Get It In Writing

or you might pay for it later

If you don't get it in writing you don't have a deal. It may sound basic but it might surprise you how often this is a problem in real estate investing.

This is not exclusive to real estate contracts either.

There is one golden rule and it stems from eons of contract case law. When I took business law in college, I was taught as a general rule of thumb that if there is more than $5000 involved in an agreement, it must be in writing to be enforceable.

Here is a quote on the subject from the following webpage:

http://realtytimes.com/rtcpages/20020311_contract.htm

"The Statute of Frauds has been incorporated into the Uniform Commercial Code, which has been adopted (with some variations) in all 50 States in the Union.

In general, the law reads as follows:

Except as otherwise provided in this section, a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. (Emphasis added)."

Don't think for a minute that you can rely on a bank in a short sale negotiation if you don't get committments - made on the phone by the loss mitigation or foreclosure department - in writing.

Consistently, I hear personally from associates in the pre foreclosure business that have had a number of deals blow up at the last minute - after getting the bank to agree to a short sale on the phone. When they got to closing, the bank refused to honor it.

These individuals know better - but it's easy to forget details when you have multiple deals in process and you get really busy. Just remember, if you don't have a confirmation in writing, you don't have a short sale.

If you need more time to close an escrow because the financing gets hung up, a phone confirmation is not adequate. An addendum, specifying the dates of the extension - and possible additional consideration - must be signed by both parties prior to the end of the expiration date.

A seller can agree verbally to an extension on the telephone, but technically - verbal extension or not - the seller can keep the binder deposit, and sell the property to someone else - without written confirmation.

Generally, a confirmation email is considered to be valid. But a signed fax is better. In practice, I get the fax signed and in my file and then send a hard copy via the mail to get a signature - with a self addressed stamped return envelope included.

Regardless how you do it, get it in writing.

A diligent real estate agent found me a junker and we proceeded to put in an offer. The offer was accepted although the back and forth fax process ended up being almost forty fax pages.

Amidst the hubub, I made the mistake of allowing a deposit to be tied to the inspection instead of subject to the financing.

The deposit refund deadline came up and in the process of getting the loan guaranteed, I accepted a verbal committment from the guarantor on the loan (a doctor with a very strong financial statement). Bear in mind this is a 100% financing program specifically for rehabs and renovation.

This doctor was a personal referral from the loan broker's roladex. I accepted the verbal from the doctor after I informed him that I had a 5:00 p.m. deadline to get my earnest money deposit back or pass the point of no return.

It took two and a half weeks after that to get the doctor's attorney to agree to the terms of the guarantee. In addition, the loan package (which I got one day and returned the next) was held up for an additional two weeks in the doctor's possession.

After an initial ten day closing extension from the seller (and it was difficult to get it in writing after the fact), the second closing date came and left without the doctor completing and returning the loan documents.

It is not clear at this point if the seller will extend again or not.

Here is the point of this discussion:

If you have a deadline for a non-refunable deposit, make certain that you attach that responsibility to the funding source if you use private money.

In other words, if they agree to fund your deal, make certain that you have their committment that if they do not make the deadline, they must repay you the deposit - and get it in writing.

In addition, do not attach a deposit deadline to an inspection, make it subject to the financing, so that you can get it back - and GET IT IN WRITING.