Step 8: Preparing and Presenting the Purchase Agreement

First, all states have different terms for purchase agreements (sales contract, offer to purchase, a contract of purchase and sale, an earnest money agreement, deposit receipt, etc.) so be familiar with the term used in your state.

Second, and even more important, all states have different rules and regulations regarding purchase agreements. This means you can't use generic forms downloaded off the Internet. They simply won't be specific enough for your needs and can cause you a lot of financial and other headaches if you use them. If sellers decide, for whatever reason, that they haven't been treated fairly, they can launch lawsuits and possibly win if the purchase agreement isn't considered legal in your state.

So, study this subject closely and make sure any purchase agreement you draw up meets state legal requirements in terms of foreclosure and real estate laws. Also, it shouldn't include any clauses that the courts can decide are unfair and unenforceable. Of course, make sure it fully protects your interests in the transaction.

Make no mistake about it-the purchase agreement is the most important document in the purchase and sale of pre-foreclosures and other real estate properties. That's because it specifies the following:

•How much you pay

•When you pay

•The terms and conditions for closing the transaction

•Cancellation terms

I recommend that any purchase agreement be written in plain, clear English. Lawyers and others have a tendency to include a lot of gobbledy-gook language that ends up confusing people and can cost you money if you agree to something you don't understand. So, if you plan on working with a lawyer, request that it be written in plain language. Then, once it's drawn up, read it carefully with the attorney. If you don't understand specific items, then ask for an explanation. Cross out any clauses that don't apply or you don't agree with. Initial any changes you make. Now let's look at some of key stipulations you'll find in purchase agreements so you'll understand them fully.

I've listed key stipulations below in alphabetical order. All of these stipulations should be included in your purchase agreements in order to clearly define the rights and responsibilities of both the buyer and the seller.

•Assignment of the purchase agreement. Stipulate the right to assign or sell the purchase agreement to a third party.

•Default by buyer. Stipulate that the earnest money paid is the sole remedy in the event that the buyer or buyer's assigns fail to close on the purchase of the property.

•Default by seller. Stipulate that the buyer or buyer's assigns will have the right of specific performance in the event the seller defaults on the agreement by refusing to sell the property.

•Description of property. The agreement should include an exact legal description that's written on the recorded deed of the property in the purchase agreement.

•Earnest money deposit. Stipulate that if the buyer doesn't perform the agreement within the specified time, the buyer's earnest money deposit will be forfeited, and this forfeiture will jeopardize the seller's right to sue for specific performance.

•Eminent domain action. Stipulate that you will be entitled to a full refund of the earnest money deposit paid, plus any accrued interest, if the property is condemned by eminent domain prior to the closing date.

•Entry right. Stipulate that you have the right to enter the property and inspect, repair, market and show it to third parties prior to the closing date. 24 hours' notice must be given to the owner.

•Examination of records. Stipulate that you have the right to examine all financial and tax records associated with the property prior to the closing date.

•Marketable title. Stipulate that you must be capable of obtaining an owner's title insurance policy commitment letter from a title insurer in order to close on the purchase of the property.

•Parties to the agreement. Be specific and designate all parties to the purchase agreement as buyer and seller. This should include their legal status as to whether they are a single individual, husband and wife, or a business entity (corporation, limited liability company, etc.)

•Purchase price. State the purchase price of the property.

•Risk of loss. Stipulate that you're entitled to a full refund of the earnest money paid (plus accrued interest) in the event the property is damaged or destroyed by fire, weather, or earthquake prior to the closing date.

•Subject to final inspection. This allows you to back out if the house needs more repair than you expected.

•Terms of purchase. Stipulate exactly how the property purchase will be financed.

•Vacation of property. Stipulate that the seller must completely vacate the property and grounds prior to the closing date.

Real estate investment can be a tricky business due to the complexity of laws, statutes and regulations. That's why it's wise to have the services of a good attorney. Naturally, you want one who's board-certified and specializes in real estate. You may not like paying the fees, but he or she can save you a lot of time, money and trouble in the long run.

