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national chp.3

Real estate

TermDefinition
3-1 Contract Basics contract contract is a legally binding and enforceable agreement to do or not to do a specific thing
express contract can be oral or written
implied contract created by actions, not in writing (handshake)
statute of frauds requires contracts transferring real estate interests to be expressed written agreements
conditions of a contract valid contract contains all essential elements, is binding on both parties, and is enforceable by the courts
voidable contract appears to be valid, but one party may disaffirm because the party is a minor or was subject to duress, fraud, or misrepresentation
void contract not enforceable due to failure to contain all essential elements MUST BE IN WRITING
3-2 performance and discharge of obligations unilateral promise is exchanged for performance ex- alice promises to perform ("I will sell you my house"), if bill decides he wants alice to perform ("I may buy your house; let me decide")
bilateral promise is exchanged for a promise ex- alice and bill make equal promises (Alice "i promise to sell you my house and deliver a deed") (Bill "I promise to buy your house and pay you money")
executed duties are completed by both parties -they are fully performed
executory one or both parties need to complete part of the contract -duties yet to be performed
assignment transfers obligation but not liability -ex- sublease
novation a NEW CONTRACT replacing an old one -transfers obligation and liability
legal impossibility/impossibility of performance a duty required by the contract can't be legally performed
death or incapacity contract is terminated only if no one is left to perform
amendments changed or modifications to a contract must be in writing and signed by all parties -brokers can assist the parties in creating such amendments -can only amend on executory contract
addenda additional material attached to and made part of the initial agreement(offer) -amendments modify contracts -attachements explain items attached to offers
3-3 essential elements of a valid contract 1) competent parties/contractual capacity -age of majority is 18; a contract with a minor is VOIDABLE
...mentally sound contract w/ someone declared incompetent by a court is VOID -that person can enter a contract only if court appoints a guardian to act on the person's behalf
2) mutual agreement/meeting of the minds/OFFER AND ACCEPTANCE offer and communication of acceptance made before offer has been withdrawn -qualified acceptance or counteroffer is rejection and terminated the original offer
...if counteroffer is initialed by both parties, it IS accepted -then becomes executory
...a buyer who receives a counteroffer is not obligated to respond and may make an offer on a new property without obligation to the seller that countered the first offer
...a seller who counters and then receives an offer from another party must withdraw the counteroffer before accepting the new offer
MUTUAL AGREEMENT there must be the following -no fraud or misrepresentation -no mistake of material fact (mutual misunderstanding) -genuine and free assent
3) lawful objective/legal purpose
4) consideration/ money or something of value not earnest money (which is not required)
5) in writing and signed certain contracts, based on statue of frauds
3-4 statue of frauds and statue of limitations statue of frauds requires that agreements... be in writing -requires that certain contracts for the transfer of real estate be in writing to be enforceable -the law does NOT apply to leases of 12 months or less
agreement signed certain agreements must be signed by the parties to be charged with the responsibility to perform
purpose of statue of frauds -to prevent fraud by someone seeking enforcement of an executory contract that was never made -to prevent problems w/ oral real estate contracts
statue of limitations sets the lengths of time parties will be given to file a claim or lawsuit
3-5 types of real estate contracts purchase agreement/ offer to purchase/ contract of sale -agreement is bilateral- promise for a promise -offer becomes a valid binding contract when acceptance is communicated -is executory until performance by parties (closing)
...buyer -vendee- has equitable title and is the equitable owner
....seller -vendor- legal title and legal owner
...contingency clause -may include one -allowing buyer to terminate under certain conditions if he cancels per the terms --ex- buyer would get earnest money back
....-most typical contingency is for... financing -if the buyer terminates the contract per a contingency, the buyers earnest money is returned -brokers are NOT PAID if a contract terminates per a contingency
....earnest money -is NOT consideration -not required to create a valid purchase agreement
option -owner/seller gives buyer the right to buy for a set price and set term -option fee is paid by buyer for the right -owner/seller retains option fee if buyer decides not to buy
...unilateral contract becomes bilateral when option is exercised by buyer
....bilateral, installment, or land contract -if the buyer decided not to purchase -seller who gave the option would have no recourse against the buyer (seller keeps the money the buyer gave them)
lease purchase -two contacts (a purchase and a lease) -portion of lease payments can be applied to a down payment
lease ...elements of a lease 1.names of lessor (landlord) and lessee (tenant) 2. physical description of property 3. rent terms
...lessor gives right to occupy to lessee and has reversionary interest to retake possession
...types of leases 1. gross lease/fixed lease -tenant pays fixed rent -landlord pays all expenses (utilities, taxes, or special assessments) (typically used in residential properties, but can be used for commercial or industrial)
2. net lease -tenant pays fixed rent plus expenses -most common for commercial properties
3. percentage lease tentant pays percentage of income as rent
4. land lease/ground lease -tenant rents unimproved property - tenant improvements become the landlord's upon termination
5. graded lease/step-up lease rent increases or decreases at predetermined times and amounts
6. index lease rent is adjusted based on economic index
7. sale-leaseback converts equity to capital without giving up possession
...constructive eviction -lease may be terminated if lessee must vacate due to acts or failure to act of lessor -wrongful eviction
...actual eviction used by landlord to evict tenants who are in breach of their lease
3-6 remedies for breach of contract/default mutual recession mutual cancellation of obligation and return of all parties to their original condition before the contract was executed -both buyer and seller decide to walk away
...would be acceptable if there are major problems ex-the house burns down or there are many repair items
...would not be acceptable if the buyer decides she doesn't like the house or wants to buy a different property
...earnest money would be returned to the buyer -IS NOT CONSIDERATION
remedies for default enforce specific performance (court action to force breaching party to perform
...specific performance the only option, per the contract, for the buyer if the seller decides to terminate
...terminate the contract and receive earnest money as liquidated damages -releasing both parties from contract
...sue for actual damages
Created by: kmills5