Agreement for Sale
The Agreement for Sale document (also called the Contract for Sale or Land Contract) is actually a quite unique document because it performs many functions.
This document is a “three-in-one” document; very complicated and very easy at the same time. It encompasses a conveyance, a note and a lien all in one. The parties to this document are the Seller/Vendor and the Buyer/Vendee.
The Conveyance (the transfer of title)
The seller executes the document and conveys to the buyer the “equitable interest” in the property. The seller retains the fee title. When the lien gets released, the document used is the Deed, which then passes the fee title to the buyer and completes the transaction. Since only the equitable title is passed at the beginning, some lenders will consider that an actual conveyance really has not occurred until the deed of release has been recorded. And that’s how the VA, for example, does not stop transactions like this; because their veteran has not conveyed the fee title.
The Note (promise to pay)
There is a large blank space on the Agreement. It is there in order for the payment terms to be inserted. There are only a few formats for the completion of this Agreement. The critical part of this section is that every penny paid into this agreement must be accounted for in order to comply with “equity” calculation.
The Lien Instrument (the security instrument)
The Agreement of Sale may be used as your wrap vehicle – but that factor alone is not inherent in the document. There are three “originals” signed by the parties. The seller keeps one, the buyer keeps one and one gets recorded. The recording is constructive notice of the Agreement and the rights and interests of the parties. It also places a lien on the subject property.
It is imperative to set forth all the purchase terms and all the loan provisions – because the sales price, earnest money, down payment and principal reductions are all taken into account in computing the equity position. The equity has nothing to do with the market value: it is solely dependent upon actual cash value created between the sales price and cash paid either at closing or during the duration of the Agreement.
The most common error in the completion of the Agreement is that the escrow officer starts out the Agreement setting forth solely the amount of the lien; and omits the sales price, the down payment and so forth. The Agreement must be written for the amount to the sales price. Then the terms follow.
This is very important in that unless the entire transaction is memorialized, the vendee and the vendor will not be able to establish the “equity” position for the forfeiture times. If you complete this document incorrectly, then you risk that the forfeiture times may not be accurate; and therefore, the forfeiture may be challenged