Unit 11 Flashcards
Contract
a voluntary agreement or promise between legally competent parties, supposed by legal consideration, to perform (or refrain from performing) some legal act.
A contract must be…
- Voluntary
- An agreement or a promise
- Made by legally competent parties
- Supported by lawful consideration
- For a legal act
What things establish legal competency?
- sound mind
2. legal age
What does Lawful Consideration mean?
everyone entering into the contract believes that something in the contract has value
Contract Law
the area of law that governs such agreements
What types of contracts are there?
- express
2. implied
Express contract
created by oral or written words
Implied contract
agreement of the parties is demonstrated by their acts and conduct
Statute of Frauds
state law requiring certain contracts be in writing
Bilateral contracts
both parties promise to do something; one promise is given in exchange for another
Unilateral contract
a one sided agreement where only one party makes a promise in order to entice a second party to do something
Option contract
unilateral contract in TN (example)
Executed contract
everything that needs to be done in the contract for it to close has been done so it will be closed
Executory (pending) contract
contract in the process of getting closed and can’t be closed because there are things that haven’t been done yet
Elements of a contract
- offer and acceptance
- consideration
- legally competent parties
- consent
- legal purpose
Offer and acceptance
the sales contract sets out the offer by the buyer (offeror) that is accepted by the seller (offeree)
What is another name for offer and acceptance?
mutual assent
Can you back out of a contract at any time?
yes
Consideration
every contract must be based on something of value (typically money)
2 kinds of consideration
- good
2. valuable
Valuable considerations
something tangible
Good consideration
something intangible
Offer
a promise made by one party requesting something in exchange for that promise
Acceptance
a promise made by the offeree to be bound by teh exact terms proposed by teh offeror
Terminated
if the offeree fails to accept it before expiratiaon of the time stated in the offer or by the offeree’s outright rejection of it
Realtiy of Consent
entering into contract freely and voluntarily by each party
What you deprive someone of being able to give consent?
mistake, misrepresentation, fraud, undue influence, duress
Legal purpose
must be for a legal purpose and is otherwise a void contract (unenforcable by law)
Legal competency
all parties must be of sound mind and of legal age
If someone is not legally competant to sign a contract, what is the contract considered?
voidable at the option of the person who lacks competency?
When is a contract discharged?
when the agreement is terminated
Counteroffer
a changed offer; a new offer rejecting the original offer
Revocation
offeror revokes the offer at any time before acceptance
Letter of intent
used to indicate the interest of a prospective buyer or lessee and, if that interest is reciprocated by the porperty owner, to begin negotiations
Valid contract
meets all the essential elements that make it legally sufficient, or enforceable, and is binding in a court of law
Void contract
has no legal force or effect because it lacks some or all of the essential elements of a contract
Voidable contract
appears on the surface to be valid but it may be rescided or disaffirmed by one or both parties based on some legal people; considered to be valid if the party who has the option to disaffirm the agreement does not do so within a certain period of time
What does breach mean
violation
Enforceable contract
all the elements of a valid contract, including the compliance with any applicable statue of frauds or other law that requires it to be in writing and signed by the parties
Unenforceable contract
appears on the surface to be valid but neither party can sue the other to force performance
valid as between the parties
once the agreement is fully executed by the transfer of the deed and purchase price, satisfying both parties, netiher has reason to initiate a lawsuit to force performance
Assignment
one contract going to another party
Breach of contract
a violation of any of the terms or conditions of a contract
Novation
substitution of a new contract for an existing contract
“time is of the essence”
each of the elements of the contract must be performed within the specified time
Suit for Specific Performance
buyer demands seller to specifically perform and sell them the property as they agreed to in the contract; must be within a certain period of time
Statute of limitations
limits the time during which parties to a contract may bring legal action or lawsuit to enforce their rights
Reasons for termination of a contract
- Breach of Contract
- Partial performance of the terms along with a written acceptance
- Substantial performance
4.
