PURCHASE-AND-SALE

AGREEMENTS:
FOLLOWING THE MONEY

THE PURCHASE PRICE

How do you describe it in the

contract?

Calculating Affordability

What does it cost to buy a house?

Calculating Affordability

the sales price and

takes into account the amount of the
buyers cash down payment and
the buyers likely share of closing
costs including

title,
escrow,
recording, and
loan fees.

And in NY, the mansion tax

4

ONGOING COSTS OF
OWNERSHIP

What are these?

ONGOING COSTS OF
OWNERSHIP

projected mortgage payments,

casualty insurance premiums,
property taxes,
maintenance costs, and
homeowner or coop/condo
association dues.
6

Formula for Pricing

Formula Pricing

A home-builder might
purchase acreage for an
agreed sum per buildable
lot.defining buiidable as the
number of lots the local
government allows in
approving the builders
subdivision map
8

Formula for Pricing

in gross or by the acre

When is land sold by

Quantity?

In this case the defendant entered into

a written contract with the plaintiff by
which he granted and sold and
conveyed to him wood, timber and trees
now growing standing and being upon a
described parcel of land being 20 acres
of land more or less off from the South
end of a farm. Seller agreed to
covenant and warrant and defend the
title to the wood timber and trees sold
transferred and conveyed against any
person or persons who challenged title
10

Prior to the execution of the contract during

several years of litigation between the
defendant and the owners of adjoining woods
who also claimed title to all of the defendants
lot, everyone was aware of these claims.
Question as to where the west line should be
drawn. The parties discussed the dispute but
nevertheless executed the contract. The
buyer after closing on the property, cut the
wood timber and trees to the line pointed out
to him when he inspected it with the seller.
An action was commenced against him by the
owners of the adjoining lands for trespass and
resulted in a judgment against him for the
value of the trees that he had cut and
removed, all of which had been within the line
as indicated to him. Buyer therefore sought
to recover from the seller and now pay an
expense on the trespass action.
11

MULLEN v WASHBURN
224 N.Y. 413, 121 N.E. 59
(1918)
The east line of the property which is the line in

dispute, was described as being at the limit of

the lands now or formerly owned by another
farmer. Monuments or other outward evidence
of location were not presented. The court held
that where words of general description are
used in the deed, oral evidence may be resorted
to locate the premises intended to be conveyed.
The parole evidence is not given to contradict
or vary the language, but to identify the subject
matter and to show what the grantor intended
to convey. Thus parole evidence is used to
define and would be permitted to be used

12

How precisely must

the property be
described?
BOYAJIAN v CASEY 52 A.D.2d 1014, 383

N.Y.S.2d 1114 (1976)

Plaintiff sought specific performance of
a contract for the sale of real property
described in that contract as 106 acres
and a reference to where it is recorded.
Except camp with approximately 2
acres seller gives right of way in front of
camp on Riverbank. The lower court
held that this description was
inadequate to satisfy the statute of
frauds
13

BOYAJIAN v CASEY

. The court held that the description of the

property need not be as exact and detailed as a
description in a deed. It need only be described
with such definiteness and exactness as were
permitted to be identified with reasonable
certainty. Moreover, the court said if this test is
met all evidence would be admissible to enable
the court to identify precisely the property to
which the contract relates. Here the main
parcel was adequately described. The only
question was what was included in the 2 acre
camp. However, because the contract further
specified the general location of the camp,
parole evidence could be used to define its
exact location.
14

What is the role of the survey?

Who should demand the
survey? Who can rely on the
survey? Who wants the title
search?
What is the role of
representations and warranties

15

The initial Deposit.

The amount of the initial

deposit is negotiable, though
strongly influenced by local
custom and practice.
Good Funds

16

Allocating the Cost of

Settlement Services
Between the Parties

17

Pro Rations of Property Taxes,

Casualty Insurance and
Mortgage Payments

18

FINANCING
CONTINGENCIES

19

The Default Rule: In the

absence of a financing
condition the transaction is
assumed to be an all cash
transaction.
20

sellers should and usually do

require a representation from
the buyers that they possess
access to sufficient funds to
complete their purchase
obligation.

21

What does subject to

financing mean?

22

Buyers need a subject to financing

condition allowing them to rescind
and get back a full refund of their
deposit if they cant find suitable
financing. In a properly drafted
sales contract, the buyer has a right
to cancel the purchase obligation if
the buyer both fails to obtain an
acceptable loan commitment letter
within a specified time, and the
buyer promptly notifies the seller of
this failure.
23

Basic Financing Terms

Principal

Interest

Points

Monthly payment

Amortization
24

Financing issues
include?

