Humber Real Estate - Course 2, Module 17, Writing Conditions to be Included in an Agreement of Purchase Sale|76 questions and answers

Binding agreement When an offer doesn't contain any conditions, it's a _________ _________ once accepted by all parties. - Condition precedent - Condition subsequent What methods can be used to draft conditions? A true condition precedent. If a party is not permitted to waive a condition and is required to fulfill the condition, what is this called? A condition in an agreement calling for an event to happen, or an act to be performed, before the agreement becomes binding on the parties. Describe a 'Condition Precedent' A condition referring to a future event that, upon its occurrence, causes the contract to be no longer binding on the parties. Termination of the agreement can only be based on the defined circumstances identified in the condition. If no notice is provided, the conditions within the agreement are deemed to be waived and either party can demand the agreement be completed. THEREFORE no waiver provision is ever included in a condition subsequent clause. Describe a 'Condition Subsequent' Condition precedent. The vast majority of residential conditions are ________ ________. Step 1. Who is to do it? Step 2. Who is to pay for it? Step 3. What is to be done? Step 4. Within what time limit? (date & time) Step 5. What happens in the event it is not done? (No notice is required if the party is not proceeding) Step 6. Can it be waived? (Notice to waive the condition must be received by the other party prior to the time period expiring) What are the 6 steps to identify information required for the condition precedent clause? Providing notice to the other party that the condition has been fulfilled. After a condition is fulfilled, the final step which has to happen before the time limit is what? Allows the party for whose protection the condition was included to remove that condition entirely rather than fulfilling the condition. This action results in a binding agreement. What does inclusion of a waiver provision in a condition precedent allow for? Buyer Most conditions in a residential transaction are for the benefit of the __________. - Obtaining financing - Having the property inspected - Confirming insurance can be obtained - Sale of a buyer's property What are some common conditions in a residential offer? The review of the condominium documents, such as a status certificate. What type of condition would be associated with a condo? An inspection to confirm fire and building code compliance. What type of condition would be associated with a multi-unit residential property? Testing the well and/or septic system. What type of condition would be associated with a rural property? Confirming the legal status of any improvements such as a dock or a boathouse. What type of condition would be associated with a waterfront property? Reviewing the leases and financial information. What type of condition would be associated with an investment property? Obtaining a building permit or confirming available services. What type of condition would be associated with vacant land? Waive Prior to drafting a condition using the precedent method, ensure the party is able to ________ the condition. Action A true condition precedent requires what by a third party, independent of the seller or buyer? - Condition precedent can be waived (i.e. a buyer's request for a new survey) - True condition precedent cannot be waived (i.e. a condition dependent on an Advisory Committee providing consent to change a zoning bylaw) - The only difference in the way it's written is that when it's a true condition precedent, the waiver provision is not included What is the difference between condition precedent and true condition precedent? This condition must be met; it may not be waived. No waiver provision is possible because the condition must be fulfilled for a binding contract to be created. What is 'True Condition Precedent'? Condition subsequent "The buyer may terminate this agreement through written notice ..." is the beginning of what kind of condition? Condition precedent "This offer is conditional upon ..." is the beginning of what kind of condition? The "deemed waiver". This means that a buyer who forgets to deliver a notice may unintentionally automatically buy a property. It's better to have a sale fall through and start over, than to try to get out of a sale that the seller thinks is unconditional. What is the primary risk to consider when writing a condition subsequent? To avoid using conditions subsequent wherever possible, or at the very lead, use them only for relatively unimportant conditions. In relation to conditions, what is the best advice for buyers? Precedent Which type of condition uses the term "offer"? Subsequent This type also uses the word 'Agreement'. For which type of condition is the waiver provision deemed included in the clause? 1. Specify the minimum mortgage terms that a buyer is willing to accept in order to satisfy the condition. If the terms spelled out in the condition are realistic in the current market, this could provide assurance to the seller that the buyer is acting in good faith. 