Initials Sales Contract Made Easy

Initials sales contract

every autumn first-year law students are taught that land is unique our legal system treats land distinctly from other types of property and contracts for the sale of land differently from other types of contracts a real estate sale has two phases one the contract phase in which the parties agree upon the terms under which the sale will occur and to the closing at which time the land is transferred to the purchaser this presentation will focus on the first phase and examine the requirements inherent in contracts for the sale of real estate discuss the most fundamental responsibilities of the seller in a real estate transaction and discuss remedies for breach of a land sale contract to be enforceable a land sale contract must satisfy the statute of frauds which generally requires that these contracts be in writing and signed by the parties note that this writing is apart from the instrument under which the actual transfer takes place which is known as the deed the real estate sales contract should incorporate all terms which the parties wish to agree to but must at a minimum list the names of the parties involved in the sale identify the parcel of land with reasonable certainty provide the conditions of the transfer and state the price of the sale land can be transferred or sold without a written contract but the effect of the statute of frauds is that an oral agreement to sell real estate will not be effective to force the parties to go through with the contemplated sale there is however an exception where the parties have substantially performed the transfer if the buyer provides payment even a partial payment to the seller after an oral contract and takes control of the land or make substantial improvements to the land then the contract will be enforceable despite the lack of a written contract for example assume that Steve agrees to sell Jason his 3,000 square-foot four-bedroom home for $400,000 Jason provides Stephen with $40,000 in cash a down payment Stephan gives him the keys to the home Jason then renovates the home and installs LED lighting and installs an energy-efficient central air-conditioning unit even though there is no formal writing to document the sale of the home a court will likely uphold the sale the payment possession and improvements make it self evident that there was an agreement between the parties since the statute of frauds is there to ensure that fraudulent contracts are not enforced this alternative evidence of the existence of an agreement will satisfy the policy reason behind it the parties can agree to substantially any terms they like in an agreement however two fundamental responsibilities are implied by the very nature of the land sale agreement the duty to convey marketable title the duty to transfer and vacate the property within a reasonable time after the contract every land sale contract contains an implied promise that add closing the seller will convey marketable title to a buyer marketable title is free from doubt or impairments and thus allows the buyer freedom to use the land the conveyance marketable title allows the buyer to rest assured that she will not be subject to claims of other people or lien holders after purchasing the property titles can be unmarketable for any number of possible reasons one such example occurs when there is a defect in the chain of title for example if the seller or a previous possessor of the property who had it before the seller did not have documentation in the form of a deed or court judgment that established his ownership it is unclear that the current seller is the true owner of the property as such the title is not marketable another example would be where the seller has mortgaged or otherwise encumbered the property it is assumed that the seller will satisfy all outstanding liens at the time of the closing a third example could occur when the seller has engaged in illegal construction on the premises or made improvements that are barred by local zoning ordinances failing to remedy these by obtained valid certificates of occupancy before closing constitutes a violation of the duty to convey marketable title today most purchasers do title searches and investigations to ensure title is marketable and/or may purchase title insurance that indemnifies her if some defect in the title is later revealed title insurance companies will conduct thorough due diligence to ensure that there are no title defects before issuing policies therefore purchasers who intend to purchase title insurance often leave the title investigation to the insurance company while title insurance is not required by law most banks will require title insurance as a condition of granting a purchase money mortgage to remedy unmarketable title a seller may be provided a reasonable amount of time to cure the defects if the seller fails to remedy the issues the buyer can rescind the contract or obtain specific performance with abatement this means that the buyer can still purchase the land but will be entitled to a reduction in the purchase price to account for the unmarketable title while the default rule is that closing must be made within a reasonable time most land sale contracts identify closing dates the closing dates however are generally not hard deadlines failure to close by the closing date is not always considered a breach instead once the state at closing date passes a party may send to its counterpart notice the closing must take place within a reasonable time which is often construed as being thirty days however even this may be extended especially when the extension is due to factors outside the parties control parties may insist on hard closing dates by inserting the language time is of the essence to the closing date clauses of the agreements a party that is not ready willing and able to close on the date listed in a time is of the essence Clause will be considered to have breached the agreement under the doctrine of equitable conversion once a contract is signed the purchaser becomes the equitable owner of the property even though the seller remains the legal owner until closing one manifestation of equitable conversion applies to allocate the risk of loss before closing if the property is damaged or destroyed prior to transfer of legal title through the fault of neither party the buyer bears the risk of loss so if the property does get damaged through no fault of any party between the contract and closing the buyer is still required to purchase the property under the contract terms the purchaser is however entitled to the proceeds of any homeowners insurance payouts covering these losses also due to equitable conversion if the buyer dies before the closing date his heirs are still entitled to close on the property conversely if the seller dies before closing the sellers heirs are required to close and transfer the property to the buyer when a seller breaches a land sale contract the purchaser is entitled to specific performance which means that a court will force the seller to go through with the sale this is because each parcel of land is considered unique and monetary damages are therefore not considered adequate to truly give the purchaser the benefit of his bargain the buyer can also recover monetary damages for other breaches such as remaining in the property longer than is allowed under the agreement or failing to fix defects in title or are failing to live up to other responsibilities under the contract in lieu of specific performance the purchaser may choose rescission instead rescission unwinds the real estate transaction and restores both the seller and buyer to their pre deal positions rescission could also include a restitution of benefits that each party conferred upon one another if the purchaser breaches the seller is entitled to monetary damages to compensate for her loss because these are very hard to pinpoint real estate contracts often stipulate that if the purchaser breaches the seller may keep the down payment also sometimes referred to as earnest money as compensation for losing the sale while the National Association of Realtors indicates that earnest money is typically 1 to 2% of the purchase price it can be substantially higher as much as 10% in some markets the amount of earnest money is of course negotiable between the parties due to the uniqueness of real estate land sale agreements have a variety of unique rules and procedures other presentations cover other common issues that arise in real estate sales but as we've discussed there are many fundamental rules that apply to all real estate sales contracts