Archive for the 'Contracts + Records' Category
I recently wrote about the possible appeal for real estate investors in purchasing homes using lease-to-own contracts.
As I stated then, I wish to reiterate that it is plumb stupid to purchase a property without having an attorney examine the rent-to-own contract first. Most rent-to own contracts end in in eviction, or in the buyer not actually purchasing the property, often because of contractual fine print.
If you aren’t careful, you may end up with a contract that makes it more profitable for the seller to evict you than sell to you. Guess which option will be selected. Remember, the whole point of a lease-option deal generally isn’t for the landlord to sell the property. It’s just a way for the landlord to collect 110% of the normal rent, and have the renter fix the place up real nice, and have the renter be responsible for the unit’s repairs.
Lease-option contracts will usually include some incredibly strict default clauses. For example, if you are late paying the rent just once, the deal is off, or if you violate any one of a number of other small infractions.
Referencing yesterday’s ‘how-to-avoid’ getting sued guide, I mentioned that everyone should at least know of an attorney to use in case they ever need one, and chances are, you will. Well knowing one can be done by finding one who can assist you in your first For-Sale-By-Owner transaction.
Most attorneys should be happy to answer basic questions over the phone, as well as look at your closing documents for under $300. They’ll give those documents far more scrutiny than any agent will, given that they do not have their fees contingent upon the sale actually closing. This can be invaluable if something is found, as it can potentially save tens of thousands of dollars. Don’t bother putting much trust in the title company, as they plan on blaming your agent if anything comes up, or worse yet, suing you.
While homes can certainly be bought and sold without an attorney, it’s often silly to lose the protection offered by having an attorney on such a huge transaction.
If anything goes wrong, blame the agent
Arriving early for class proved to be a mistake today, as our instructor was 20 minutes late. Several students in the class began to get angry, with one remarking that he couldn’t take any more time off of work. As our courses tend to begin and end at the same time regardless of when the instructor shows, I’m not sure why he was stressing out about being late for work, but I soon realized that he wasn’t the brightest on in the group as he continued to remark about how stressful it was to be learning real estate, and how he felt like he was experiencing a 2nd puberty.
My head was starting to ache as I tried to understand what he was blabbering about when our instructor burst in. She apologized and explained that she had scheduled a closing for that morning.
I should add, this class was a required attendance one, and I believe the second one with a title agent. If you recall, our first required class had left us all confused as the agent declared that by buying title insurance, you were giving the title company license to sue you. I hoped that perhaps todays class would be less confusing.
Our instructor began by telling us that she had been in the title business for many years and that when she started in the business she was the only girl…”Girls you know what that means? Boys didn’t let me into the vault.” She complained that work had been hard going in such a sexist environment, but seemed pleased that the industry had changed its ways. Personally, I wouldn’t have stayed with a company that I found sexist and limiting, but I guess I’m unique in that belief.
Her introduction then had her touching upon a theme familiar from our first title agent lesson, that of agent responsibility, essentially Agents are responsible for making sure the Title company doesn’t make a mistake. How convenient for them!
She warned the room that if there were any problems during closing, that the clients are going to be blaming their agents, who meant that, we would lose out on referrals and repeat business.
After this familiar rant she then stated: “Today I’m teaching what I do for a living…so you don’t need to know all of this…you just need to know who to ask (me). “ This seemed to kind of contradict what she had said earlier about agents having to catch all mistakes, but then telling us to just trust in her for any and all closing problems. Thankfully, she then jumped back to familiar ground by concluding her introduction with the stern warning: “If something goes wrong, they’re going after you.”
To learn more about title insurance and how it’ll get you sued, read part 2 of this lesson.
Pray with them
Contracts are legal agreements between parties who are legally able to voluntarily agree to something. It is binding as long as it does not supersede the law. This means even if your apartment contract says you must give 30 days notice before leaving, the law says 15, and legally, you are only required to give 15 regardless of the contract.
This led to a story about unilateral contracts. These are contracts which allow a buyer the option, but not the obligation to buy. Developers will often do this if they think there is a chance the city will not allow them to buy the land.
Our instructor told us about a group of homeowners who all bought homes with overly large lots. They had gotten together and were looking to sell their back lots. Our instructor came in and bought the options to all of these lots with the intention to develop it as a separate complex.
Soon he found himself with all the lots but the two end lots (which were the only street access ones). These two decided to greedily hold out for more, and he soon found himself fighting the same people who had sold him the lots in the City council. He explained that the property values had skyrocketed, and the option to buy which he had greatly upset many of the land owners who realized they’d sold their yards for a fraction of what they were worth.
Under an option, the sellers are generally unable to change their minds. Our instructor could have done so but he would have lost his option money. Even if the landowners tried to give him his money back, he was able to refuse them legally.
This brought us into the REPC, the real estate purchase contract which we have all seen at one time or another.
We were warned that if you do not like negotiations, this is NOT the business to be in.
Our instructor told us how being an agent for the both the buyer and seller can be useful, because if either one mistakenly lets out a bit of information useful to the other party, you can, no you have a fiduciary obligation to let the other party know that information.
