TOP CONTRACT MISTAKES AND HOW TO AVOID THEM

1. Presented by: Heidi Marine Leggett, Simon, Freemyers & Lyon Counsel to Ekko Title 4545 Daisy Reid Avenue, Suite 100 Prince William, Virginia 22192 703-497-EKKO (3556) TOP CONTRACT MISTAKES AND HOW TO AVOID THEM

2. A Unique Perspective • Part of my job is to review every contract that comes through the door. • We are in a unique situation, because of the quantity of contracts, to identify the most common contract mistakes. • Of course none of you would make these mistakes! • It’s a good idea to study the mistakes that other agents make so you can be sure not to fall into the same trap.

3. What are we looking for? • Unusual property description • All buyer/seller signatures and initials • Special sellers- Estate, Trust, LLC, POA, etc. • Blanks

4. Contract Construction Rules • The vast majority of transactions go through without a problem despite minor contract issues • When a dispute arises however, a minor contract issue can become a major problem leading to litigation • It is important to know how a court will look at your contract even though you hope it never comes to that

5. Contract Construction Rules • 1. Courts uphold intent of parties as expressed through contractual language. • It is the court’s responsibility to determine the intent of the parties from the language they employ. Seaboard Air Line R.R. Co. v. Richmond-Petersburg Tpk. Auth., 202 Va. 1029, 1033 (1961). • 2. Plain and ordinary meaning controls. • Where the parties’ intent is clear and contractual language amenable to only one reasonable interpretation, courts are to construe contractual language according to its plain and ordinary meaning. See Appalachian Power Co. v. Greater Lynchburg Transit Co., 236 Va. 292, 295 (1988).

6. Contract Construction Rules • 3. Contract documents will be construed together. • When a transaction is based on more than one document executed contemporaneously by the parties, it is the duty of the court to construe the documents together in order to determine contractual intent. See American Realty Trust v. Chase Manhattan Bank, 222 Va. 392, 403 (1981) • 4. Courts cannot rewrite contracts. • Even when the plain meaning rule renders a harsh result, courts are not at liberty to rewrite contractual language. See Dominick v. Vassar, 235 Va. 295, 300 (1988)

7. Contract Construction Rules • Long story short: the words we use are important. Make sure you think before you write. • It is not enough to say “he knew what I meant”

8. Problem #1: Inaccurate Property Description • What is a legitimate property description? • “A deed conveying land must give such a description of the property intended to be conveyed as will be sufficient to identify it with reasonable certainty.” Chesapeake Corp. v. McCreery, 216 Va. 33, 37 (1976) • Most of the time we can rely on an address • What about land where an address has not been assigned? E.g. 999 Chancellor Street, SW

9. Problem #1: Inaccurate Property Description • What are we selling? • Loudoun County  • Parcel 2 on Dry Mill Road does not exist  • What is 200801240004016 926--688??? • 7.230 acres  • 999 Chancellor Street doesn’t exist!! 

10. Problem #1: Inaccurate Property Description • What if we look at Chancellor Street on Loudoun GIS?

11. Problem #1: Inaccurate Property Description • What if we look at the tax website? • Confirm seller name • Confirm acreage • Confirm legal from contract

12. Problem #1: Inaccurate Property Description • What are we selling? • Tax ID  • Lots  • Gunston Manor  • Fairfax County  • 5842 Mallow Trail  • Seems ok so no further investigation required, right???

13. Problem #1: Inaccurate Property Description • What showed up in the title search??

14. Problem #1: Inaccurate Property Description • What if we had looked at Fairfax GIS?

15. Problem #1: Inaccurate Property Description • What if we look at the tax website? • Confirm seller name • Confirm address • Confirm lot #s • So what happened??

16. Problem #1: Inaccurate Property Description • Facts: Six months later I get a call from the seller who got a tax bill for the adjoining parcel which was supposed to convey to the buyer… • Seller meant to convey lots 16-19 and 6-7.

17. Conveying Six Lots – Not Four • Who messed up here? - Buyer’s Agent? - Listing Agent? - Title Company? - Title Examiner? • Is this Contract even valid? Can we obligate the Seller to convey lots 6 and 7? Why?

18. Conveying Six Lots – Not Four • Buyer got a mortgage so there was an appraisal, why didn’t the appraiser catch it? • How can we fix this problem? • Run title search on lots 6 and 7 • Do Deed of Gift from Seller to Buyer for lots 6 and 7.

19. POLYZOS v. COTRUPISupreme Court of Virginia • Sellers hired Listing Agent to sell the lot adjacent to their house (1109 Patrick Lane). • The Sellers told Agent they had prepared a boundary line adjustment (BLA) which reduced the size of the lot, but it had not yet been recorded with the county.

