Contract Terms You Must Understand Marlyn J. Wiener, P.A. Attorneys Boca Raton Florida

Contract Terms You Must Understand

Posted by: Marlyn Wiener
August 19, 2008
Topic: 7 Contract Terms You Must Know When Buying a Home

•1. Agreement of Sale - This is the legally binding contract between the seller and the buyer that sets out the terms and conditions of the property sale. Once properly signed - it is a real live contract - it is not an option or offer that can be withdrawn or cancelled at will by the buyer absent a specific clause or contingency permitting a cancellation. Make sure you understand the terms of the contract fully before you sign.

•2. Mortgage Contingency - if your purchase of a property involves securing a mortgage loan - and you would not or could not acquire the property without a mortgage loan - then you must insist that the Agreement of Sale contain a mortgage contingency clause. This clause will set forth the terms of the financing you require (interest rate, loan amount, length of loan), the timeframe for applying for a loan and obtaining a mortgage loan commitment from a lender, and the consequences of a failure to obtain a mortgage loan commitment in the specified timeframe. It is very important to make sure that the terms of the loan specified work for you and that you comply with the requirements for submission of a loan application and deliver y of an approval or denial of the loan request.

•3. Inspection Clause - If your obligation to purchase the property is contingent upon the condition of the property - then you must insist that the Agreement of Sale contain an inspection clause. This clause will give you the right to have an inspector of your choice conduct an inspection of the home and all systems within a specified timeframe. Be aware that there is no standard inspection clause. You must make sure that the language in the clause meets your objectives; do you want the absolute right to cancel the Agreement of Sale if you are dissatisfied with the property condition for any reason or are you willing to accept the property if the Seller makes all repairs recommended by the inspection report? Will you be required to absorb a certain portion of the repair costs - i.e. buyer pays the first $1,500 of repairs? Make sure the inspection clause reflects your desires and watch out for the deadlines for conduct of the inspection as well as notification of the results.

•4. Escrow Agent - is the party appointed by the buyer and seller to hold the buyer's deposit and often - though not always - the closing agent who will conduct the closing. The escrow agent may be a realtor involved in the transaction, a title insurance company or agent, or an attorney representing the buyer or the seller. Critical point to understand - in the event that the deal unravels and there is a claim for disbursal of the deposit held in escrow - the escrow agent will generally not release the deposit unless the escrow agent receives written direction from buyer and seller advising the escrow agent to whom the deposit shall be disbursed. This is often easier said than done - and litigation over escrow deposits in deals that have gone sour is quite common.

•5. Deed - this is the legal document that evidences the transfer of the property from the seller to the buyer. Once it is properly signed, witnessed and notarized and recorded in the official records of the county in which the property is located - the transfer has been completed. There are three types of deeds commonly used in Florida; quitclaim, special warranty and general warranty deed. The general warranty deed provides the greatest protection for the buyer and is the type of deed typically used in resale transactions between residential home sellers and buyers. However, developers generally use a special warranty deed which limits the scope of the warranties they are providing to home buyers.

•6. "As is" Condition - this typically indicates that the buyer is purchasing the property in the condition as it exists at a certain time - i.e. the condition that exists at the time of the property inspection or the condition that exists at the time the contract is signed - and that the seller will not be making any repairs to the property prior to closing or warranting the condition or working order of the property or any fixtures, systems or appliances. There is no standard "as is" clause so buyers must review these clauses carefully to make sure they understand when the "as is" condition will be determined.

•7. Time is of the Essence - if your contract contains a clause providing that time is of the essence with regard to the performance of the obligations under the contract - this means that dates and deadlines count!!! There is no fudge factor when time is of the essence so it is critically important that a buyer keep track of all dates. For example, if a mortgage loan commitment is due by a certain date - it is imperative that the buyer comply with all notice requirements set forth in the mortgage contingency clause. Often, the mortgage contingency will be deemed waived (and the buyer bound to go forward as if it were a cash deal) if the buyer has not notified the seller that the buyer has not received the mortgage commitment. Watch out for one-sided clauses - developers and banks selling foreclosed properties often insert clauses that insist on time of the essence performance by the buyer - but without a comparable standard of performance by the seller.

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