Please consider this if you ever have an agent pressuring both sides to use him as the agent. Your Agent WILL give information to the other side in order to see the transaction go through, often with HIS best interests in mind.
Let me provide a possible situation.
Buyer comes in willing to use your agent. Another buyer with a different agent also wants to buy. Which buyer is likely to get the key information in order to get the best price, and have the most success in getting the home? The agent is going to tell the buyer willing to use him all the necessary information to get him into the home. This information may well compromise many things you thought or assumed your agent would keep secret.
Now obviously, the real estate agents have an obligation to present all offers. Keep this in mind when you find an agent refusing to give an offer because he thinks it to be too small. Agents want the home to sell for more. They are ALWAYS going to suggest you bid higher than you should. Low ball everything, in most cases you’ll get a counter offer that is MUCH lower than what your agent suggested as an initial offer.
We were then told: “YOU NEVER WANT A BUYER TO REJECT ANYTHING” Always counteroffer. This makes sense, as a counteroffer is in essence a rejection of the initial offer, doesn’t come off as a rejection, and keeps a potential buyer around.
We were told that there are some sellers who demand that you do not present any offers lower than asking. This is illegal, and we were told to refer them to an agent you don’t like. Don’t take the listing we were told.
This brought a story about a home listed for $200,000 that received an offer of $148,000. The seller raged, and demanded that they reject the offer outright. After much urging, they countered at full price and were later told that if the buyer’s other offer hadn’t been accepted, they would have actually gone with the counteroffer.
The listing sat a while, and then a female attorney (we were warned that female attorneys are meaner than males) made an offer of $147,000 requiring all the property flaws she had noticed. The seller again countered with full price, but offering to fix all the problems listed. “It sold!” our instructor beamed!
Many buyers are just testing the waters we were told. Make things work and you’ll be a hero to both sides. Know when your buyers are close to making an offer. They will tell you either in action or by words. Most buyers get cold feet. Write the offer there and then. Don’t take them back to the office.
They’ll be angry if the home gets sold before the offer gets in. Go fast.
If they want to pray about it, offer to pray with them our instructor encouraged. He laughed and said he was kidding, apologizing if he had been sacreligous, though he claimed he had seen agents actually praying with them, and saying again: “Do whatever it takes to get them to make the offer at that moment. Respect their religious preferences, but get them to write the offer. If they sleep on it, you won’t get the buy”.
This brought a story about a Mormon here in Utah which didn’t want to use an agent that was a Catholic, so the broker had a Mormon agent write the offer for 10% of the commission, with the rest of the commission going to the Catholic agent without the buyer ever knowing.
Always get things in writing, no matter how dumb it seems so that you avoid problems in the end.
We were warned about working with elderly, who can be incompetent either by age or mind. Use a family member or case worker, or better yet, an attorney to make sure the person is competent or the closing will NOT be valid.
Non-signed rental contracts are considered month-month contracts. Underage renters cannot be held to a contract.
Make sure you write time is of the essence on all home contracts. Not doing so can destroy your chances for closing.
Most defaults mean that the earnest money is forfeited. You cannot sue without returning the earnest money.
Usually, if a seller is trying to backout, you just have to threaten action. It will rarely come to that. People generally agree to mutually let each other out in contracts here in Utah. People can be nice.
Utah law requires using a certain real estate contract form. This can be altered if the buyer and seller so desire however. Only licensed agents are required to use the REPC form.
We were warned to never give advice as an attorney or tax advisor.
We then were told to make sure that there was a huge earnest money deposit. Agents want to see the home close, and this keeps clients from backing out. If earnest item is other than money, it is given to the seller. State law states a broker has 3 working days once the offer has been accepted to put the money into their trust account. The buyer’s brokers trust account generally receives it.
If you plan to sell a home we were reminded. Remove items before you list it. You don’t want buyers coming in and falling in love with a chandelier or stove that you plan to take with you.
We were reminded to have a calendar out while filling out a contract. No one in Utah will close on a Sunday.
We were also told that you should check a home prior to buying, to ensure the home is insurable via Home Owners insurance. Too many claims can render a home blacklisted.
And that was class.
We were handed a sample Real Estate Contract which I will upload shortly along with a bunch of other goodies.
City Plans are Important because they can increase kindness
Today’s lesson began with a brief history of how the “states have become slaves to the Federal government”. Once our instructor finished with his conservative rant, he went on to describe the police power which states hold over counties, and county-city relationships.
Sadly the lesson got a bit boring as we covered a lot of zoning issues, laws, and learned how cities in other states can take your land away to make room for such city necessities as a Walmart.
Cities must have a Master Plan in order to incorporate county land into an organized city.
Utah County has seen the establishment of Eagle Mountain, Cedar Hills, and Saratoga Springs all within the past decade.
Each city’s plan must address:
-Land Use
-Housing Needs
-Movement of People and Goods
-Community Facilities and Utilities
-Energy Conservation.
