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Ohio real estate law: The essence of the real estate purchase contract

Author By Christopher P. FinneyPosted on

Many times when I teach courses to residential and commercial Realtors, I ask this simple question:

What is the essential bargain going on between a buyer and a seller of real estate?

The reason for the question is that real estate professionals — Realtors, attorneys, investors, and lenders — frequently get caught up in the tall grass of the details of the purchase contract such as personal property, inspection contingencies, representations about property condition, earnest money issues, and on and on.  All these things are important, but shouldn’t we first and foremost focus on the thing that brings everyone to the table to begin with?

But cutting to the quick of the real estate transaction, what is the buyer giving to the seller and what is the seller giving to the buyer?

Cash is exchanged for good title

The answer, very simply, is that the buyer is giving cash to the seller and the seller is giving a certain quality of title to the subject real property to the buyer.

It seems so obvious, that we may overlook this simple and fundamental truth.

Standard Board of Realtors Contract language

Indeed, the Cincinnati Area Board of Realtors/Dayton Area Board of Realtors form of Contract to Purchase buries the clause by which the seller’s obligation is made clear at paragraph 19 on page 6 of a 7-page contract.  Not only that, but the critical clause is in the middle of that paragraph, starting after a semi-colon in the middle of a sentence:

[Seller shall]…convey marketable title (as determined with reference to the Ohio State Bar Association Standards of Title Examination) to the Real Estate by recordable and transferrable deed of general warranty or fiduciary deed, if applicable, in fee simple absolute, with release of dower, on [date]….Title shall be free, clear and unencumbered as of Closing with the exception of the following, if applicable: (i) covenants, conditions and easements of record….”

Goodness, that’s a mouthful, and from an attorneys perspective there is so much meaning in that part-paragraph.

Different standards of title quality

I have seen countless judges and attorneys blow past the issue of what quality of title must be conveyed by the seller at the closing.   Indeed, I had one Judge tell me from the bench, confidently but absolutely incorrectly, that that Marketable Title Act (O.R.C. Section 5301.47-56) defines the quality of title that a seller must convey to a buyer.  That’s hogwash.  The Marketable Title Act simplifies and makes uniform the title examination process, but it does not attempt to tell sellers what quality of title they must covey to buyers.

Three distinctly different contract standards

It is the language of the contract itself that tells sellers what quality of title they must convey to a buyer and there are several different sets of standard language that may be used:

  • The above-noted language from the standard CABOR/DABOR contract contains potential problems for a buyer as it requires a buyer to accept title subject to “covenants, conditions and easements of record.”   Really?  What if there is a highway easement running through the living room?  Or how about a title problem I ran into recently that prevents an owner in Mt. Adams from building a second story on their house?  There are all kinds of “covenants, conditions and easements of record” that could well prevent a buyer from making use of his property the way he plans.  This standard CABOR/DABOR language mandates a buyer — even if they find and object to an easement before closing — to a accept title to the property impaired as it is.  The only way to protect one’s self from this contract language would be to do a full title examination and read and understand the easements and covenants of record before even signing he contact.  This rarely happens.
  • Some “standard” purchase contracts provide that a buyer must accept title subject to all “covenants, conditions and easements of record” that “do not unreasonably interfere with the buyer’s intended use of the property.”  This standard makes a whole lot more sense for the typical purchaser.  Then, if during the title examination process an offending easement or covenant is discovered, the buyer would be excused from performing.
  • Many commercial contracts contain a due diligence period for title, allowing examination and objection for a period of, say 14 days after contract signing.  Thus, the buyer is not forced to accept anything at all of record, and the buyer is constrained to state his objections within a tight timeframe.

Date is important as well

We warn in this blog entry about the contract that doesn’t end, meaning that the buyer has the right to perpetually tie up title to a property while he decides whether or not to buy, and has no closed-ended obligation to actually close on the purchase.  It is a terrible situation for a seller.

