Contracts and Title Closings

  • Contracts
    • An exchange of promises between parties, conditioned on certain events and enforceable by law.
    • Necessary Elements of a Contract
      • Offer and acceptance
      • Consideration
      • Capacity of parties
      • Lawful purpose
      • Writing requirement (Statute of Frauds)
    • Offer, Acceptance & Consideration
      • Offer – statement that specifies the position of the offeror
      • Acceptance – expression of satisfaction with terms of offer
        • Mirror image rule
      • Consideration – anything that incurs a legal detriment or the foregoing of a legal benefit
    • Capacity of Parties & Lawful Purpose
      • Mental competence
      • Legal age
        • Contract by underage person is voidable except for necessities of life
      • Contract must be for a lawful purpose
    • Writing Requirement
      • Statute of Frauds in each state requires that real property transfers be evidenced in writing (some states make exceptions for leases with terms of less than one year)
      • Partial performance can be an exception to the writing requirement
      • See Legal Highlight “Validity of an Oral Contract”
    • Breach of Contract
      • Failure to perform any required contractual obligation
        • Offended party may seek “specific performance” by court order
        • Also commonly referred to as “default”
      • Contingencies
        • Language in a contract that may relieve a party of obligation to perform
          • Financing contingency
          • Title contingency
          • Inspection and repair contingency
          • Many more!
  • Real Estate Sales Contract
    • Sets forth the rules governing the parties’ rights and obligations between time of agreement and transfer of title
      • Created through offer-acceptance process
      • Offers can be revoked anytime before acceptance, but not after!
    • Sales Contract Example – See Figure 6.1
      • Key Issues
        • Parties
        • Price
        • Closing date
        • Contingencies
  • Option-to-Buy Contracts
    • Owner keeps offer to sell open for specified time period
    • Buyer has right, but not the obligation, to purchase during the time period for the price and on the terms and conditions stated
    • Often used by developers to “assemble” land from multiple owners for new projects
  • Contract for Deed
    • Installment contract where buyer does not get legal title until the last payment is made
    • Also called
      • Land contract
      • Agreement for deed
  • Negotiation Strategies
    • Price is only one of many points that must be negotiated in real estate transactions
    • Avoid “zero-sum” mentality
    • Look for win-win situation
  • Title Closing
    • The final step in the process of transferring title from grantor to grantee
    • Buyer’s responsibilities before closing
      • Obtaining financing
      • Examining the title evidence
      • Having the property surveyed
      • Obtaining property insurance
      • Having the property inspected
    • Seller’s responsibilities before closing
      • Prepare the deed
      • Remove encumbrances
      • Cooperate with inspectors
    • Closing Costs
      • Costs generally paid by the buyer at the closing
        • Loan origination fee
        • Loan discount points
        • Appraisal fee
        • Credit report fee
        • Lender’s inspection fee
        • Mortgage insurance premium
        • Attorney fees
        • Hazard insurance premium
        • Recording fees for the mortgage
      • Costs generally paid by the seller at the closing
        • Real estate brokerage commission
        • Attorney fees
        • Documentary stamp taxes, where required
        • Recording fees for the satisfaction of the seller’s mortgage
  • Proration of Property Expenses
  • Parties Present at the Closing
  • Escrow Closings