We have all sensed it in the hot residential real estate market and the vibrant new construction market, but it was nice to receive this confirmation from the National Association of Home Builders: The shortage of residential lots has climbed to an all-time high.
Read it here .
One pitfall in real estate purchase contracts – residential and commercial — involves the failure of the parties and the Realtors to assure that earnest money called for in the contract has in fact been collected and placed in the Realtor’s escrow account.
Earnest money is a deposit made by the buyer that is applied toward the purchase price at closing or disbursed in accordance with the purchase agreement. The act of a paying an earnest money deposit is a good faith showing to the seller that the buyer is serious about purchasing the real estate. (Read here and here that it is nothing more than that.)
More often than not, sellers will require buyers to deposit earnest money to avoid wasting time in an already time consuming process. Generally in real estate transactions, the escrow is the account in which the earnest money is safely kept until the time of closing or until some other triggering event occurs. An escrow agent or a real estate broker is appointed to manage and disburse the escrow funds in accordance with the purchase agreement. The escrow agent or real estate broker acts as fiduciary for both the buyer and seller.
Under the standard Cincinnati Area Board of Realtors contract, there is a section below the buyers’ and seller’s signatures where the Realtor is supposed to acknowledge receipt of the earnest money. If that is completed and signed by the Realtor, the buyer and seller should be able to rely upon that signed receipt in proceeding with the transaction. If the check later bounces, the Realtor holding the escrow likely has a duty to inform the parties of that occurrence.
Conversely, if the receipt is not signed by the Realtor, the Seller should assume that the earnest money has not been paid, and – assuming that is a material part of the consideration he wants to assure buyer performance under the contract – he should follow up with the buyer’s Realtor to assure that check has been received and deposited, and get a signed receipt for the same. Absent that assurance, the seller could and likely should terminate the purchase contract and sell it to a more reliable buyer.
A failure to deposit the earnest money in the escrow account will likely constitute a breach of the purchase agreement by the buyer. Once a breach occurs, the seller may be able to force specific performance from the buyer or completely walk away from the deal. A buyer in breach who still wants to purchase the real estate may be out of luck if the seller decides to terminate the contract or renegotiate for a larger sum.
We have seen circumstances in which real estate investors who are simply trying to tie up property to see if they can quickly flip it, will sign a contract with loads of contingencies, and never actually pay the promised earnest money. (Read more about that here.) Obviously, sellers want to avoid tying up their property with these bogus buyers.
The lesson here is that the seller should confirm the earnest money deposit is in the selling Realtor’s escrow account by getting written acknowledgement of that. Buyers are forewarned that in this hot real estate market, the failure to pay that promised sum into escrow could result in termination of the contract by the seller.
We are seeing the activity with our Realtor and lender clients , we are seeing the activity in our title insurance company, Ivy Pointe Title, LLC, we are seeing the activity with investors making money in development and new construction, and we are seeing the activity in excited families making their first move into a new house or in upgrading their residence.
Now Freddie Mac confirms it: They predict 2016 will be the best housing market in a decade. Now, candidly, many parts of the past decade have been downright bleak, so it’s not comparing to much, but we are seeing record activity and that’s great news for our Realtor, lender, and investor clients.
The article is here. Enjoy it while it lasts!
Many times when I teach courses to residential and commercial Realtors, I ask this simple question:
What is the essential bargain going on between a buyer and a seller of real estate?
The reason for the question is that real estate professionals — Realtors, attorneys, investors, and lenders — frequently get caught up in the tall grass of the details of the purchase contract such as personal property, inspection contingencies, representations about property condition, earnest money issues, and on and on. All these things are important, but shouldn’t we first and foremost focus on the thing that brings everyone to the table to begin with?
But cutting to the quick of the real estate transaction, what is the buyer giving to the seller and what is the seller giving to the buyer?
The answer, very simply, is that the buyer is giving cash to the seller and the seller is giving a certain quality of title to the subject real property to the buyer.
It seems so obvious, that we may overlook this simple and fundamental truth.