While discussing each of these in detail, our teacher shared with us that he had noticed that Spanish Fork is intending to build a commercial airline here in southern Utah. This would trump Provo Utah’s current attempt to open a commercial airport, which has been slow in coming about due to lack of land. Airports mean money to cities, as things such as Rental cars bring in huge amounts of taxes.
He then warned that water is a serious issue here in the west, with only a select number of cities (Provo and Orem) actually possessing enough water for their populations. All water rights in Utah are already owned in some form.
Our instructor then shared his opinion that California should cede its rights to the Colorado river and get their water from the ocean. While that would be incredibly noble of California I personally don’t imagine that happening.
Most city websites share their comprehensive plans online, including codes and city regulations.
We were then shown the Orem City Plan, and shown one unique aspect of the plan dealing with Student Housing. Most cities do not address such, but with two Universities at close proximity, this is a major issue for Orem.
One of the other somewhat humorous parts of the plan, besides the constant rhetoric about how the city of Orem hopes to do nothing but good, was Orem’s designed plan to integrate their motto “Family City USA” in all city projects, signs, and references to Orem, to provide good housing to everyone and also to be kind. Orem (Family City USA) can be silly.
We then went through maps of all the cities with Utah County, with the teacher explaining that Draper has crawled into Utah county, though it finds itself unable to share sewer lines with any other city in Utah County. Cities such as Orem (Family City USA) do not appreciate cities in other counties annexing Utah county land. They do not show kindness to that.
Counties can occur as an islanded area surrounded by city limits. This occurs when other areas of the county ask a city to be annexed, but the remaining area does not. Cities on the other hand, cannot annex islands unless they already exist surrounded by the city itself. As long as the land is not annexed by a city, it remains part of the county.
Zoning ordinances restrict use of land and structures within designated zones:
These provide for:
-Permitted Uses
-Building Height
-Lot Sizes
-Setbacks
-Style and appearance of structures
-Density
-Protection of Natural Resources
Zoning Restrictions are in place in order to meet certain objectives:
-Residential, commercial, industrial, agricultural and multiple use.
-To establish buffer zones
-Bulk Zoning to control density
-Aesthetic zoning to control neighborhood appearances.
-Incentive zoning which is meant to encourage neighborhood improvement.
The mention of Incentive zoning brought about a story about a relative of the instructor who was working with two brothers who wanted to develop a supply warehouse for various hotels in need of food supplies. He found an area where several freeways crossed that he judged to be ideally located, so he contacted the city manager who he knew (always a big plus if you plan on development), and received funding from the city of Las Vegas to exercise eminent domain, and seize the homes by paying ‘fair market value’ in order to put up their new warehouse. Essentially, Las Vegas bought the land for the new food warehouse for this relative. They tore down people’s homes to make room for a warehouse.
Eminent domain has been used he in Utah for some time. State Street in Utah used to be the only main highway, but some time ago as the government put up the Interstate freeway system, many land owners lost their land, and often had their farms cut in half in order to put up the highway. This was explained as being a good and necessary use of eminent domain. I’d imagine the farmers who lost their farms would disagree.
Our instructor shared, that Utah has recently passed a law restricting the use of eminent domain to only public development.
This will hopefully limit the abuse that can run rampant when private groups are able to convince a city to exercise eminent domain in order to fund the private projects.
Complaints regarding a zoning issue are addressed at a zoning hearing board.
This brought about a discussion of Nonconforming use, which applies to properties which once conformed with zoning requirements, and have been grandfathered in as legally zoned, though they could potentially lose their zoning privileges if their use is changed.
For example, a duplex in a neighborhood full of rental properties may be able to continue to be a duplex, even as the zoning changes to prohibit properties from being anything but single unit.
Variances are permanent exceptions to zoning ordinances. They must be requested, and are rarely granted.
Conditional-Use Permits are granted to a property owner to allow a special use judged to be in the public interest. These are generally temporary, such as in the case of Firework’s stands.
We then moved on to discussing Subdivision.
A subdivider is someone who purchases acreage and divides into smaller lots for sale.
The Developer is the person who constructs improvements on subdivided parcels.
Utah uses a block based street pattern, often using either a gridiron block system, or a curvilinear system which adjusts to a curved street or river.
Class concluded with a description of Private Land-Use controls, such as CCNRs (Contracts covenants and restrictions) which a developer can create to restrict land usage on the subdivision.
These controls are in place to control and maintain the desirable quality and character of a property.
These can be enacted through deed restrictions, such as an easement.
Restrictive covenants can restrict the type of building on property, the use to which the land may be put, and the type of construction.
The regulation of Land Sales is restricted under the Federal Interstate Land Sales Full Disclosure Act.
This was intended to prohibit subdividers from splitting up land and selling useless land to people in other states, such as swampland. Although such restrictions now exist, it’s still horribly stupid to purchase any real estate without seeing it in person.
Buyer beware on all land marketed in another state. There is a reason why it’s being sold to those who can’t ever reasonably inspect it prior to sale.
Our instructor concluded with a story about how many in Utah suffered some years ago from such scams, with many Utah citizens buying up useless portions of privately owned Florida Swampland.
That did it for the day, and I was grateful to be done. Some of this stuff can be pretty boring.