Real Property Contracts- Key Clauses

1
Real Property Contracts- Key Clauses

• Parties, including the names of
• Buyer and seller (including marital status if two
  of them are married)
• Name of the agent or broker
• Corporate information if either side is a
  corporation
• Property Description including
• A legal description
• Encumbrances, if any
• Personal property included in the sale
• Purchase price including the amount of the down
  payment and later payments

2
Real Property Contracts- Key Clauses 2

• Information about the closing
• Time and right to extend, if applicable
  (including time is of the essence clause, if
  applicable)
• Location of closing
• Some lawyers charge an extra fee if the location
  is out of the area
• When possession is to be delivered
• Including terms as to what happens if closing is
  late
• Types of documents required at closing, e.g.
• Type of deed to be delivered
• Amount to be held in escrow

3
Real Property Contracts- Key Clauses 3

• Type of title to be delivered, including
  information about title insurance, title
  searches, etc.
• Warranties made by each party or (usually) lack
  thereof
• Conditions of closing
• Same basic condition
• Subject to engineers inspection, if one is not
  completed before the contract is signed
• Mortgage contingency clause, if applicable
• Risk of loss
• If this is not in the contract, states are split
  as to what the default rule is
• Time of the essence

4
Real Property Contracts- Key Clauses 4

• Default and Remedies
• Specific performance for the buyer
• Remedy for the seller is usually to keep the
  deposit
• Alternative Dispute Resolution clause?
• Mortgage clauses, if applicable
• Commission, including who pays it and to whom
• Other miscellaneous provisions applicable to all
  contracts, including
• Whether the contract survives closing
• Notice
• Severability
• Entire Agreement
• Signature, acknowledgment and notarization

5
Deeds Types

• General Warranty deed
• Guarantees a variety of protections for the
  buyer, including that no other source has any
  liens or rights to the property
• Special Warranty (Bargain and Sale)
• Guarantees that the sellers actions have not
  done anything that would hamper the title or
  enjoyment of the buyer
• This is the most common deed in land sales. The
  idea is that the buyer will do his own title
  search and so the seller need not guarantee
  against problems caused by the actions of others
• Quitclaim Deed
• Guarantees nothing (common for gifts and discount
  purchases where the seller is unwilling to
  guarantee title)

6
Clauses of Any Deed

• Caption and Preamble
• Description of parties and language of conveyance
• Should include addresses and John Smith as
  Trustee of or something similar if its
  conveyed to an entity
• Legal Property Description
• This can be just an address, but the convention
  is to also put the metes and bounds description
• The legal description can be gotten at the County
  Clerks office property records section many
  counties allow you to access past deeds online.
  You can usually get this information from past
  deeds
• If you need info such as section, block and lot
  , you can usually get it from the county clerks
  office

7
Clauses of Any Deed 2

• Warranty clause (for warranty deeds)
• Rights granted
• The to have and to hold clause
• Some states (e.g., NY) require certain clauses or
  disclosures to be in the deed itself
• What, if anything, the grant is subject to
• E.g., easements, mortgages, liens, etc.
• Consideration clause
• (not necessary for a transfer, but the convention
  is to use it)
• Signature, acknowledgment and notarization

8
Promissory Notes and Mortgages

• Any promissory note that uses land as collateral
  is called a mortgage. Mortgages have
• The promissory note/ agreement
• The mortgage deed
• Mortgage promissory notes should contain
• Identification of the parties
• Amount of the loan
• Repayment schedule
• Provisions in case of default
• Statement of collateral or security interest
• Notarized signature of the mortgagor (borrower)

9
Types of Mortgages

• Purchase money (the loan is used to buy the
  house)
• Fixed Rate vs. Adjustable rate
• Wraparound mortgages
• FHA mortgages (loan insured by the FHA)
• VA mortgages (loan insured by the VA)
• Balloon payment mortgages
• These are highly likely to lead to foreclosure
  and are heavily regulated

10
Contents of a Mortgage Agreement

• These are typically the same as a promissory note
  or other contract including information about the
  encumbered property, plus the following clauses
• Mortgagees rights to accelerated payment if
  there is a default
• Property taxes and insurance to be held in escrow
  or at least a guarantee that the mortgagor will
  pay those
• How payments are applied to principal and
  interest
• Due on transfer provision
• Once the mortgage has been repaid, the mortgagee
  provides the mortgagor with a satisfaction of
  mortgage which is also filed with other property
  records.

11
Title Inspection and Insurance

• If the buyer or mortgagee does an adequate title
  search, s/he is a bone fide purchases, for
  purposes involving dual transactions and other
  issues.
• The title inspector prepares an abstract of
  title which is a summary of the conveyances
  relevant to the property in its history
• Including mortgages, easements, liens, judgments,
  etc.
• It is the job of the buyers attorney to examine
  the abstract of title to determine if there will
  be problems for the buyer
• In any case, the buyer will usually buy title
  insurance in case theres a problem with the
  title later.
• For a mortgage, the mortgagor is often forced to
  pay for this policy to protect the mortgagee

12
Closing Documents

• The purchase receives at closing
• Deed (this is the most important document, of
  course)
• Title insurance
• Release of sellers mortgage documents
• Affidavits and notices, when necessary
• E.g., disclosure forms that are required in some
  states
• Tax and utility bills
• The seller receives
• The purchase price (usually by certified or
  cashiers check)
• Release of sellers mortgage (its paid off with
  the purchase money)
• Evidence of satisfaction of brokers commission
• The amount of tax and utilities the seller paid
  for future usage

13
Closing Documents (Cont.)

• Federal law dictates the preparation of a HUD
  form in some cases, which gives a detailed
  listing of the expenses each party was
  responsible for, who paid what to whom
• This is basically a one stop shop for each party
  to figure out what she paid to whom and why
• After the closing, the appropriate documents are
  recorded. The party whom the document protects is
  responsible to make sure the document is filed
  e.g.
• The deed should be filed by the office
  representing the buyer
• The mortgage note by the mortgagee

14
Lease Agreement

• Lease Agreements should include
• A description of the parties
• A description of the premises
• (an address or apt number is usually enough)
• Duration of the lease (or month-to-month, etc.)
• Rent and payment schedule
• Conditions of lease, including
• Deposit, repair duties, access by lessor,
  assignment and sublease (whether its allowed)
• Notarized signature of both parties
• Disclosure, when required under local or federal
  law