Indeed, the Cincinnati Area Board of Realtors/Dayton Area Board of Realtors form of Contract to Purchase buries the clause by which the seller’s obligation is made clear at paragraph 19 on page 6 of a 7-page contract. Not only that, but the critical clause is in the middle of that paragraph, starting after a semi-colon in the middle of a sentence:
[Seller shall]…convey marketable title (as determined with reference to the Ohio State Bar Association Standards of Title Examination) to the Real Estate by recordable and transferrable deed of general warranty or fiduciary deed, if applicable, in fee simple absolute, with release of dower, on [date]….Title shall be free, clear and unencumbered as of Closing with the exception of the following, if applicable: (i) covenants, conditions and easements of record….”
Goodness, that’s a mouthful, and from an attorneys perspective there is so much meaning in that part-paragraph.
I have seen countless judges and attorneys blow past the issue of what quality of title must be conveyed by the seller at the closing. Indeed, I had one Judge tell me from the bench, confidently but absolutely incorrectly, that that Marketable Title Act (O.R.C. Section 5301.47-56) defines the quality of title that a seller must convey to a buyer. That’s hogwash. The Marketable Title Act simplifies and makes uniform the title examination process, but it does not attempt to tell sellers what quality of title they must covey to buyers.
It is the language of the contract itself that tells sellers what quality of title they must convey to a buyer and there are several different sets of standard language that may be used:
We warn in this blog entry about the contract that doesn’t end, meaning that the buyer has the right to perpetually tie up title to a property while he decides whether or not to buy, and has no closed-ended obligation to actually close on the purchase. It is a terrible situation for a seller.
So, what happens if the buyer and seller leave blank in the contract the closing date? Well, since the obligations of both the purchaser and the seller have no contractual deadline, presumably they never have to close. Does that mean the seller never has to deliver a deed? That the buyer never has to tender the purchase price? That the contractual promises are simply illusory and thus unenforceable? Or, finally, that the parties must close within a “reasonable time”?
The cold reality is that in such a circumstance the parties have given lawyers something to argue over, which means time, expense and uncertainty to get a transaction closed, to get rid of a buyer who refuses to timely tender the purchase price, or even to force a dilatory seller to close.
The above-noted Board of Realtors contract language calls for, among other things, that a deed be “recordable” and “transferrable.”
There can be a host of reasons that a deed is not “recordable” and “transferrable.” The most common reason is that the there is a new legal description on the deed because since the prior transfer some land has been conveyed away, or the transfer is part of a cut-up of a larger parcel. In such circumstances, several things could be required, such as sign-off by the local planning commission, recording of a new survey plat and a “closure chart” showing that the legal description in fact “closes” from beginning point to ending point.
It is helpful for a buyer to require the seller to adhere to this standard.
Finally, the contract will almost always describe the type of deed the by which the seller must convey title to the buyer. This blog entry thoroughly explores the distinction among a general warranty deed, a limited warranty deed, a fiduciary deed and a quit claim deed.
This one clause is where my eyes first go when I review a contract for a client — whether buyer or seller — for it encapsulates the essential bargain from the seller is to the buyer. Understanding this provision is fundamental to protecting your client and assuring that he is protected in the transaction.
Today’s New York Times has a story, here, on a new initiative of the Consumer Financial Protection Bureau to regulate “Contract for Deed” and what is referred to in Ohio as a “Land Installment Contract.”
Land installment contracts are typically used by individual sellers to provide a financing vehicle for individual buyers to purchase a single family home or investment property. A typical structure would call for a higher interest rate to be charged under that seller financing than bank financing would provide — precisely because those borrowers do not qualify for bank financing.
The new CFPB has until now limited its scope of regulation to federally-insured lending institutions. How it intends to increase that scope to include corporate and individual sellers is unclear.
The article also explores other proposed CFPB regulatory initiatives such as (i) prohibiting financing institutions from requiring arbitration of disputes and (ii) new regulation of payday loans.
One thing seems assured: There will be a ramped-up stream of consumer protection regulations coming from the CFPB.
In both commercial and residential transactions I recently have seen a spate of emailed communications purporting to amend a purchase contract. Many times these are emails among Realtors “confirming” one claimed contractual modification or another.
What is the legal effect of these emailed communications?
