Winter Park Home, Volume 6 / Issue 1, 2008Real estate transactions don’t have a required format, even though that perception is often implied due to the extensive use of the standard Florida Association of Realtors and Florida Bar Association (FAR/BAR) approved Contract for Sale and Purchase of real estate. This standardized Contract allows all parties accustomed to residential sales to rely on a set uniform Standards, which define different terms within the Contract. These terms are generally accepted and understood by real estate attorneys and Realtors. More complex transactions may require additional terminology, which is usually added by formal Amendments to the Contract.
However, there are many other contract formats that are used in the marketplace. So, both the Buyer and Seller are well advised to seek competent legal advice to assure that each party understands his/her respective rights and obligations, prior to signing any contractual obligation.
FAR/BAR Contracts include provisions that stipulate whether the Seller or Buyer is to provide and pay for a title insurance commitment and an owner’s title insurance policy, The commitment, together with a copy of all the exceptions to title, must be submitted to the Buyer for review. In
The Contract also stipulates the number of days prior to closing that the commitment must be provided. More importantly, it also establishes a precisely defined time period for examining the title and notifying the Seller in writing of any deficiencies or objections to title. This review period typically begins on the day the Buyer receives the title commitment. The number of days specified in the Contract is legally binding, and the Buyer is bound by these time limits.
To give you a sense of how serious the time limits on this review can be, consider this tragic tale of David Johnson. Mr. Johnson places a $50,000 deposit on a $500,000 home purchase. Imagine David’s response when he learns that the Seller demands forfeiture of the $50,000 deposit, solely because neither he nor his attorney raised a legitimate objection to title in a timely manner. He missed the deadline, so David cannot subsequently raise the title objection as a basis for terminating the Contract and obtaining a refund of his deposit. Mr. Johnson may not be real, but the financial consequences of missing a Contract deadline can result in very real monetary losses.
If the Buyer does make a timely objection to title, the Seller must cure the defects within the time period stated (typically 30 days). Should the Seller fail to resolve the issues within the time specified, the Buyer may terminate the Contract and reclaim his/her deposit.
Most Buyers don’t have sufficient cash reserves to purchase property outright. They usually need financial assistance in the form of a mortgage loan. Real estate contracts typically include a financing provision. This provision stipulates acceptable financing terms and a time period within which the Buyer will apply for a loan commitment from an institutional lender or private party. As with other contract provisions, timing is critical. The Buyer has placed an earnest money deposit at risk. He or she must apply for the loan approval within the time period defined under this provision, and notify the Seller if that loan approval cannot be obtained within the specified time period (typically 30 days).
The Buyer must use reasonable diligence to obtain the loan approval. For example, if our Mr. Johnson is buying property for $500,000, places a $50,000 deposit with the escrow agent, and is to obtain financing for the remaining $450,000, he must make a good faith effort to obtain that financing. Let’s assume David subsequently decides he no longer wants to purchase the property and wants to use the financing contingency as a mechanism to retrieve his $50,000 deposit. If he improperly prepares the application forms and otherwise delays the paperwork so that he cannot obtain the loan approval within the permitted time period, he risks losing the entire deposit to the Seller for failure to use reasonable diligence in obtaining the loan approval. Alternatively, if David legitimately does not qualify for the loan under the parameters set forth in the Contract, he may be entitled to terminate the Contract and obtain a refund of his deposit.
Contracts also establish the date of closing at which the parties are to complete the transaction. By establishing a closing date, and other specific dates within the Contract, the parties, including any lender, are provided with deadlines for satisfying all preconditions of the Contract. These dates provide time certain periods that enable the Buyer and Seller to hold the other party accountable for failure to comply with the obligations set forth in the Contract. Let’s assume, for example, that Mr. Johnson has decided it would by more convenient to close the sale two weeks later than the date specified in the Contract but the Seller refuses to extend the closing date. If Mr. Johnson then fails to appear at the closing, his $50,000 deposit may be forfeited to the Seller. If the language in the Contract permits, the Seller may also alternatively bring an action in equity to enforce Seller’s rights under the Contract (i.e. make the Buyer purchase the property under all of its terms and conditions).
A Real Estate Purchase and Sale Agreement, or Contract, is the primary tool used to acquire real property, and defines all relevant terms by which the Seller agrees to transfer the property, and by which the Buyer agrees to be governed.
I’ve run out of space before running out of important things you should know about real estate contracts, so I’ll continue this discussion of basic contract strategy in the next issue.
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Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.
