CHAPTER FOUR REAL ESTATE TABLE OF CONTENTS

Transcription

1 CHAPTER FOUR REAL ESTATE LAW TABLE OF CONTENTS 1) LEGAL PRINCIPLES OF A CONTRACT PAGE 2 2) CLASSIFICATION OF CONTRACTS PAGE 9 3) LEGAL EFFECT OF A CONTRACT PAGE 13 4) CHANGES IN CONTRACTS PAGE 17 5) OPTIONS/RIGHT OF FIRST REFUSAL CONTRACTS PAGE 24 6) OFFER TO PURCHASE CONTRACTS PAGE 27 7) PREPARING LEGAL DOCUMENTS PAGE 31 8) PROPERTY DESCRIPTIONS PAGE 32 9) OWNERSHIP OF REAL ESTATE BY ORGANIZATIONS PAGE 37 10) FAIR HOUSING LAWS PAGE 41 Copyright 2008 by Career Education Systems, Inc. 1

2 1. LEGAL PRINCIPLES OF A CONTRACT WHAT ARE THE ESSENTIAL ELEMENTS OF A CONTRACT? 1. COMPETENT PARTIES 1. Legal age 2. Sound mind 3. Alive at time of acceptance 2. OFFER AND ACCEPTANCE Meeting of the minds Must be in exact same terms Who makes the offer first????? First made by buyer Copyright 2008 by Career Education Systems, Inc. 2

3 $100,000 LIST PRICE $90,000 OFFER BUYER OFFEROR SELLER OFFEREE Can an offer be withdrawn????? Yes, up until time of acceptance BUYER I ve changed my mind! However, no right of rescission - back out Copyright 2008 by Career Education Systems, Inc. 3

4 COUNTER- OFFER REJECTION and new offer BUYER OFFEREE $95,000 COUNTER- OFFER SELLER OFFEROR What if the buyer rejects the offer? Is buyer released? (Yes) BUYER $95,000 COUNTER- OFFER Copyright 2008 by Career Education Systems, Inc. 4

5 What about multiple offers? Must be presented at the same time SELLER What if it is a ridiculous offer? Does the broker still have to present it? BUYER $10,000 & 2 PIGS SELLER Copyright 2008 by Career Education Systems, Inc. 5

6 ACCEPTANCE OFFEREE BUYER RECEIVES EQUITABLE TITLE $95,000 ACCEPTANCE SELLER Interest buyer acquires upon signing and acceptance of offer with seller; allows buyer to sue for specific performance 3. CONSIDERATION Something of value Something of value; promise to pay is sufficient consideration for contract; do NOT have to have earnest money for contract Copyright 2008 by Career Education Systems, Inc. 6

7 4. LEGAL OBJECT Lawful purpose Contract must be for lawful purpose 5. WRITING An oral contract generally cannot be enforced in court STATUTE OF FRAUDS Copyright 2008 by Career Education Systems, Inc. 7

8 6. SIGNED By all parties to contract 7. DESCRIPTION Should be legal - must describe land Copyright 2008 by Career Education Systems, Inc. 8

9 2. CLASSIFICATION OF CONTRACTS How are contracts created????? 1. EXPRESSED Clearly state intentions Clearly state intentions; e.g., buyer and seller in contract 2. IMPLIED Created by actions Stick with me, pal. I ll get you the best deal! Copyright 2008 by Career Education Systems, Inc. 9

10 What promises do people make in various contracts????? 1. BI-LATERAL Promise for a promise e.g., buyer and seller in selling and buying a house I WILL I WILL 2. UNI-LATERAL Promise for an action Acceptance takes place upon completion of requested act; e.g., option contract I WILL MAYBE I WILL Copyright 2008 by Career Education Systems, Inc. 10

11 How is it determined when the promises have been completed????? 1. EXECUTORY Promises made but not complete CONTRACT PENDING 2. EXECUTED All promises complete CONTRACT CLOSED Copyright 2008 by Career Education Systems, Inc. 11

