LOUISIANA REALTORS COMMENTARY TO LOUISIANA RESIDENTIAL AGREEMENT TO BUY OR SELL

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1 LOUISIANA REALTORS COMMENTARY TO LOUISIANA RESIDENTIAL AGREEMENT TO BUY OR SELL BY Patricia B. McMurray ADAMS AND REESE LLP Baton Rouge, Louisiana BATON ROUGE, LOUISIANA (225) NEW ORLEANS, LOUISIANA (504) JACKSON, MISSISSIPPI (601) HOUSTON, TEXAS (713) MOBILE, ALABAMA (215) NASHVILLE, TENNESSEE (615) MEMPHIS, TENNESSEE (901) BIRMINGHAM, ALABAMA (205) WASHINGTON, D C (202) Copyright 2007 LOUISIANA REALTORS. All Rights Reserved. Any reproduction, adaptation, or redistribution of this work in any form is prohibited, except upon the express written permission of LOUISIANA REALTORS. Notwithstanding the foregoing, the Louisiana Purchase Agreement Form, as amended, promulgated by Act 333 of the 2006 Louisiana Legislative Session is dedicated to the public domain. 1

2 Practice Teams Real Estate Commercial Restructuring Bankruptcy Banking and Finance Forestry Law Construction and Real Estate Economic Development P a t r i c i a B. M c M u r r a y Partner, Transactions and Corporate Advisory Services Real Estate Practice Team Leader Baton Rouge (225) patricia.mcmurray@arlaw.com Areas of Experience Real Estate Forestry Commercial Litigation Bankruptcy State Bar Admissions Louisiana Education J.D., Louisiana State University Paul M. Hebert Law Center, 1986 B.S., University of Alabama, 1983 Honors and Awards: BRBA Friend of Pro Bono Award, 1998 LBA Pro Bono Publico Award, 1994 LSU Law School: President's List and Moot Court Board University of Alabama, Phi Beta Kappa Publications: Contributor, The Louisiana Section of the Bankruptcy Exemption Manual, West's Bankruptcy Series Patricia B. McMurray's practice focuses on all types of commercial transactions, forestry and real estate. She is also an experienced litigator in the bankruptcy and general commercial areas. Ms. McMurray is an active member of the Baton Rouge Bar Association, and in 1993, she was awarded the "Baton Rouge Association President's Award." In 1994, she received the "Pro Bono Publico Award" from the Louisiana State Bar Association, and in 1998, she received the "Friend of Pro Bono Award" from the Baton Rouge Bar Association. In 2003, Ms. McMurray was selected as one of the nine most influential women in the Baton Rouge business community. Ms. McMurray also serves as a speaker for the Louisiana State University Law School, the National Business Institute and the Louisiana State Bar Association. She is a member of the Board of Directors of Boys Hope/Girls Hope of Baton Rouge, and the Childrens Charter School. She is also a former board member and president of the Baton Rouge Big Buddy Program. Ms. McMurray is listed in Louisiana Super Lawyers (Real Estate). 2

3 DISCLAIMER These materials are to be used for informational purposes and should not be construed as specific legal advice, nor are they designed to cover every aspect of a legal situation or every factual circumstance that may arise regarding the subject matter included. This publication is for reference purposes only and association members or other readers are responsible for contacting their own attorneys or other professional advisors for legal or contract advice. The comments provided herein solely represent the opinions of the authors and is not a guarantee of interpretation of the law or contracts by any court or by the Louisiana Real Estate Commission. 3

4 I. STATEWIDE PURCHASE AGREEMENT FORM A. INTRODUCTION The Law requiring the Statewide Purchase Agreement Form In 2006, the Legislature passed Act 333 which provides that real estate licensees in the State of Louisiana shall use the Statewide Purchase Agreement Form (the Statewide Purchase Agreement Form ) prescribed by the Louisiana Real Estate Commission ( LREC ) in making their offer to purchase or sell residential real property. The statute provides: A. A licensee representing either the buyer or seller of residential real property shall complete the Purchase Agreement Form prescribed by the Louisiana Real Estate Commission in making an offer to purchase or sell residential real property. No person shall alter the Purchase Agreement Form; however, addendums or amendments to the Purchase Agreement Form may be utilized. B. The promulgation of this form shall be conducted in accordance with the Administrative Procedure Act no later than July 1, C. (1) As used in this Section, the term "Purchase Agreement Form" shall mean a document in a form prescribed by the Louisiana Real Estate Commission as a written agreement for the sale or purchase of residential real property. (2) As used in this Section, the term "residential real property" means real property consisting of one or not more than four residential dwelling units, which are buildings or structures each of which are occupied or intended for occupancy as single family residences. The purpose of the law was to assist real estate licensees, many of whom now have clientele statewide, with a uniform starting contract to begin their negotiations. The Statewide Purchase Agreement Form is not intended to mandate the terms of sale but to assist licensees with a central beginning contract. 4

