Contracts Reviewed by an Attorney

[James Lee]

Is it recommended that all wholesalers get their contracts reviewed by an attorney? The cost is about $500!!!

Sean Terry and other wholesaling experts give out their contracts so isn't it pretty safe to say that their contracts contains all the proper clauses?

Thanks.

[Keith Barton]

About Contracts (I like to look at concepts like a funnel - there's a 30,000 foot view of the whole process, then the view gets more narrow as we go down - maybe my take on things will help put the pieces together)....

Ever build model cars/boats/planes as a kid? Think of a contract as a model (although a very sophisticated one) used to represent an agreement.

1) What is a transaction? In terms of purchasing real estate - a seller wants to sell property, and a buyer wants to buy property. The buyer has an understanding of what will happen in the deal, and the seller has an understanding of what will happen in the deal. The understanding of both the buyer and the seller need to be the same.

2) In simple technical terms, as Ned Carey said, a contract needs:
A) An offer (in purchasing real estate it is an offer to purchase, or an offer to sell);
B) Acceptance of the offer; and,
C) Consideration (each party exchanges something of value - money is exchanged for property and property is exchanged for money).

Also - there needs to be a "meeting of the minds" - both parties must have a mutual understanding of, and a mutual agreement to, the terms of the deal.

3) A contract is the means by which we capture this understanding and record it in such a way that it can be used to resolve disputes that may arise from the deal. Hence the model analogy: a contract serves as a model of the understanding of the parties.

4) State Variation. Each state has its own laws about transfering ownership of property. There are many similarities, but there are plenty of differences. Make sure you meet all the requirements in the state the property is in. Using a contract drafted for a deal in another state may not pose a problem - or it might be a huge problem. AND, THIS IS ONE OF THOSE ISSUES YOU ARE LIKELY TO HAVE NO CLUE ABOUT unless you are an attorney who practices real estate law in that state (or you happen to be a very sophisticated and knowledgeable non-attorney.)

5) Technical Language. In addition to the core part of the agreement as the parties understand it, under the procedures established by law (by statute, caselaw, or both), there are many technical details that need to be stated in the contract to make sure the deal goes through as the parties want it to.

For example, assume timing is critical: you absolutely, positively must have event X happen by May 1 or the deal is off as far as you are concerned. Simply stating a deadline of May 1 is not good enough to reflect your intention. The contract must also state "time is of the essence" (you should also state that the May 1 deadline cannot be extended without your agreement in writing). Without that silly phrase "time is of the essence", a court could do 2 things (assuming the matter went to court): A) NOT hold the other party accountable for failing to meet the May 1 deadline; AND, B) possibly hold you accountable if you back out of the deal because the May 1 deadline was not met!

6) Reusing Whole Contracts. Adapting an entire prior contract to your specific needs could be as simple as changing the names, the property information, the price, and the dates. However, a prior contract could be completely unsuitable to your needs. Was the contract drafted for the benefit of the buyer or the seller? Are you in the same position as that for which the contract was drafted? Is the deal a straight purchase and sale, or is it a lease-option deal? Is the deal a residential or commercial deal? Is it a condominium or not? Are there tenants in the property? etc....

7) Reusing Clauses. Many clauses in a contract reflect terms and conditions that are common to most deals. Therefore, many clauses can be used over and over again in contracts. However, standard clauses can be, and are, rewritten to reflect specific elements of a given deal. Do you know what the standard language is? Do you know what the standard language means? Do you know what changes were made? Do you know what the changes mean? Do you know the consequences if this clause is not worded correctly?

SUMMARY
So what's all this mean? In short - reusing someone else's contract is fraught with risk. It may not bite you, but if it does bite you, it could be very serious. After all, contracts don't mean much until the sh*t hits the fan, then they can mean everything....

Therefore, it makes a lot of sense to at least consult an attorney for early deals that are of the same type. If you are confident a contract is good for a certain type of deal, and you do that type of deal over and over again, it may be perfectly OK to modify the relevent terms of the same contract over and over again. If you change things up and start doing new types of deals - then have an attorney help with the structure of the new deals....