real estate sales contract by gcz14466

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									Real Estate Sales Contracts
Mortgage and Note
                 Nightly Trivia

Q) What city boasts 10 of the 11 biggest hotels
in the world?
A) Las Vegas
      Real Estate Sales Contracts

Purpose of Sales Contracts
Parts of a Purchase Contract
The Binder
Letter of Intent
Contracts
       Purpose of Sales Contracts

Gives the buyer time for research
Provides legal consideration for terms of
exchange
Both parties are committed to the agreement
      Parts of a Purchase Contract

Provision for buyer’s earnest money deposit
Buyer’s offer to purchase
Acceptance of the offer by the seller
Provisions for the payment of a brokerage
commission
          Earnest Money Deposit

The price and means offered by the buyer
Deposits are normally required as an example of
commitment and security against the work
performed prior to a final agreement
In a court-ordered sale, the required deposit is
usually 10%
                 Title and Closing
The buyer can specify       Date of possession is
exactly what condition of   usually the same as the
title he/she will accept    closing date
A projected closing date    Escrow expenses (split
will be specified on the
purchase contract           between buyer and
                            seller) usually include a
Ongoing expenses are
split between buyer and     conveyance tax and a
seller based on time        fee for having the deed
(prorated)                  recorded
         More Info in the Contract

If only a few items of personal property are
included, they may be included in the contract, a
bigger list will use a bill of sale
Buyers can require an inspection before closing
The buyer can cancel if damage is done to the
property before possession changes
                     Buyer Default
Seller options:                Time limits
– Release the buyer and        – The seller has a certain
  return his deposit in full     amount of time to accept
– Sue the buyer for specific     an offer
  performance
                               – Usually 3 days if
– Sue the buyer for              delivered in person
  damages suffered
                               – 7-10 days if done through
Contract can have a              the mail
clause for forfeit of
deposit in the event of
default
                    Signatures

The buyer keeps a copy of the contract and
duplicates are delivered to the seller
Prevents any changes after the buyer signs the
contract
The Electronic Records in Global and National
Commerce Act – October 1, 2000
– Allows for electronic signatures of many documents
           Finalizing the Contract

The seller must accept every aspect of the
contract – any changes constitute a counter-offer
When acceptance is made commissions are
agreed upon as a part of closing costs
If one party dies the heirs are usually required to
fulfill the contract
           Clauses – Not Santa

Federal clauses for FHA/VA loans
Lead-based paint
Riders
Negotiation
               Federal Clauses

An amendatory language clause must be
included whenever a sales contract is signed by
a purchaser prior to the receipt of an FHA
Appraised Value or a VA Certificate of
Reasonable Value on the property
The Federal Trade Commission requires that
builders and sellers of new homes include
insulation disclosures in all purchase contracts
                    More Clauses

Lead-Based Paint              Riders – any addition to
Disclosures                   a document
– Sellers and landlords       Negotiation – for a price,
  must fully disclose all     everything can be
  information about lead-
                              changed in contract
  based paint on a property
                              terms
– Contracts must include
  certain language to
  ensure the disclosure
  takes place
                   The Binder

Temporarily holds a deal together until a more
formal purchase contract is finalized
Many details (inspections, etc.) are not included
Courts may be involved in finalizing details if a
stalemate develops regarding the binder
               Intent, and Law

Parties can express intentions without legal
obligation with a letter of intent
Much of the contract preparation is done by real
estate firms with pre-written forms
The forms must be approved by an attorney, and
real estate firms may not make changes beyond
filling in the blanks
             Installment Contracts

The big difference –      Became popular again in
deed is delivered at a    the 1970’s as a way
date after closing        around high interest
If payments are not       rates
made on time, the         Now, installment
property and all          contracts must be
payments can be           recorded
retained by the seller    Deed is usually placed in
Easier than foreclosure   escrow
                      Transition

During the period beginning with the buyer and
seller signing the contract and the seller
delivering the deed, the buyer is said to hold
equitable title to the property
– The buyer has full rights to the property
– The seller holds the title in name only without
  ownership rights
                     Options

An option contract gives the buyer the right to
purchase a piece of property but not the
obligation
Corporate entities may take out options on
multiple building sites
        Lease With Option to Buy

Also called a lease-option, for a given time
period a renter can buy at a predetermined price
All terms are set in writing at the time of the
lease signing
Provided an equitable return, a fee may be
charged for a lease option
Options longer than 1 year are usually for
commercial properties
         Basic Option Vocabulary

Optioner – the party giving the option
Optionee – the party receiving the option
Call – another term for an option, often found in
Finance
                    Final Items

