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32 Cards in this Set
- Front
- Back
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How can we characterize contracts in Real Estate transactions?
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* Unilateral vs. Bilateral
* Valid vs Voidable vs Void vs Unenforcebale |
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Bilateral
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-each party acting (or promising to act in a certain way
-most contracts |
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Unilateral
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-one party promises to act only if a specified condition is fulfilled.
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valid contract
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all essential elements must be present
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voidable contract
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has one or more elements missing
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void contract
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- contrary to public policy, so the law does not view it as a contract even through offer, acceptance etc are present.
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unenforceable contract
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not valid because of legal requirements other than the elements of a valid contract
ex. violates statute of frauds |
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the elements that cause a contract to be valid and enforceable
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1. Agreement-*(Offer & Acceptance)
2. Consideration 3. Reality of assent- parties acting under free will 4. Legally competent parties 5. Legal purpose |
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the difference between an offer and counteroffer
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1. Offer- a promise to act in specified way if the other party will act in some other specified way.
must: - not be a joke- be communicated to a specific party (the offeree) - have complete definite terms 2. Counteroffer- if an acceptance is not complete and unconditional -offeree changes some of the terms |
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What are the characteristics of consideration?
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1. May be money, securities, or even an agreement to act or refrain from acting in some specified manner
2. Must relate directly to the agreement at hand, you cant in return for previous favor; EX: promise to give land to someone that saved ur life--could back out & rescuer couldn't enforce 3. Need not reflect an objective measure of market value |
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consideration
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-promise to give something of value to another party, who promises other consideration in return
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an offer can be terminated by:
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-lapse
-revocation -rejection by offeree -operation of law |
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lapse
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offeror states date when offer terminates
- any offer after that date is either disregarded or viewed as a new offer |
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operation of law
(way of terminating a contract) |
-death or insanity of either party
-or the destruction of subject of contract. |
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A rescission in reality of assent (elements that cause a contract to be valid...) is justified by?
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1. Fraud
2. Innocent misrepresentation 3. Duress 4. Undue influence 5. Mutual mistake |
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undue influence
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Party was in position of trust that allowed him to take unfair advantage of another
For undue influence to be proven, all these conditions must be present: 1. Susceptibility to influence on one party's part 2. Opportunity for other party to exert undue influence 3. Disposition or tendency for party to exert undue influence (keeps victims isolated from other friends, relatives) 4. Appearance that undue influence has occurred (actions are totally out of character for victim) |
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terms of legal purpose contract can't violate
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1. Common Law- court case precedents
2. Statutory law- laws passed by local, state or federal legislative bodies 3. Public policy- ex: agreement to make campaign contributions in return for a favorable zoning decision |
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statute of frauds
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-governing jurisdictions have required some contracts to be in writing to be enforceable
- all real estate contracts must follow and be in writing. -mortgages and easements also have to be in writing, |
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What are the Remedies for a Breach of the Contract for a Buyer?
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** If seller defaults, buyer may seek relief in the form of:
1. Specific performance- deliver deed to specified real estate 2. Damages- dollar amount received to place the buyer in a position equivalent to what would have been if the seller had performed under the contract. 3. Recission- terminate the contract and get back any consideration paid ("restitution") 4. Liquidated damages- before contract is signed, parties agree on amount that a breaching party must pay |
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What are the Remedies for a Breach of the Contract for a Seller?
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**buyer defaults- seller seek relief:
1. Specific performance- purchase the specified real estate(unusual dont want to force someone to buy a property they dont want) 2. Damages-collect money as a result of having to find another buyer and hold the property longer 3. Recission- terminate contract and return buyers money or just terminate contract (ok to keep money if its a good-faith deposit, not ok to keep a down payment) 4. liquidated damages |
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Listing Agreement
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contract between a real estate owner and a broker, promising payment of a commission to the broker if the broker locates buyer who is READY, WILLING, AND ABLE TO BUY.
It is an employment contract that established a SPECIAL AGENCY relationship between the owner and the broker **Ex: think about the lawyer for the condo--wanted to move in earlier |
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Earnest Money
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a good faith deposit
- if contract completed earnest money is applied to purchase price, if the contract breached by buyer -earnest money may serve as liquidated damages |
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Prorating of items paid in advance and with positive balance at the date of closing
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property taxes, homeowners insurance (if buyer assumes the sellers policy), rents received (if rental property)
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Evidence of Title
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the seller must normally provide evidence that the title is good.
Possible types of evidence: 1. Abstract of Title 2. Attorney's opinion of title 3. *Title Insurance 4. **Torrens Certificate |
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Title Insurance
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insurance policy that compensates a buyer's financial loss if title is later found to be defective
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**Torrens Certificate
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- title is registered with the county government, just like a car title is registered
upside: once the govt recognizes an owner, proof of ownership in subsequent transaction becomes easy downside: determining certifiable ownership the first time is a very involved process. |
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Time is of the Essence clause
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If contract does not state the "time is of the essence", either party can take additional time to complete his/her obligations
**think of renting a moving truck..need to be moved out by a certain time |
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Special Topics involving Real Estate Contracts
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1. Installment Land Contract or "Contract for Deed"-seller lends most of the purchase price to the buyer and then retains title as security. The buyer has a contract to purchase the property and get a deed after paying all installments
2. Option 3. Assignment 4. Escrow arrangement- oral or written contract under which buyer and seller agree to let a third party , the escrow agent, handle all money and documents |
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closing process: Steps in the transaction
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1. Formal contract--with offer and acceptance, consideration, competent parties, all major terms specified
2. Contingencies- such as favorable report from home inspector and buyer's ability to obtain standard financing |
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What is exchanged at the closing?
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1. Cash is paid to the seller
2. Deed is given to the buyer 3. Affidavit of title is given to the buyer- signed statement that no activity that might endanger the title has occurred since the title search was completed 4. Seller's mortgage is released 5. Homeowners insurance documents 6. Title Insurance policies- in IL buyer pays for lender's policy, and seller pays for buyer's 9. Terminate inspection report 10. Commissions are paid to brokers |
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What are the costs paid at closing?
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Buyer (debits: what they have to pay)- downpayment, loan application fee, discount points, mortgage insurance, credit report fee, premium for lender's title policy, recording fees for deed and buyer's mortgage
Seller (debits)- Property taxes prorated for period, premium for buyer's title policy, attorney fee for document preparation, broker's commission, recording fee, transfer tax paid |
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proration
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accrued or prepaid expense items-
-In Illinois, however, property tax is paid in a later year, so property tax typically is an accrued item that must be prorated at closing. **use actual days in the year |
