.e. adverse possession, recording acts, etc.). The buyer is presumed to know the occupancy.

Question 24

What are the two key provisions of the statute of frauds?

Answer 24

1. Except for leases less than three years, no interest in land may be created or transferred except by an instrument in writing, signed by the party to be bound.
2. No action shall be brought upon any contract or sale of land or any interest in or concerning land unless the agreement upon which the action is brought, or some memo or note thereof, shall be in writing and signed by the party to be charged.

Question 25

What are the two exceptions to the statute of frauds? (just the names)

Answer 25

1. Part performance
2. Estoppel

Question 26

When does the part performance exception to statute of frauds occur?

Answer 26

When a party demonstrates that certain acts were undertaken that make sense only as having been performed pursuant to an oral contract.

Question 27

What are examples of the part performance exception to statute of frauds?

Answer 27

The buyer’s taking possession of the property; the buyer’s paying all or part of the purchase price; or the buyer’s making valuable improvements

Question 28

What are the three elements to the estoppel exception to the statute of frauds?

Answer 28

1. Inducement (action or inaction)
2. Change of position in reliance upon inducement (detrimental reliance)
3. Unfair or inequitable to deny the existence of a contract.

Question 29

When does inequity occur? (2)

Answer 29

1. Where one has been induced by the other to seriously change his/her position in reliance upon the contract
2. Where unjust enrichment would result if a party who has received the benefits of the other party’s performance were allowed to rely upon the statute.

Question 30

Does a deed have to be recorded to be valid?

Answer 30

No

Question 31

What is marketable title?

Answer 31

Marketable title is a title which would not expose the buyer to the hazard of litigation with regard to a material matter OR materially reduce the value of the property, assuming the parties are reasonably prudent and intelligent, and acting on competent legal advice.

Question 32

What if the seller cannot convey marketable title?

Answer 32

There is an implied obligation of the seller in an agreement to sell real property, absent a controlling provision in the purchase agreement, that the seller must convey marketable title.

Question 33

If a purchase agreement is silent as to the type of title to be conveyed . . .

Answer 33

marketable title is presumed.

Question 34

Do municipal regulations affect whether title is marketable?

Answer 34

The mere existence of municipal regulations will not make title unmarketable. However, a pre-closing violation of those regulations will.

Question 35

How do private restrictions affect whether title is marketable?

Answer 35

The mere existence of private restrictions upon the use of land or location and type of building render title unmarketable.

Question 36

Can title be made marketable again even with the existence of private restrictions?

Answer 36

Yes, if there is a “subject to all restrictions” clause in the purchase greement. But even if the buyer agrees to the private restrictions, an existing violation of those restrictions will again make title unmarketable.

Question 37

What are the four types of title?

Answer 37

1. Perfect title: subject to no risks or defects whatsoever
2. Record title: as discerned from the public record
3. Marketable title: presumed
4. Insurable title: Title that a title company would insure (preferred by seller, could lead to unmarketable title if the insurance is inadequate)

Question 38

How does adverse possession affect title?

Answer 38

Title based upon adverse possession, if clearly established, is marketable, to promote productive use of land and to further alienability of land.

Question 39

What is the idea of equitable conversion?

Answer 39

The court looks at a specifically enforceable contract and puts the parties where they have bargained to be. In states that follow the equitable conversion doctrine, the buyer is viewed in equity as the owner from the date of the contract (holder of equitable title).

Question 40

Who generally bears the risk of loss?

Answer 40

Many courts hold that the risk of loss is on the buyer from the moment of the contract of sale, irrespetive of the fact that the seller is still in possession until the closing.

Question 41

In light of the risk of loss rule, what should a buyer do?

Answer 41

If risk of loss is on the buyer, it is advisable for the buyer to procure property insurance at the time of execution of the purhase agreement (contract of sale).

Question 42

What is the majority rule regarding the seller’s duty to disclose defects?

Answer 42

The seller has a duty to disclose known material defects.

Question 43

What happens if a seller does not disclose defects?

Answer 43

Non-disclosure is equivalent to fraud or misrepresentation.

Question 44

What are the two tests for whether a defect is material?

Answer 44

1. Whether a reasonable person would attach importance to the defect in determining whether to buy; or
2. Whether the defect affects the value or desirability of the property to the buyer.

Question 45

When will “as is” clauses be upheld?

Answer 45

1. The defects are reasonably discoverable; and
2. There is no fraud, however;
3. If there is a fraudelent misrepresentation or concealment of information by the seller, the buyer is not bound by the “as is” clause.