Contracts 101. Colette Massengale, Esq. Jason Brand, Esq. Legal Affairs Maryland Association of REALTORS

Transcription

1 Contracts 101 Colette Massengale, Esq. Jason Brand, Esq. Legal Affairs Maryland Association of REALTORS

2 What is the Legal Definition of a Contract? A contract is a promise or set of promises, for breach of which the law gives a remedy, or the performance of which the law recognizes as a duty Remedy? Contracts are governed by the common law as opposed to statute.

3 Types of Contracts Bilateral - a promise for a promise Eg. MAR Contract of Sale Unilateral - one party makes a promise to induce a second party to do something Offer of compensation in MRIS

4 Types of Contracts Real Estate Contracts Listing Agreement (between who) Buyer Agency Agreement Contract of Sale Options - Owner gives buyer/tenant the right to buy property at agreed upon price within a certain period of time. Buyer/tenant pays fee. Leases - Template? - model

5 Elements of a Contract Offer and Acceptance/Delivery Mutual Assent Consideration Legally competent parties Consent Legal Purpose

6 The Offer An offer is a promise made by one party requesting something in exchange for that promise The offeror intends to be bound The terms of the offer must be definite and specific The offer must be communicated to the offeree

7 The Offer How is an offer terminated? Revocation Lapse of Time

8 Offer in Real Estate What should an offer to purchase property include? Describe the property Include the price Settlement Date Financing Terms Name of Parties

9 Counter-Offer A counter-offer is a rejection of the initial offer A new offer made in response to an offer received. The original offer cannot be accepted thereafter unless revived by the offeror

10 Counter-Offer Does a counter-offer have to be in writing?

11 Acceptance A promise by the offeree to be bound by the exact terms proposed by the offeror Acceptance must be communicated to the offeror DELIVERY is the communication of acceptance which may be accomplished by acts as well as by words

12 Acceptance If the listing agent contacts the buyer agent and tells the buyer agent that the seller has signed the offer and that there is a contract, has delivery occurred?

13 Acceptance in Real Estate Transaction Date of Contract Acceptance Date when the last required named party has executed or initialed any and all provisions of the contract of sale and amendments

14 Acceptance in Real Estate Transaction Can the agent insert the Date of Contract Acceptance?

15 Offer and Acceptance - Mutual Assent Mutual Assent - Also referred to as a meeting of the minds. There must be complete agreement between the parties about the purpose and terms of the contract Missing initials from the bottom of the page?

16 Offer and Acceptance - Material Terms Material Terms Enough of the essential terms of the contract must be provided to make it capable of being enforced Eg. identification of land, names of parties, price, financing terms, and the settlement date

17 Offer and Acceptance - Material Terms If the buyer is unidentified, is there a contract?

18 Consideration Something of legal value offered by one party and accepted by another as an inducement to perform or to refrain from some act Bargained-for Exchange

19 Consideration Is an Earnest Money Deposit required to form a valid contract?

20 Legally Competent Parties All parties must have legal capacity must be of legal age and have mental capacity to understand the consequences of their actions in the contract

21 Consent A contract must be entered into as the free and voluntary act of each party. A mistake, misrepresentation, fraud, undue influence or duress deprives a person of that ability. If any of the above are present, the contract is voidable.

22 Legal Purpose Contracts must be for a legal purpose. If the contract is to do something illegal it is not valid.

23 Validity of Contracts A contract is valid when it meets all the essential elements that make it legally enforceable

24 Validity of Contracts A contract is void when it has no legal force or effect.

25 Validity of Contracts A contract that is voidable can be rescinded or disaffirmed by one or both parties based on some legal principal.

26 Validity of Contracts Is a contract with a minor voidable?

27 Validity of Contracts A seller makes a material misrepresentation concerning the property. Is the contract voidable?

28 Validity of Contracts Is an oral agreement to purchase property enforceable?

29 Statute of Frauds Requires that certain kinds of contracts such as real estate contracts be in writing, contain the signature of the party to be charged and the essential terms to be enforceable in a court of law

30 Equitable Title When the real estate contract is formed, buyer does not yet have title to the land (title transfers upon delivery and acceptance of the deed). However, buyer acquires an interest in the land. This interest is equitable title.

31 Assignment Substitution of parties A transfer of the rights and duties under a contract Rights under a contract may generally be assigned unless the contract forbids it Original party remains primarily liable unless specifically released

32 Assignment What does the MAR Contract say about assignments?

33 Discharge of Contracts A Contract is discharged when the agreement is terminated. Mutual Agreement Operation of Law

34 Discharge of Contracts Operation of Law Eg. The voiding of a contract by a minor as a result of fraud, due to the expiration of the statute of limitations, or because a contract was altered without the written consent of all parties involved.

