Real Property Contracts- Key Clauses - Online Legal and ... class 3 slides.pdfLegal Document Preparation Class 3 Slide 3 Real Property Contracts- Key Clauses 3 • Type of title to

Legal Document Preparation Class 3 Slide 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


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



• 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 engineer’s 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 thedefault rule is

– Time of the essence

QUIZ TIME!




• 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


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 seller’s 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)


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 it’s 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 Clerk’soffice property records section; many counties allow you toaccess past deeds online. You can usually get thisinformation from past deeds

– If you need info such as section, block and lot #, you canusually get it from the county clerk’s office


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


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)


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


Contents of a Mortgage Agreement

• These are typically the same as a promissory note orother contract including information about theencumbered property, plus the following clauses:

– Mortgagee’s rights to accelerated payment if there is a default

– Property taxes and insurance to be held in escrow or atleast 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 mortgageeprovides the mortgagor with a “satisfaction of mortgage”which is also filed with other property records.


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 buyer’s 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 there’s

a problem with the title later.

– For a mortgage, the mortgagor is often forced to pay for this

policy to protect the mortgagee


Closing Documents

• The purchase receives at closing

– Deed (this is the most important document, of course)

– Title insurance

– Release of seller’s 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 cashier’s check)

– Release of seller’s mortgage (it’s paid off with the purchase money)

– Evidence of satisfaction of broker’s commission

– The amount of tax and utilities the seller paid for future usage


Closing Documents (Cont.)

• Federal law dictates the preparation of a HUD form insome cases, which gives a detailed listing of theexpenses each party was responsible for, who paid whatto whom

– This is basically a one stop shop for each party to figureout what she paid to whom and why

• After the closing, the appropriate documents arerecorded. The party whom the document protects isresponsible to make sure the document is filed; e.g.

– The deed should be filed by the office representing thebuyer

– The mortgage note by the mortgagee…


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 it’s allowed)

• Notarized signature of both parties

• Disclosure, when required under local or federal law