25

Financing issues
include

the amount financed,

the interest,
the terms of the loan and
even the form of the mortgage

26

Three Possible Financing

Contingencies

A financing contingency may be

quite specific in identifying the
terms of the loan the buyer would be
obligated to accept.
It could leave those terms subject
to Buyer obtaining satisfactory
financing.
It could call for the buyer to accept
available financing
27

How much effort to

secure a mortgage?

28

BLASK v MILLER
186 A.D.2d 958, 588 N.Y.S.2d

940
(1992)
absent
an express promise to

apply to a particular bank or to

make a specified number of loan
applications, a mortgage
contingency clause only requires
a good faith attempt to procure a
loan in the amount specified. If a
contract says diligent efforts as
this contract did then something
more than good faith is required.
29

The Contingency Risk

When does the Seller bear the

risk?

When does the Buyer bear the

risk?

30

CREIGHTON v MILBAUER
191 A.D.2d 162, 594
N.Y.S.2d
185
(1993)

The court stated that a mortgage

contingency clause creates a
condition precedent to the
contract of sale. The burden to
establish that a condition was
prevented or rendered
impossible in order to avoid
liability of the contract rests
upon the party seeking to
enforce it.
31

KAPUR v STIEFEL
264 A.D.2d 602, 695 N.Y.S.2d
330 (1999)

The court held that when a

condition of a mortgage loan
commitment is not fulfilled through
no fault of the purchasers, their
performance is excused so long as
they acted in good faith.
32

Good Faith Effort to

Procure Loan

Buyers are legally obligated

to make the effort of applying
in good faith for a loan at a
reasonable number of lenders
and completing the required
applications for financing.

33

Is Contingency to be Based on
Application, Commitment, or
Funding

34

Buyers can make their obligations

to purchase contingent on applying
for a loan, receiving a loan
commitment, or actually obtaining a
loan. Buyers prefer the financing
contingency to be based on the loan
actually being funded. There is a
world of difference between money
promised and money delivered.
35

Two key contingencies

property appraisal and credit

check

36

The Financing
Contingency Time Period

37

Enforceability of Financing
Contingency Timing
Provisions

38

PURCHASE-AND-SALE
AGREEMENTS: THE
SUBJECT PROPERTY

39

How do you assure your

client of the quality of
the subject property?

40

Quality issues include:

41

Quality issues include:

structural and mechanical issues

environmental issues
title issues

42

The contract should:

clarify expectations
identify who is responsible to perform the
expected activity
analyze how deviations should be
handled
discuss how the information is to be
gained and by whom
when disclosure is to be discussed.
Which is the best way to handle
disclosure by statute or by contract?
43

INSPECTIONS
FINDING AND CONTRACTING
WITH A GOOD INSPECTOR
WHAT TYPE OF INSPECTION?
WHAT DOES IT INCLUDE?
Brokers inspections
44

WHEN INSPECTIONS
SHOULD TAKE PLACE

before contracting

within a week or two of signing the

contract

After remediation

Before closing
45

INSPECTORS DEFENSES
AND LIMITS TO LIABILITY

the defect wasnt there when the

inspection took place;
the defect wasnt the sort the inspection
was designed to cover;
the seller should bear the loss for
concealing or failing to reveal the defect;
the buyer didnt rely on the report and
would have purchased anyway; and
the inspection was done in a
workmanlike way. It wasnt negligent
46

THE LAW IN NEW YORK

Effective Dec. 31, 2005, all

individuals or other business
entities, conducting residential
home inspections on buildings
containing one to four dwelling
units must be licensed pursuant to
Article 12-B of the Real Property
Law,
RPL 444-d et seq.
47

THE LAW IN NEW YORK

However, the statute provided 'no guidance as to what is the

legal effect of a purchaser relying on the home inspection
report of an unlicensed individual. Brady v. Posse NYLJ 3/7/07
col3, p20

Carney v. Coull Building Inspections Inc., Richmond Co. Index No. SCR
68/07. Customer Limited to Filing Complaint with Department of State -Inspector May Limit Liability to Fee Charged -- Inspector's Failure to
Comply with RPL Art. 12-B Constitutes Deceptive Act and Practice Under
GBL Art. 349

The court further found that:

'[S]ince in regard to other licensing statutes, the Legislature
has specifically retained common-law causes of action for
injured parties, the Legislature's silence in this regard must
mean that all common law causes of action are no longer
applicable and that an injured consumer is limited to filing a
complaint with the department of state,' i.e., the statute has
'pre-empted any right to commence a civil action for damages.'
48

NY Disclosure
Statement

49

Representations and
Warranties

Whats the difference?