The nature of the emails I have seen typically involve changing (delaying) a closing date or waiving certain of the contingencies. As the transaction unravels, the client approaches me and wants to enforce the contract as “amended.” Thus, the question becomes: legally and practically, what effect on the original, signed contract do these emails have?
The answer: Likely none. The original signed contract will likely stand unamended.
As is addressed here, the statute of frauds, which is very similar state to state, requires two things for all contracts for the purchase and sale of real estate: (i) the contract must be in writing and (ii) it must be signed by the party “to be charged therewith,” i.e., the person we are planning on enforcing the contract against.
Because the emails in the cases I have recently seen are not accompanied by the adverse party’s “signature,” they likely will not be enforceable. Thus, the Courts will probably look to the original, unsigned contract to ascertain the rights and responsibilities of the parties to the contract.
Most clients and their agents seem to know about the statute of frauds, and do in fact comply with it as to the original contract. Somehow, however, the message has not gotten through that this applies to every amendment or modification to the contract as well.
Changing a closing date, waiving a contingency, adding personal property to what is to be conveyed, or promising to make certain repairs pre-closing or post-closing are all amendments to a contract and need to comply with these basic provisions of the statute of frauds.
Many clients and Realtors have adopted use of electronic signatures (such as DocuSign) to allow fulfillment of the statute of frauds by means of email and the internet for the original contract. As is addressed here, this method does in fact fulfill the statute of frauds. Thus, for these fast-developing “minor” amendments to a contract, e-signatures are fine as well.
I suppose clients and their Realtors see memorializing these changes as not worthy of taking the time to properly document the same, or they misunderstand that these are in fact amendments to the contract. This is especially so with respect to fast-moving developments in a modern real estate transaction.
The rule is simple: the contract for purchase and sale of real estate and all amendments thereto must be in writing and must be signed by the party on the other side of the transaction.
We are excited to announce that Finney Law Firm attorneys Isaac T. Heintz and W.Z. “Dylan” Sizemore will present “Five Pillars of Success” to the Greater Cincinnati Home Builders Association on Wednesday, April 20th from 11:30 AM to 12:30 PM.
HBA members and non-members are invited, but non-members (“Future members”) must pay $25 to attend.
The seminar addresses the key steps that business owners should take in establishing and growing their businesses to maximize returns and minimize exposure to liabilities. The presenters are knowledgeable and experienced business and real estate attorneys.
The Cincinnati Home Builders Association is a private organization of home builders and their vendors that is entrepreneurial and well-led. They actively participate in civic matters of critical concern for the local economy and provide important educational opportunities for their members. Finney Law Firm is proud to be a member.
A flyer with the details of the event is linked here. The location of the presentation is The Tile Shop, 3095 Disney Street Cincinnati, OH 45209.
Register online to attend this program. Reservations are required.
Often times when people think of attorneys they think of lawsuits or criminal charges and as a result that is why they need an attorney. While attorneys are needed to help you deal with lawsuits and criminal matters that is not the end of the list of what an attorney can help you with. To help you get a better idea of how an attorney can help you I have compiled this list of 10 things that Finney Law Firm can do for you. While this list is by no means an all-inclusive list it is designed to show you areas where Finney Law Firm has the expertise to help you work through a matter and save you money or save you from legal headaches in the future.
In many states in the U.S. (Ohio and Kentucky are no exceptions) attorneys are involved in many of the steps of the real estate buying and selling transaction. Often times attorneys are involved behind the scenes in reviewing contracts, legal documents, preparing title opinions and more. In certain states attorney have more hands on involvement in that any closing involving real estate is done by an attorney or under their direct supervision.
Finney Law Firm attorneys can assist individual buyers and sellers in the buying and selling process for both residential and commercial properties. As a real estate buyer you can ask an attorney to look over your offer to purchase a home to make sure it represents your best interests. Sellers may also want to hire an attorney to review any purchase offers and explain to them the requirements they will be bound by if they accept that offer. Some land purchases involve more complicated matters like mineral rights, multiple pieces of land being sold in one package, or liens by having an attorney represent 
you gives you get extra protection by having the legal considerations addressed by someone trained in those matters.
