REAL ESTATE

BUYING A HOME

A GIANT STEP

The purchase of a home may be the most important single financial step you will take during your entire lifetime. A mistake at this time can undo a lifetime effort. Consequently, you should arrange in advance to consult a number of people who are specially trained to serve you and assist you in this important event.

THE BINDER

Frequently, the buyer is requested to sign a written memorandum of the transaction, called a "binder," at the same time he pays the deposit or "earnest money."

Before signing anything you should consult your attorney, or you may bind yourself to terms that are not what you planned. The contents of the memorandum are very important. Frequently, when the buyer later consults a lawyer to represent him on the formal contract, it is found important rights have already been given up by signing the binder. For example, you may have agreed to purchase property which you will be unable to use for the purpose you are buying it due to deed or zoning restrictions. For this reason, attorneys usually advise clients who are buying real estate not to sign any paper without their review.

THE REAL ESTATE BROKER

You should contact your realtor in order that they may assist you in your selection of real estate. You will find them to be well trained and competent, duly licensed under the laws of the state of Kentucky and able to save you untold loss of time and expense in searching for a home by having, quite often at their fingertips, exactly the kind of home you would like to own. In any event, with their assistance, you should be able to locate promptly the best property available for the amount of money you wish to spend.

DON'T SIGN ON THE DOTTED LINE!

Don't sign the contract of sale until your lawyer reviews the contract to be sure that all the details of the agreement are contained in the contract. Anything left out, even if agreed upon by word of mouth, is unenforceable. The contract is necessary so that the buyer and seller may remain obligated to complete the transaction during the time necessary for investigation of title, financing and other details. The contract should provide for return of the earnest money in the event the seller does not have a good title. If the contract is signed before sufficient financing is obtained, and the contract does not have a "subject to financing: clause, the purchaser may be bound without resources to purchase, and forfeit the "earnest money." Each purchase is different, and the contract should be tailored to the particular purchase.

Your lawyer will further assist you in guarding against the forfeiture of earnest money by checking to see that you are able to carry out the terms and provisions of the option or purchase contract you first sign, and whether the owner can give you possession of the property on the date specified.

EXAMINATION OF TITLE

After the contract has been signed, the next step you should take is to have your attorney examine the title to the property you agreed to buy. This requires a search of the public records for information that may affect the title. This includes a compilation of all record transfers, assignments, encumbrances, liens and mortgages related to the real estate, and his legal opinion as to the condition of the title you are buying. He will also explain the terms and conditions of your deed with respect to the restrictions, limitations, zoning regulations, easements or covenants that may be involved with your property.

TITLE INSURANCE

A title insurance policy provides an indemnity contract guaranteeing to protect the purchaser and his heirs against damages actually sustained by reason of a title defect within the scope of the policy. The one premium policy insures you for the rest of your lifetime or so long as you own the property.

The insurance not only guarantees against errors in the examination of title, errors made by clerks in public offices and errors made by surveyors, but also protection against hidden defects which involve facts that cannot be found even by the most thorough examination of title. Such hidden defects include forgery, lost heirs, fraud, deeds by a corporation without proper or legal authority, or dower rights of a previous spouse.

The title policy further insures against claims of mechanics and materialmen who file liens after the date of the policy for work done before the date of the policy.

The fact that the buyer obtains a title policy in no way obviates the need for his being represented by a lawyer. The title company only examines and insures the title. The insured still needs the services of a lawyer to represent him by reviewing the purchase contact and at the closing to be sure any exception and requirements raised by the title company in the policy are complied with.

CLOSING OF TITLE

If the examination of title discloses any exception to a good title not contemplated by the contract of sale, your attorney will check with the seller's attorney to be sure they are removed or adjusted before the closing date. The closing will follow exactly the provisions of the contract for sale. The attorneys for the parties together compute the usual adjustments and prepare a closing statement showing the amount owed by the purchaser to the seller, as adjusted. The deed and mortgage are examined to see that the terms of the contract have been followed. In some cases, the closing is long and tedious. Finally, the closing is concluded, and the parties shake hands and go their respective ways.

LAWYER'S FEES

For all these services, your attorney's fee will be moderate. As a matter of fact, it will be the smallest payment you will make to those assisting you in purchasing your new home. Remember, this is probably the biggest financial step in your life.

REAL ESTATE POWERS OF ATTORNEY

There are many instances in today's society where powers of attorney are necessary in dealing with real estate. With our mobile society and especially our area in which husbands and wives may be located in different states or countries or their job takes them temporarily away from an area it is a common day practice to use powers of attorney when dealing with real estate.

Powers of attorney could be required in the following situations: 1. Listing real estate for sale; 2. signing a sales contract; 3. conveying real property, mortgaging and purchasing. When it comes to the listing contract, the individual giving the power of attorney should at the very least state the amount of the listing price in the power of attorney. Now that there are so many other decisions that must be made at the time of listing, it would be wise to also have the power of attorney to include all of those matters that need to be signed. That would include the property disclosure and condition report, realtor commission rates, disposition of keys as well as the type of agency the sellers desire.

When it comes to the sales contract, the power of attorney must state the minimum sales price. It can also be argued that unless the power of attorney gives the power to approve various conditions in the sales contract then the individual receiving the power of attorney does not have any power to agree to various conditions: i.e. allowing the buyer to occupy the premises prior to closing; that the contract is subject to the buyer receiving adequate financing at certain rates, etc.; that certain items of personal property are included in the sale of real estate.