35 Breach of Contract A violation of any of the terms or conditions of a contract without legal excuse

36 Damages A breach of contract may entitle the nondefaulting party to damages or compensation for the loss or injury caused by the breach

37 Equitable Remedy A species of relief sought in a court with equity powers as in the case of a person seeking an injunction or specific performance

38 Equitable Remedy Specific Performance Eg. The buyer asks the court to force the seller to go through with the sale and convey the property as previously agreed.

39 Earnest Money What if a title company holds the deposit?

40 Contingency Additional conditions that must be satisfied before a sales contract is fully enforceable

41 Default/Failure to Satisfy Contingency Difference Between Default and Failure to Satisfy Contingency

42 Default/Failure to Satisfy Contingency If the buyer makes a good faith effort to obtain financing and does so in a timely manner, is the buyer in default if the buyer is ultimately denied financing?

43 Default/Failure to Satisfy Contingency If the buyer fails to apply for financing or fails to submit the earnest money deposit is this a default?

44 Statute of Limitations on Breach of Contract The statute of limitations on breach of contract claims in Maryland is 3 years

45 Amendment/Modification An amendment is a change to the existing content of the contract Any time words or provisions are added to or deleted from the body of the contract, the contract has been amended Modifications must be signed by both parties

46 Amendment/Modification Negotiate Modification No Agreement Contract Still in Effect

47 Addenda Any provision added to an existing contract without altering the content of the original Addenda must be executed by both parties

48 Beware of Creating an Internal Inconsistency When one addendum conflicts with another, an internal inconsistency may be created. Superceding language

49 Time is of the Essence Not inferred Where not included, Party not deemed in default for failure to perform Given reasonable time

50 Time is of the Essence How does the Time is of the Essence Provision in the MAR Contract work? Time is of the essence of this Contract. The failure of Seller or Buyer to perform any act as provided in this Contract by a prescribed date or within a prescribed time period shall be a default under this Contract and the non-defaulting party, upon written notice to the defaulting party, may declare this Contract null and void and of no further legal force and effect. In such event, all Deposit(s) shall be disbursed in accordance with Paragraph 19 of this Contract.

51 Unauthorized Practice of Law You must be a licensed attorney to practice law in Maryland Let the parties or the attorneys drafts amendments and addenda

52 Disclosures Disclosure and Disclaimer On Either Form w/ latent defects Should seller insert None? Rescission rights Form is 4 Pages!

53 Disclosures Federal Lead-based Paint The law applies to Disclosure and Pamphlet Maryland Disclosure Is it mandated?

54 Agency Disclosure Disclosures

55 Disclosures Material Facts What is the law? What are material facts?

56 Financing Paragraph 9 Financing Options Material Term Specificity Required The buyer is only obligated to obtain the financing specified in the contract Buyer obligated to make one application

57 Financing Financing Statute of Frauds Loan Details TBD Market Not to Exceed Who can declare the contract null and void under Paragraph 10?

58 Financing When Buyer offered different financing than contained in the financing addendum Role of Alternate Financing in 11 What is Commitment?

59 As Is Sales Does buyer have the right to do a walkthrough? What kinds of inspections can buyer conduct?

60 As Is Sales What if the As Is Addendum was not used but the MLS remarks states that the property is being sold as is?

61 Termite Provision Paragraph 18 Wood Destroying Insect Inspection What are sellers obligations? Is this provision negotiable?

62 Home Inspection Home Inspection/ Property Condition How does Paragraph 4B work? What if the parties continue negotiating? Can the seller offer a repair credit?

63 First-Time Buyer What is the Law? Revised Contract Provisions MAR Contract of Sale

64 HOA/Condo Docs. Proper transmittal within time frame Delivery to Agent delivery Buyer right to rescind limited to what s in docs? Broker must comply with Brokers Act for handling deposits

65 Multiple Offers Can Licensee Shop Offer? Can Seller?

66 Default Paragraph 33 Default If buyer defaults, seller may retain deposit provided both parties execute a Release of Deposit. No signed Release of Deposit Agreement, mediation then lawsuit. If seller defaults, parties must mediate and if no resolution lawsuit.

67 Mediation Paragraph 34 Mediation Parties must mediate any disputes that arise out of the transaction before filing a legal claim. Timeframe for mediation is within one year of settlement or when the transaction should have settled.

68 Computation of Days Paragraph 54 Computation of Days Days means consecutive calendar days, including Saturdays, Sundays, and holidays. Days are measured from 12:00:01 a.m. to and including 11:59:59 p.m. E.S.T. Count of days begins on date following day on which any act or notice is required to be provided.

69 Notice of Termination/Release What s the difference between a notice of termination and a release? Unilateral Notice Mutual Release of Obligation Under Contract

70 Release of Deposit Agreement How does it work?

71 Misc. Issues MLS Compensation Can the Contract of Sale change the compensation offered by the listing broker?

72 Misc. Issues MLS Compensation What happens if the listing broker reduces the commission after an offer has been submitted?

73 THANK YOU!