Real Estate Articles

Are these Contracts Legal in My State? | By: Mike Jacka

Are these Contracts Legal in My State?

So you took the time to educate yourself.  You joined your local investment club.  You spent hours reading articles on the internet.  You read all the books on nothing down real estate from the book store or the library.  Then you finally made the decision to spend some money on a course or even a boot camp on real estate investing. 

You have the knowledge and the education, now what?  You need your documents reviewed right?  You want to make sure you can use those documents that you paid hundreds or even thousands of dollars for.  So you take them to your attorney for review and not only did your attorney charge you a lot of money, but they also changed everything in the document or even told you not to use this form because it does not include state specific terms or it even excludes terms that your state requires you to have in them.  So now what do you do?  You still don’t have any good documents to use, right?

Ok, I know, if you have a Legal Shield membership,

it will not cost you hundreds of dollars to have your documents scrutinized.

It will only cost you a few dollars a month for the same treatment. - learn more about Legal Shield Services, Inc.

Whether you pay a lawyer per occurrence or use a Legal Shield Service, the results are still going to be the same.  Why you ask?  Let me explain a little about how the system works first.  Then I will tell you what to do instead.  And this technique works great with a Legal Shield membership.

First of all, you need to understand how contract law and the court system works on the civil side of court.  Our legal system is based on Old English Common Law.  You have undoubtedly heard the concept of, if two people lived together under the same household and acted as if they were a married couple for at least 7 years, then they are treated as a married couple under common law, right?  If you haven’t heard that, then just trust me on this one.  And if you have heard of this, then you will understand where this is coming from.  That is an example of Old English Common Law.

Under contract law, there are a few basics you need to understand.  In order to have a legally binding contract in the court of law, you need to have a few key components included in the contract.  First you need to describe the parties to the transaction.  This would be the buyers and sellers.  Then you need to describe what is being purchased and what the terms of the purchase will be including time frames.  The parties must be of legal age and of sound mind and not under the influence of drugs or alcohol at the time.  There must be consideration and all parties must sign the contract.  Consideration in most states is usually described as $1 or other good and valuable consideration.  So consideration could even be a promissory note for $10.  And the courts have even stated that your signature is good and valuable consideration.  So therefore, you don’t even need money to change hands to make a contract binding and enforceable in a court of law.  That is it.  That is all you need to make a legal contract.

Contracts these days have grown to huge proportions because of litigation.  However, all the extra stuff in most contracts is not necessary.  The problem is that we must use them to protect ourselves.  The contracts that we get from other real estate courses are written heavelier in the investors favor and yet general enough to be used in most every state.  When attorneys look at these contracts they don’t want to glance over it say it is ok and then only charge you a small fee, only to have you use that contract and then get yourself in trouble for one reason or another and then blame it on the attorney for their approval of the form as it is.  So attorneys have to tear it apart to the point you are afraid of using it.  Then the attorneys can produce you one that they are comfortable defending if they have to.  The problem there is that the contract that they want you to use is so conservative that they actually become more beneficial for the other party.  That is the best way to protect themselves from you doing anything wrong with the contract.

My suggestion would be to use the contract that you have, so long as there is nothing in the contract that is an obvious violation of the law.  For example, the contract should not allow the tenant/buyer to grow/produce or sell drugs in the property.  There is one clause that you do want to make sure is in the contract, and this clause usually is in most contracts that I have seen.  The clause would be something to the affect that if any one part of this contract is declared unenforceable, the remainder of the contract shall remain in full force.  With this statement in the contract, you have agreed that there may be issues that you cannot enforce and you agree not to hold the other party to, but that does not negate the rest of the contract.

Then if there is ever an issue that brings you in to court because of the contract, let the attorneys defend the rest of the contract.  I believe that is a better use of attorneys to defend my contracts rather than give me advice on how to write my contract.  One major exception to this rule would be if you were to become a lender and borrow money to someone else and they gave you a note and mortgage to collateralize the loan.  In this case, you want the note and mortgage that the attorneys will create for you.  That one will probably give you as the lender the best protection.