RI 406: What Did I Agree To?

1. RI 406: What Did I Agree To? (ONLY THE JUDGE KNOWS FOR SURE)

2. Section 1: The Contract Document Objectives: • Describe the elements of a contract in general, and of listing and purchase and sale agreements, in particular. • List the essential elements for a binding contract. • Describe and explain the time frames often included in contracts.

3. Objectives: (cont’d) • Identify the Requirements of the Statute of Frauds • Define types of listing relationships (i.e., exclusive agency, exclusive right to sell, open listing). • Identify the proper method of handling deposits entrusted to the agent

4. Objectives: (cont’d) • Distinguish between fixtures and personal property. • Describe the limitations of a special warranty in a contract or deed, and its impact on the purchaser.

5. Objectives: (cont’d) • Identify the responsibilities of the Seller and the Broker under the Virginia Residential Property Disclosure Act. • Identify the parties required to sign listing agreements, contracts and deeds for the owner.

6. Essential ElementsCompetent Parties 1. Legal Age – How Old are you? 17 years old or younger may not mortgage or sell property 2. Competency- Are you Crazy? Red Flags $700,000 Commercial Property x 10% Commission $70,000 SALE DENIED!!!

7. Essential ElementsCompetent Parties “Thank you for all your help. I’ll Certainly Recommend You to All My Friends”

8. Statute of Frauds • Written evidence signed by the party to be charged is necessary before a contract may be enforced.

9. Statute of Frauds Drake v. Livesay, 231 Va. 117(1986) April - Livesay purchases property May 17 - Livesay orally agrees to sell to Drake May 20 - Livesay sells to Turners and writes apology letter to Drake Is a fax acceptance sufficient to satisfy the statute of frauds? Is an Email sufficient?

10. Types of Listing Agreements • Open listing agreement - two or more brokers list at one time - problems determining procuring cause • Exclusive Agency - one listing broker, may or may not co-broke - procuring cause problem between multiple co-brokers • Exclusive right to sell - one listing broker, may or may not co-broke - entitled to commission on any sale no matter how obtained • Limited Service

11. Deposit • Is a deposit necessary to form a binding contract? • How much is enough? The purpose of a Deposit is to protect the Seller against a defaulting Purchaser, therefore you should be attempting to collect enough to cover all the Seller’s Damages. • Should a note be taken as the Deposit?

12. Deposit(cont’d) • Broker - Salesperson relationship • Fiduciary for the deposited funds • The agent should turn over all escrow funds to the broker

13. Deposit(cont’d) • Even if the contract calls for the escrow check to be held for a period of time, it should be held by the broker!! • Methods for release

14. Metes and Bounds Subdivision Plat of Salem Woods All Property Descriptions ultimately reduce down to a metes and bounds description Reference to Plat Lot 2 in Block A as shown on the Plat of Salem Woods Reference to Street Number Methods of Property Description

15. Fixtures • Intention of the Seller controls • Look to: • Character of Item • How firmly the item is attached • Relationship of party making attachment • Is a chandelier real or personal property?

16. Crystal Chandelier Gone Brass 4 Globe Chandelier in Fixtures FIXTURE or NOT? IT DEPENDS!!

17. Purchase Price • The Purchase price is one of the material terms of the contract, therefore it must be definiteand/ordeterminable or there is no contract. Formulas for determining a purchase price: • the appraised value • price per acre determined by a survey • assumption transaction, cash plus assume loan balance

18. Warranties of Title • General Warranty Customary, but not implied (must be contracted for) • Special Warranty • Means Limited • Red Flag – confirm contract provides Seller must provide “marketable and insurable title” and will remove any defects reported in title exam

19. Warranties of Title • Special Warranty (cont’d) • Consider having Seller pay for additional costs for owners title insurance as a “trade off” for Buyer getting less than the customary general warranty

20. Caveat Emptor • Virginia is still a strong Caveat Emptor – Buyer Beware – State • The Risk of the Property Condition rest with the Purchaser

21. Caveat Emptor Kuzmanski v. Gill • Kuzmanskis viewed property 4 times before closing • Property is in “Great Shape” • Has storm windows throughout

22. Caveat Emptor Kuzmanski v. Gill (cont’d) • After Closing found gutters not working • 12 storm windows missing • Bathroom floor was rotted through and toilet was supported from underneath with cinderblock and wood. A throw rug covered the bathroom floor.

