Real Property Contracts Key Clauses

Transcription

1 Real Property Contracts Key Clauses Parties, including the names of Buyer and seller (including marital status if two of them are married) Name of the agent or broker Corporate information if either side is a corporation Property Description; including: A legal description Encumbrances, if any Personal property included in the sale Purchase price; including the amount of the down payment and later payments Legal Document Preparation Class 3 Slide 1

2 Real Property Contracts Key Clauses 2 Information about the closing: Time and right to extend, if applicable (including time is of the essence clause, if applicable) Location of closing Some lawyers charge an extra fee if the location is out of the area When possession is to be delivered Including terms as to what happens if closing is late Types of documents required at closing, e.g. Type of deed to be delivered Amount to be held in escrow Legal Document Preparation Class 3 Slide 2

3 Real Property Contracts Key Clauses 3 Type of title to be delivered, including information about title insurance, title searches, etc. Warranties made by each party or (usually) lack thereof Conditions of closing Same basic condition Subject to engineer s inspection, if one is not completed before the contract is signed Mortgage contingency clause, if applicable Risk of loss If this is not in the contract, states are split as to what the default rule is Time of the essence Legal Document Preparation Class 3 Slide 3

4 Real Property Contracts Key Clauses 4 Default and Remedies Specific performance for the buyer Remedy for the seller is usually to keep the deposit Alternative Dispute Resolution clause? Mortgage clauses, if applicable Commission, including who pays it and to whom Other miscellaneous provisions applicable to all contracts, including: Whether the contract survives closing Notice Severability Entire Agreement Signature, acknowledgment and notarization Legal Document Preparation Class 3 Slide 4

5 General Warranty deed Deeds: Types Guarantees a variety of protections for the buyer, including that no other source has any liens or rights to the property Special Warranty ( Bargain and Sale ) Guarantees that the seller s actions have not done anything that would hamper the title or enjoyment of the buyer This is the most common deed in land sales. The idea is that the buyer will do his own title search and so the seller need not guarantee against problems caused by the actions of others Quitclaim Deed Guarantees nothing (common for gifts and discount purchases where the seller is unwilling to guarantee title) Legal Document Preparation Class 3 Slide 5

6 Clauses of Any Deed Caption and Preamble Description of parties and language of conveyance Should include addresses and John Smith as Trustee of or something similar if it s conveyed to an entity Legal Property Description This can be just an address, but the convention is to also put the metes and bounds description The legal description can be gotten at the County Clerk s office property records section; many counties allow you to access past deeds online. You can usually get this information from past deeds If you need info such as section, block and lot #, you can usually get it from the county clerk s office Legal Document Preparation Class 3 Slide 6

7 Clauses of Any Deed 2 Warranty clause (for warranty deeds) Rights granted The to have and to hold clause Some states (e.g., NY) require certain clauses or disclosures to be in the deed itself What, if anything, the grant is subject to E.g., easements, mortgages, liens, etc. Consideration clause (not necessary for a transfer, but the convention is to use it) Signature, acknowledgment and notarization Legal Document Preparation Class 3 Slide 7

8 Promissory Notes and Mortgages Any promissory note that uses land as collateral is called a mortgage. Mortgages have: The promissory note/ agreement The mortgage deed Mortgage promissory notes should contain: Identification of the parties Amount of the loan Repayment schedule Provisions in case of default Statement of collateral or security interest Notarized signature of the mortgagor (borrower) Legal Document Preparation Class 3 Slide 8

9 Types of Mortgages Purchase money (the loan is used to buy the house) Fixed Rate vs. Adjustable rate Wraparound mortgages FHA mortgages (loan insured by the FHA) VA mortgages (loan insured by the VA) Balloon payment mortgages These are highly likely to lead to foreclosure and are heavily regulated Legal Document Preparation Class 3 Slide 9

10 Contents of a Mortgage Agreement These are typically the same as a promissory note or other contract including information about the encumbered property, plus the following clauses: Mortgagee s rights to accelerated payment if there is a default Property taxes and insurance to be held in escrow or at least a guarantee that the mortgagor will pay those How payments are applied to principal and interest Due on transfer provision Once the mortgage has been repaid, the mortgagee provides the mortgagor with a satisfaction of mortgage which is also filed with other property records. Legal Document Preparation Class 3 Slide 10

11 Title Inspection and Insurance If the buyer or mortgagee does an adequate title search, s/he is a bone fide purchases, for purposes involving dual transactions and other issues. The title inspector prepares an abstract of title which is a summary of the conveyances relevant to the property in its history Including mortgages, easements, liens, judgments, etc. It is the job of the buyer s attorney to examine the abstract of title to determine if there will be problems for the buyer In any case, the buyer will usually buy title insurance in case there s a problem with the title later. For a mortgage, the mortgagor is often forced to pay for this policy to protect the mortgagee Legal Document Preparation Class 3 Slide 11

12 Closing Documents The purchase receives at closing Deed (this is the most important document, of course) Title insurance Release of seller s mortgage documents Affidavits and notices, when necessary E.g., disclosure forms that are required in some states Tax and utility bills The seller receives: The purchase price (usually by certified or cashier s check) Release of seller s mortgage (it s paid off with the purchase money) Evidence of satisfaction of broker s commission The amount of tax and utilities the seller paid for future usage Legal Document Preparation Class 3 Slide 12

13 Closing Documents (Cont.) Federal law dictates the preparation of a HUD form in some cases, which gives a detailed listing of the expenses each party was responsible for, who paid what to whom This is basically a one stop shop for each party to figure out what she paid to whom and why After the closing, the appropriate documents are recorded. The party whom the document protects is responsible to make sure the document is filed; e.g. The deed should be filed by the office representing the buyer The mortgage note by the mortgagee Legal Document Preparation Class 3 Slide 13

14 Lease Agreement Lease Agreements should include: A description of the parties A description of the premises (an address or apt number is usually enough) Duration of the lease (or month to month, etc.) Rent and payment schedule Conditions of lease, including: Deposit, repair duties, access by lessor, assignment and sublease (whether it s allowed) Notarized signature of both parties Disclosure, when required under local or federal law Legal Document Preparation Class 3 Slide 14