Lesson 2: Contracts Used in Real Estate Practice Louisiana

Lesson 2: Contracts Used in Real Estate Practice (Louisiana)

Flashcards Predial servitudes may benatural, legal, and voluntary or conventional waiverGenerally, a condition may be waived by the party in whose favor it is written.when something is held in escrowthe thing is deposited with the escrow agent for safekeeping. In Louisiana, the escrow is a contract that may be gratuitous (no compensation) or onerous (typically compensated).Natural servitudes arise fromthe natural situation of estates (e.g., drainage); Purchase Agreements.a. Placed in context, the Purchase Agreement (or Agreement to Purchase and Sell) is an agreement between the Buyer and the Seller to sell and buy. While there are many rules in the Civil Code specific to Sales, the general rules regarding contracts also apply.Building restrictions may be enforced by mandatory and prohibitory injunctions. La. C.C. art. 778.No action for injunction or for damages on account of the violation of a building restriction may be brought after two years from the commencement of a noticeable violation.After the lapse of this period, the immovable on which the violation occurred is freed of the restriction that has been violated. La. C.C. art. 781.voluntary or conventional servitudes are established byjuridical act (e.g., contract), prescription, or destination of owner (e.g., developer creates a servitude of passage over his land because he intends to subdivide and sell the land).La. C.C. art. 654.Inspection and Due Diligence Period.Every Purchase Agreement should have a time frame for permitting inspections of the property. The LREC Purchase Agreement addresses this at Lines 158 - 188 and will be addressed later.The list of "inspections" does not need to be limited to physical characteristics. The Inspection Period can be used to afford the opportunity to the Buyer to seek financing or look into other relevant matters. The important thing is for the agreement to cover everything. The Inspection Period is typically the Buyer's only chance to terminate the agreement and still receive a refund of the deposit, if one is made. There is no such chance if the agreement fails to Predial servitudea charge on a servient estate for the benefit of a dominant estate. The two estates must belong to different owners.La. C.C. art. 646. There must be a benefit to the dominant estate for there to be a predial servitude (e.g., right of passage). La. C.C. art. 647.

notes on escrow(i) Brokers who accept money must open and maintain a "Sales Escrow Account." LREC §2701. The accounts are non-interest bearing, which is why most deposits made in Purchase Agreements are deemed "non-interest bearing."(ii) Whether or not the escrow agent is a broker or another party, the agreement should state whether or not the funds will bear interest while being held by the escrow agent.b. The deposit is held until the terms of the Purchase Agreement are satisfied and the transaction closes. In that case, the deposit is usually released to the Seller as a portion of the purchase price. If the transaction fails, the deposit is usually returned to the Buyer.Buyer Agency Agreements.Agreement between broker and Buyer) Buyer contracts with broker for broker to seek to find property for Buyer to buy. Whether or not a commission will be paid depends on the agreement, as there is no general practice.Listing AgreementThis is an employment contract; a contract in which the Seller agrees to pay a commission to broker and, in exchange broker agrees to attempt to find someone to purchase owner's property upon the Seller's terms. The Agreement typically contains the amount of the commission, the term of the contract and the terms of the sale.Consent is a major issue.The parties involved in the transaction (Buyer and Seller for our purposes) must agree to use electronic means to negotiate and finalize the contract.A predial servitude may be established by an owner on his estate or acquired for his benefit by conventional act (e.g., contract). La. C.C. art. 697. When the parties fail to establish rules for the servitude in the act creating the servitude, the Civil Code rules apply.title clauseExample title clause. Title shall, as of the date of Closing, be valid and merchantable and not reflect any condition, restriction or servitude which, in the opinion of Buyer or Buyer's lender would impair Buyer's use of, or the value of the Property ("Title Conditions"). If title is not valid or merchantable, or such Title Conditions exist, Buyer may extend the time for Closing by thirty (30) days. In the event title is not valid or merchantable, and cannot be made valid or merchantable, or such Title Conditions exist, which cannot be removed at a reasonable expense prior to the Closing date set forth herein, as it may be extended hereunder, this Agreement shall be null and void at the option of the Buyer.Mandate (Power of Attorney).Unlike an agent who receives compensation for his services, a mandatary may or may not receive anything of

value for his services. That is to be determined solely by the contract.

financingIn most cases, the Act of Sale does not reference financing. Typically, if the Buyer obtains a loan from a third party, the lender provides cash for closing and financing conditions are contained in separate documents (e.g., mortgage it renders the thing useless, or its use so inconvenient that it must be presumed that a Buyer would not have bought the thing had he known of the defect. The existence of such a defect gives a Buyer the right to obtain rescission of the sale. and/or loan agreement). Financing terms should be included in the Act of Sale if the sale is to be owner-financed.Environmental and Wetlands Disclosure and Warranty Issues. cont 2

• Buyer should also take responsibility for using the

Inspection Period to cause additional inspections to be made by professionals for the purpose of mitigating potential environmental and wetlands issues. Failure of the Buyer to investigate these issues may subject the Buyer to liability for cleanup. Proper investigation might otherwise provide Buyer with "innocent landowner" status in the event of any future problems.escrow agreements notesEscrow is also used often in closings when the parties do not intend to meet to close the transaction or if something remains to be done after closing.Example. Seller lives in California and cannot be available to close on the scheduled date. Seller signs all of the closing documents and sends them to the title company to be held "in escrow." If Buyer satisfies all of the closing requirements, the documents will be released for Buyer to sign and complete the transaction at Closing.Example. Builder and Buyer agree to close on March 1. The closing date arrives, but Builder has not completed the landscaping agreed upon in the Purchase Agreement. Builder and Buyer agree to close, but put $5,000.00 of the Builder's proceeds from the sale "in escrow", to be held by the title company. The funds will not be released to Builder until the landscaping is complete. The parties agree that if the landscaping is not complete by a certain date, that the funds may be released to Buyer as compensation for Builder's failure to complete the landscaping.If a condition is resolutory,performance of the obligation is immediately enforceable, but may come to an end if the uncertain event arises. In the case of a sale, the Buyer's obligation is to pay the purchase price. If the Buyer fails to pay the price, then the uncertain event has occurred and the obligation comes to an end.Zoning ordinancesneither terminate nor supersede existing building restrictions. La. C.C. art. 782, comment (c).