Although home buyers sign a never ending pile of legal documents to purchase a home, arguably the most important document in the entire transaction is the purchase and sale agreement. In Oklahoma, the purchase and sale agreement most often used is the so-called “OKLAHOMA UNIFORM CONTRACT OF SALE OF REAL ESTATE (Surface Rights Only)” form supplied by the Oklahoma Real Estate Commission or one modeled very closely to this form. The “standard” form purchase and sale agreement is, however, far from standard.

From a buyer’s perspective, there are two major problems with the “standard” form purchase and sale agreement:

1.  It favors the seller, and

2.  It doesn’t adequately address such important issues as seller repairs, septic system compliance, radon gas, UFFI insulation, lead paint, mortgage rate lock expiration, certain title issues, and buyers’ access to the property while it is under agreement.

There are also deficiencies from a seller’s perspective as well.  This is why it’s imperative that home buyers and sellers alike retain an Oklahoma real estate attorney to modify the “standard” form purchase and sale agreement in order to best protect all parties’ rights and remedies, and customize the agreement to the particular aspects of the transaction. This can be done through a “rider” to the uniform purchase and sale agreement. In fact, the buyers’ attorney and the sellers’ attorney can attach two different riders to the agreement. My preference is to use my own form of agreement, especially in for sale by owner transactions where there is no broker involvement.

I’ll outline a few common issues not addressed adequately in the “standard” purchase and sale agreement. (Most of these are from the buyer’s perspective).

Mortgage Contingency

The “standard” purchase and sale agreement does provide a basic mortgage contingency which gives the buyer the option of terminating the agreement if mortgage financing falls through. However, for a buyer, the more specific you are in terms of interest rate, points, name of lending institution and definition of diligent efforts, the better. Buyers’ counsel should specify that the buyer will not be required to apply to more than one institutional lender currently making mortgage loans of the type sought by the buyer, and that the buyer may terminate the purchase and sale agreement unless the buyer obtains a firm, written commitment for a mortgage loan.

Home Inspection/Repairs

Although not common in Oklahoma, the better practice is for prospective buyers to complete the home inspection process prior to signing the purchase and sale agreement, and any inspection contingency provision becomes mainly for the purpose of the bank’s appraisal. However, what happens if the inspection results are not ready before the signing date or if the seller has agreed to perform repairs prior to the closing or give a credit at closing? In this case, a home inspection contingency clause should be clearly worded and, any seller repairs or closing credits should be meticulously detailed.

Septic Systems

If the home is serviced by an on-site sewage disposal system otherwise known as a septic system, inspection of the system is required. Failed septic systems can cost many thousands of dollars to repair or replace.  Thus, buyers would look to be released from the agreement if the septic system fails inspection.  Alternatively, buyers could be given the option to close if the seller can repair the septic system during an agreed upon time period, provided that the buyers do not lose their mortgage rate lock.

Radon Gas

Radon is a naturally occurring radioactive gas. The ground produces the gas through the normal decay of uranium and radium. As it decays, radon produces new radioactive elements called radon daughters or decay products which scientists have proven to cause lung cancer. Radon testing should be performed by buyers during the home inspection process. Elevated levels of radon (above 4.0 picoCuries per liter (pCi/l) can be treated through radon remediation systems. The purchase and sale agreement should provide for a radon testing contingency and the buyers’ ability to terminate the agreement if elevated radon levels are found, or the option of having the sellers pay for a radon remediation system.

Lead Paint

Buyers of property are entitled to have the property inspected for the presence of lead paint.   (Sellers are not required to remove lead paint in a sale situation). Because the abatement of lead paint can be costly, buyers typically look for a right to terminate the purchase and sale agreement if lead paint exists and the abatement/removal of it exceeds a certain dollar threshold.

Access

Often, when a buyer has signed the Purchase ans Sale Agreement, she can’t wait to get in there with her tape measure, paint chips and fabric swatches. Oftentimes overlooked but a cause of friction, is buyers’ ability to access the house prior to the closing. To avoid such friction, an access clause should be added to the purchase and sale agreement giving the buyer reasonable access at reasonable times with advance notice to the sellers-it’s still their house after all.

These are just a few of the issues not adequately addressed by the “standard” form purchase and sale agreement. There are many more.  Don’t make the mistake of relying on advice from brokers and agents. Brokers and agents serve one function – to bring the parties together. Unfortunately, in their effort to create more “value” for the consumer, real estate brokers have pushed that envelope in an effort to facilitate closing the deal. Properly, their role is still the one function. Oklahoma permits this function to go as far as helping the buyer fill in the blanks of an approved “Uniform” form of real estate contract (and you know what I think of that form), but Oklahoma law does NOT permit brokers to make changes to the form.  Brokers will try to skirt this limitation by the use of addenda in which they take an active hand.