23. Caveat Emptor • Buyers must negotiate for warranties on every single item on resale properties because the law of Caveat Emptor still applies in Virginia

24. Time Elements in the Contract • Reasonable Time • Implied, unless contract expressly provides otherwise • Law does not favor a forfeiture unless a “material breach” occurs • Closing “on ___”, “on or before _____”, or “on or about ________”, all mean the same thing, each party has a Reasonable Time to perform • Time is of the Essence • Be careful when drafting a “time is of the essence clause” • Give an option to terminate the contract to the party you are trying to protect.

25. Marital Status Who Must Sign? One to Buy and One to Sell What if Property is titled in both names, husband and wife are separated and have entered into a separation agreement that says wife will be the sole owner? Who must sign?

26. Section 2: Contract Formation Offer and Acceptance • Determine when a contract has been created. • Determine how to handle a second offer received after a contract has been formed. Objectives:

27. Objectives: (cont’d) • Describe the possible sequence of events which could follow an offer (withdrawal, acceptance, rejection, counter-offer). • Determine when a purchaser has the right to withdraw an offer.

28. Offer - Acceptance • An offer is effective upon receipt, not dispatch • Revocation is effective upon receipt, not dispatch

29. Offer - Acceptance • Acceptance is effective upon receipt, not dispatch • - except when the offer is transmitted through the mail in which case • Acceptance is effective upon dispatch, not receipt

30. Second Offer • How must an offer received after a contract has been formed be handled by the listing Agent? • Always present to the Seller - maybe with the caveat that he should seek legal advise if he decides to abandon or terminate the original contract.

31. Environmental Disclosures • Lead Based Paint Disclosure (1978 Properties) • Agent’s Duty to Disclose • To Buyer – All materialadversefacts pertaining to the physicalcondition of the Property actuallyknown by agent • To Client – All materialfactsrelatedto the propertyor concerning the transaction actually known by agent

32. Virginia Residential Property Disclosure Act • Seller’s Obligations • Disclose pending enforcement actions under building code • Disclose military air installation noise and accident zone • If changes in disclosure – then must update disclosure at settlement or certify no changes have occurred.

33. Virginia Residential Property Disclosure Act • Agent’s Obligations • To inform Buyer and Seller of Obligations under the Act

34. Virginia Residential Property Disclosure Act • Stigmatized Properties • Neither Broker nor Owner has liability for failure to disclose that Property was the site of an act or occurrence which had no effect on the physical condition of the Property • Ex. – Current or Prior Occupant of Property had Aids (also prohibited by Fair Housing) • Ex. – Murder in house, drug bust • Ex. – Ghosts

35. Unauthorized Practice of Law Objectives: • Identify the procedures to avoid the unauthorized practice of law. • Describe actions which are deemed to be the practice of law and are prohibited to be performed by non-attorneys.

36. Unauthorized Practice of Law Objectives: (cont’d) • List those actions which may be performed by non-attorneys and specifically by agents. • List those actions which are prohibited by attorneys or others working for title companies or agencies.

37. Unauthorized Practice of LawUnauthorized Practice of Law Rules (UPR) Supreme Court of Virginia UPR 6-101. Giving Legal Advice • (A) A non-lawyer shall not undertake for compensation, direct or indirect, to advise another in any matter involving the application of legal principles to the ownership, use, disposition or encumbrance of real estate • (B) A non-lawyer or lay entity may . . . refer its customer to a lawyer for legal services.

38. Unauthorized Practice of LawUnauthorized Practice of Law Rules (UPR) Supreme Court of Virginia UPR 6-101. Giving Legal Advice • (C) If a non-lawyer . . . refers its customer to a lawyer . . . such a non-lawyer . . . shall not exercise or attempt to exercise . . . or imply that the non-lawyer . . . has any right to control, the actions of the lawyer in the handling of the transaction. All decisions are to be those of the lawyer acting on behalf of his client.