So, what happens if the buyer and seller leave blank in the contract the closing date?  Well, since the obligations of both the purchaser and the seller have no contractual deadline, presumably they never have to close.  Does that mean the seller never has to deliver a deed?  That the buyer never has to tender the purchase price?  That the contractual promises are simply illusory and thus unenforceable? Or, finally, that the parties must close within a “reasonable time”?

The cold reality is that in such a circumstance the parties have given lawyers something to argue over, which means time, expense and uncertainty to get a transaction closed, to get rid of a buyer who refuses to timely tender the purchase price, or even to force a dilatory seller to close.

Recordable, transferrable

The above-noted Board of Realtors contract language calls for, among other things, that a deed be “recordable” and “transferrable.”

There can be a host of reasons that a deed is not “recordable” and “transferrable.”  The most common reason is that the there is a new legal description on the deed because since the prior transfer some land has been conveyed away, or the transfer is part of a cut-up of a larger parcel.  In such circumstances, several things could be required, such as sign-off by the local planning commission, recording of a new survey plat and a “closure chart” showing that the legal description in fact “closes” from beginning point to ending point.

It is helpful for a buyer to require the seller to adhere to this standard.

Quality of deed

Finally, the contract will almost always describe the type of deed the by which the seller must convey title to the buyer.  This blog entry thoroughly explores the distinction among a general warranty deed, a limited warranty deed, a fiduciary deed and a quit claim deed.

Conclusion

This one clause is where my eyes first go when I review a contract for a client — whether buyer or seller — for it encapsulates the essential bargain from the seller is to the buyer.  Understanding this provision is fundamental to protecting your client and assuring that he is protected in the transaction.

 

CFPB: Now wants to regulate Land Installment Contracts?

Author By Christopher P. FinneyPosted on

Today’s New York Times has a story, here, on a new initiative of the Consumer Financial Protection Bureau to regulate “Contract for Deed” and what is referred to in Ohio as a “Land Installment Contract.”

Land installment contracts are typically used by individual sellers to provide a financing vehicle for individual buyers to purchase a single family home or investment property.  A typical structure would call for a higher interest rate to be charged under that seller financing than bank financing would provide — precisely because those borrowers do not qualify for bank financing.

The new CFPB has until now limited its scope of regulation to federally-insured lending institutions.  How it intends to increase that scope to include corporate and individual sellers is unclear.

The article also explores other proposed CFPB regulatory initiatives such as (i) prohibiting financing institutions from requiring arbitration of disputes and (ii) new regulation of payday loans.

One thing seems assured: There will be a ramped-up stream of consumer protection regulations coming from the CFPB.

Ohio Supreme Court issues landmark Open Meetings decision — email deliberations are equally covered by the statute

Author By Christopher P. FinneyPosted on

Last week, the Ohio Supreme Court issued a landmark decision on Ohio’s Open Meetings law, O.R.C. Section 121.22 in the case of White v. King.

Ohio’s Open Meetings law prohibits closed-door deliberations of public business when a majority of the public body is present, subject to host of exceptions.  But the question was confronted in the King case of whether deliberations via email among that same majority of public officials is also prohibited.

The King case strongly answered that question in the affirmative:

serial e-mail communications by a majority of board members regarding a response to public criticism of the board may constitute a private, prearranged discussion of public business in violation of R.C. 121.22 if they meet the requirements of the statute.

The decision is linked here.

I Apologized and Now I’m Getting Sued?

Author By Sean GarzaPosted on

Written By: Scott R. Thomas

You met with the patient.  You explained all the risks of the procedure.  The risks were later spelled out in the consent form and you went over it all again with the patient.  The patient accepted the risks and wanted you to perform the procedure.  You performed the procedure but the results were less than you and the patient hoped for.  Being a stand-up doctor, you explained what happened with the patient.  Genuinely sorry that it didn’t work out as planned, you expressed your sympathy to the patient and the family.  Then you got the summons and Complaint in the mail.  You’ve been sued.  They’ve even quoted—or should I say, misquoted—your apology.  Your colleagues are upset.  Your malpractice carrier is asking questions to see whether your apology affects coverage, given your duty to put them on notice and cooperate.  How can this be happening?