Consider however, that it is the duty of lawyers to advise clients on the contracts themselves – “Uniform” contract and addenda alike (so that they’re helping the buyer frame the blueprint for the deal, rather than being kept out until it’s signed up) – and then to work to close the deal, getting proper title insurance coverage, helping to obtain a survey and reviewing it, reviewing the form of deed and bill of sale and their contents, etc.

I urge you to consult a qualified real estate attorney to help you draft the ideal Oklahoma “Uniform” purchase and sale agreement for you.

The slowdown in America’s consumer spending based economy has been the subject of daily news reports since the fall of 2008. That slowdown has had a predictable effect on retailers. Anchor tenants such as Circuit City, as well as regular shopping mall tenants such as Linens ‘N Things and K B Toys, and strip mall tenants such as Hollywood Video have all sought bankruptcy relief, with Blockbuster Video predicted to follow in their footsteps within a month.

The filing of a bankruptcy case by a retail tenant may immediately affect a commercial landlord adversely in multiple ways. First, upon the filing of a bankruptcy case, an “automatic stay” goes into effect. Unless the tenant’s lease has been terminated or has expired by its terms before the bankruptcy case is filed, the landlord is generally prohibited from taking any action to collect rent owed to it or to evict the tenant. This is true whether or not the landlord even knows that a bankruptcy case has been filed. A landlord that takes action against the tenant in violation of the automatic stay can be liable to the tenant for compensatory damages, attorneys’ fees, and even punitive damages.

Second, even if the tenant has been paying rent regularly and files for bankruptcy with the intention of reorganizing and staying in business, the bankruptcy filing is likely to disrupt the payment of rent. Tenants who file for bankruptcy generally are not allowed to pay debts that came due before the bankruptcy filing. The Bankruptcy Code authorizes, indeed requires, tenants to pay rent that comes due after the bankruptcy filing at the rate specified in the lease until the tenant “rejects” the lease unless the bankruptcy court extends the time for payment. However, a tenant whose rent was due on the first of the month, but that had not paid rent when it filed for bankruptcy on the second day of the month, would not be required to pay rent until the first day of the next month when the first post-bankruptcy rent payment came due and would have difficulty convincing its other creditors or the bankruptcy court that payment of the pre-bankruptcy rent was appropriate when other pre-bankruptcy debts were not being paid.

Third, a tenant may request an extension of the time for making the decision to affirm or reject the lease. That decision generally must be made within 120 days of the bankruptcy filing and the bankruptcy court may only extend that decision period for a maximum of an additional 90 day period unless the landlord consents to the extension. When a bankrupt tenant decides to “assume” a lease, it agrees to continue to be bound by the lease notwithstanding the bankruptcy filing. It is required to (i) cure, or “promptly cure,” economic defaults, except those that are penalties, (ii) compensate or provide assurances that it will promptly compensate the landlord for prior defaults, and (iii) provide “adequate assurance of future performance” of the lease.

Of course, what is “prompt” and “adequate” is determined by the bankruptcy court whose views may differ from those of the landlord. Technically, the tenant must either assume the lease as it is written or reject it. It cannot modify the terms of the lease without the landlord’s consent. However, tenants frequently use the threat of rejecting the lease and leaving the landlord with empty space as a lever to force landlords to renegotiate leases and then assume the leases as modified.

Assumption may be coupled with an assignment of the lease by the bankruptcy tenant to a new tenant. The Bankruptcy Code expressly provides that a lease may be assigned despite any prohibition on assignment in the lease. When the lease is to be assigned, it is the new tenant that provides the “adequate assurance of future performance.” If the bankruptcy court determines that the assurance is adequate and approves the assignment, the original tenant is released from further obligations under the lease. In the case of a lease of space in a shopping center, the Bankruptcy Code provides that the proposed use of the space by the new tenant must comply with radius, location, use, and exclusivity provisions and not disrupt any tenant mix or balance. This requirement, which was intended to protect shopping center landlords when it was enacted, is having an unintended effect in the current economy. A tenant such as Hollywood Video which files for bankruptcy because it is in an obsolete industry segment has little incentive to look for a replacement tenant when the Bankruptcy Code restricts it to looking for others in the same obsolete industry.