Are you planning on starting a new business, incorporating an existing business, or changing the corporate structure (i.e. going from an S Corporation to a C Corporation) of your current business? Many activities related to business planning should have an attorney involved in order to make sure everything is done properly. Changing your business status from a sole proprietor to a Limited Liability Company or a corporate form without doing the proper paperwork for taxes will leave you at risk with the federal and local tax authorities. While you may have unintentionally not filed some of the proper tax paperwork that will not stop any associated penalties. By working with a Finney Law Firm attorney you can be assured all your paperwork will be properly prepared and you will be fully informed as to what each document means to you in your business.
By working with an attorney to properly prepare your paperwork you have someone who is familiar with your business and will be ready, willing and able to help you should the need arise. While you can go hire an attorney at a moment’s notice to help out with legal issues, that attorney will not be as familiar with your business as one who has been working with you on an ongoing basis. For more information on the LLC form of a business see LLC see the article Why Do You Need An LLC.
Planning on getting married soon? Do you and your spouse have assets you want to keep separate in case of divorce? While the love and bliss of courtship lead you to think the relationship will last forever things and people do change. If you or your significant other own part of a family business, own your own business, have a large sum of assets from inheritance or from earnings then it is advisable to get a pre-nuptial agreement prior to getting married. A pre-nuptial agreement is a document that can protect assets for both of the people about to be married. Unless properly prepared by an 
attorney and taking into account all assets a pre-nuptial agreement may not be worth much in the event of divorce. Therefore pre-marital planning should involve an attorney and the couple about to be wed. In many cases it may be best for each person to have their own attorney look over the pre-nuptial agreement to represent each person’s best interests.
Now if you are married and have kids there are other considerations to take into account. Those considerations mostly revolve around making sure your children and/or spouse are taken care of in the event of your passing. This is where sitting down with an estate planning attorney comes into play. An estate planning attorney will sit down with you and review your assets and your goals for your assets in case of death. This could involve setting up trusts for your spouse and/or children, guardianship arrangements for minor children, living wills, health care power of attorneys and more.
Depending on the amount of assets you have to give to your family and how you want to distribute those assets a trust may be a better option for you. A trust not only preserves your assets for your children it can also make sure you children still get their inheritance in the event your spouse later remarries. Inheritance can get quite complicated so it is best to talk with an estate planning attorney to make sure your assets are distributed the way you want them to be. For more information on wills and guardianship see my article How a Will and Trust Factor Into Your Estate Planning.
Have you been suddenly presented with a legal document with request for signature? Do you know what the document is meant to do and how you may be legally bound if you sign the document? If you don’t know what the language is saying or how it will impact if you sign it then by all means you should be speaking with an attorney to have them look over the document and explain to you what exactly is being asked of you. Common examples of legal documents you may be signing throughout your life include documents related to the purchase and sale of real estate, purchase or sale of a business, non-disclosure agreements for work or other purposes, waiver or release of liability paperwork, settlement documents and more.
Signing any legal document without having full understanding of what sort of obligations you may face is asking for trouble. While the language may not talk in dollars and cents terms you could end up owing plenty of money if you signed a legal document and then failed to do what was required of you under the terms of the document. An attorney will be able to review your legal document 
and give you an opinion on what it is asking for and what risks you face in signing the document. Don’t sign just because the person giving it to you says it is ok, get another opinion before it is too late.
Do you run a business where you are responsible for the hiring and firing of employees? Want to make sure any terminations or hiring are done correctly and there is minimal risk of you being sued for discrimination? Or maybe you are wanting to setup health plans or retirement plans for your employees and unsure of the way to go about setting up those plans?
If you answered yes to any of the above questions then you should be talking with a labor and employment law attorney who can prevent you from taking the wrong moves which end up costing you money and more. Having an effective attorney advocate at your side assures you that you can concentrate on working on your business while any legal issues are promptly dealt with for you.
Unsure if you can manage paying off your debts? Afraid of losing your house because you are behind on payments? Worried that your debts are impacting your health due to the constant stress? Or maybe health related expenses have hurt you financially. All of the above situations can be resolved through filing for bankruptcy. You will not know if bankruptcy is suitable for your situation until you sit down and discuss your situation with a bankruptcy attorney and learn about what filing for bankruptcy means.