5 B. EXPLANATION TO STATEWIDE PURCHASE AGREEMENT FORM The Statewide Purchase Agreement Form promulgated by the Louisiana Real Estate Commission is titled the Louisiana Residential Agreement to Buy or Sell. This form is reproduced in sections and shown in blue text. The comments shown in red are explanations of the information to be filled in for each blank. Further comments to the Statewide Purchase Agreement Form are shown in black. 1. Box at Top of First Page of Statewide Purchase Agreement Form (Listing Firm) Listing Firm (Selling Firm) Selling Firm (Name of Seller s Designated Agent) _(Name of Buyer s Designated Agent)_ Seller s Designated Agent Dual Agent Buyer s Designated Agent (Information on Seller s Designated Agent) (Information on Buyer s Designated Agent) Phone Number Office Fax Phone Number Office Fax _( of Seller s Designated Agent) Address ( of Buyer s Designated Agent) Address _(Person or company to whom offer delivered) (Date and time of delivery) Delivered by Designated Agent to Day Date Time AM/PM Comments _(Name of person receiving offer) (Date and time of receipt) Received by Day Date Time AM/PM (Name of Designated Agent receiving offer) (Date and time of receipt) Received by Designated Listing Agent Day Date Time AM/PM The information box at the top of the Statewide Purchase Agreement Form provides blanks for information on the listing firm and selling firm. This information is intended to assist the agents in transmitting the offer and tracking delivery of the offer. If the designated agent for the Buyer and Seller is the same person, the dual agency box contained in the middle of this informational box should be selected. 2. Date 3 Date: (Date of Offer) Line 3 This blank is for the date is the date the offer is made by the Buyer or Seller. 5

6 3. Property Description PROPERTY DESCRIPTION: We offer and agree to Buy/Sell the property at: (Municipal Address) (Municipal address of property to be sold, example 142 Green Street) City (City name of property to be sold) ; Zip _(Zip) ; Parish (Parish) ; Louisiana, (Legal Description (Legal description of property to be sold) on lands and grounds measuring approximately (Lot or land size of property to be sold if available)_ or as per record title; including all buildings, structures, component parts, and all installed, built-in, permanently attached improvements, together with all fences, security systems, all installed speakers or sound systems, all landscaping, all outside TV antennas, all satellite dishes, all installed and/or built-in appliances, all ceiling fans, all air conditioning or heating systems including window units, all bathroom mirrors, all window coverings, blinds and associated hardware, all shutters, all flooring, all carpeting, all cabinet tops, all cabinet knobs or handles, all doors, all door knobs or handles, all windows, all roofing, all electrical systems, and all installed lighting fixtures, chandeliers and associated hardware, other constructions permanently attached to the ground. If owned by the SELLER prior to date of this Agreement, standing timber, unharvested crops and ungathered fruits of trees on the property shall be conveyed to the BUYER. The following movable items here remain with the property, but are not to be considered as part of the Sales Price and have no value: (Description of items remaining with the property but not included in the sales price). All items listed herein are included in the property sold no matter how they are attached or installed, provided that any or all of these items are in place at the time of signing of this Agreement to Buy or Sell (the Agreement ), unless otherwise stated herein. (All of the above contained in lines 5 through 24 are collectively referred to herein as the Property. ) The following items are excluded from the Property sold: (Description of items being removed from the Property). Line 5 This line is the offer by the Buyer or Seller to buy or sell the Property described on the following lines of the Statewide Purchase Agreement Form. Line 6 This blank should be completed with the municipal or street address of the Property to be sold if available. For example, the municipal address of the Property to be sold might be 142 Green Street. Line 7 These blanks are for the city, the zip code and parish of the Property to be sold if available. Line 8 This blank is provided to include the legal description of the Property to be sold if available. The legal description can also be attached as an addendum to the Statewide Purchase Agreement Form. 6

7 Line 10 The approximate measurement of the land and grounds of the Property to be sold should be included on this blank if available. If this information is not available terms such as per survey or not available may be included. Lines These lines describe the additional property being sold with the land. The necessity to further list the specifics of property being sold originally derived from the Willis-Knighton Medical Center vs. Caddo-Shreveport Sales & Use Tax Commission, 2005 WL (La. 2005) decision whereby the Louisiana Supreme Court called into question what had long been considered in the industry to comprise the component parts of real property. This listing of specific items also provides an opportunity to discuss with Buyers and Sellers exactly what items will remain with the Property being sold and which items will be taken by the Sellers upon their departure from the Property. The items listed on Lines 11 through 18 are intended to be component parts of the Property being sold. Lines This sentence provides the Property being sold will include standing timber (timber that has not already been cut), unharvested crops and ungathered fruits of the trees on the Property unless this term is changed on an addendum to the Statewide Purchase Agreement Form or unless these crops or timber has previously been sold by the Seller. Lines This blank provides a place to list movable items which will remain with the Property but are not considered part of the Sales Price and therefore have no value per the sale. Movable items that might be left with the Property at no value regarding the Sales Price for example, include an item such as a refrigerator. Lines This definition provides that the Property being sold shall include all of the above referenced Property per Lines 5 through 24 collectively referred to as the Property elsewhere in the Statewide Purchase Agreement Form. Lines This blank is to include items excluded from the Property to be sold such that if a Seller is not selling window coverings for example, the Seller could say in this portion of the Statewide Purchase Agreement Form, window coverings are excluded from the Property sold. 4. Mineral Rights MINERAL RIGHTS: If SELLER owns any mineral rights, they are to be conveyed without warranty. _* % mineral rights owned by SELLER are to be reserved by SELLER, but SELLER shall waive any right to use the surface for any such reserved mineral activity or use. * - Percentage of mineral rights which Seller is retaining. Line 33 The first checkbox should be selected if the Seller may own any mineral rights and the Seller is conveying these rights to the Buyer without warranty of title to the minerals. This means the Seller is transferring the mineral rights he may have but is not warranting or guaranteeing to the Buyer that there are any mineral rights which he may be able to convey to the Buyer. 7

