Items contained in, or omitted from, purchase and sale agreements are very important if you plan on providing financing for the purchaser. For this reason, it can be a good idea to have a competent real estate attorney draft your purchase and sale agreement. Details involving the terms of the loan and any special clauses you will include should be disclosed in this agreement. Acceptance of a purchase agreement means that your property is held off the market until closing occurs or the agreement is voided. You should therefore obtain preliminary data from the purchaser concerning his or her ability to repay the lien before you accept a purchase agreement. Once you accept the agreement, you can then gather additional in-depth data on the purchaser. Placing multiple escape clauses into your purchase agreement is highly recommended. An escape clause allows you to avoid liability or performance of contractual obligations under certain conditions. In other words, these clauses can provide you a way out of the purchase agreement, thereby stopping the sale of your property to the prospective purchaser.

Examples of escape clauses that you, the property seller may want to consider would include being able to obtain acceptable credit report(s) on the purchaser(s), acceptable job history and proof of income, acceptable title policy (lender’s policy), and all other variables which you deem to be important. You cannot put too many escape clauses into your contract. Even if the purchaser has terrible credit, no job, and/or no income, you can choose to go through with the sale of your property. However, if you choose to not go through with the sale, escape clauses allow you to void the purchase agreement and place the property back on the market, due to the purchaser failing to meet one of your requirements. It is not uncommon for escape clauses to border on the ridiculous. Remember, the intent is to allow you to escape out of the purchase agreement. Ask for something you doubt the purchaser will go for. You can always choose to go ahead with the sale if (when) they fail to meet one of your conditions. Real estate attorneys are a wonderful resource for escape clauses. Additionally, the time period allowed for investigations and property inspections should be specified within the purchase agreement. Should either party find something unsatisfactory, the terms of the purchase agreement can then be renegotiated. It is not unusual for buyers and sellers to counter the offer multiple times until a final agreement is reached or the offer dies.

The agreement should also detail which party pays for closing costs, as well as the time allowed for closing and what happens if either party defaults. Purchase agreements are extremely flexible. Take advantage of this flexibility and create a well-written purchase and sale agreement so that you can prevent problems that may arise later on. Note: Clarify that your agent is acting only on your behalf. Try to avoid hiring a “dual agent.” Such agents work on behalf of both the buyer and seller. You want your agent to have a fiduciary responsibility to you alone. Protect yourself by adding protective language and escape clauses to the earnest money agreement. Try to avoid hiring a “dual agent.” You want your agent to have a fiduciary responsibility to you alone.

Special clauses, often called protective clauses, are additions you can place into your security instrument. The type of additions you can place into your security instrument will vary according to state law. Speak with your attorney about the following clauses and any others he or she might suggest.

Assignment Clause. This clause states that the holder of the obligation (you) can assign interest in the obligation to a third party without permission from the borrower. It essentially clarifies your right to sell or assign your interest to some one else without contacting the property owner.

Credit Inquiry Clause. This clause states that the holder of the obligation has the right to make credit and employment inquiries of the payer at any time in the future. This clause clarifies your right to such information as well as the payer’s duty to supply it.

Servicing Clause. If you choose to use a servicing company, this clause states that the payer must consent to the release of servicing upon request or risk being considered in default.

Appraisal Clause. Since full appraisals are some times necessary to establish the value of a lien, this clause could be a lifesaver. Its purpose is to allow an appraiser access to the inside of the subject property upon your request.

Right-To-Sue Clause. This clause clarifies your right to personally sue the purchaser(s) should default occur.

Assumption Clause. An assumption clause makes the note due and payable in full should the property be sold, assigned, or transferred without the written consent of the note owner. It provides you with additional protection from unwanted assumptions.

Tax and Insurance Clause. This clause requires the property owner to send you proof that property taxes are paid. It can also be used for homeowner association dues as well.

Notice of Default Clause. This clause requires the property owner to send you proof of payment on any senior liens, or risk being considered in default. This clause is used by junior lienholders who want assurance that senior liens are current.

Local Agent Clause. This clause requires the property owner designate a local agent to whom notice is served in case of default. This is a good clause to use when the purchaser resides outside the United States or if his or her address is unknown.

State laws vary, sometimes tremendously. Language that is binding and appropriate in one state may not be in another. As ridiculous as it sounds, a clause that is appropriate in one state may only be enforceable in a different state if it is typeset in a certain way (such as in bold or capital letters). Likewise, some clauses must be in the note and the deed of trust to be enforceable. Always seek competent legal counsel when structuring and drafting a note. Protect yourself by adding protective clauses to your note. A clause that is appropriate in one state may only be enforceable in a different state if it is typeset in a certain way. Likewise, some clauses must be in the note and the deed of trust to be enforceable. Always seek competent legal counsel when drafting a note. Have an experienced real estate attorney draft the note. Be careful whom you choose to draft your note. Some real estate professionals and attorneys draft documents that are virtually worthless. They may not have considered or they may simply be unfamiliar with how notes are treated on the secondary market. The secondary market is so new that the information in this manual is not common knowledge. Remember, the note you create will be in effect long after closing. The best way to protect yourself is through education, investigation, and, most important, competent legal counsel. If you choose to use a standard deed of trust such as those which you can obtain from the local Board of Realtors, take it to your attorney and have additional safeguards added to it. While standard contracts are perfectly recordable, they are not tailored to protect your interests. More important, by using generic forms you miss the opportunity to obtain competent legal counsel. The changes your attorney makes to the standard contract may be minimal since the contract is approved by the local Board of Realtors. As such, your attorney costs should also be minimal. Remember, legal counsel can save you a lot of money in the long run.

The secondary market is so new that the information in this manual is not common knowledge. The best way to protect yourself is through education, investigation, and, most important, competent legal counsel. Your note is money in your hand. Notes are negotiable, transferable documents. Always know where your original documents are. You cannot sell what you cannot find. Should you lose your original documents, they will need to be recreated in order for you to sell all or part of the note. This costs you money and more importantly, time. If you keep your original documents at your home, store them in a fireproof box. Better yet, store them away from your home in a safe deposit box at a bank or with your servicing company. If you store them away from your home, always keep copies for your own files. Your note is money in your hand. Always know where your original documents are. If you keep your original documents at your home, store them in a fireproof box. Notes are purchased at a discount over the remaining balance due. However, by paying you some cash now and the remainder at a later date, we can give you the maximum amount possible. More often than not, the often equal to or greater than the full face value of your note. The value of a note is determined by many factors. For example, a note secured by raw recreational land will be worth less than a note secured by a single-family home. This is called a simultaneous closing. It is a great way to sell your property fast and receive all cash at closing. Regardless of whether you are a home seller or home buyer considering this option, you should contact us prior to entering into a sales agreement with the other party. We can give you an idea of what the market value of the proposed lien would be. We can purchase all or part of your lien. Partial purchases can be very flexible, with many variations on how the sale is structured. A common example of one type of a partial purchase is when we buy a stream of payments. After we receive those payments, the note reverts back to you and you begin collecting the monthly payments again. A second example of a partial sale involves keeping a certain portion of each payment. This way you get a lump sum of cash now, plus an ongoing cash stream. Partial purchase options are flexible and often vary greatly from client to client depending on his or her needs. You may find the flexible funding option attractive for several reasons. Flexible funding options may also be desired because the note seller is living on a fixed monthly income and needs to continue receiving monthly payments. This is often the case with elderly or disabled persons. Another attractive aspect of the flexible funding program is that the amount owed to you is 100% guaranteed. This means that if the payer defaults after you sell your note, that default has no effect on you. You will continue to receive the amount owed to you without change.