In bankruptcy you are asking a bankruptcy court to set aside your debts under Chapter 7 (not all debts may be discharged) or to reorganize your debts into a more manageable payment plan under Chapter 13. Determining which Chapter will work best for you is a decision to be made in conjunction with a bankruptcy attorney. 
Businesses as well as individuals are eligible to apply for bankruptcy when they are unable to pay their debts.
Unaware of what taxes your need to pay for your business? Want to pay less to the Tax Man and let your family inherit more? Own a piece of property that you think you are paying too much taxes for? All of the above are matters that can be addressed by an experienced attorney at Finney Law Firm.
Business planning involves dealing with tax matters and understanding all the tax jurisdictions involved. Not only do you have to consider federal and state taxes but there are also the city, municipality, and possibly county taxes to take into account. Miss any payments to one of these tax collecting entities and your business will be at risk. By sitting down and discussing with an attorney what your business does and where it will be performing its business your attorney can better advise you as to what taxes you need to make sure are paid.
Property tax is another big issue for both residential and commercial land owners. Property tax collectors sometimes base their tax collection rates on the overall health of the real estate market in a region as opposed to your specific piece of land. Maybe you have change in situation that has lowered the value of your property but your property taxes still remain where they were before. An attorney will be able to look at your particular situation and then prepare the proper paperwork to request that your property valuation be looked at in order to get a possible downward adjustment in value thus reducing your property tax payment.
As mentioned in item 3 above a will can help you take care of your family in the event of your passing. Wills along with trusts can also shield your assets from estate taxes that can be charged to your estate. Also known as the “Death Tax”, this tax on your wealth can be minimized depending on the amount of wealth and how you deal with it now. As each individual has their own unique asset situation a consultation with an Estate Planning attorney will help you best decide how much of your assets get caught up in the “Death Tax”.
When faced with litigation the last thing you want to do is ignore any requests for information nor do you want to provide answers without the guidance of an attorney in order to save money on legal bills. The answers and the way you answer pre-litigation questions (depositions and/or interrogatories) can make or break a case for you. Therefore it is in your best interest to answer these questions with an attorney present so they can stop you from answering questions you should not be answering. By having an attorney represent you in litigation from the beginning you are bringing along a valuable partner who not only will have knowledge of your case but also have the skills to defend you in a court of law. If an attorney has to be brought in later to a litigation matter it will usually be the case that they will have to spend more time in order to become fully informed of the situation which will cost you more than if you had hired an attorney at the start.
Whether you are being sued for something your business did, something an employee of yours did or you are suing someone who injured you the attorneys at Finney Law Firm have a great depth of 
background and litigation experience to assist you in your litigation matter. Finney Law Firm has successfully litigated cases related to caregiver abuse of children, business transactions, personal injury cases, failure to disclose in residential and commercial real estate matters, contract disputes and more. Finney Law Firm has won a number of cases that have went before the U.S. Supreme Court.
If you have been injured by someone or someplace where the situation was preventable you may want to discuss your injuries with an attorney. Especially where you have suffered losses due to being unable to go to work, out of pocket medical bills, or other pain and suffering you may be able to be compensated for those losses. A lot of this depends on how the injury occurred and whether or not someone’s negligence leads to your injury. By talking with an attorney you get a better idea of where you stand if you do wish to seek recovery for your injuries.
Are you being charged with a crime? Whether that crime is driving while under the influence (DUI), reckless driving, theft or something else having an attorney represent you for the criminal trial is your right. In order to determine the severity of the charges and the amount of jail time or fines you can face you need to speak with an attorney as soon as you are able to. Facing a criminal charge is not 
something you should try and handle on your own as those who will be prosecuting you are professionally trained. By having a knowledgeable and experienced attorney like those found at Finney Law Firm on your side you can be assured you will be getting the best representation possible.
Paul Sian is a licensed attorney in the States of Ohio and Michigan. If you feel you need the services of an attorney or have questions about any of the services named above feel free to contact me at paul@finneylawfirm.isoc.net or via phone at 513-943-5668. Connect with me on Twitter and Facebook.