50

IN MAKING REPRESENTATIONS,
SELLERS ARE MAKING STATEMENTS
ABOUT THE CURRENT
CONDITION OF THE PROPERTY.
IN PROVIDING WARRANTIES,
SELLERS MAY BE MAKING
PROMISES ABOUT EXISTING OR
FUTURE CONDITIONS.
51

FRAMING THE BUYERS

REMEDIES UNDER AN
INSPECTION CONTINGENCY
CLAUSE IN A PURCHASE-ANDSALE CONTRACT
52

Standards of
Acceptance

Absolute Discretion or
Reasonable Dissatisfaction?
Active or Passive Removal of
Inspection Contingency?
Take It or Leave It. or
Resolution Period Formats?

53

PREDICATES OF LIABILITY FOR

SELLERS OF DEFECTIVE
HOUSES

CAVEAT EMPTOR
AS IS Clause

54

As Is CLAUSES

An as is clause is meant to negate

the existence of any representations
by the seller as to the particular
condition, fitness and type of
construction of the premises sold. In
this way sellers hope to disclaim any
representations or warranties and,
thus, shift the risk of property
defects entirely onto the buyer.
55

What does the is in as

is refers to?

56

What does the is in as

is refers to?

The is in as is refers to the

condition of the property on
the day the contract was
entered into or the property
inspected.

57

Limits on the Efficacy of

As Is Clauses

Not a license to lie.

Differing views on whether seller is
absolved from duty to disclose.
The seller cannot obstruct
inspection.
The seller cannot lie in response to
a question about a condition on the
property.
58

New York Law

The general rule in New York is

that the vendor has no duty to
disclose unless there are hidden
defects which he knows or
should have known which may
present an unreasonable risk of
harm to persons on the premises
which he may anticipate that the
vendee will not discover.
59

New York Law

RODAS v MANITARAS 159 A.D.2d 341, 552

N.Y.S.2d 618 (1990)
The court held that while a general merger
clause will not operate as a bar to parole
evidence of fraud in the inducement, where
parties expressly disclaim reliance on the
representations alleged to be fraudulent, parole
evidence is those representations will not be
admitted.
However, the court states that a party seeking
to avoid a specific disclaimer clause must
demonstrate that the facts alleged to have been
fraudulently concealed could not be discovered
through the exercise of reasonable diligence .
60

RODAS v MANITARAS 159

A.D.2d 341, 552 N.Y.S.2d 618
(1990)
if the facts represented are not

matters peculiarly within the parties

knowledge, and the other party has the
means available to him of knowing, by
the exercise of ordinary intelligence, the
truth or the real quality of the subject of
the representation, he must make use of
those means, or he will not be heard to
complain that he induced to enter the
transaction by misrepresentations.

61

Doctrine of Merger

What does it mean?

How does it function?

62

Doctrine of Merger

This doctrine provides that

everything that comes before the
closing is merged into the documents
exchanged at the closing. As a
consequence, all rights, warranties
and obligations from the executory
contract are no longer operative
between the parties.
63

Exceptions to Merger

non-title matters, e.g. payment of

broker, certain repairs
fraud,
mistake,
collateral rights in the contract of
sale.
64

Exceptions to Merger

No post closing adjustments,527

SMITH STREET BROOKLYN
CORP. v BAYSIDE FUEL OIL
CORPORATION 262 A.D.2d
278, 691 N.Y.S.2d 560 (1999)

65

Exceptions to Merger

Mistake = when one of the parties

demonstrates mutual mistake in the drafting
of the contract documents. This must be
established by clear and convincing evidence
that:
the instrument does not conform to the intent of
both parties.
The claimant was mistaken as to the content of the
instrument and the other party knew of the mistake
but remained silent, or
The claimant was mistaken of the actual content
due to the fraudulent affirmative behavior of the
other party.
66

Exceptions to Merger

Collateral Rights = This applies

when the sellers performance
involves some act collateral to
the conveyance of title, with the
result that those obligations
survive the deed and are not
extinguished by it. E.g. removal
of equipment from the property.
67

Contractor, Statutory and

Builder Warranties

Consumers who purchase newly built

homes from professional home-builders
or subdivided lots from professional
developers are often protected by
statutory warranties, fraud, negligence,
state deceptive trade practices laws,
and court-imposed implied warranties of
habitability and workmanlike
construction.
68

Contractor, Statutory and

Builder Warranties

There is also the creation of

warranties by the state hardly
implied such as the Home
Owners Warranty Program. It
is a voluntary program. The
builder pays .33% of the sales
price of the house to the HOW
Corp as an insurance policy.
69

MISREPRESENTATIONS

The seller of a pre-owned

house, generally protected by
the rule of caveat emptor, can
forfeit that protection by
making a misrepresentation

What are the elements of fraud?