When something bad happens to someone we know, we express compassion.  When a person does something wrong, the natural inclination is to apologize.  You may feel it’s the right thing to do.  You may feel pressure to disclose the facts because of your personal beliefs, the ethical guidance of the American Medical Association, or the requirements of a hospital at which you have privileges.  However natural these feelings are, these statements may have legal repercussions.  Plaintiff lawyers know the power those statements have.  Although these apologies are hearsay, lawyers for patients get them into evidence with the “statement against interest” exception.  They tell the jury, “Why would Dr. Smith apologize if she did nothing wrong?”

In reaction to this, about three out of four states have enacted so-called “Apology Statutes.”  Only a handful of states, however, provide blanket protection for the doctor’s remarks and brand them inadmissible.  Most states try to make a distinction between a statement that is an admission of fault and a statement which is merely an expression of condolence.  Under Ohio Revised Code §2317.43(A), “all statements . . . expressing apology, sympathy, commiseration, condolence, compassion, or a general sense of benevolence . . .  are inadmissible as evidence of an admission of liability or as evidence of an admission against interest.”

Legislatures enact these laws because they believe that a rule protecting a doctor’s expression of sympathy promotes the physician-patient relationship after a negative outcome.  Proponents also argue that patients who sue their doctors often say that they didn’t think the physician was candid or honest about what happened, if it was explained at all.  These are all reasonable theories but no study, anywhere, concludes that patients will refrain from suing if a doctor apologizes.

Apologies of the kind protected by statute don’t deter suits.  As Apology Statutes are written by politicians, it comes as no surprise that protected statements have the ring of apologies you hear politicians make: “If anyone was offended by remarks about my opponent’s race, creed, gender, orientation, or ethnic origin, I sincerely apologize.”  These kinds of “apologies” sound hollow because the speaker doesn’t claim responsibility.

This is precisely why protected apologies are problematic in a health-care setting.  The kind of apology envisioned by the statute doesn’t get you very far.  You meet with the patient and the patient’s family and express your heartfelt sympathy.  Fine.  Now come the questions.  “What went wrong?”  “What caused the bleeding?”  “Why did her blood pressure drop?”  “Why did he lapse into a coma?”  People are grateful for the sympathy but they want the details.  In many cases, the details are not an admission of negligence.  No physician is perfect.  Many things can go wrong in a medical procedure that is performed with care that is state-of-the-art.  An adverse outcome is not synonymous with negligence.  If we didn’t acknowledge the possibility of bad outcomes despite superior care, doctors would be forced to perform only risk-free procedures.  Even so, the line between a bad result with proficient care and a bad result caused by substandard care can be a fine one and may be blurred by circumstances.  Be prepared for the possibility that you and your patient’s lawyer will draw that line differently.

In addition, keep in mind where you are.  Your group may have satellite offices throughout the tri-state area.  You may be in Kenwood one day and Covington the next.  Unlike Ohio and Indiana, Kentucky has not enacted any statute to protect a doctor’s expressions of sympathy.  Anything you say to a patient or the family is up for grabs.

Being a doctor doesn’t yet mean “never having to say you’re sorry.”  When your patient has an outcome other than what you intended, however, it pays to be cautious in your explanation about what happened.

If you would like more information about these issues, please contact Scott Thomas.   He welcomes the opportunity to help you navigate these waters.  Scott’s direct line is 859.578.3862.  You can email him at sthomas@HemmerLaw.com.  If there is a particular topic you would like to see addressed in a blog, please send Scott an email with your ideas.

 

Key Considerations Before Mediation of a Business Dispute

Author By Todd McMurtryPosted on

Written By: Todd V. McMurtry

Today most courts require that litigants attempt to mediate a resolution to their dispute before the court will set the matter for trial. For this reason, it is critical that the parties evaluate a number of key variables before they go to mediation.  Here is starting point for the process.