8 Line 34 - The second checkbox should be selected if the mineral rights owned by the Seller are to be reserved by the Seller, or if the Seller is conveying a portion of mineral rights to the Buyer. For example, the Seller may wish to retain 50% of the mineral rights and convey 50% of the mineral rights to the Buyer. The Seller might also fill in 100% in Line 34 if the Seller is reserving all mineral rights. Lines This line provides, the Seller shall waive any right to use the surface of the Property being sold for any reserved mineral activity or use. This means the Seller is agreeing that any drilling or production of minerals shall not be on the surface of the Property being sold. For example, the mineral production could be by directional drilling off the Property. 5. PRICE PRICE: The Property will be sold and purchased subject to title and zoning restrictions, servitudes of record, and law or ordinances affecting the Property for the sum of (Written out amount of Sales Price, example One Hundred Thousand) Dollars ($100,000 ) (the Sales Price ). Lines This paragraph provides a blank to fill in the offered Sales Price for the Property both alphabetically and numerically. The paragraph further provides the Property will be sold subject to title and zoning restrictions, servitudes of record, and law or ordinances affecting the Property. This amount in the blank on Lines is called the Sales Price through the remainder of the Statewide Purchase Agreement Form. 6. Contingency for Sale of Buyer s Other Property CONTINGENCY FOR SALE OF BUYER S OTHER PROPERTY: This sale is contingent on the sale of other property by the BUYER and the attached contingency clause addendum shall apply. This sale is not contingent upon the sale of other property by the BUYER nor is the loan needed by the BUYER to obtain the Sales Price contingent on the BUYER S sale of any property. Line 42 - This checkbox should be selected if the sale of the Property is contingent or conditioned upon the sale of another piece of property by the Buyer. If this checkbox is selected, a contingency clause addendum which sets forth the specific terms upon which the Buyer s current property will be sold should be attached. Lines On Line 43, a second checkbox is provided which should be selected if the sale of the Property is not contingent upon the Buyer s sale of another piece of property. 7. All Cash Sale 49 ALL CASH SALE: BUYER warrants he has cash readily available to close the sale of this Property. 8

9 Line 49 This checkbox should be selected if the sale of the Property will be for all cash. This means the Buyer is not obtaining financing to fund the Sales Price with the Property being acquired used as collateral for the loan. The Buyer warrants that he has cash readily available to fund the Sales Price. 8. Financed Sale FINANCED SALE: This sale is conditioned upon the ability of BUYER to borrow with this Property as security for the loan the sum of $ (Amount of loan to be obtained) or % of the Sales Price by a mortgage loan or loans at an initial interest rate not to exceed % per annum, interest and principal, amortized over a period of not less than years, payable in monthly installments or on any other terms as may be acceptable to BUYER provided that these terms do not increase the cost, fees or expenses to SELLER. The loan shall be secured by: Fixed Rate Mortgage; Adjustable Rate Mortgage; VA Guaranteed Mortgage; FHA Insured Mortgage; Owner Financing; Bond Financing; Other. SELLER mandated fees required by lender on VA or FHA loans, if any, shall not exceed $. BUYER agrees to pay discount points not to exceed % of the loan amount. Other financing conditions:. BUYER agrees to make good faith application, which includes ordering and paying for an appraisal and credit report if required for loan approval, within _* calendar days of acceptance of this offer or any counteroffer and written proof from the lender that the application has been made shall be supplied by BUYER to the SELLER. Written commitment by the lender to make loan(s), without contingencies except subject to approval of title, shall be obtained by BUYER and shall constitute final loan approval. Final loan approval shall be obtained on or prior to *. Any extension of this date shall be in writing and shall be signed by all parties. BUYER authorizes and instructs lender to release to SELLER or SELLER S Broker or Designated Agent, written verification of the loan application and final loan approval. SELLER reserves the right to provide all or part of mortgage loan(s) set forth above. The BUYER acknowledges and warrants that he has available the funds which may be required to complete the sale of the Property including, but not limited to, the deposit, the down payment, closing costs, pre-paid items, and other expenses. * - Number of calendar days after acceptance of offer by which the Buyer will submit a loan application. This includes Saturdays, Sundays and legal holidays. * Deadline for final loan approval. Lines This section provides the financial terms of the sale if the Sales Price is to be financed by the Buyer. Line 51 This checkbox should be selected if the Sales Price is being financed by the Buyer. This means that the Buyer will be borrowing money to pay the Sales Price. 9