39. Unauthorized Practice of Law UPR 6-102. Holding Out With Regard to Real Estate Services. • (A) . . . a non-lawyer shall not hold himself out as authorized to furnish to another advice or service with respect to real estate transactions under circumstances which imply his possession of legal knowledge or skill in the application of any law, federal, state, or local, to a specific set of facts for a particular person. • (C) A non-lawyer shall not be excused from any violation of these Rules by any disclaimer, admonition to seek the advice of an attorney, or waiver by the customer.

40. Unauthorized Practice of Law UPR 6-103. Preparation of Legal Instruments • (A) Unless a party to the transaction, a non-lawyer shall not, with or without compensation, prepare for another legal instruments of any character affecting the title to or use of real estate. • (1) A non-lawyer may prepare a deed for any real estate owned by him. A non-lawyer may prepare a deed of trust or deed of trust note for any real estate owned by him or in connection . . .

41. Unauthorized Practice of Law UPR 6-103. Preparation of Legal Instruments • (3) A real estate agent, or his regular employee, involved in the negotiation of a transaction and incident to the regular course of conducting his licensed business, may prepare a contract of sale, exchange, option or lease with respect to such transaction, for which no separate charge shall be made.

42. Unauthorized Practice of Law UPR 6-103. Preparation of Legal Instruments – cont. • (4) A lending institution may in the regular course of conducting its business prepare a deed of trust or mortgage on real estate securing the payment of its loan, for which no separate charge shall be made. . . .

43. Unauthorized Practice of Law UPR 6-103. Preparation of Legal Instruments – cont. • (5) A settlement agent authorized to provide escrow, closing or settlement services for real estate transactions under . . .CRESPA. . . may complete form documents and instruments selected by and in accordance with the instructions of the parties to the transaction. . . .

44. Unauthorized Practice of Law UPR 6-106. Referral of Business • (A) A real estate agent, closing agent, lender or other party interested in a real estate transaction may refer its customer to a lawyer subject to the following: • (1) The customer shall first have the opportunity to select a lawyer of his own choosing.

45. Unauthorized Practice of Law UPR 6-106. Referral of Business (2) If the customer does not so select a lawyer, the agency shall submit a list of lawyers from which the customer may make his selection and subsequently authorize the agent to refer the representation of such customer to the lawyer so selected. (3) The lawyer shall . . . communicate with his client for the purpose of establishing the fee arrangement, in which arrangement the agent shall not participate. . . .

46. Unauthorized Practice of Law Unauthorized Practice Considerations (UPC) Status of Title – Title Search UPC 6-1. • A non-lawyer may not express to any person, an opinion as to the validity or legal status of title to real estate or as to the legal effect of anything found in the chain of title such as, for example, a suit, will, judgment, release deed or extension agreement or as to the effect on title of matters not necessarily appearing of record such as, for example, adverse possession, the statute of limitations, or the disabilities of parties.

47. Unauthorized Practice of Law Unauthorized Practice Considerations (UPC) Status of Title – Title Search UPC 6-1. • A lawyer employed by a lay agency to render services for others is restricted to the doing of acts in the course of his employment that a non-lawyer can lawfully do. . . .

48. Unauthorized Practice of Law Unauthorized Practice Considerations (UPC)) Real Estate Settlements UPC 6-7. • In connection with a real estate closing, a non-lawyer settlement agent may not give legal advice to another, or prepare for or advise another in the preparation of legal instruments, for compensation, direct or indirect.

49. Unauthorized Practice of Law Unauthorized Practice Considerations (UPC) Real Estate Settlements A non-lawyer may, however: • a. Order a survey, but not give an opinion as to the adequacy of such survey or with respect to matters reflected therein. • b. Obtain copies of leases, easements, restrictions, building codes, zoning ordinances and the like, but not give an opinion as to the legal effects thereof or any party's legal obligation to comply therewith.

50. Unauthorized Practice of Law Unauthorized Practice Considerations (UPC) Real Estate Settlements A non-lawyer may, however: • c. Order termite or other inspections, but not give an opinion as to whether the results thereof comply with the terms of the contract.