70

Elements of Fraud

A representation has been made

The representation is false
The representation is material
The speaker knows that it is false
The speaker intends for the hearer to
rely on the false statement
The hear could reasonably anticipate
to rely on the statement
Consequent injury
71

The Element of Buyer

Reliance

is the buyer entitled to rely

on the sellers
misrepresentation when no
one stopped her from
contracting for a professional
inspection?

72

COPELAND v NATHANIEL 164

Misc.2d 507, 624 N.Y.S.2d 514
(1995)

The court discussed whether a constructive

fraud could have existed here. It stated that
such a cause of action requires a confidential
relationship or a situation where one party has
superior knowledge over the other. In this case
there was no misrepresentation of fact
regarding termites or chlordane. Plaintiffs had
access to the same information as the
defendants and defendants informed plaintiffs
of all they knew on the subject prior to the
closing. Under the circumstances the subject
claims do not lie.
73

New York Law

A sellers attorney owes a duty to a non-client

buyer who the attorney knows or should know
would rely on the attorney in his or her
professional capacity. The NY Court of Appeals has
held that an attorney may owe a duty to specific nonclients who rely on the attorneys representations. A
duty is created when:
There is an awareness by the maker of the statement
that it is to be used for a particular purpose;
There is reliance by a known party on the statement in
furtherance of that purpose; and
There is some conduct by the maker of the statement
linking it to the relying party and evincing its
understanding of that reliance.
74

MANDATED SELLER
DISCLOSURE OF DEFECTIVE
CONDITIONS

In most states the ordinary home

seller is legally bound to disclose
fully all known, material, latent
defects not known or readily
apparent to the buyer

75

Material Defects and Duty

to Disclose

COPELAND v NATHANIEL 164 Misc.2d 507, 624

N.Y.S.2d 514 (1995)
The Court found that in New York, a party has
duty to speak in three situations:

where the party has made a partial or ambiguous

statement on the theory that once a party has
undertaken to mention a relevant fact to the other
party and can not give a half truth;
the party stands in a fiduciary or confidential
relationship with each other;
where one party has superior knowledge not
readily available to the other and knows that the
anther is acting on the basis of mistaken
knowledge.
76

Disclosing the
Presence of Ghosts

The court stated that where a condition

which has been created by the seller
materially impairs the value of the
contract and is peculiar within the
knowledge of the seller or unlikely to be
discovered by a prudent purchaser
exercising due care with respect to the
subject transaction, non-disclosure
constitutes a basis for recision as a
matter of equity.
STAMBOVSKY V ACKLEY 169 A.D.2d 254,
572 N.Y.S.2d 672 (1991)
77

Must you disclose a

stigma on the
property?

78

Facts & Issues: Connie sold a house to

Kitty right after Connie's teenage
daughter was raped at knife point he the
house. Kitty also has a teenage daughter.
After the closing, Kitty learned of the
recent rape and another one next door.
Within several months there were two
more in the neighborhood. Kitty sued for
non disclosure of stigmatizing events.

79

Remedy for failure to

disclose

Absent a sellers express

warranty in the contract, the
buyers sole remedy for an
undisclosed defect is
rescission

80

Statutory Duties to
Disclose

Interstate Land Sales Full

Disclosure Act
CHAPTER 456 S. 5339-A REAL
PROPERTY--DISCLOSURE OF
DEFECTS Approved November 13,
2001, effective as provided in
section 3
81

Fixtures on the
Property

What is a fixture?

Is it included in the sale of the

property?

82

CASUALTY LOSSES
DURING THE EXECUTORY
PERIOD

What happens if the home burns

down during the executory
period?

83

Equitable Conversion

What is it?

84

Equitable Conversion

Both parties have the right to deal with

their respective interests, that is to

buy
sell
assign
pledge
mortgage
devise
insure
85

CASUALTY LOSSES
DURING THE EXECUTORY
PERIOD

If both parties have an interest in

the property, who bears the risk
of loss during the executory
period. This risks include:

fire
storm
taxes
sudden environmental harm
86

New York Law

Uniform Vendor and Purchase of Risk Act found in the

General Obligations Law 5-713(11). Part One,
subsection A states that if neither legal title nor
possession is transferred to the purchaser and the
property is destroyed without the fault of purchaser
or taken by eminent domain, the vendor, that is the
seller cannot force the contract and the purchaser is
entitled to recover of any portion of the price he has
paid. If there is only partial taking then neither the
vendor nor the purchaser is deprived of the right to
enforce the contract with the return pro-rated. That is
both parties can terminate the contract.
However, when legal title or possession have been
transferred to the purchaser, if all of it is destroyed
without the fault of the seller or is taken by eminent
domain, the purchaser is not relieved of the duty to
pay the price, nor is he entitled to recover nay portion
that he has paid.
87