Presentation Transcript

1. Chapter 13Contracts for Sale and Closing

   Real Estate FIN 331
2. Requirements for a Contract for Sale A [written] contract for sale must contain the following elements Competent parties: parties must be of minimum legal age Legal objective: contract objective must be legal Offer and acceptance: contract binds parties to specific actions in the future Consideration: the value given up by each party to the contract No defects to mutual assent: the contract may be broken if there are defects a proper legal description of the property Forms of Title Legal title: ownership of a freehold estate Equitable title: grants the right to obtain legal title
3. form of the contract for sale Elements of a simple contract Determines price and terms of the transaction Defines property interest being conveyed Determines the grantee and grantor
4. form of the contract for sale Elements of a complete contract (see Exhibit 13 – 1) Parties to the contract Description of the property (includes legal description) Purchase price Time for acceptance of offer and counter offers Closing date Date of the contract Date and Place of closing Financing terms of any Prorating of costs and expenses Required inspections and disclosures relevant to the property Assurance of good and marketable title Remedies for breach of contract Responsibilities of the escrow agent and broker Earnest money deposit (consideration)
5. form of the contract for sale Rationale for written contracts Reduce chances for fraud Avoid the possibility of promissory estoppel Contract Terminology Contingent contract: Obligation of a party to perform depends on one or more conditions being met Assignment: One party’s contractual rights and obligations are transferred to someone else Does not relieve assignor of liability Can be explicitly prohibited Escrow agent: Third party who holds moneys or documents on behalf of contract parties Distributes items in accordance with contract Can be attorney, financial institution, or title company
6. remedies for nonperformance Suit for damages: Always an option to both parties Rescission: both parties agree to return to pre-contract status Specific performance: Buyer can force seller to convey title Liquidated damages (seller): Seller can retain deposit if buyer backs out Rescission: Mutual agreement to cancel
7. real estate settlement procedures act (RESPA, 1974) Applies to virtually every home loan: Loans from federally chartered or insured institutions FHA and VA loans Loans to be sold to Fannie Mae or Freddie Mac Requirements: Borrower to be provided information booklet Borrower receives good faith estimate of closing costs Closing statement must be HUD-1 form Closing statement available 24 hours before closing Kickbacks to closing-related vendors are prohibited Limit to lender escrow deposit requirement
8. real estate settlement procedures act Pre-closing requirements Good faith estimates the buyers closing costs Check property for encroachments Review zoning Property inspected; include termite inspection Verify seller’s required actions Pre-closing actions of closing agent Prepare or obtain general warranty deed Prepare mortgage and note Prepare check from lender to the seller Prepare HUD-1 closing statement Obtain satisfaction of mortgage from sellers’ mortgagee confirming balance
9. real estate settlement procedures act Financial items in the closing Purchase price Earnest money deposit Assumed mortgage Purchase money mortgage Prorated Items Interest on assumed mortgage Existing insurance Property taxes title insurance attorneys state document taxes: mortgage, deed
10. real estate settlement procedures act Post closing actions Recording the new mortgage Record the deed Pay brokerage commissions
11. homework assignment Chapter 13: Key Terms Assignment, Consideration, Earnest money, Equitable title, Escrow, Legal title, Rescission, Specific performance Chapter 13: Study Question How is the pro rata of miscellaneous charges accomplished? Example: insurance premiums, water and sewer charges, property taxes: review study questions one through four in text If a closing occurs on September 1 of a 365-day year, how will the year’s property tax of $900 be prorated? (Note: the day of closing “belongs” to the buyer.) 2. How would the hazard insurance premium be prorated? 3. How would the water and sewer charges be prorated? 4. How will the mortgage assumption be entered?