Why you would want to have your purchase and sales agreement reviewed by an attorney
Note: This podcast is no longer available, but please see below for the transcript of the podcast.
Okay so in this podcast, I’m going to discuss why you might consider having your purchase and sale agreement reviewed by an attorney. We’ve all seen the real estate market taking off here in North Idaho. Lots of people are signing Purchase and Sale agreements, often working with realtors and using form documents that work for most transactions, but might not always be effective for everything that somebody wants to accomplish in a purchase and sale.
So we frequently get inquiries from people who are either selling property themselves and need a purchase and sale agreement drafted, or people who are looking to buy real estate and have a purchase and sale agreement that’s been proposed to them that they want us to take a look at. And although the volume of these documents is high, and the relative frequency of legal disputes is thankfully low, there are still enough potential problems that somebody can be well advised to have an attorney take a look at their purchase and sale contract and make sure that it’s hitting all the points that they want it to hit to allow them to safely close the transaction and minimize the possibility for legal or title issues down the road.
So one thing that people really can stand to benefit from having an attorney take a look at is the contingency language in a purchase and sale agreement. Now, with the market being the way it is, a lot of people are waiving contingencies left, right and center. They’re buying properties, sometimes sight unseen, without a physical inspection without a title review, without even a financing contingency if they’re paying cash. And so they are taking the risk to acquire that property. And they have the right to do so. But in other situations, especially with higher cost purchases, people do want to have certain contingency periods in place so that they can get a better sense of what it is they’re buying before they close the deal, before they their earnest money becomes non-refundable and they don’t have any way necessarily to back out legally.
And so in that circumstance, they’re going to want language that protects them and gives them very clearly the right to have a physical inspection of the property done, a title review done, a review of, for example, zoning or other land-use-related issues that could affect the property after closing.
They want to have that very clearly stated that these are the contingencies, and these are the time periods that we have to review these issues before closing. An attorney can be very useful in making sure that that’s clearly documented in the agreement, and that it’s agreed to between the parties in the express language of the contract. So an example of that would be title issues again. People often want title reviewed before they close, but they don’t necessarily know what the time period is in which they can do that.
What often triggers a title review period is when the title company, the escrow company that will be closing the transaction, issues what’s called a preliminary commitment for title insurance. And that commitment for title insurance will set forth what the buyer’s title insurance policy would and would not cover and will also include various exceptions to the coverage of the title insurance. And those exceptions will be typically a list of documents that have been recorded with the county that pertain to title on that property. So that could be easement documents, that could be HOA Covenants, that could be septic or well agreements, it could be any number of things.
And if somebody doesn’t have a well documented contingency period setting forth, number one, that they have the right to review those things and to make title objections to the seller before they close and number two, what that time period is, then they could find themselves not having the right to review those matters and then taking the property potentially as-is from the title stand point, and having to deal later on with whatever’s in those public record documents.
And so, what I always like to make sure that my clients have if they’re buying property is number one, that they do have a title contingency; number two that it’s a sufficient time period, seven-to-10 days for most situations will be sufficient; and then number three, that if during that seven-to-10 day period they find something in the title history of the property that they don’t want to have to deal with or that’s objectionable.
For example, maybe there’s something in the HOA covenants that restricts them from building a mother-in-law house, and that’s one of the reasons they want to buy the property. Or it turns out the neighbor has an easement going right through the middle of the lot, right where they would potentially want to build, then I always want to make sure that there’s language in the agreement that gives the buyer the right to send the seller a title objection saying that we object to the following conditions of title, this easement, this covenant, this other document that could affect the use of the property. Then the seller will typically have until closing to either fix that problem, or if they decide that they cannot or will not fix the problem, then the buyer has the right to back out of the transaction and get their earnest money back. And so making sure that there are adequate contingency protections in an agreement and that it clearly states what the contingencies are is one very good reason, and a reason that comes up relatively frequently, that people might want to have an attorney take a look at their purchase and sale contract.
Another issue that comes up is boilerplate provisions. There are a lot of things that people would want to have in an agreement that governs dispute resolution. For example, if a dispute comes up later relating to the purchase and sale agreement, sometimes people want to have mandatory arbitration that can sometimes shorten the time and reduce the cost that it would take to deal with disputes. Other times people want to have the right to go to court. But they also want to make sure that if they go to court, and they prevail, that they would be able to get their attorney’s fees back from the court if they win. And so, having contract language in there governing dispute resolutions governing who gets attorney’s fees in the event of a court proceeding or other type of dispute, from the agreement that can be very important as well.
Another issue that comes up in the context of purchase and sale agreements is, you know, obviously when the closing is going to take place, how it’s going to take place. But something I’ve seen an uptick in recently is discussions or negotiations between sellers and buyers about what type of deed is going to be transferred at closing. And that’s something that you want to have in your purchase and sale agreement. Now most Purchase and Sale agreements will provide that the seller at closing has to sign what’s called a warranty deed to the buyer to convey title to the property. Now what the warranty deed does, under Idaho law, is sets forth various warranties about title to the property.
For example, a warranty deed legally will mean that the seller is warranting to the buyer that they have title to the property, that they have the right to sell the property, that there are no encumbrances on the property i.e. liens or other types of negative impacts on the title, and other warranties relating to what the seller has in terms of title and what the seller is conveying to the buyer. And buyers obviously want warranty deeds, because those warranty deeds give them protection that, if it turns out later on that there is an issue with the title, there is an encumbrance, or if the seller didn’t actually own the property that they were conveying to the buyer, then the buyer has recourse against the seller under the warranty deed to make the seller fix those issues and to pay the buyer’s legal fees and other expenses incurred as a result of those issues.
So, on the other hand, there are transactions where the seller and sometimes even the buyer can agree to just convey a quitclaim deed. A quitclaim deed as compared to a warranty deed is an as is transfer of title. The seller is not making any warranties to the buyer that the seller even owns the property, let alone that there are no encumbrances or other adverse conditions affecting the title. And so a quitclaim deed is often used in transfers between spouses or other family members, transfers out of an estate. In other words, transactions where the parties know one another and have more reason to trust each other. But the purchase and sale agreement can make clear what type of conveyance is going to be required at closing. And you want that to be well documented in the language.
Another issue that comes up is what’s called the survival of purchase and sale agreement provisions. Under Idaho law, most conditions and requirements of a purchase and sale agreement will go away after the closing of the sale. That’s what’s known as the so-called merger doctrine. That, other than issues relating to the title that are contained within the deed, if there’s a portion of the contract that says, for example, that the seller is supposed to leave curtains or furniture or other personal property on the on the property after closing, you want to make sure that those provisions are all going to survive the closing and not be subsumed into the deed, so that it can be enforced later on by the buyer, or by the seller for that matter if there’s a breach going on that applies after closing.
So, for those and a host of other reasons, Timely Contract is well positioned to enable both buyers and sellers to review their purchase and sale agreements, and get competent legal advice about the terms and provisions of the language in those agreements, and how those terms and provisions relate to their particular goals. We look forward to helping you.
Disclaimer: Timely Contract podcasts are meant to be informative; however, Timely Contract podcasts are not legal advice. Legal advice is the result of the application of proper law to a particular set of circumstances. Whether or how the law applies to a particular factual situation is a legal question that cannot be answered by a Timely Contract podcast. In addition, Timely Contract podcasts sometimes differ from their written transcript. Listeners and readers should not rely on a Timely Contract podcast, or a transcript of a Timely Contract podcast, as legal advice. Listeners should seek legal counsel and get a true legal opinion before taking actions regarding real property.