First right of refusal – a renter or other party gets
the choice to match any offer made for purchase
of a property
Exchange agreements – allows for divestment
and acquisition of properties with minimal tax
payments
Delayed exchanges – property is given before
new property is accepted
            Mortgage and Note

Promissory Notes
Mortgage Instruments
Foreclosure
              Promissory Note

Also called a real estate lien note
Establishes amount, repayment, and interest
rate on the debt
            Parts of a Promissory Note

Validity:
 – In writing
 – Between a borrower and lender both of whom have
   contractual capacity
 – State the borrower’s promise to pay a certain sum of money
 – Show the terms of payment
 – Be signed by the borrower
 – Be voluntarily delivered by the borrower and accepted by the
   lender
               Details in a Note

Principal – amount of the note
Prepayment privilege – buyer can pay off the
note early without penalty
Acceleration clause – missing payment may
result in immediate balloon payment
Signature – like all contracts, a note must be
signed by both parties
                   Mortgages

Provides collateral against non-payment
Hypothecation – the borrower retains the right to
possess and use the property while it serves as
collateral
Pledging – to give up possession of the property
to the lender while it serves as collateral
           Mortgage Covenants

Covenant to pay taxes
Covenant against removal
Covenant of insurance
Covenant of good repair (or preservation and
maintenance)
                           Clauses

Alienation – (due-on-          Condemnation – if all or
sale) – gives the lender       part of the property is
the right to call the entire   taken by action of
loan balance due if the        eminent domain, any
mortgaged property is          money so received is
sold or otherwise              used to reduce the
conveyed by the                balance owing on the
borrower                       note
            Mortgage Satisfaction

When a note is paid in full a document is issued
reflecting that
Called a satisfaction of mortgage or release or
mortgage
This is also recorded to assist in title searchers –
called a marginal release
            Transfer of Payments

If a loan lacks a due-on-sale clause, a seller can
simply pass the payments on to a buyer to take
advantage of a favorable rate
The buyer makes payments but the seller is still
liable
If the buyer defaults, the seller can be required
to pay the balance due plus interest
                   Assumption

This is a safer way to transfer payment
responsibility
The buyer enters into a written agreement with
the seller
The seller is still liable, but has a document for
legal proceedings in the event of default
                  Loan Details

Certificate of reduction – prepared by the lender
to show how much of the loan remains to be
paid
Estoppel certificate – the borrower is asked to
verify the amount still owed and the rate of
interest
                Pecking Order

First lender records a first mortgage
Subsequent lenders record second mortgage,
etc.
Sometimes a lender will use subordination –
voluntary acceptance of a lower position in the
repayment structure
Chattel liens – secured by personal property
                  Foreclosure

Delinquent loan – the borrower is behind on
payments
Foreclosures are a lose-lose proposition, they
are avoided when possible
               Types of Foreclosure

Judicial – lawsuit is filed    Nonjudicial – there is no
– The defendant’s interests    lawsuit and no action by
  be cut off in order to       a judge
  return the property to the
  seller
– The property be sold at a
  public auction
– The lender(s)’ claim be
  paid from proceeds
            Foreclosure Options

Surplus money action – filed by a junior
mortgage holder – hopes the sale of the property
will provide excess funds to pay them
Notice of lis pendens – informs the public that a
legal action is pending
Public auction – property is repossessed and
sold to cover the mortgage
                At the Auction

Up to the minute the property is sold the
borrower can redeem the property with payment
– this is called equity of redemption
Failing this, an auction usually requires a 10%
deposit on a successful bid
Delinquent property taxes follow the property
            More Auction Details

If the property sells for more than is owed, the
borrower gets the excess
Many states allow for a deficiency judgement – if
the property sells too low, other assets of the
borrower can be pursued
Some states give the borrower from 1 month to 1
year to regain property – this is called statutory
redemption
        More Types of Foreclosure

Strict foreclosure – ordered and executed by the
court with no statutory redemption period
Power of sale – a mortgage clause that allows
for foreclosure without going to court – cannot
award a deficiency judgment
Junior mortgage holders will use a request for
notice of default so they are notified in the event
of default
              Foreclosures, Cont.

Entry and possession – the lender gives notice to the
borrower that the lender wants possession of the
property
Deed in lieu of foreclosure – a borrower voluntarily
deeds the property to the lender in exchange for a
cancellation of the debt
Trust deed – the borrower, lender, and a neutral third
party reach agreement on dispensation of the property
and debt
           The Last of Chapter 9

Equitable mortgage – a written agreement
considered by the courts to be a mortgage in
spite of some differences
If a borrower can prove that a deed was security
for a loan, the lender must foreclose like a
regular mortgage if the borrower fails to pay

								
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