10 Lines This line provides a blank for the amount of the loan which the Buyer intends to obtain or if the Buyer does not know the amount of the loan a blank is also provided in Line 53 for the amount of the loan to be expressed as a percentage of the Sales Price. For example, the Buyer might include a term that 80% of the Sales Price will be financed by a mortgage loan or loans. This paragraph also provides a blank for a maximum interest rate per annum if the Buyer wishes to include this as a term of sale. Further, a blank is provided for amortization of the loan. For example the Buyer may say that he must obtain a mortgage loan for 80% of the Sales Price at an initial interest not to exceed 9% per annum, interest and principal amortized over a period of not less than 30 years. Lines These lines provide that the Buyer may agree to other loan terms not stated in the financing terms in the lines above, so long as these different financial terms do not increase the costs, fees or expenses to the Seller. Lines The type of loan to be obtained by the Buyer is provided for in Lines 56 through 58 of the Statewide Purchase Agreement Form. These choices include a fixed rate mortgage which is a mortgage in which the amount of interest is at a set amount that does not change through the term of the mortgage. For example, an 8% mortgage that remains 8% from the beginning to the end of the term of the loan. The second type of loan is an adjustable rate mortgage. In an adjustable rate mortgage the interest rate is adjusted during the term of the mortgage. For example, the interest rate might start at 8% the first year and increase to 9% after 5 years. The third type of loan is a VA Guaranteed Mortgage or FHA Insured Mortgage. There is also a checkbox for Owner Financing, Bond Financing and an Other checkbox if the type of financing is not included in the previous checkbox selections. Line 59 This line provides a blank for the mandated fees, if any, required by lender on VA or FHA loans. The maximum amount the Seller shall be required to pay of these mandated fees should be included in this blank. Line 60 This line provides a space to list any discount points to be paid by the Buyer. Lines These lines provide a space for other financing conditions not already included in this preprinted paragraph. Lines These lines provide that the Buyer agrees to make good faith financing application with the lender. This includes ordering and paying for an appraisal and credit report if required for loan approval by the lender. A blank is provided for the number of calendar days after acceptance of this offer or any counteroffer that written proof from the lender of the loan application should be supplied by the Buyer to the Seller. This means that the Buyer must make his application for financing within a certain number of calendar days from acceptance of the offer or counteroffer and then provide proof that the application has been made to the Seller. This loan application proof could be supplied to either the Seller or the Seller s agent. The commitment by the lender to make loans without contingencies except subject to title approval is considered final loan approval for purposes of the Statewide Purchase Agreement Form. 10

11 Line 70 - Final loan approval shall be obtained by the Buyer on or prior to the date listed in the blank provided on Line 70. This blank is intended to require the Buyer to obtain final loan approval prior to a date certain. The date provided in Line 70 may be the closing date or an earlier date prior to the closing date. Line 70 further provides that any extension of the loan approval date shall be in writing and shall be signed by the parties. Lines This sentence gives the lender the authority to release to the Seller or the Seller s broker or designated agent, written verification that the loan application has been made and final loan approval has been obtained. Lines In this section, the Seller reserves the right to provide owner or Seller financing upon the terms set forth in Lines 51 through 63 if the Seller decides to do that in lieu of the traditional lender financing. Lines In this section, the Buyer acknowledges and warrants that he has available funds which may be required to complete the sale of the Property. This includes the deposit, the downpayment, the closing cost, prepaid items and other expenses. This section is also intended to give notice to the Buyer that there may be costs that the Buyer will need to pay above the amount of the mortgage loan. 9. Deposit DEPOSIT: Upon acceptance of this offer, SELLER and BUYER shall be bound by all terms and conditions of this Agreement, and BUYER or BUYER S agent will deliver immediately upon notice of acceptance of the offer a deposit (the Deposit ) in the amount of $_(Deposit Amount) or % of the Sales Price by Cash $ (Cash Deposit Amount) Check $ (Check Deposit Amount) Promissory Note in the amount of $_(Promissory Note Deposit Amount) to be held by *. Failure to deliver the Deposit shall be considered a breach of this Agreement. If the Deposit is held by a Broker, it must be held in accordance with the rules of the Louisiana Real Estate Commission in a federally insured banking or savings and loan institution without responsibility on the part of the Broker in the case of failure or suspension of such institution. In the event the parties fail to execute an Act of Sale by date specified herein, and/or a dispute arises as to ownership of, or entitlement to, the Deposit or funds held in escrow, the Broker shall abide by the Rules and Regulations set forth by the Louisiana Real Estate Commission governing such matters. * Name of person or company holding the Deposit. Lines This section provides the Buyer shall make a Deposit. The Deposit shall be delivered immediately upon acceptance of the offer. The amount of the Deposit is the amount set forth in the blank provided on Line 79 or the percentage of the Sales Price provided for with the blank on Line 80. The Deposit may be by cash, if the checkbox on Line 80 is selected or check, if the checkbox on Line 81 is selected. A Promissory Note may be used for the Deposit if the checkbox on Line 81 is selected. The Deposit may also be a combination of cash, check and Promissory Note depending upon the terms agreed to by the parties. 11

