Unit 12 Real Estate Contracts

Question 1

Define addendum

Answer 1

Any provision added to an existing contract without altering the content of the original. Must be signed by all parties. 213

Question 2

Define amendment

Answer 2

A change to the existing content of a contract (i.e., if words or provisions are added to or deleted from the body of the contract). Must be initialed by all parties. 213

Question 3

Define Bilateral Contract

Answer 3

A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed. 202

Question 4

Define breach of contract

Answer 4

Violation of any terms or conditions in a contract without legal excuse; for example, failure to make a payment when it is due. 207

Question 5

Define consideration

Answer 5

(1) That received by the grantor in exchange for the deed. (2) Something of value that induces a person to enter into a contract. 104, 204

Question 6

Define contingencies

Answer 6

Provisions in a contract that require a certain act to be done or a certain event to occur before the contract becomes binding. 212

Question 7

Define executed contract

Answer 7

A contract in which all parties have fulfilled their promises and thus performed the contract. 203

Question 8

Define executory contract

Answer 8

A contract under which something remains to be done by one or more of the parties. 203

Question 9

Define contract

Answer 9

A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed. 202

Question 10

Define counteroffer

Answer 10

A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror. 210

Question 11

Define disclosure

Answer 11

Relevant information or facts that are known or should have been known. 157

Question 12

Define earnest money

Answer 12

Money deposited by a buyer under the terms of a contract, to be forfeited if the buyer defaults but to be applied to the purchase price if the sale is closed. 210

Question 13

Define enforceable contract

Answer 13

A contract that meets all the elements of a valid contract, including compliance with any applicable statute of frauds or other law that requires it to be in writing and signed by the parties. 205

Question 14

Define novation

Answer 14

Substituting a new obligation for an old one or substituting new parties to an existing obligation. 207

Question 15

Define offer and acceptance

Answer 15

Two essential components of a valid contract; a “meeting of the minds.” An offer is a promise made by the offeror, requesting something in exchange for that promise. Acceptance is a promise by the offeree to be bound by the exact terms proposed by the offeror. 204

Question 16

Define owner financing

Answer 16

The seller is the primary lender, securing the property by means of a deed, note and mortgage, deed of trust, or contract for deed. In its traditional form, the buyer takes possession of the property and the seller retains legal title until paid in full, but some states have softened this outcome to provide that the buyer is entitled to legal title after a specified period of successful loan payments. 214

Question 17

Define purchase money mortgage

Answer 17

A note secured by a mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real estate. 214

Question 18

Define rescission

Answer 18

The practice of one party canceling or terminating a contract, which has the effect of returning the parties to their original positions before the contract was made. 208

Question 19

Define statute of frauds

Answer 19

That part of a state law that requires certain instruments, such as deeds, real estate sales contracts, and certain leases, to be in writing to be legally enforceable. 102

Question 20

Define “time is of the essence”

Answer 20

A phrase in a contract that requires the performance of a certain act within a stated period of time. 206

Question 21

Define unenforceable contract

Answer 21

A contract that has all the elements of a valid contract, yet neither party can sue the other to force performance of it. For example, an unsigned contract is generally unenforceable. 206

Question 22

Define unilateral contract

Answer 22

A one-sided contract wherein one party makes a promise so as to induce a second party to do something. The second party is not legally bound to perform; however, if the second party does comply, the first party is obligated to keep the promise. 203