In your search for attorneys, look for ones who are very experienced in dealing with your state's pre-foreclosure laws. Then, check qualifications and references. You can do this by first contacting your local or state bar association referral service for information. Then, search online for your state bar association membership to find out if the attorney is licensed to practice law in the state. Finally, check to see if there are any disciplinary actions or misconduct actions cited against the lawyer. If you need to look nationwide for attorneys, use one of the following sites to search for information on them.

• FIndLaw.com (http://findlaw.com/#) - click on the "Research a Lawyer" link.

• Lawyers.com (http://www.lawyers.com/)

• LegalMatch.com (http://www.legalmatch.com) - click on "Real Estate and Housing" link.

As I stated earlier, you want an attorney who can speak and write in plain English, so talk to several to find out which ones can explain foreclosure purchase agreements in language you can understand easily. This means they communicate well, and you'll be able to work easily with them.

A key in presenting a purchase agreement is to have witnesses on hand to attest to the signatures on the agreement. Every state has its own requirements as to how many witnesses are required so make sure you have the right number on hand. If you don't, you run the risk of a court declaring the purchase agreement invalid should it come to a lawsuit. This can happen when you run into an unscrupulous seller who gets a perceived better offer after the signing and wants out of the deal. So, be sure to protect yourself in this regard.

At the signing, also have the homeowner sign a state-approved property disclosure statement. This is absolutely necessary protection for you and your interests. The disclosure statement should require that the homeowner answer questions in the following areas:

•Are there any hazardous substances on the property?

•Are there any documents filed in the public records that negatively affect the property title?

•Are there any liens against the property for unpaid bills?

•Are there any actions (judgments, bankruptcies, liens, etc.) recorded in public records or pending in court that will negatively affect the property's title?

•Any unpaid taxes, lien claims, etc. that would be an encumbrance against the property or property improvements?

•Are there violations of building codes and/or zoning regulations created by improvements?

•Are there any current or past legal disputes concerning the boundary lines of the property?

•Is there any person or entity, other than the owner, legally entitled to possession of the property or is in current possession of the property?

•Are there any legal disputes regarding the title or ownership of the property?

•Do any unrecorded mortgages, deed of trust loans or promissory notes exist that have been pledged as collateral?

Your lawyer can help you draw up the specific language of these questions.

To end this chapter, I've provided you with a sample purchase agreement to give you an idea of what one looks like. It's shown on the next page.

Once the purchase agreement is signed and witnessed, it's time to enjoy the fruits of all your hard work by closing the sale. That's the subject of the next chapter.

STANDARD PURCHASE AND SALES AGREEMENT

THE STATE OF _________________________ COUNTY OF ___________________________

1. BY THIS AGREEMENT AND CONTRACT _______________________________________________ hereinafter called SELLER hereby sells and agrees to convey unto _______________________________________________ hereinafter called Buyer, the following described property: Lying and situated in ____________________ County and Address: ___________________________________________________________

2. PURCHASE PRICE: Buyer agrees to pay Seller and Seller agrees to accept ________________________________________________________ ($____________________________) in cash at closing for the Property. Buyer has paid to Seller an earnest money deposit of $_______________, which shall be credited to Buyer at the closing of this Agreement. Property taxes shall be prorated as of the date of closing.

3. TITLE: Seller warrants that Seller has good, clear and marketable title to the Property, subject only to property taxes and any easements and restrictions of record. Seller will convey title to Buyer with a General Warranty Deed. Buyer will inspect title to the Property and Seller will satisfy any encumbrances other than those listed above.

4. CLOSING AND POSSESSION: This Agreement will be closed on or before ______________ and be extended as necessary to complete all paperwork required. Time is of the essence of this Agreement.

5. CLOSING COST: Buyer will have Buyer's attorney, at Buyer's expense, prepare all required documents to complete this Agreement.

6. INSPECTION: This Agreement is subject to an inspection of the Property and approval by Buyer and/or his associates after acceptance of this Agreement by Seller. Buyer will buy the Property in its present "As Is" condition. Special Provisions: _______________________________________________________________

Executed in duplicate this ________________ day of ___________________20_______

SELLER ___________________________ BUYER ________________________________ ___________________________________ ____________________________________

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