chapter 13: Contracts for Sale and Closing

Question 1

contract for sale

Answer 1

• determines price and terms of the transaction
• defines property interest being conveyed
• determines the grantee
• determines financing, date of occupancy, and any repairs or other conditions of the sale
• most important document in real estate transaction
• must be in writing
• creates rights and obligations

Question 2

contract terms

Answer 2

refers to the arrangements agreed to by the parties, such as price and date of closing

Question 3

contract conditions

Answer 3

circumstances that MUST prevail

Question 4

closing

Answer 4

event at which possession and title to real estate normally are transferred from buyer to seller

Question 5

required elements of a contract

Answer 5

-competent parties
-legal objective
-offer and acceptance
-consideration
-no defects to mutual assent
FOR REAL ESTATE:
- in writing
-proper description of property

Question 6

competent parties

Answer 6

must be of legal age and not incapacitated at time if sigining
-a minor can sign a contract but it is generally voidable

Question 7

power of attorney

Answer 7

acting for another person

Question 8

mutual assent

Answer 8

both agree, meeting of the minds

Question 9

seller has 3 options when given an offer

Answer 9

• reject the offer outright
• reject the offer and present a counteroffer
• accept the offer outright

Question 10

consideration

Answer 10

the value given up, or promise made by each party to a contract
-both parties must provide it

Question 11

examples of defects to mutual assent

Answer 11

• one party attempts to perpetrate a fraud on the other party or makes a misrepresentation
• a substantial error is made
• one of the parties is under duress, undue influence or menace

Question 12

legal title

Answer 12

ownership of a freehold estate

Question 13

equitable title

Answer 13

right to obtain legal title

-buyer obtains equitable title when a contract of sale of real estate is fully signed

Question 14

advantages of form contracts

Answer 14

• neutral
• ready-made treatment of details
• local real estate boards are a good source

Question 15

risks with standard form contracts

Answer 15

• may treat issues too lightly

- inappropriate/inadequate application of a form contract

Question 16

components of a form contract

Answer 16

1. points particular to the deal
   - items to be negotation (price, date, expenses)
   - items that characterize the property
2. items that must be clear
   - provisions
   - proration
   - disbursement of funds
   - recourses if defaulted

Question 17

contract form also covers

Answer 17

• type of title evidence
• time for acceptance by the parties
• closing date
• restrictions, easements, and limitations
• occupancy expenses
• assignability
• liens
• marketable title
• special assessments
• expenses
• inspections, repair, maintenance

Question 18

handling of funds

Answer 18

• broker handles funds for a transaction
• broker puts deposits in escrow
• at closing, money is disbursed in accordance with a closing statement

Question 19

escrow account

Answer 19

an account holding funds dedicated for a particular purpose

Question 20

contingent contract

Answer 20

obligation of a party to perform depends on one or more conditions being met
-contingent on a condition

Question 21

assignment

Answer 21

one party’s contractual rights and obligations are transferred to someone else

• does not relieve assignor of liability
• can be explicitly prohibited

Question 22

personal performance

Answer 22

cannot be assigned without that party’s permission

Question 23

escrow agent

Answer 23

third party who holds money or documents on behalf of contract parties

• distributes items in accordance with contract
• can be attorney, financial institution or title company

Question 24

remedies for nonperformance

Answer 24

• sue for damages
• specific performace
• liquidated damages (seller can retain deposit)
• recission

Question 25

specific performance

Answer 25

buyer can force seller to convey title

Question 26

recession

Answer 26

mutual agreement to cancel

Question 27

roles of selling broker

Answer 27

no legal role after contract is signed | -facilitator/moral support for the buyer

Question 28

roles of listing broker

Answer 28

may handle closing if no lender is involved - may assist in retaining services for seller - has legal responsibility through closing

Question 29

roles of the lender

Answer 29

- requirements - often handles closing - protect their security interest

Question 30

real estate settlement procedure act

Answer 30

- requires lenders to provide all info to buyers - applies to virtually every home loan - requirements: - special information booklet - good faith estimate of settlement costs - mortgage servicing disclosure statement - uniform settlement statement (HUD-1 form) - kickbacks are prohibited - limit to lender escrow deposit requirement

Question 31

Financial Items in a Closing

Answer 31

slides 44 and 45

Question 32

earnest money

Answer 32

a cash deposit by a buyer at the time of the offer to establish credibility of the offer, and to provide recourse to the seller if the buyer reneges -usually 5 to 10% of the purchase price

Question 33

prorating

Answer 33

allocation of costs and revenues between buyer and seller of real property at closing, based on the time of ownership by each party - procedures should reflect actual number of days in the period, number of days during the period the property was owned by the seller, number of days it will be owned by the buyer - parties agree on the date for dividing financial responsibilties - usually the day of closing belongs to the buyer

Question 34

proration property tax example

Answer 34

multiply annual property tax by # of days of share/365 | -# of days is the number of days in the year that the share was in their name

Question 35

estimated closing costs

Answer 35

an estimate of all the costs to be incurred at a real estate closing. Most commonly, the estimate is provided by a lender, in accordance with the requirements of the RE Settlement Procedures Act

Question 36

recording

Answer 36

filing of a document with the appropriate public official or office in order to provide constructive notice to the public of a sales transaction or legal contract

Question 37

preclosing steps of buyers

Answer 37

- had property surveyed for encroachments - reviewed private restrictions for violations - reviewed zoning for neighborhood - examined estimated closing costs - ordered lenders title insurance - had property inspected - verified that seller has performed required tasks - arranged utility service transfers

Question 38

preclosing steps of sellers

Answer 38

- order owners title policy - order termite inspection - order discontinuation of hazard insurance and utilities

Question 39

preclosing steps of closing agent

Answer 39

- prepare or obtain general warranty deed - prepare mortgage and note - prepare check from lender to seller - prepare HUD-1 closing statement - obtain satisfaction of mortgage from sellers mortgagee confirming balance