20. POLYZOS v. COTRUPISupreme Court of Virginia • Agent received an offer which listed the property as 1109 Patrick Lane. • Agent testified that he did not correct the description in the contract because he had discussed the BLA with the buyers agent and left a copy of the BLA in the home on the kitchen counter. • Seller gave a copy of the boundary line adjustment to the title company to record. The title company called the Buyer about the adjustment since it wasn’t addressed in the contract.

21. POLYZOS v. COTRUPISupreme Court of Virginia • The Buyer said he knew nothing about the BLA and would not close unless he got the full lot or a reduction in the sale price. • Sellers refused and Buyer sued Sellers for specific performance. • Sellers filed a third party claim against their agent for negligence and breach of contract.

22. POLYZOS v. COTRUPISupreme Court of Virginia “In the present case, it is manifest that any person of ordinary intelligence would grasp that a Realtor should take care not to offer for sale property which he has not been contractually authorized to sell, nor should a realtor present to his client a contract which clearly fails to sufficiently reflect the accurate legal description of the property to be conveyed. The failure of a realtor in either regard is negligence.”

23. Property Description Solution: Investigate!!! • Listing Agent: Confirm the property description! How do you know what the Seller owns? • Ask Seller for a copy of their deed and survey. • Ask Seller what the acreage is on this property. • Check County tax assessors office to cross-reference.

24. Property Description Solution: Investigate!!! • Buyers Agent: Verify and Investigate. Make sure information provided to you by the Listing Agent is consistent with tax records. Always recommend a survey! • If something doesn’t match up call your title company – we are EXPERTS at this – let us help you figure it out!

25. Problem #2: Special Sellers Who signs for Trusts, Estates, Corporations, LLCs?

26. WHO is YOUR Seller? LLC’s, Corporations, and Entities • FACTS: Your seller is “Investment Group LLC.” You are dealing with Richard. • Solution: Ask for copies of his Articles of Incorporation, Certificate of Fact, and Corporate Resolution • Often multiple signatures are needed to bind an entity. Without all necessary parties it is not a legally binding document. • Must sign in proper capacity, e.g. as President or VP

27. Who is Your Seller? Trusts • Problem: Contract just lists Betty but we know from the tax records that the property is in trust • Solution: The trust agreement will tell you the name of the trust and the trustee. • Seller is: Betty Jane C, Trustee of the C Family Trust

28. Who is Your Seller? Estates • Richard is deceased, now the lender needs an addendum removing his name from the contract • Proper seller is Teresa as long as they were TBYE

29. Who is Your Seller? Estates • Mohammad and Arifa are both deceased, and their four children are the owners of the property pursuant to the LIST OF HEIRS

30. Who is Your Seller? Estates • Improper estate sellers: 1. “Elvis Presley, Deceased” 2. “Elvis Presley by Pricilla Presley, his Attorney in Fact” - POA dies with the person!! • Proper Estate Sellers: • Pricilla Presley, Executor of the Estate of Elvis Presley • Pricilla Presley and Lisa Marie Presley, Heirs to the Estate of Elvis Presley • In an emergency you can list Seller as “Estate of Elvis Presley” until you can be more specific.

31. Special Seller Solution: Investigate!!! Always Investigate!! • Listing Agent questions: • Did you buy this property by yourself? • Have you added anyone to the title since your purchase? • Have you transferred this property to your Trust or LLC? • Always check tax records and ask for copy of deed • Buyer’s Agent check tax records, make sure it matches

32. EXTRA CREDIT: Who is Your Purchaser? • Facts: Only Husband will be on the loan, both Husband and Wife want to be on title. • Contract lists Purchaser as Husband only. • Both Husband and Wife show up at closing and Wife is mad that her name isn’t on the deed. • Solution: Whoever is listed as “Purchaser” on the contract, will be on the title of the home. • Lenders only want “Borrowers” on the contract. • Clarify situation using Paragraph 43: Other Terms “Husband to be on loan, Husband and Wife to be on title”

33. Problem #3: Ignoring the Delivery ¶ • Problem: • Failure to send documents to every address/email/fax listed in the Delivery section. • Delivery section is left blank • Typos in email addresses

34. Delivery affects everything! • When is the contract binding? • So you must have all signatures/initials to be ratified AND you must deliver it (pursuant to the terms of the delivery paragraph) to be legally enforceable.

35. Delivery vs. Receipt • The recipient party need not ACTUALLY receive the notice/item for Delivery to take place, so long as the sending party uses the proper method and sends it to the proper place, and has proof it was sent (“tangible record of the transmission”)

36. Compare- HOA DELIVERY ¶

37. Compare- HOA DELIVERY ¶ • The seller better have proof of receipt to start the clock on the three day review period. • What constitutes a receipt? The contract doesn’t say. An email should suffice, just need confirmation that they got it.

