Know What The Contract Says

It is very important to pay close attention to the details in a contract. Most residential real estate contracts contain form language with some sections that are “fill in the blank”. Those sections are all very important details of the specific transaction. Some obvious items you want to check are:

  • Purchase price
  • Amount of Earnest Money or Trust Money
  • Closing Date
  • Inspection Period
  • Which costs are to be paid by the buyer and which costs are to be paid by the seller
  • Home Warranty

However, you should also pay close attention to what your buyer is contracting to purchase or your seller is contracting to sell. Here are a couple of situations I have seen that could have been resolved easily if it was more clear before the contract was executed:

  1. I recently had a contract where the buyer’s agent prepared the contract with the street address of the property, referenced the map & parcel number for the property and referenced the prior deed, where the seller acquired the property. That seems like a situation where it is pretty clear which property is being sold. However, the seller had recently subdivided the property so he could sell the part of the property with the house on it and build another house on the other part of the property. The two new parcels were also assigned new parcel numbers. All of that was done at about the same time the contract was signed, so there was no way for the buyer’s agent to know that the property had been subdivided. If you were to look at the only the contract, it would appear that the buyer was purchasing 123 Main Street, but it was the seller’s intention to sell Unit A on the 123 Main Street Subdivision. This grew into a dispute that has become costly for both sides, but could have been easily resolved if the seller or seller’s agent had noticed that the entire property (123 Main Street) was listed on the contract instead of just one of the units, before signing the contract. That way, the buyer would have known what the seller intended to sell and could have adjusted the offer price accordingly.
  2. In another similar situation, I once closed on a foreclosure property where the seller was selling 356 Oak Ave, which was the property that had been foreclosed on. The buyer closed on the property and thought they were getting a house and a vacant lot that was surrounded by a fence attached to the house, but after closing, realized that the property at 356 Oak Ave. was separate from the fenced vacant lot at 358 Oak Ave. The original owner of both 356 and 358 had a loan only on 356 Oak Ave. That meant that the lender could only foreclose on 356 Oak Ave, because it had no interest in 358 Oak Ave. The original owner still owned 358 Oak Ave. and didn’t even realize it because he thought it had been foreclosed on during the house foreclosure. A little more research by the buyer or his agent (and clarification in the contract) would have made the buyer aware of what the seller was able to sell, so he could decide if that was what he wanted to purchase.
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Why should a Buyer get a Title Policy?

There are many title issues that could cause problems for a buyer or may even cause the buyer to lose their home. Even a careful title search would not discover certain hidden risks and the buyer may not know about those problems until years later.

Here are a few issues that occur most frequently:

  1. Forged deeds, mortgages or releases of mortgages.
  2. Deed by a person who is mentally incompetent.
  3. Deed by a minor.
  4. Deed from a corporation given under a falsified resolution or not authorized by the corporate bylaws.
  5. Deed from a partnership that is not authorized by the partnership agreement.
  6. Deed from a trustee that is not allowed by the trust agreement.
  7. Deed challenged as being given under fraud, undue influence or duress.
  8. Deed following a non-judicial foreclosure, where the proper procedure was not followed.
  9. Deed executed under a falsified power of attorney.
  10. Deed executed under an expired power of attorney.
  11. Deed conveying property of a deceased person, not joined by all of the heirs.
  12. Conveyance by an heir or survivor of a joint estate, who murdered the decedent.

Some of these issues could be prevented by a diligent review of documents presented by the seller (for example: making sure a trust agreement allows the trustee to convey real estate), but many could not be discovered until someone comes forward at a later date making a claim to the property. A buyer should always consult with a reputable attorney or title company before purchasing real estate, to discuss the potential risks the buyer may encounter if they choose to not purchase a title policy.