12 TIME IS OF THE ESSENCE Complete terms of contract in a timely manner Copyright 2008 by Career Education Systems, Inc. 12

13 3. LEGAL EFFECT OF A CONTRACT WHAT FACTORS DETERMINE THE LEGAL EFFECT OF A CONTRACT? 1. VALID AND ENFORCEABLE All essential elements In writing, everything fine 2. VOID No contract Not of sound mind at all Illegal Copyright 2008 by Career Education Systems, Inc. 13

14 3. VOIDABLE Able to be voided By one of the parties VALID OR VOID 1. Contract signed by MINOR Copyright 2008 by Career Education Systems, Inc. 14

15 2. Contract signed under DURESS 3. Contract signed due to MISREPRESENTATION False statement of material fact She actually believed me when I said it was zoned commercial Copyright 2008 by Career Education Systems, Inc. 15

16 PUFFING Subjective opinion Subjective opinion; not a law violation Who could void? A nice fixerupper with a beautiful view 4. UNENFORCEABLE Oral agreement Copyright 2008 by Career Education Systems, Inc. 16

17 4. CHANGES IN CONTRACTS CAN A CONTRACT EVER BE CHANGED? 1. BREACH One or both parties does not perform according to contract A. BUYER S CHOICES IF SELLER DEFAULTS 1. Specific Performance Suit Court action to force completion; best remedy Copyright 2008 by Career Education Systems, Inc. 17

18 2. Rescind Return parties to status quo; way they were before contract signed 3. Sue for damages Copyright 2008 by Career Education Systems, Inc. 18

19 B. SELLER S CHOICES IF BUYER DEFAULTS BUYER SELLER BUYER S REMORSE BIG TIME! I WON T CLOSE! 1. Declare contract forfeited Release buyer BUYER Release buyer but keep earnest money Keep earnest money SELLER Copyright 2008 by Career Education Systems, Inc. 19

20 LIQUIDATED DAMAGES CLAUSE If buyer backs out, seller keeps earnest money as prearranged liquidated damages 2. Specific Performance Suit Court action to force completion Copyright 2008 by Career Education Systems, Inc. 20

21 3. Rescind Return parties to status quo; way they were before contract signed 4. Sue for damages Copyright 2008 by Career Education Systems, Inc. 21

22 2. ASSIGNMENT Can transfer rights in contract unless clause prevents this ORIGINAL BUYER NEW BUYER What type of contracts CANNOT be assigned????? Personal services Personal services contract; e.g., listing contracts Copyright 2008 by Career Education Systems, Inc. 22

23 3. NOVATION NOVA = NEW New contract takes place of old contract; e.g., refinancing or assumption with a release of liability 12% 8% 4. ADDENDUM / AMENDMENT Changes original contract; e.g., extending closing date on contract Original contract terms Contract with changes Copyright 2008 by Career Education Systems, Inc. 23

24 5. OPTION CONTRACT / RIGHT OF FIRST REFUSAL WHAT IS THE DIFFERENCE BETWEEN AN OPTION CONTRACT AND A RIGHT OF FIRST REFUSAL? OPTION TO BUY, OR NOT TO BUY? THAT IS THE QUESTION! Possibility Contract Definite time period Definite sale price Unexercised option contracts Uni-lateral Exercised option contracts Bi-lateral Copyright 2008 by Career Education Systems, Inc. 24

25 OPTIONOR (SELLER) Parties OPTIONEE (POSSIBLE BUYER) Must sell if option exercised Can t force optionee to buy Keeps option money paid for option Doesn t have to buy, but loses option money Doesn t have interest or estate in property CAN sell or assign option RIGHT OF FIRST REFUSAL IF you ever decide to sell your place, give me first dibs! Copyright 2008 by Career Education Systems, Inc. 25