12 Line 82 This line provides a blank for listing the amount of the Promissory Note used for the Deposit if applicable. Line 82 further provides a blank for the name of the person or company who shall hold the Deposit. Line 83 This line provides that failure to deliver the Deposit shall be considered a breach of this contract. Lines These lines provide that the rules and regulations on Deposits set forth by the Louisiana Real Estate Commission governing Deposits shall apply to this Statewide Purchase Agreement Form. See Louisiana Real Estate Commission Rules and Regulations 2901 et seq. 10. Property and Flood Insurance PROPERTY AND FLOOD INSURANCE: It is recommended that the BUYER make good faith application for property and flood insurance, if applicable, on the Property as soon as possible after acceptance of this offer. Lines This paragraph is intended to provide a reminder to the Buyer that the Buyer should make a good faith application for property and flood insurance as soon as possible after acceptance of the offer to purchase. Currently Louisiana property owners are experiencing delays in obtaining property and flood insurance. Buyers are encouraged to make application as quickly as possible if they desire to obtain insurance prior to the closing. 11. Appraisal APPRAISAL: This sale is NOT conditioned on appraisal. This sale IS conditioned on the appraisal of the Property being not less than the Sales Price. If the appraised value of the Property is equal to or greater than the Sales Price, the BUYER shall pay the Sales Price agreed upon prior to the appraisal. If the appraised value is less than the Sales Price, BUYER shall immediately provide written notification to SELLER of appraised value and BUYER S request for SELLER to reduce the Sales Price. Within * ( * ) calendar days after SELLER S receipt of such written notification of the appraised value, BUYER shall have the option to pay the Sales Price agreed upon prior to the appraisal or to void this Agreement unless SELLER agrees in writing to reduce the Sales Price to the appraised value or all parties agree to a new Sales Price. * Number of days given to Seller to respond to appraisal written out, for example Seven. * Numerical amount of days to be given to Seller to respond to the appraisal. For example (7). Lines This section provides checkboxes to select if the sale is subject to an appraisal of the Property or if the Buyer will not require an appraisal of the Property prior to the closing. The first checkbox should be selected if the sale is not conditioned on appraisal of the Property as a condition of completing the sale. This 12

13 means the Buyer does not desire to obtain appraisal of the Property. The second checkbox on Line 95 should be selected if the sale is conditioned on appraisal of the Property. Lines The Statewide Purchase Agreement Form provides that if the appraisal of the Property is for less than the Sales Price the Buyer may provide written notice to the Seller of the appraised value and the Buyer s request for the Seller to reduce the Sales Price to the value shown on the appraisal. Line This section provides that after delivery of this written notice to the Seller, of the appraised value being lower than the Sales Price and the request by the Buyer to reduce the Sales Price, the Buyer shall have the option to pay either the Sales Price agreed upon in the Statewide Purchase Agreement Form or to void the Statewide Purchase Agreement Form unless the Seller agrees to reduce the Sales Price to the appraised value. 12. Warranty or As Is Clause with Waiver of Right of Redhibition WARRANTY OR AS IS CLAUSE WITH WAIVER OF RIGHT OF REDHIBITION: (CHECK ONE ONLY) A. SALE WITH WARRANTIES: SELLER and BUYER acknowledge that this sale shall be with full SELLER warranties as to any claims or causes of action including but not limited to redhibition pursuant to Louisiana Civil Code Article 2520, et seq. and Article 2541, et seq. B. SALE AS IS WITHOUT WARRANTIES: SELLER and BUYER hereby acknowledge and recognize that the Property being sold and purchased is to be transferred in as is condition and further BUYER does hereby waive, relieve and release SELLER from any claims or causes of action for redhibition pursuant to Louisiana Civil Code Article 2520, et seq. and Article 2541, et seq. or for reduction of Sales Price pursuant to Louisiana Civil Code Article 2541, et seq. Additionally, BUYER acknowledges that this sale is made without warranty of fitness for ordinary or particular use pursuant to Louisiana Civil Code Article SELLER and BUYER agree that this clause shall be made a part of the Act of Sale. C. NEW HOME WARRANTIES. Notwithstanding lines 108 through 118 and irrespective of whether A or B above is checked, if the Property is a new construction, the parties agree that neither A or B will apply but instead the provisions of the New Home Warranty Act (LA R.S. 9:3141 et seq.) shall apply. The warranty of condition of this Property is governed by the New Home Warranty Act if a home on the Property is a home as defined in the New Home Warranty Act. Lines Only one checkbox should be selected in this section. Either the box on Line 108, 111 or 119 should be selected. Line The checkbox on Line 108 should be selected if the sale of the Property is made with warranty by the Seller to the Buyer. This means that the Seller and Buyer acknowledge that the sale is with full warranty as to any claim or cause of action, including redhibition. This clause should be reviewed in detail by the Buyer and Seller. Line 111 The checkbox on Line 111 should be selected if the sale is as is and without warranty. In this event the Seller is not providing any warranty to the 13

