Several buyers are competing for the last available
home in a desirable new subdivision. One buyer calls the owner-developer directly on the phone and offers $10,000 over and above the listed price. The
developer accepts the offer. At this point,
the parties have completed a verbal, executory contract.
Executory Period
the time during which a proposed buyer of a piece of property diligently inspects a wide variety of aspects of the property to be sold.
An owner completes a contract to sell her property.
Before closing, the seller runs into financial trouble
and assigns the contract to her principal creditor.
The buyer cries foul, fearing the property will be
lost. Which of the following is true?
The assignor has completed a legal action.
During the executory period of a sale contract, the
buyer acquires an equitable title interest in the
property. This means that
the buyer can potentially force the seller to transfer ownership.
The purpose of an escrow account is to
entrust deposit monies to an impartial fiduciary
A sale contract contains an open-ended financing
contingency: if the buyer cannot obtain financing,
the deal is off. Six months later, the buyer still
cannot secure financing. Which of the following is
true?
The seller may cancel the contract, since it can be ruled invalid.
In the event of a buyer's default, a provision for
liquidated damages in a sale contract enables a seller to
claim the deposit as relief for the buyer's failure to perform.
Which of the following best characterizes a
conventional sale contract?
Voluntary, bilateral, and executory
A due-on-sale clause in a sale contract puts parties on notice that
third-party loans surviving closing may be accelerated by the lender.
A sale contract may specifically deal with tax
withholding responsibility if the seller is a foreigner.
What is this responsibility?
The buyer must withhold 10% of the purchase price at closing for the seller's capital gain tax payment.
An important legal characteristic of an option-to-buy
agreement is that
the optionor must perform if the optionee takes the option, but the optionee is under no obligation to do so.
A tenant has an option-to-purchase agreement with
the landlord that expires on June 30. On July 1, the
tenant frantically calls the landlord to exercise the
option, offering the apology that she was busy with a
death in the family. Which of the following
The option is expired, and the tenant has no rightful claim to money paid for the option.
A tenant exercises an option to buy a condominium.
The landlord agrees, but raises the agreed price by
$3,000, claiming financial distress. The landlord
does, however, offer the tenant two months of free
rent before closing as an offset. Which of the
foll
The tenant can force the sale at the original terms.
Which of the following is true regarding the legal
nature of option contracts?
They give the optionee an equitable interest in the property.
An important distinction between a contract for deed
and a contract for sale is
the seller retains legal title in a contract for deed
transaction until fully executed
While a property is under a contract for deed, the
seller, or vendor, mortgages her equity in the
property, and has a separate judgment lien placed on
the property. Faced with financial loss, the vendor
assigns the contract to another party, then leaves
t
comply with the contract and take legal title when
its terms are fulfilled.
A potential danger involved in a contract for deed is
that
the vendee may not have a right of redemption.
Assignment
Transfer in writing of interest in a bond, mortgage, lease
Bilateral vs. Unilateral Contract
Bilateral contract: both parties are legally bound to act as they promised, i.e., lease, purchase agreement. Unilateral contract: only one party is bound to act (option, promissory note)
Breach of Contract
Failure to perform a condition of a contract, such as not paying the rent or mortgage payment
Consideration
Something of value that gets a person to enter into a contract; owner of property promises to convey marketable title and the buyer promises a certain amount of money
Express vs. Implied Contract
Express is oral or written contract in which parties express intention in words. An implied contract is a result of the actions of the parties
Installment Contract
Also know as land contract, contract for deed, selling under contract. Purchaser receives possession but not legal title until all payments have been made
Liquidated Damages
Amount predetermined by parties to contract as total compensation due injured party should the other party breach the contract
Option
Agreement to keep open for a set period an offer to sell or purchase property; usually a unilateral contract; one party must perform if the other so decides
Statute of Frauds
State law requires certain instruments, such as deeds, real estate sales contracts and certain leases, to be in writing to be legally enforceable
Time is of the Essence
Phrase in contract that requires the performance of a certain act within a stated period of time
Unenforceable Contract
Contract that has all the elements of a valid contract, yet neither party can sue the other for performance; an unsigned contract is usually unenforceable
Void vs. Voidable
Void has no legal force because it is lacking an essential part of a contract; voidable is one in which either or both parties may reject or disaffirm (contingencies)
Contingency
A provision in a contract that requires a certain act to be done or a certain event to occur before the contract becomes binding
Contract
A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provide a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all pa
Counteroffer
A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror
Earnest Money
Money deposited by a buyer under the terms of a contract, to be forfeited if the buyers defaults but applied to the purchase price if the sale is closed
Equitable Title
The interest held by a vendee under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another's name
Escrow Contract
An agreement between a buyer, seller and escrow holder setting forth rights and responsibilities for each. An escrow contract is entered into when Earnest money is deposited in a broker's escrow account.
Executed Contract
A contract in which all parties have fulfilled their promise and thus performed the contract
Executory Contract
legal agreement, the provisions of which have yet to be completely fulfilled
Land Contract
Instrument of finance in which the seller retains legal ownership of the property until the buyer has made the last payment. (common way to sell a business)
Novation
The substitution of a new party or a new obligation in a contract. This process requires the agreement of all original parties in the contract, but once it has been agreed to, the original obligate Is released from liability.
Offer and Acceptance
Two essential components of a valid contract; a "meeting of the minds
Reality of Consent
A contract must be entered into as the free and voluntray act of each party.
Rescission
The practice of one party canceling or terminated a contract, which has the effect of returning the parties to their original positions before the contract was made.
Suit for Specific Performance
the buyer asks the court to force the seller to go through with the sale and convey the property as previously agreed
Valid Contract
A contract that complies with all the essentials of a contract and is binding and enforceable on all parties to it.