2. Draft a condition without identifying any specific terms and leaving it solely in the buyer's discretion as to whether the terms of an available mortgage would be satisfactory. What are the 2 ways of wording conditions related to arranging a new mortgage? The covenant of the buyer and the specific property being purchased. What factors can affect mortgage terms? - The required minimum principal amount of the mortgage - A maximum interest rate - A minimum term - An estimated mortgage payment If you choose to include the minimum terms that a buyer would be willing to accept to ensure that all fundamental mortgage particulars are identified within the clause, what items would be listed? Yes, a waiver provision should also be included which would allow the buyer the option to remove the condition whether the buyer received the planned financing or not. Can a condition arranging for a new mortgage be waived? 5 to 10 days following acceptance of the offer. What is the typical time frame for a condition regarding mortgage financing? Market conditions _________ ___________ can affect which financing conditions you, as a salesperson, and the buyer would include in the offer that would be in their best interests. (i.e. in a seller's market your buyer would want to reassure the seller they can find financing, and therefore provide as many details as possible) Amortization (the average period of which is 25 years) Details about __________ are not usually included in a condition regarding obtaining a mortgage. - The mortgage may have been arranged at a time when interest rates were lower than current rates. - The buyer can save on appraisal fees, some legal costs and survey costs. Why would a buyer want to assume a seller's existing mortgage? The mortgagee (aka the lender) The buyer may assume existing mortgage financing provided that who agrees? - Potentially higher sale price - Avoidance of any payout penalty or interest differential that may apply What would the benefit of having a buyer assume the existing mortgage be to the seller? Unless they are released from the personal covenant by the mortgagee, there is a chance they may be responsible if the buyer defaults on the assumed mortgage and the lender takes action under the power of sale. What is the biggest risk that a seller must be aware of if they allow their mortgage to be assumed by a buyer? - With mortgagee approval (the lender will require the new buyer to meet current lending criteria for the amount being assumed) - Without mortgagee approval Mortgage assumptions typically involved what 2 clause structures? - There are more buyers competing for properties - The seller has a larger buyer pool to choose from - The seller may not want to tie up their property with too many conditions In a seller's market the financing clauses would most likely include shorter timelines due to what reasons? - More properties on the market than buyers - Home are more likely to sit unsold - Buyers have more choices and more leverage to negotiate In a buyer's market the financing clauses would most likely have longer timelines due to what reasons? - Lender requirements such as documents to provide a commitment - If it is a high ratio mortgage, approval may be required by the lender and the insurer - If an appraisal is required it may mean a longer conditional period What are some factors that may impact your timeline for a financing condition clause? - Can allow for more creative terms negotiated between the seller (mortgagee) and the buyer (mortgagor) - Seller might improve the marketability of their property through attracting terms (it can be included in the property listing) - Seller could use this as an investment tool to earn a higher interest rate of the property's capital - By borrowing directly from the seller, the buyer can avoid certain costs and paperwork typically associated with conventional lenders; this will also save the buyer time - The seller can set the interest rate of the STB mortgage higher than market interest rates What are the benefits of a 'Seller Take Back Mortgage' (STB)? True. For example, the buyer could be assuming the current mortgage but be short of funds. The seller could offer a second mortgage to make up the difference. True or false? A seller take back mortgage could be a first, second or third mortgage. The Agreement of Purchase and Sale (e.g. pre-payment, postponement, renewals, due on sale, non-assumption, etc.) All clauses a seller or buyer wishes to appear in a Charge/Mortgage of Land must appear in what? - Credit check clause - Prepayment clause (prepayment is a privilege, not a right ... mortgages can be negotiated as open, fully open, open on anniversary date, prepayment subject to a bonus ... prepayments can only be made if the mortgage is not in default) - Renewal clause - Postponement clause - Over financing prevention (Oklahoma) clause - The right to sell the mortgage clause - Discharge of the existing mortgage clause When a seller take back mortgage is included in an agreement of purchase and sale, what additional clauses should be considered? - In the event there is a first mortgage maturing prior to the term of an STB second mortgage, the first mortgage has priority and upon default the first mortgage would be paid before any other mortgage on the property - Protects the first mortgagee and this clause would be included in the agreement with the second mortgage. - Seller is also protected because the clause would also state that if the first mortgage is renewed or replaced at any time, any increase in the principal amount would be applied to reducing the second mortgage. Explain the Postponement Clause.