I could write a series of articles about real estate contracts--and in fact, perhaps should--but right now, I've got just one thing I'd like to discuss this evening.
Tomorrow, I'm going to court on behalf of some clients in a real estate contract dispute. The clients, fairly sophisiticated land dealers, had contracted with the Plaintiff to sell the Plaintiff some land.
The Plaintiff, a licensed real estate broker, drafted the contract himself. He couldn't close in time, and in fact, kept failing to close even after being given numerous chances. When the clients ended up selling to someone else, he tried to sue them to stop the sale. Unfortunately for him, he waited to long and the property was sold; now he's suing for the profit he says he would have made had he been "allowed" to purchase the property.
The Plaintiffs' attorney has filed a motion stating that, as a matter of law the Court should determine my clients breached the contract, and the jury should only decide what damages they're entitled to. I've filed motions to dismiss their case.
I believe my clients are in the right, and frankly think the Plaintiff/Buyer is little more than a flim-flam artist. That being said, however, there are things that you can do, when selling real estate, to avoid potential problems.
1. Put a hard deadline in your contract. In North Carolina, this means including the words, "Time is of the essence." Common sense says that if you put that the buyer has 60 days to close, and he fails, then the contract is over. Not so, say the North Carolina Courts, who have ruled that, notwithstanding the plain language of the contract, the buyer is allowed a "reasonable time" thereafter to close--judicially squishy language that has spawned a multitude of litigation. By placing the magic words "time is of the essence" in the dates, you make the date hard and fast--e.g., "the Buyer must close within 60 days. TIME IS OF THE ESSENCE."
2. If the Seller fails to meet a deadline, come to a written understanding immediately. Do you want to continue working toward a closing? Sign a written extension of time. Do you want to terminate? Try to document everything in writing and get both parties to sign it.
3. Obligate the Seller to prove to you he can purchase the property and is making progress. Some unscrupulous buyers, in the recent hot market, tried to delay closing on a contract to purchase until they could find someone to re-sell it to. That's a great tactic if you're a buyer. But if you're a seller, that causes you additional carrying costs--property taxes, loan fees, etc.--while the buyer, for free, is buying time to find a purchaser. Instead, put terms in the contract that allow you to obtain verification from the seller that he's ready and able to close. Examples of this are the right to ask for a loan commitment (if the buyer is getting a bank loan), the right to demand a closing within X days after demand, and the right to terminate the contract if the buyer cannot satisfactorily provide proof thereof. This provides a solid defense against unscrupulous buyers who want to claim, after the fact, they were ready and able to close on your property.
Most of all, in all but the simplest residential sales contracts, have an experienced attorney draft the contract for you. They can provide more protections for you than the standard real estate agent's contract (or a homemade deal) will afford.