14 Buyer and is selling the Property in as is condition. An as is clause notifies the Buyer that the Property being sold may not be perfect condition and that generally the Seller does not intend to correct or fix any defects. Waiver of redhibition is a different term then selling property as is. See Wilston v. Noland, 888 So.2d 950 (La. Ct. App.1 st Cir. 2004) Under Louisiana law, a Seller generally warrants that the property sold is free of hidden or non-apparent defects. The existence of a redhibitory defect gives the Buyer the right to void the sale on account of some vice or defect in the property sold, which renders the property either absolutely useless, or the property s use is so inconvenient and imperfect that the Buyer would not have purchased the property had the Buyer known of the defect. See Louisiana Civil Code Article 2520 et seq. Generally, for a waiver of redhibitory defects or redhibition to be effective, the waiver of the warranty must satisfy three requirements. First, the waiver must be clear and unambiguous. Second, it must be contained in the contract being signed by the Buyer and Seller and third, it must be brought to the attention of the Buyer or explained to him. See Mitchell v. Popiwchak, 677 So.2d 1050 (La. Ct. App. 4 th Cir. 1996). If the checkbox on Line 111 is selected, this means that the Buyer is also waiving and releasing the Seller from any causes of action for redhibition. This clause should be reviewed in detail with the Buyer and Seller. Lines The checkbox on Line 119 should be selected if property being sold is new construction and will be covered by the New Home Warranty Act. The New Home Warranty Act is provided for in LA R.S. 9:3142 et seq. This Act provides by statute certain home warranties on new home construction. 13. Prorations/Other Costs PRORATIONS/OTHER COSTS: Real estate taxes, rents, assessments, condominium dues, assessments and/or dues owed to homeowners associations and the like for the current year are to be prorated through the date of the Act of Sale. Act of Sale costs, title insurance and other costs required to obtain financing shall be paid by BUYER, unless otherwise stated herein. All necessary tax, mortgage, conveyance and release certificates or cancellations and SELLER closing fees, if any, shall be paid by SELLER. SELLER shall pay all previous years taxes, assessments, condominium dues, assessments and/or dues owed to homeowners associations and the like. All special assessments bearing against the Property, other than those to be assumed as of the date of sale are to be paid by SELLER. Lines This section addresses the payment of costs such as real estate or ad valorem taxes, rents (if property is leased), assessments made by homeowner s associations and condominium dues for the year in which the sale of the Property occurs. This section provides that these costs listed will be prorated through the date of the closing. For example, the Seller will pay the prorated costs for the portion of the year in which the Seller owned the Property and the Buyer will pay the portion of the year in which the Buyer owns the Property. All other costs of the sale such as title insurance and financing costs shall be paid by the Buyer. Any required Mortgage and Conveyance certificates and the cost of the cancellations of mortgages shall be paid by the Seller. 14

15 Lines Special assessments against the Property which were assessed prior to the date of the closing, unless assumed by the Buyer are to be paid by the Seller on or prior to closing. 14. Merchantable Title/Curative Work MERCHANTABLE TITLE/CURATIVE WORK: SELLER shall deliver to BUYER a merchantable title at SELLER s costs (see line 141). In the event curative work in connection with the title to the Property is required or is a requirement for obtaining the loan(s) upon which this Agreement is conditioned, the parties agree to and do extend the date for passing the Act of Sale to a date not more than ( ) calendar days from the date of the Act of Sale stated herein. SELLER s title shall be merchantable and free of all liens and encumbrances except those that can be satisfied at Act of Sale. All costs and fees required to make title merchantable shall be paid by SELLER. SELLER shall make good faith efforts to deliver merchantable title. SELLER s inability to deliver merchantable title within the time stipulated herein shall render this Agreement null and void, reserving unto BUYER the right to demand the return of the Deposit and to recover from SELLER actual costs incurred in processing of sale as well as legal fees incurred by BUYER. Lines This section provides that the Seller shall deliver to Buyer a merchantable title at Seller s cost. Merchantable title is generally defined as a title that is readily sold or mortgaged in the ordinary course of business by reasonable persons familiar with the facts and questions involved. The Buyer cannot generally be compelled to accept a title that exposes the Buyer to an unreasonable risk of serious litigation. See Young v. Stevens, 252 La. 69, 209 So.2d 25 (1967). Lines In the event the Seller needs to perform curative work in connection with making the title merchantable or if curative work is required for obtaining the loan by the Buyer, a blank is provided to insert a date for extending the time for passage of the Act of Sale for the curative work to be completed. Lines This line provides that the Seller s title to the Property shall be free of all liens and encumbrances except those that are to be paid at the closing. For example, the Seller may have an existing mortgage on the Property. This mortgage presumably would be paid at the time of the closing with the sales proceeds. Lines These lines provide all costs and fees which includes attorney s fees required to make a title merchantable shall be paid by the Seller. Lines The Seller shall make a good faith effort to deliver a merchantable title. The Seller s inability to deliver the merchantable title within the time for closing or an extension as provided for in Line 139 renders the contract null and void. This reserves to the Buyer the right to demand return of the Deposit and to recover from the Seller any actual costs incurred by the Buyer as well as any legal fees incurred by the Buyer. 15