We hear a lot of misinformation from prospective sellers and Realtors on when a Residential Property Disclosure Form must be used in Ohio:
Neither of these statements is true, so let’s bust these myths and in the process really dig into why a residential property disclosure form is “required” and when it is “required.”
As an opening proposition, Ohio law does not actually require the use of the Residential Property Disclosure statement. And by this I mean that no one is going to go to jail for failure to use the form, and the civil consequences are generally limited to termination of the contract before closing, if any.
The law in question is Ohio Revised Code Section 5302.30. It is indeed entitled “Property disclosure form required for all residential real estate transfers.” But when reading the statute it becomes apparent that the penalty for non compliance is: rescission of the contract, but only prior to the earlier of thirty days after the contract is signed or the date of closing (ORC § 5302.30 (K)(4)):
If a transferee of residential real property subject to this section does not receive a property disclosure form from the transferor after the transferee has submitted to the transferor or the transferor’s agent or subagent a transfer offer and has entered into a transfer agreement with respect to the property, the transferee may rescind the transfer agreement in a written, signed, and dated document that is delivered to the transferor or the transferor’s agent or subagent in accordance with division (K)(4) of this section without incurring any legal liability to the transferor because of the rescission, including, but not limited to, a civil action for specific performance of the transfer agreement.
Ohio Revised Code §5302.30 (K)(2) also provides for rescission if the seller amends the Residential Property Disclosure Form after the contract is signed.
Before we get to the question of whether Ohio law requires disclosure, there is another question of whether disclosure is advisable. The answer is almost always “of course.”
The basis of property defects fraud claims is either (a) a material misrepresentation as to a known defect (i.e., lying about the basement leaking or the presence of termites) or (b) non-disclosure of a known material defect that is not readily open to observation by a buyer.
A full and proper written disclosure inoculates a seller from both of these claims and this is advisable even if the law does not require full disclosure.
Section (B)(1) of the statute tells us what types of transactions are covered by the “requirement”:
So, then, on to the question of who must provide the disclosure and when must it be provided:
The statute provides that it covers all “transferors ” of properties containing one to four dwelling units. So, this would seem to include otherwise commercial properties that contain under four dwelling units, such as a bar or restaurant with apartments above.
And then the statute contains an extensive list of exemptions from its requirements detailed below, but the exemptions do include:
The statute does not exempt investors or simply owners who did not live in the property.
Finally, a buyer can waive his right of rescission for a Residential Property Disclosure Form (O.R.C §5302.30 ((K)(3)(c). And, since this is the only remedy for the failure to deliver the Residential Property Disclosure Form, it is essentially a waiver of rights of the buyer under the entire statute.
So, the myth is busted. Investors and other owners who did not live in the house (except those administering an estate of a seller) are not exempt from the requirements of the statute.
(1) A transfer pursuant to court order;
(2) A transfer to a mortgagee by a mortgagor by deed in lieu of foreclosure or in satisfaction of the mortgage debt;
(3) A transfer by a mortgagee, or a beneficiary under a deed of trust, who has acquired the residential real property at a sale conducted pursuant to a power of sale under a mortgage or a deed of trust or who has acquired the residential real property by a deed in lieu of foreclosure;
(4) A transfer by a fiduciary in the course of the administration of a decedent’s estate, a guardianship, a conservatorship, or a trust;
(5) A transfer from one co-owner to one or more other co-owners;
(6) transfer to immediate family members and transfers as a part of a divorce;
(7) A transfer to or from the state, a political subdivision of the state, or another governmental entity;
((8) A transfer that involves newly constructed residential real property that previously has not been inhabited;
(9) A transfer to a transferee who has occupied the property as a personal residence for one or more years immediately prior to the transfer;
(10) A transfer from a transferor who both has not occupied the property as a personal residence within one year immediately prior to the transfer and has acquired the property through inheritance or devise.
As a real estate attorney, I many times take for granted that experienced real estate professionals — Realtors, lenders, and investors — understand the fundamentals of real estate law. And many times I am proven wrong in that assumption.
Just a few weeks ago, I again learned this lesson from real-life experience.