  • What is the relationship between the two businesses? Is there the potential to preserve the existing business relationship so that the parties can continue to do business with each other after the dispute is resolved? Or, is this a one-time deal after which the parties will likely have no future business relationship? If there is a possibility that the parties might have a future business relationship, this potential opens up new opportunities to find a business solution to the dispute. Perhaps, as a portion of a settlement, one party can offer a discount on future business? If a future business relationship is unlikely, the negotiation will more likely focus on a financial solution.
  • What is the relationship between the principals? Do they get along? Has the situation become emotional in any way? Does the person participating in the mediation have knowledge of the events? Oftentimes, the principals have a long history. Sometimes, they are friends and would prefer to maintain that relationship. The opposite can also be true. No matter, in many situations, the principals will be living in the same industry for years to come.
  • What is the best outcome? Is it just about money? Sometimes a successful mediation requires an affirmative act by one of the parties. For example, if one construction company has multiple ongoing projects with one general contractor, the solution to the current problem may involve modifications to all of the existing business. Does a subcontract need to be revised? Does a particular project manager need to be removed? It is always important to discuss potential outcomes with your client before start of mediation. Both of you need to have established parameters to define what is an acceptable outcome.
  • When is the time right? Too often, mediation comes too early or too late. If it’s too early the parties may still be ready to fight. All lawyers know that litigation is hard on the client. But, if mediation comes too early, the client may not have experienced some of the negative reinforcement (legal fees and aggravation) that would encourage a resolution. Instead, the client may still have visions of a smashing victory in court. On the opposite end, if the client has already invested a significant sum in the litigation process, it may be forced to go to trial to have any hope of breaking even. So, think carefully about when you should suggest mediation.
  • Who is opposing counsel? As we all know, some attorneys just can’t help themselves. A win-win settlement is just not part of their vocabulary. When an attorney like this is on the other side, you should advise your client that mediation may not be productive.

It is always a good idea to reflect carefully on the questions presented in this this blog and those developed from your own experiences before deciding if and when to mediate. Once you make that decision, discuss these issues with your client to improve your chances for successful outcome.

Todd V. McMurtry is a Member at Hemmer DeFrank Wessels, PLLC.  He is a commercial trial attorney and Harvard trained mediator.  Todd has been married to his wife, Maria C. Garriga, for 28 years.  They have three adult children. If you have questions or comments, contact me at tmcmurtry@hemmerlaw.com.

 

Emails likely do not satisfy statute of frauds

Author By Christopher P. FinneyPosted on

In both commercial and residential transactions I recently have seen a spate of emailed communications purporting to amend a purchase contract.  Many times these are emails among Realtors “confirming” one claimed contractual modification or another.

What is the legal effect of these emailed communications?

Minor changes.

The nature of the emails I have seen typically involve changing (delaying) a closing date or waiving certain of the contingencies.  As the transaction unravels, the client approaches me and wants to enforce the contract as “amended.”  Thus, the question becomes: legally and practically, what effect on the original, signed contract do these emails have?

The answer: Likely none.  The original signed contract will likely stand unamended.

No signature.

As is addressed here, the statute of frauds, which is very similar state to state, requires two things for all contracts for the purchase and sale of real estate: (i) the contract must be in writing and (ii) it must be signed by the party “to be charged therewith,” i.e., the person we are planning on enforcing the contract against.

Because the emails in the cases I have recently seen are not accompanied by the adverse party’s “signature,” they likely will not be enforceable.  Thus, the Courts will probably look to the original, unsigned contract to ascertain the rights and responsibilities of the parties to the contract.

What is an amendment?

Most clients and their agents seem to know about the statute of frauds, and do in fact comply with it as to the original contract. Somehow, however, the message has not gotten through that this applies to every amendment or modification to the contract as well.

Changing a closing date, waiving a contingency, adding personal property to what is to be conveyed, or promising to make certain repairs pre-closing or post-closing are all amendments to a contract and need to comply with these basic provisions of the statute of frauds.