Reasons for termination of a contract
- Breach of Contract
- Partial performance of the terms along with a written acceptance
- Substantial performance
- Impossibility of performance
- mutual agreement
- operation of law
Impossibility of performance
an unforeseeable circumstance has made an act required by the contract impossible or impracticable
Mutual agreement
both parties agree to cancel the contract
Operation of law
voiding contract by minor, fraud, contract was altered without the written consent of all parties involved
Rescission
returns the parties to their original positions before the contract, so any monies or properties exchanged must be returned
Contracts used in real estate
- client representation agreements
- real estate sales contracts
- options
- escrow agreements
- property maagement agreements
- leases
- owner financing contracts
Contracts used in real estate
- client representation agreements
- real estate sales contracts
- options
- escrow agreements
- property maagement agreements
- leases
- owner financing contracts
Principles
reimbursing some of the money the lender borrowed
Rears
at the end of the period
Sales contract
contains the complete agreement between a buyer of a parcel of real estate and its seller
What does a sales contract start with?
an offer
What are the essential elements of a sales contract?
- sales price and terms
- adequent description of the property and improvements
- statement of the kind and condition of the titel and the form of deed to be delivered by the seller
- the kind of title evidence required, who will provide it, and how many defects in the title will be eliminated
- a statement of all the terms of the agreement between the parties, including any contingencies
Is a counteroffer a rejection of the original offer?
yes
Binder
letter of intent; abbreviated version of a contract
Notice of acceptance
must notify the buyer that the contract was accepted
Earnest money
provided deposit when making an offer to purchase real estate; not required by law but is customary
What is the amount of earnest money sufficient to?
- discourage the buyer from defaulting
- compensate the seller for taking the property off the market
- cover any expenses the seller might incur if the buyer defaults
Why give earnest money?
- Protects from buyers remorse; keeps buyer from wanting to back out
- Shows good faith
What does earnest money go towards?
offset closing price
Equitable title
when the buyer acquires an interest in the land
Equitable title
when the buyer acquires an interest in the land; buyer gets a present right to get legal title at some point in the future (day of closing)
Destruction of premises
varies by state, but once the sales contract is signed by both parties, the buyer or seller assumes the risk of any damage done to the property that may be done before closing the contract
Liquidated damages
in the event that one party breaches a contract, the parties agree upon an amount of money that will compensate the nonbreaching money
If there are contingencies in the contract, the contractis considered?
executory
Most common contingencies
- mortgage contingency
- inspection contingency
- property sale contingency:
- lienholder approval
Mortgage contingency
protects the buyer’s earnest money in the event that they are unable to secure a mortgage on the property
Inspection contingency
provides that the buyer may obtain certain spections of the property and may cancel the contract if the inspections indicate an unsatisfactory or unsafe property condition
Property sale contency
protects the buyer who has to sell a home in order to buy the seller’s property
Lienholder approval
if contract is a short sale
Elements of a contract contingency clause:
- action necessarily to satisfy the contingency
- time frame within which the action must be performed
- party who is responsible for paying any costs involved
Escape clause
permits the seller to continue to market the property until all the buyers contingencies have been satisfied or removed; only put in if the buyer’s contingency is a property sale
Kick out clause
TN version of escape clause
Contingencies
conditions that must be satisfied before a sales contract is fully enforceable
Amendment
a change or modification to the existing content of a contract
Addendums
any provision added to an existing contract that may change or be an addition to the content of the original
option
a contract by which an optionor (generally an owner) gives an optionee (a prospective purchaser or tenet) the right to buy or lease the owner’s property at a fixed price within a certain period of time
Land contract
does owner financing but does not pass legal title/sign the deed to the buyer; better protects seller
Purchase money mortgage
buyer receives the title to the property but places security interest on it - the mortgage - in favor of the seller; better protects buyer
Other names for land contract
contract for deed, installment contract, land sales contract(, articles of agreement for warranty deed, contract for sale, bond for title)
What are similarites between land contracts and purchase money mortgages?
both owner financing contracts
owner financing
seller provides credit for all or part of the funds that will allow the buyer to move forward with a transaction
What are differences between land contracts and purchase money mortgages?
when legal title passes
Statute of limitations
limits the time during which parties to a contract may bring a legal action, or lawsuit, to enforce their rights
What is the minimum amount of earnest money you must attach to an offer?
$0
who is the optionor, the buyer or the seller?
seller