In that scenario, the parties signed a document entitled “letter of intent” for a million-dollar-plus property. The document identified the property in question, the purchase price and the timing for the closing.
Later, the seller obtained another offer on the property and took the position that our “Letter of Intent” was not binding. We took the opposite position and vigorously acted to enforce the newly-formed contact.
How is that so?
First, we have extensively explored on this site the requirements of every state in the union that contracts for the purchase and sale of real estate (i) must be in writing and (ii) must be signed by the “party to be charged” therewith (i.e., the party who is to be sued on the contract). Grafton v. Cummings, 99 U.S. 100, 106 (1878); Smith v. Williams, 396 S.W.3d 296, 298 (Ky. 2012); Sanders v. McNutt, 72 N.E.2d 72, 75 (Ohio 1947). You may read more about that here.
Virtually any document that evidences a meeting of the minds between parties on the material terms of a transaction and that complies with the statute of frauds will be a binding contract for the purchase and sale of real estate. McGeorge v. White, 174 S.W.2d 532, 533 (Ky. Ct. App. 1943); Beasley v. ANG, Inc., 10th Dist. Franklin No. 12AP-1050, 2013-Ohio-4882, ¶ 8 (Ohio Ct. App., Nov. 5, 2013).
The title of the document does not matter. The paper on which the contract is memorialized does not matter. Whether it is written in pen, pencil, or crayon does not matter.
It simply matters that the material terms are in the document, the document is in writing and the document bears the signature of the “party to be charged therewith.”
Certainly, though, a document entitled so innocuously as a “letter of intent” or a “memorandum of understating” would not in and of itself be a binding agreement, right? Wrong.
Sometimes the terms of a document — such as a letter of intent or memorandum of understanding — may say in the text that it is not binding upon the parties unless and until they sign a contract drafted by their attorneys and signed by the parties. In such instance, by its own terms, the document is not a binding contract. See, e.g., John Wood Group USA, Inc. v. ICO, Inc., 26 S.W.3d 12, 17 (Ct. App. Tx. 2000) (“the parties expressly stated that the letter agreement ‘is not binding,’ with the exception of certain enumerated paragraphs”); Christ v. Brontman, 175 Misc. 2d 474, 477 (S.Ct. N.Y. 1997) (“Generally, if the language in the contract so provides, a real estate sales agreement which is subject to the approval of attorneys is not binding and enforceable until approved by the attorneys.”).
But in the absence of such “saving” language, a writing is a binding agreement on the terms set forth in such writing.
Again, the title of a document, or its brevity, could lead a buyer or seller to believe it is intended to be non-binding, and simply preliminary. Buyers and sellers are lulled into erroneous understanding that the informal nature of the document, the shortened text, and/or the title mean that the document is not binding unless and until further documentation follows, carefully reviewed or drafted by counsel. This is simply false as a matter of law.
This same logic extends to “Lot Reservation Agreements” in the context of a buyer-builder relationship. A one-paragraph agreement that seems to be just a quick way to tie up a piece of property for a few weeks or months could in fact give rise to binding obligations assuming the agreements comply with other contract principles.
Although the focus of this article is the purchase and sale of real estate, its contents could just as well apply to other legal transactions such as real estate leases, options, easements and license agreements, and to non-real estate transactions such as equipment leases, and the sale of a company or its assets.
We learn in law school that a buyer and seller can memorialize a contractual agreement on any type of paper, including the back of a used envelope.
About 20 years ago, to my surprise, I ended up being involved in a “back of the envelope” case. There, the buyer sat on one side of a table and the seller’s Realtor was on the other side of a table. The Realtor wrote out some basic bullet-point contract provisions, being the address of the subject property, the price and the closing date, on the back of a used legal-sized envelope. The buyer, on the other side of the table, signed the document upside down! — he didn’t even bother turning around the writing and reading it. A judge found that that crazy-looking instrument constituted a contract binding upon that buyer.
The lesson: It simply does not matter what kind of paper the contract is memorialized upon or even where and how the terms are written on that piece of paper.
As we frequently caution our clients, “it’s a dangerous world out there.” You must carefully consider the consequences of your actions and those acting on your behalf.