26 RIGHT OF FIRST REFUSAL Person has first opportunity to buy if offered for sale or lease Person has NO right to buy until offered for sale Person can buy by matching any other offer There is NO definite sales price All contract laws apply Copyright 2008 by Career Education Systems, Inc. 26

27 6. OFFER TO PURCHASE CONTRACTS (SALES CONTRACTS) WHAT CONTRACT IS USED TO TRANSFER REAL ESTATE? Death would not terminate the contract; seller s estate would have to complete the contract by selling the property to the buyer. Likewise, buyer s estate would have to complete the contract by buying the property. ALL CASH DEAL BUYER Buyer s heirs must honor contract SELLER ALL CASH DEAL BUYER SELLER Seller s heirs must honor contract Copyright 2008 by Career Education Systems, Inc. 27

28 LOAN CONTINGENCY DEAL BUYER SELLER Deal falls through because buyer cannot qualify for loan MORTGAGE (FINANCING) CONTINGENCY CLAUSE I ll only buy IF I qualify for a loan! BUYER Buyer obligated to buy only if loan approval is obtained; usually gets earnest money back if mortgage is denied Copyright 2008 by Career Education Systems, Inc. 28

29 Sales contract is bi-lateral BUYER I WILL SELLER I WILL Earnest money - Good faith money Escrow or Trust account Separate account for holding other people s money; usually held by broker Copyright 2008 by Career Education Systems, Inc. 29

30 Commingling Mixing escrow money with personal or business funds; illegal May be interest bearing if all parties to contract agree Broker s own money in escrow account to cover service charges KS - $100 MO - $1,000 Copyright 2008 by Career Education Systems, Inc. 30

31 7. PREPARING LEGAL DOCUMENTS WHO CAN PREPARE LEGAL DOCUMENTS? Brokers CANNOT draft legal documents, only fill in blank spaces on attorney approved forms CANNOT charge extra for this work CANNOT give legal advice Copyright 2008 by Career Education Systems, Inc. 31

32 8. PROPERTY DESCRIPTIONS WHAT ARE DIFFERENT TYPES OF LEGAL PROPERTY DESCRIPTIONS? Address is NOT a legal description METHODS OF GIVING LEGAL DESCRIPTIONS 1. METES AND BOUNDS Physical description of the property Beginning at the old oak tree by Johnson s lake going 25 rods and 8 feet Northeasterly to an iron stake; then 90 degrees Southeasterly about 400 feet to the well by the stream; follow the stream Southwest about 36 rods to the corner fence post from the Johnson s property; then 85 degrees Northwesterly about 300 feet to the point of beginning. Copyright 2008 by Career Education Systems, Inc. 32

33 Metes Length measurements Bounds Markers; e.g., stake, well, etc. Must always begin and end at point of beginning Good way to define irregular shaped lot; survey measurements prevail over deed measurements 2. GEODETIC SURVEY SYSTEM Bench marks Uses benchmarks to identify land Copyright 2008 by Career Education Systems, Inc. 33

34 3. RECTANGULAR (GOVERNMENT) SURVEY SYSTEM Describes land in America using meridian (north and south) and base (east and west) lines; every six miles range and tier lines are drawn to form townships TOWNSHIP 6 miles square; also 36 square miles Copyright 2008 by Career Education Systems, Inc. 34

35 SECTION One mile square, also one square mile Section = 640 acres Acre = 43,560 square feet 4. LOT AND BLOCK SYSTEM Copyright 2008 by Career Education Systems, Inc. 35

36 PLAT map New subdivisions Description lists Lot #, Block #, Subdivision, County and State Setback Lines Amount of space between lot line and building line Front Footage Linear (straight) feet along street line Square Footage Length times width Copyright 2008 by Career Education Systems, Inc. 36