16 15. Leases LEASES: If there are written leases on the Property, the Property will be sold subject to those leases. The sale is conditioned upon BUYER'S written approval of copies of all such leases within five (5) calendar days of receipt of the Leases. Lines The Seller is required to provide the Buyer with copies of any written leases that affect the Property being sold. The sale of the Property is conditioned upon the Buyer s written approval of these leases within five calendar days of receipt of the leases by the Buyer. 16. Act of Sale ACT OF SALE: The Act of Sale is to be executed before a settlement agent or Notary Public to be chosen by BUYER, on, 20. At closing, BUYER must provide "good funds" if required by Louisiana statute LA R.S. 22: et seq. Any change of the date for execution of the Act of Sale must be mutually agreed upon in writing and signed by SELLER and BUYER. Security deposits, keys and leases are to be transferred to BUYER at Act of Sale. Lines These lines provide that the Act of Sale will be signed before a settlement agent or notary public. This notary or settlement agent will be selected by the Buyer. A blank is provided in Line 152 for the date of the closing. Lines Provides that the Buyer must provide good funds as required by Louisiana law at the closing. Good funds include: (a) Cash. (b) Wire transfers unconditionally received by the title insurer or the title insurance agent or the depository of the insurer or agent. (c) A depository check, including a certified check, cashier's check, or teller's check as defined by the Expedited Funds Availability Act, 12 U.S.C et seq. (d) A personal check or other item which has been presented for payment and for which funds have been unconditionally collected by the title insurer or the title insurance agent. (e) Credit transfers through the Automated Clearing House which have been deemed available by the depository institution receiving the credit. The credit shall conform to the operating rules established by the National Automated Clearing House Association. (f) Checks unconditionally issued by mortgage lenders which are subject to periodic audit by the Department of Housing and Urban 16

17 Development or the secretary of Veterans Affairs, and which are drawn on financial institutions insured by the Federal Deposit Insurance Corporation. (g) A check or checks, drawn on the trust account or sales escrow account of the real estate broker licensed under R.S. 37:1430 et seq., in an amount up to the amount of the then current guarantee provided by the Real Estate Recovery Fund as established in R.S. 37:1463. Lines These lines provide any change in the date for the closing that is set forth on Line 152 must be mutually agreed upon in writing by the Buyer and the Seller. Line 155 This line provides that any security deposits and the keys are to be transferred to the Buyer on the date of the Act of Sale. This line further provides if the Property is subject to a lease, the lease will be assigned to the Buyer at closing. 17. Occupancy 157 OCCUPANCY: Occupancy is to be granted at Act of Sale or on at A.M. /P.M. Line 157 This line provides a blank for inserting the date and time the Buyer is granted occupancy of the Property. Occupancy will be granted at Act of Sale unless a different date is provided in this blank. 18. Inspection and Due Diligence INSPECTION AND DUE DILIGENCE: BUYER ACKNOWLEDGES THAT THE SALES PRICE OF THE PROPERTY WAS NEGOTIATED BASED UPON THE PROPERTY'S APPARENT CURRENT CONDITION; ACCORDINGLY, SELLER IS NOT OBLIGATED TO MAKE REPAIRS TO THE PROPERTY, INCLUDING REPAIRS REQUIRED BY THE LENDER UNLESS OTHERWISE STATED HEREIN. THE SELLER IS RESPONSIBLE FOR MAINTAINING THE PROPERTY IN SUBSTANTIALLY THE SAME OR BETTER CONDITION AS IT WAS WHEN THE AGREEMENT WAS FULLY EXECUTED BUYER shall have an inspection period of ( ) calendar days, commencing the first day after acceptance of this Agreement wherein, BUYER may, at BUYER S expense, have any inspections made by experts or others of his choosing. Such inspections may include, but are not limited to, inspections for termites and other wood destroying insects, and/or damage from same, molds, and fungi hazards, and analysis of synthetic stucco, appliances, structures, foundations, roof, heating, cooling, electrical, plumbing systems, utility and sewer availability and condition, out-buildings, square footage, school district, flood zone classifications, current zoning and/or subdivision restrictive covenants and any items addressed in the SELLER S Property Disclosure Document. All testing shall be nondestructive testing. SELLER agrees to provide the utilities for inspections and immediate access. If BUYER is not satisfied with the current condition of the Property as reflected in the inspection reports: Option 1: BUYER may elect, in writing, to terminate the Agreement and declare the Agreement null and void; or Option 2: BUYER may indicate in writing the deficiencies and desired remedies and SELLER will have seventy-two (72) hours to respond in writing as to SELLER s willingness to remedy those deficiencies ( SELLER s Response ). 17

18 Should SELLER in the SELLER S Response refuse to remedy any or all of the deficiencies listed by the BUYER, then BUYER shall have twenty-four (24) hours from the date of SELLER's Response or twentyfour (24) hours from the date that SELLER's Response was due, whichever is earlier, to: (a) accept SELLER'S Response to BUYER S written requests or (b) accept the Property in its current condition, or (c) to elect to terminate this Agreement. BUYER S response shall be in writing. Upon BUYER'S failure to respond to the SELLER s Response by the time specified or BUYER S electing, in writing, to terminate this Agreement, the Agreement shall be automatically, with no further action required by either party, ipso facto null and void except for return of Deposit to the BUYER. FAILURE TO MAKE INSPECTIONS OR TO GIVE WRITTEN NOTICE OF DEFICIENCIES AND DESIRED REMEDIES TO SELLER (OR SELLER S DESIGNATED AGENT) AS SET FORTH IN LINES 180 THROUGH 184 WITHIN THE INSPECTION PERIOD SHALL BE DEEMED AS ACCEPTANCE BY BUYER OF THE PROPERTY'S CURRENT CONDITION. Lines This section addresses the Buyer s ability to inspect the Property and conduct whatever due diligence the Buyer deems necessary regarding the Property. In this first paragraph of the inspection section, the Buyer acknowledges that the Sales Price of the Property was negotiated based on the Property s current and apparent condition. Further, this section states that the Seller is not obligated to make repairs to the Property including any repairs which are suggested or required by the lender unless repairs are otherwise provided for in the agreement. The Seller is responsible though for maintaining the Property in substantially the same or better condition as it was when the offer was accepted. Lines This section provides a blank for a number of calendar days the Buyer shall have to inspect or conduct due diligence regarding the Property. The inspection period begins to run the first day after acceptance of the offer. Any inspections of the Property shall be at the Buyer s expense and conducted by experts or individuals of the Buyer s choosing. Lines These lines provide that the Buyer s inspections can include many different types of inspections. This is an illustrative and not exclusive list of inspections that the Buyer may choose to employ. Lines The testing conducted by the Buyer shall be nondestructive unless other agreement is reached with the Seller. This means the Buyer may not destroy any portion of the Property during the testing period in order to gain data needed for testing without the written approval of the Seller. Line 177 This line provides that the Seller shall supply the utilities for inspections and access to the Property for the Buyer. Lines This begins the section which addresses the result if the Buyer is not satisfied with the current condition of the Property after his due diligence investigation or inspection. 18