The courts have ruled in the state of Kentucky that a power of attorney must specifically grant a power to convey real estate and a "catch-all" provision is not sufficient. That is why it is better to be specific in the powers of attorney concerning listing contracts and sales contracts.

Further, when dealing with conveyances of real estate, there are many other considerations in preparing a power of attorney. If a mortgage lender is involved, then the mortgage lender must approve the power of attorney prior to closing. In fact, if the mortgage company is not located locally, then the power of attorney should be sent to the mortgage lender quite some time before the closing so that the power of attorney has been approved and the closing is not delayed. Some lenders require the sellers to execute the deed personally without the use of a power of attorney.

In VA closings, the Veterans Administration requires special wording concerning powers of attorney since this involves the use of VA entitlements. The power of attorney must include the address and description of property, the sale price, the mortgage amount, and in some cases, the financing terms. The power of attorney should also provide for the execution of a note, mortgage and deed, and any other closing documents necessary to consummate the purchase and mortgaging of the property. This obviously is when the power of attorney is given by one of the buyers. If the individual is signing the power of attorney in another state, not only does the power of attorney need to be notarized but it must have a notary seal. Again, it is advisable to have the lender approve the power of attorney in advance of closing.

Today, all powers of attorney should state that the power of attorney is not affected by the disability of the grantor. This will make it unnecessary to telephone the individual giving the power of attorney at the time of the closing to verify the individual's continued physical and mental well-being. Obviously, all powers of attorney must be recorded, therefore needing proper acknowledgment, and original signatures. Faxes or copies of the original powers of attorney cannot be recorded.

So that your sales transaction is not one that ends up in court, it will be worth your time and effort to make sure that your power of attorney is correct, detailed, and specific whether you are dealing with a listing contract, sales contract, conveyance, or a mortgage/buyer closing. It can also prevent the delay of a closing and/or the outright cancellation of a transaction. This is why an attorney should always draft a real estate power of attorney.

REAL ESTATE CONTRACTS

WHAT IS A CONTRACT?

A contract is essentially an agreement based on a promise or set of promises which results in some legally enforceable obligations between two or more parties.

For a contract to be valid and enforceable, the following essential elements must be present:

• There must be an offer and an acceptance
• There must be consideration
• Contracting parties must have legal capacity
• There must be reality of consent on the part of the contracting parties
• The object or the subject matter of the contract must be legal
• The agreement must be in proper legal from

FORMATION OF CONTRACTS

To form a contract there must be and offer and an acceptance supported by legally sufficient consideration. Together the offer and acceptance are referred to as mutual assent.

Offer- An offer is a promise conditioned upon some request or asked for act or promise. In order to be effective, an offer must contain three essential elements:

• An offer must be an expression of present contractual intent
• An offer must be definite and certain in terms
• An offer must be communicated to the offeree

Acceptance- An acceptance is a voluntary expression by the offeree to be bound by the exact terms of the offer in the manner requested or authorized by the offeror.

An acceptance must be unequivocal and unconditional. Any qualified acceptance which adds new conditions is an implied rejection of the offer. This implied rejection, called a counteroffer , has the legal effect of reversing the position of the original parties.

Consideration- In order to have a valid informal contract, there must be legally sufficient consideration which was presently bargained for by each promisor in exchange for his promise to the other. A legally sufficient consideration may consist of a promise, an act, or a forbearance to act. Legal consideration does not have to be money.

FACTORS AFFECTING VALIDITY OR ENFORCEABILITY

Capacity- Both parties to a contract must have legal capacity in order for the contract to be binding on both parties. Legal capacity is the recognition which the law gives that a person has the ability to incur legal liability or acquire legal rights. Some of the following classes of people are in some fashion protected or limited by law.

• Infants (minors)
• Insane persons
• Intoxicated persons
• Corporations

Reality of Consent- Contract law deals with the fulfillment of reasonable expectation of the contracting parties. A person who is forced or tricked into a contract cannot normally achieve reasonable expectations. The law will give relief to an innocent party in cases where fraud, misrepresentation, certain kinds of mistakes, duress, menace or undue influence caused one or more of the parties to a contract not to freely give consent.

Misrepresentation and Fraud- Is an innocent or negligent misstatement of a material fact detrimentally relied upon by the other party? If a person makes a misrepresentation and later learns of the mistake, a duty then arises to inform the person who is detrimentally relying on the misrepresentation. Failure to do so is fraud.

Ex: Don is planning to sell a house which has a flooded basement whenever it rains. He paints the basement in such a manner that all water marks are removed. Shirley inspects the house and makes no inquiry as to whether there is a leaky basement. She buys the house. One week after closing, the basement floods after a thunderstorm, and she wishes to rescind the contract.

Legality of Object- The law will not enforce a contract in which either the consideration or object is illegal or against public policy. If a contract contains independent components, some legal and some illegal, the law may enforce the legal components.

Ex: John, who is not a licensed broker, enters into a listing contract to find a buyer for Ann's house. For this service, John and Ann agree that John will earn 10% commission. John finds a buyer who purchases the house for $75,000. Ann refuses to pay a commission because John was not licensed. In a court case, John would lose because without a license the listing provision regarding his commission are void.

Legality of Form- Certain classes of contracts must be in writing and contain certain essential elements in order to be enforceable. This requirement is called the statute of frauds.

In order to satisfy the statute of frauds a writing or memorandum must contain the following essential elements:

• Identity of the contracting parties
• Description of the subject matter
• Terms and conditions of the contract
• The consideration
• The signature of the party(s) to be charged or an authorized agent