37 9. OWNERSHIP OF REAL ESTATE BY ORGANIZATIONS WHAT IS A SYNDICATION? Syndication Many investors bring in others as a means of raising money and spreading the risk 1. CORPORATION Corporation SEVERALTY Copyright 2008 by Career Education Systems, Inc. 37

38 Corporation & Individual TENANTS-IN-COMMON 2. PARTNERSHIP General Partnership - unlimited liability Generally share in profits, losses, taxes, etc. Copyright 2008 by Career Education Systems, Inc. 38

39 Limited Partnership - limited liability GENERAL PARTNERS LIMITED PARTNERS Financial backer; not involved in day to day running of business 3. REAL ESTATE INVESTMENT TRUST (REIT) Huge mutual fund for real estate investments Copyright 2008 by Career Education Systems, Inc. 39

40 Securities License Required when one receives money and invests for others Sale of INVESTMENT items to public Sale of limited partnerships Sale of mortgage securities Sale of Securities governed by SEC SECURITIES AND EXCHANGE COMMISSION Copyright 2008 by Career Education Systems, Inc. 40

41 10. FAIR HOUSING LAWS WHAT ARE THE 3 MAIN FAIR HOUSING LAWS THAT PERTAIN TO REAL ESTATE? 1. CIVIL RIGHTS ACT OF 1866 All CITIZENS OF THE United States shall have the same right in every state and territory as is enjoyed by White citizens thereof, to inherit, purchase, lease, sell, hold, and convey REAL and PERSONAL property. RACE only 2. CIVIL RIGHTS ACT OF 1968 (TITLE VIII) Property covered Residential only Race Color Religion National Origin Sex Handicap (1988) Familial Status (1988) Copyright 2008 by Career Education Systems, Inc. 41

42 ILLEGAL ACTS Refuse to sell, rent or negotiate Change terms or conditions State property is restricted Tell persons property is not for sale when it is ILLEGAL ACTS Inducing owners to sell by telling them persons of a protected class are moving into the neighborhood (BLOCKBUSTING) Give different terms for loans Deny membership in any multiple listing service (MLS) Copyright 2008 by Career Education Systems, Inc. 42

43 ILLEGAL ACTS STEERING Directing people toward areas based upon their protected class ILLEGAL ACTS REDLINING Lenders refusing to loan in certain areas based upon protected classes Copyright 2008 by Career Education Systems, Inc. 43

44 EXEMPTIONS An owner selling or renting a single-family home if owner: does NOT own more than three homes at once does NOT use a broker or agent (must be a FSBO - For Sale By Owner) does NOT discriminate in advertising EXEMPTIONS Owner occupied 1-4 plex in renting Copyright 2008 by Career Education Systems, Inc. 44

45 EXEMPTIONS Religious organization discriminating on religion - NOT commercial EXEMPTIONS Private club - NOT commercial Club members only Copyright 2008 by Career Education Systems, Inc. 45

46 JONES VS. MAYER (1968) CANNOT DISCRIMINATE RACIALLY - EVER!!!!! 3. FAIR HOUSING AMENDMENTS ACT OF 1988 A. HANDICAP What is a handicap? Mental or physical What is NOT a handicap? Currently addicted to illegal substances Copyright 2008 by Career Education Systems, Inc. 46

47 RULES Cannot change terms Handicapped persons, at their expense, can modify Modify rules to allow equal use Multi-family (4 or more) after March 13, 1991, must be accessible elevator - all units NO elevator - ground floor only B. FAMILIAL STATUS Children under 18 Copyright 2008 by Career Education Systems, Inc. 47

48 EXCEPTION Exception allows, for example, retirement communities to exclude children; advertising is specifically aimed at older persons Everyone 62 or over 80% 55 or over (advertising) HUD S ENFORCEMENT Copyright 2008 by Career Education Systems, Inc. 48

49 Who may file One who may have been discriminated against Time limits Within one year of act Investigations State laws Apply if substantially equivalent with Title VIII Copyright 2008 by Career Education Systems, Inc. 49