E-signatures still allowed.

Many clients and Realtors have adopted use of electronic signatures (such as DocuSign) to allow fulfillment of the statute of frauds by means of email and the internet for the original contract.  As is addressed here, this method does in fact fulfill the statute of frauds.  Thus, for these fast-developing “minor” amendments to a contract, e-signatures are fine as well.

Conclusion.

I suppose clients and their Realtors see memorializing these changes as not worthy of taking the time to properly document the same, or they misunderstand that these are in fact amendments to the contract. This is especially so with respect to fast-moving developments in a modern real estate transaction.

The rule is simple: the contract for purchase and sale of real estate and all amendments thereto must be in writing and must be signed by the party on the other side of the transaction.

New angle proposed to enforce Ohio Public Records law

Author By Christopher P. FinneyPosted on

The way Ohio Public Records law is written, a member of the public aggrieved by the failure of a public agency to produce requested documents as required by law may sue that public agency for those records, and if he prevails, receive an award of attorneys fees.

Unfortunately, a pair of decisions of the Ohio Supreme Court in January of 2015 effectively gutted Ohio Public Records law by holding that attorneys fees would not be awarded if the agency produced the disputed records before the conclusion of the litigation.  You may read those decisions in State ex rel. DiFranco v. South Euclid here and here.

Thus, the Supreme Court has empowered recalcitrant public agencies to ignore and play games with public records requests.

In response, the Ohio legislature is finally grappling with the issue. As today’s Enquirer reports, Senate President Keith Faber is considering a proposal to make quicker and easier Ohio Public Records complaints through the Ohio Court of Claims.  Read about that here.

The new process contemplates resolution in 75 days or fewer.  Presently, public records cases take two years or longer to resolve through the Ohio courts.

The proposal does not reinstate the attorneys fee awards taken from members of the public by the Ohio Supreme Court, but it should make proceeding pro se more practical.

 

That Company That Owed Me Money Just Went Under! Now What?

Author By Sean GarzaPosted on

  • posted: Apr. 21, 2016
  • Hemmer DeFrank Wessels PLLC
  • Uncategorized

Written By: Scott R. Thomas

You did everything right.  You negotiated a good deal.  You reduced it to a written agreement so both sides knew their obligations.  You held up your end of the bargain and delivered the goods and services you promised on time.  But now you’re not getting paid.  You call them but get no answer.  Your emails bounce back.  You drive by their office and you find they’ve gone out of business.  Finally, you catch up with one of the principals who cavalierly tells you: “Your contract was with the corporation, not with me.”  You drive home wondering how you’re going to pay for your labor and material costs.  Don’t give up hope yet.

People create corporations for a variety of reasons.  One of those reasons is to permit the owners to limit their liability to the amount of their investment.  A corporation is a separate “person” in the eyes of the law.  Typically, a shareholder of a corporation or member of a limited liability company is not held liable for the debts of the company.  Typically . . . but not always.

A court may permit a creditor to enforce a debt against the shareholders of a corporation in certain circumstances.  Courts call this “piercing the veil” of the corporation.  This is an equitable remedy that invokes the Court’s powers to do justice to the parties.  While each state has its own tests, the principles applied are similar.  The Court will look at the facts to determine whether the owners so dominate the corporation as to deem it their “alter ego.”  In such instances, courts rule that the domination by the shareholders has destroyed the separate character of the corporation, i.e., that the company was a “mere instrumentality” of the shareholders.  In addition, the Court will require evidence that allowing the corporate liability shield to stand would be to promote fraud or injustice.