38. Problem #4: Unclear HICRA • Referring to home inspection report without further explanation • Lack of a Specific Request. • Lack of a deadline for work to be completed. • Lack of a deadline for receipts/invoices to be provided.

39. Actual Nightmares: • Signs of water around the hot water heater & furnace, see home inspection page 6. • Remove satellite dish and patch roof at removal site. • Master bath tiles need to be grouted in certain areas. This is to be done as deemed necessary. • Have crawl space checked by contractor for excessive moisture. • The washer & dryer for the upstairs and downstairs are on the same electrical breaker. • Front porch sagging, repair or replace as necessary.

40. How to write a good HICRA when you have a complicated repair • Two step solution: • Step 1: Set a deadline for buyer to have expert evaluate problem and provide a report. • E.g. Buyer shall have a structural engineer evaluate the foundation and provide a report outlining necessary repairs to seller within seven days (or notice to void). • Step 2: Set a deadline for Seller to have a contractor perform the work outlined in the report and provide receipts. • E.g. Seller shall have 7 days to engage a licensed contractor to perform the work outlined in the report and provide receipts to Buyer evidencing completion of same. • Listing Agent must babysit your seller! • Buyer’s Agent must confirm work has been done at least 7 days prior to settlement! Waiting until the day of is negligent.

41. More HICRA Nightmares • What if the seller attempted a repair but your buyer is unhappy with the quality of the work that was done? • Does the buyer have to accept it? • Does the seller have the right to have the same contractor come back out to try again?

42. Problem #5: False Settlement Dates • Contract is ratified on May 15th. • Buyer’s Agent lists settlement date as June 30th but advises all parties that, “Buyer would like to close by June 15th”. • What is the Buyer’s Agent thinking? • Wants to appease client by telling them they will be able to move in by June 15th • He knows the lender really needs 45 days for underwriting

43. False Settlement Dates • Problem: Lender and title company work in Settlement Date Order • Solution: What settlement date do you put down on contract? • When writing offer, get settlement date from the lender. • Beware!! of “Yes Man” or “Yes Woman” • Only work with lenders you know and trust

44. Problem #6: Closing Cost Credits • Problem: Buyer and Seller interpretations are different. • Buyer: “The contract says I get $8,000 no matter what.” • Seller: “The contract says the $8,000 can only go to loan fees not pay off the buyer’s car note!!!”

45. Closing Cost Credits • Solution: Who decides how much of the $8,000.00 closing cost credit is allowed? LENDER • Educate both Buyers and Sellers as to how this works. • Always check closing cost credit amount with lender before writing offer. • If you know that there are not enough fees to “use up” the full credit, Borrower may be able to “buy down” the interest rate. • Certain loan programs have requirements of $$ into transaction and also limit amount Buyer can get back. • FHA Example: Buyer has to put 3.5% “into” the transaction, so if the credit reduces the amount the Buyer is bringing, the lender will require us to reduce the credit to meet the 3.5% money from Borrower. • What about that HICRA that adds another $400.00 to the credit?

46. Problem #7: Changes in Loan Type • What is Specified Financing? • (1) Down Payment Amount, (2) Financed Amount, (3) Loan Term, (4) Interest Rate, and (5) LOAN TYPE

47. Problem #7: Changes in Loan Type • What does this mean? • I only have to buy your house if I can get the specified financing. • If I get rejected I get my EMD back.

48. Problem #7: Changes in Loan Type • Problem: Contract is written with FHA Financing Addendum. Buyer thereafter changes to a VA loan. Contract is never amended to show Buyer is using VA Financing. • VA Financing falls through- lender sends rejection/denial letter for VA financing. • Buyer does NOT get their EMD back because the specified financing was FHA and the loan denial letter is for a VA loan. • Solution: If the TYPE of loan changes, do an addendum to the contract and submit the new loan type financing contingency addendum.

49. Problem #8: Seller Disclosures • CONDITION • ADJACENT PARCELS • HISTORIC DISTRICT ORDINANCE(S) • RESOURCE PROTECTION AREAS • SEXUAL OFFENDERS • DAM BREAK INUNDATION ZONE(S) • STORMWATER DETENTION FACILITIES • WASTEWATER SYSTEM • SOLAR ENERGY COLLECTION DEVICE(S).  • SPECIAL FLOOD HAZARD AREAS • CONSERVATION OR OTHER EASEMENTS • COMMUNITY DEVELOPMENT AUTHORITY

50. Problem #8: Seller Disclosures • Problem: Most Buyers (and some Agents) mistakenly believe Seller MUST make disclosures about the condition of the property. • Solution: Educate yourself and your clients. The law in Virginia is BUYER BEWARE – the Seller is under no legal obligation to disclose ANYTHING about the property to the Buyer!!!!