CONTRACTS FORMS AND ATTORNEYS

[Bill Gulley]

I don't start many forum posts but recently we had a post where someone posted a subject-2 purchase contract to a request for a contract. The contract had many pitfalls for any new investor and was obvious to me that it could have been posted to to simply get newbies to try and use the form but they would have to contact the originator for assistance and probably the upsale. It was bait, IMO.

I have made statements about several contracts and have advised not to use a guru contract unless you really know how, when and where to use them. And if you knew, you wouldn't be looking for a contract! After I make such comments, the poster will usually come back with claims of how many attorneys have been "involved" in developing the contract, how it has been used 1,000 times without incident or has prevailed when they used it.

First of all real estate compliance is a local and state issue. While there are key elements of a standard contract that are used all over the country, there are state and local requirements that need to be addressed in real estate transactions. No contract exists that is acceptable in every state for a real estate purchase.

When you show a contract to an attorney and ask "is this OK to use" or "can I use this contract" the attorney may well say yes.

That response from that attorney is not necessairly saying that the contract meets all the rules, regulations and laws pertaining to the deal or that what you are attempting to do will not be viewed as a scam or well accepted. They are usually approving the the contract as to its "form" not the "content". The form of the contract is how the contract is laid out, the legal requirements to form a binding contract between the parties. The fact that the parties are named, the scope or subject of the agreement is stated and that it is executed is really what is being approved by the attorney, as to form, but not content necessairly. The attorney may not be saying that what you are doing could not be contested or that the other party is likely to prevail as your contract is so one sided or appears to take an obvious undue advanatge requiring rediculous terms not customarily found in agreements used in that area.

Some attorneys will tell you what you want to hear, just like anyone else. If you get in trouble or have a problem with your deal, you will need to go back to that attorney and seek advice, and they will start the clock and hand you a bill!

I'm not bashing attorneys but saying that when you ask about a RE contract you need to ask for approval as to its form and content. Does this contract protect me as CUSTOMARY IN THIS AREA for the type of transaction contemplated as to FORM AND CONTENT?

You can have 100 attorneys "approve" a contract in Cali or in Kansas but it may not work at all in Texas or New York!

The best way, IMO, to start your forms library is to acquire the basic state approved forms. In every state there is a state approved real estate form. There are also addendums and disclosures for transactions.

From those forms anything done in any strategy can be accomplished. Leases are probably the most difficult to acquire since they are seldom used by Realtors, but every real estate office should have one as people do lease before or after the sale transaction.

If you acquire guru forms or fromother investors, I'd suggest you incorporate the unique terms desired in the state approved contract and then see your attorney and ask that it be approved as to form and content as well as compliance with local custom before you use it.

Now, as to this being a forum post and open for comment, maybe others here can give suggestions as to how to acquire a good contract, sources and uses. What states have unusual or unique requirements (like Texas)?

[Chris C.]

I have often wondered if it were feasible to have contracts on Biggerpockets that were state specific but created in a wiki type format. People could edit and discuss the content to come up with contracts that conformed with Bills original post. I know this is a but far fetched but is it doable and would it create a better product?

All of my contracts came from discussion with local investors and then my local magistrate reviewed them but I still see things that I wished my contracts, especially leases, included. Is there not a lot of benefit in a group as large and experienced as Biggerpockets putting together something like this.