In considering whether to bring a claim against the owners, you should weigh the evidence you think you can be put before the Court.  Successful veil-piercers can point to various actions that show the line between the owners and the corporation has blurred or disappeared, including:

  • The owners did not “capitalize” the corporation by investing enough money to sustain its operations;
  • The corporation failed to issue stock;
  • The corporation failed to observe “corporate formalities,” e.g., having meetings, taking minutes, etc.;
  • The corporation failed to pay dividends;
  • The corporation is insolvent;
  • The officers or directors of the corporation did not perform the duties associated with their office;
  • The corporation failed to maintain the kinds of records required by law or those that are customarily kept by a company in that industry;
  • The funds of the corporation were “commingled” or kept in the same accounts as the private funds of the owners;
  • The owners diverted assets of the corporation to an owner or third party for less than fair market value, often for little or no consideration;
  • The corporation engaged in transactions at less than arm’s length with shareholders or third parties;
  • Shareholders made personal guarantees of corporate debts;
  • The corporation was created merely to mask the unlawful activities of the owners;
  • The corporation is just a “dummy” corporation for a corporate parent who pays its employees and expenses;
  • The corporation does business predominantly with its corporate parent (or grandparent); and
  • The parent company uses the corporation’s property as its own.

As the debtor company circles the drain, the pressure on the owners may induce them to engage in some of these activities.  The mere fact that the company has collapsed and cannot pay your bill does not mean the Court will pierce the veil.  If you can demonstrate that justice requires the debt be passed to the shareholders, however, you can pursue your claim against them.  The owners, of course, would be allowed to assert any defenses that the company would have been entitled to raise.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

 

Answers to some questions on the Duke Energy Class Action settlement

Author By Christopher P. FinneyPosted on

NOTE: the deadline to file a claim is April 13th.  Please act quickly.

The Duke Energy class action settlement has generated a record amount of traffic on our firm’s web site.  That’s a good thing, because virtually every residential and commercial customer of Duke Energy in southwest Ohio that owned property from January 1, 2005 to December 31, 2008 is entitled to a refund, in some cases a significant one

We have had a few questions from clients about the settlement.  We checked and got you the answers:

  1.  If I owned a property during the relevant time period, but have since sold it, may I still file a claim?  Yes.
  2. If I can’t recall the addresses of all of the properties I owned during the claim period (we have, for example, home builder clients with multiple, rotating model homes), can I file a claim for those?  The class action attorneys are looking into this further for us, but probably not.  The claims process requires the name of the property owner and the identity of the property in question.

If you want to file a claim, log in here and follow the instructions.  It only takes a few minutes.

The deadline to file is fast approaching: April 13th.

Coming Soon: Major Changes to the Fair Labor Standards Act that Promise to Impact Nearly Every Kentucky Business

Author By Todd McMurtryPosted on

Written By: Todd V. McMurtry

The Fair Labor Standards Act (“FLSA”) requires that most employees be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half the employee’s regular rate for hours worked over 40 in a workweek.

Section 13(a)(1) of the FLSA, however, provides an exemption from the minimum wage and overtime pay requirements for certain executive, administrative, and professional employees. This exemption is commonly referred to as the “white collar” exemption. In 2015, the Department of Labor (“DOL”) announced major changes to the “white collar” exemption in an effort to increase the number of employees who are eligible for overtime pay. These changes will significantly impact nearly every employer in Kentucky and across the country.

Currently, to qualify for the “white collar” exemption, an employee generally must (1) be salaried; (2) be paid at least $455 per week ($23,660 annually); and (3) primarily perform executive, administrative, or professional duties. The DOL’s proposed changes, however, include raising the minimum salary level to the 40th percentile of weekly earnings for full-time workers. This change would raise the salary threshold to qualify as “white collar” from $455 per week to $970 per week in 2016 ($23,660 to $50,440 annually).

The DOL sent the proposed changes to the White House Office of Management and Budget for final review in mid-March 2016. Experts expect the changes to take effect in just three months. With major changes expected in July, employers should begin to take action now.

Employers should perform internal FLSA audits to determine which employees will be affected by the “white collar” exemption changes. The DOL anticipates that the changes will bring nearly 4.7 million currently exempt employees within the scope of the FLSA’s overtime pay provisions. As part of the internal FLSA audits, employers should consider whether it is necessary to update job descriptions to ensure compliance.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation.  FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

 

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