19 Lines 180 The first option the Buyer may have if the Buyer is not satisfied with the condition of the Property after inspection is that the Buyer may elect in writing to terminate the contract and declare the contract null and void. Lines If the Buyer is not satisfied with the current condition of the Property after inspection, the second option the Buyer may have is to indicate in writing the deficiencies and desired remedies to the Seller. The Seller will then have 72 hours to respond in writing to the Buyer as to the Seller s willingness to correct these defects alleged by the Buyer. Lines These lines address the result if the Buyer selects the second option after being dissatisfied with the Property inspection and the Seller refuses to remedy the deficiencies. Should the Seller in the Seller s response to the Buyer s request, refuse to remedy any and all of the deficiencies listed by the Buyer, then the Buyer has 24 hours from the date of Seller s response or 24 hours from the date the Seller s response was due, whichever is earlier, to either first accept the Seller s response to the Buyer s written request or second, accept the Property in its current condition or third, elect to terminate the contract. The Buyer s decision after the Seller s response shall be in writing. If the Buyer fails to respond in writing to the Seller s response to the Buyer s dissatisfaction with the Property condition in the time specified, then the contract is automatically void except for return of the Deposit to the Buyer. Lines If the Buyer chooses not to make inspections or not to give any notice of any deficiencies in the Property or remedies desired from the Seller, the inspection period shall be deemed an acceptance by the Buyer of the Property s current condition. 19. Private Water/Sewerage PRIVATE WATER/SEWERAGE: In the event there is a private water system or private sewerage system on the Property, this Agreement is; is not; contingent upon an approval by the appropriate governmental entity of the private water or sewerage system. An approved sewerage and/or water inspection report, if requested by the lender, BUYER or other governmental entity will be issued within thirty (30) days prior to the Act of Sale by the appropriate governmental agency. The inspection and test on the water and/or sewerage system are to be furnished and paid for by the SELLER. Lines These lines provide checkboxes to determine whether the sale is contingent upon the approval of the private water or sewerage system. If this sale is conditioned upon approval by appropriate governmental entity of the private water sewerage system, the checkbox is should be selected. If the Property is not being sold subject to approval of a private water system or private sewerage system, then the checkbox is not should be selected. 19

20 Lines These lines provide that the approval of the sewerage system and/or water inspection report must be issued within thirty days prior to the Act of Sale by the appropriate governmental agency. Lines These lines provide that the inspection or test of the water and sewerage system is to be paid for by the Seller. 20. Home Warranty Program HOME WARRANTY PROGRAM: A home warranty plan will be purchased at the closing of sale at a cost not to exceed $ * to be paid by BUYER, SELLER, Neither, and ordered by *. It is understood that Agent/Broker may receive compensation from the home warranty company. The home service warranty plan does not warrant pre-existing defects and options, and does not supersede or replace any other inspection clause or responsibilities. If neither BUYER nor SELLER accepts the home service warranty plan, they declare that they have been made aware of the existence of such a plan and its advantages by the Broker, and further declare they hold the Broker and Agents harmless from any responsibility or liability due to their rejection of such a plan. * - Maximum amount of cost of home warranty plan which either party agrees to pay. * - Name of party who will order the home warranty plan. Lines These lines provides for the purchase of a home service warranty program should the Buyer or Seller desire to purchase one. Line 208 This line provides a blank for the maximum amount of the cost of the home warranty plan which either party agrees to pay for a home service warranty program. A checkbox is provided for either the Buyer, Seller or neither to agree to purchase a home service warranty program. At least one of these three checkboxes should be checked either Buyer, Seller if a home service warranty program is being purchased or neither if a home warranty program is not being purchased. Line A blank is provided for the name of the party who will order the home warranty plan. Lines These lines provide disclosure that the agent or broker may receive compensation from the home warranty company and that the home warranty plan does not warrant certain defects, and further does not replace any other inspection by the Buyer. Lines This is an acknowledgment of the Buyer and Seller that they have been advised of the existence of a home warranty plan and its advantages by the 20