When a bankrupt tenant rejects the lease, the effect of rejection is to constitute a breach of the lease which is deemed to have occurred immediately before the bankruptcy case was filed. Rejection affects the landlord in several ways. First, rejection excuses the tenant from the obligation to pay post-bankruptcy rent at the rate specified in the lease. If the tenant has continued to occupy the space post-bankruptcy, to be paid for that use immediately as an “administrative expense,” the landlord must prove the value to the bankruptcy estate of the use. That may not equate to the rent specified in the lease.

Second, if the bankrupt tenant rejects the lease, any claim under the lease that cannot be shown to be entitled to administrative expense status and that is not secured by a security deposit will be relegated to the status of a pre-bankruptcy unsecured claim and subjected to a cap applicable only to lease claims. The cap is governed by a fairly complex formula, but entitles the landlord to a claim for rent that was unpaid at the time of the bankruptcy filing plus a claim for future rent for, at most, the lesser of 15% of the remaining lease term or three years.

This ability to reject leases and minimize resulting landlord claims may provide retail tenants with multiple locations looking to shed stores with a significant motivation to file for bankruptcy. However, there is one benefit to the landlord of a bankrupt tenant’s rejection of the lease. Upon rejection of the lease, the tenant is obligated to surrender the space to the landlord and the automatic stay no longer prevents eviction.

Because of the possible effects of a bankruptcy filing by a tenant, landlords must remain alert to signs of trouble and be proactive in enforcing leases. Because the automatic stay does not prevent eviction of tenants whose leases have been terminated before bankruptcy and a lease that has been terminated cannot be assumed, termination of a lease when permitted by the terms of the lease and applicable law can spell the difference between recovering leased space quickly and being tied up in a protracted bankruptcy case.

My house is in foreclosure and a company is offering to put the house in a Family Trust to save it. Is this possible?

No!  Companies offering the service of delaying foreclosure are most likely violating several recent Federal laws. If they charge an up-front fee, this may also be a felony. Stay away from these folks.

There are lots of companies and individuals that will assist borrowers to defraud their lenders by filing bad-faith bankruptcies designed only to delay a foreclosure sale. This is typically accomplished by transferring a partial interest to a person or entity already in bankruptcy, and games like that.

Similarly, a living trust does not protect the trust beneficiaries from loss of the property.  After the foreclosure sale, the real property will be sold and gone. The trust will no longer own it. The occupants of the property, if any, are subject to eviction by the new owner. The trust’s, or the trustor’s, other assets are subject to suit by sold-out junior lienholders and possibly subject to a claim for a deficiency (sale proceeds less than amount owed).

A “living trust” is a standard-definition revocable trust where the trustor (settlor) is also the trustee during his/her/their lifetime(s), and the trust becomes irrevocable and under the trusteeship of one or more of the heirs after the death of the trustor(s). Even an irrevocable trust would generally not be creditor-proof against, say, the lender on a mortgage; the lender could either foreclose because the obligation being foreclosed was prior to the transfer to the trust, or could attack the transfer to the trust as fraudulent.

A “rescuer” charges extremely high fees for phone work or paperwork that you, the borrower, could easily do yourself. None of the “rescuer’s” efforts save the home. This scam gives you a false sense of hope, preventing you from seeking qualified help.  Phone Counseling Agencies will charge a fee for services you can do yourself for free. For a list of qualified housing counselors, http://www.hud.gov/local/ok/homeownership/foreclosure.cfm.

Homeowners have alternatives to foreclosure that they can pursue if they have enough time.  Thus, it is critical to legally stop the foreclosure process as soon as possible in order to have a better chance of recovering from the foreclosure.

The lease is a legally binding contract.  The laws concerning damage to property, co-signors, rent increases, deposits, maintenance, sublets, evictions, and violations of privacy can be complex.  It is important to seek experienced legal help.

There are ways that both the landlord and the tenant can negotiate to end up with a win-win situation.  For example, the tenant could try to find someone else to sublease, or pay a fee to terminate the contract, or they could get additional estimates for repairs.  This type of settlement or compromise is often a more cost-effective alternative to a courtroom trial, but if you have to go to court, you need an attorney with experience at your side.  I know how to be tough when necessary and accommodating when that is in your best interests.

I will advise you of your legal options and help you make an informed decision.

— Brian R. Huddleston

Serving Tulsa, Oklahoma and the surrounding Rogers, Creek, Wagoner, Okmulgee, Muskogee, Washington, Osage, Mayes, Cherokee and Pawnee Counties.