Contract for Deeds: Who Should Be Drafting Contract for Deeds?
Monday, July 18, 2011 at 3:14PM July 15, 2011
By: Stephen J. Nash
Nash Law Firm
nash@nash-law.com
Back in the 80's and 90's when contract for deeds were common, they almost always were drafted by attorneys. Today, we are seeing contract for deeds drafted non-attorneys. This is ill advised and may subject the non-attorney to the charge of practicing law without a license.
Practicing Law Without a License
Like other licensed professions, practicing law is limited to those who hold a legal license subject to limited instances. A real estate agent holds a license to market real estate with precludes non-licensed persons from marketing real estate except in limited situations. Without these limitations holding a license would have little value.
When drafting a contract for deed, to provide maximum protection for the buyer or seller, you have to understand the law. What are the rights and obligations of the buyer and seller, what rights and limitations can be limited or expanded by agreement and, finally, how can the contract for deed be drafted to best hold up to court review.
Most persons who draft contract for deeds are simply "filling out" a generic contract for deed form. Drafting a contract for deed in this manner does not involve any legal analysis. However, ignoring legal analysis does not somehow mean that it was not the practice of law. If a non-licensed real estate agent markets a property but does not put it on the MLS, that person is still engaged in an activity that needs a real estate license.
There are exceptions to the general rule prohibiting non-lawyers from practicing law. One, is that a person can do their own legal work for themselves. In other words, the buyer or seller could draft their own contract for deed. A business entity (i.e., a LLC or corporation) is not a person and therefore cannot perfrom their own legal work for themselves.
Another exception allows real estate agents to draft purchase agreements as long as the purchase agreement is incidental to the sale of the property (i.e., they represent a seller or buyer of the property).
There is no exception for real estate agents allowing them to draft contract for deeds.
A Practical Argument Against Non-Attorneys Drafting Contract for Deeds
Putting aside the practice of law argument, who is better able to draft a contract for deed that best protects buyers or sellers? I would strongly argue that a lawyer knowledgeable in real estate law is better able to protect a buyer or seller because they understand the rights and obligations of the parties to the contract, what rights and obligations can be expanded or limited by agreement and what clauses would best survive a court review. How can draft a contract for deed to protect your client if you don't understand the law?
Some would argue that they are just "filling in the blanks". If that is all you are doing, you are not fully protecting your client. If the contract for deed form in "neutral" it is my job to draft a contract that is more slanted towards my client. I don't want a "neutral" contract for deed, I want a contract that will best meet the needs of my client.
A buyer could draft their own purchase agreement by simply filling in the blanks but what are the odds that they properly filled out the blanks, made changes or used addendum's that were necessary to best protect their interests? That, of course, is one of the advantages of having a knowledgeable and experienced real estate agent filling out the purchase agreement. That is always the advantage of using someone who holds a professional license.
Common Problems
The following are some of the problems we see with non-attorney drafted contract for deeds:
- Not all of the blanks are filled;
- Blanks are filled in but incorrectly;
- Clauses are added that are incomplete or incorrect;
- Potential issues are not addressed;
- Not all agreement are reduced to writing;
- Clauses are added that cannot legally be enforced;
- Contract for deeds that violate other agreements
- The contract is not drafted in a way that allows for it to be recorded with the County Recorders Office
We've seen contract for deeds that we were unable to bring a statutory cancellation and instead required that we go to court to cancel the contract. This, of course, greatly increased the time and cost to the seller to cancel the contract for deed. We've seen contract for deeds whose payment terms are unclear or have no balloon date. We've seen contract for deeds where the seller wants to cancel the contract for deed for something the buyer did but there is not term in the contract that prohibited the buyer from doing what they did.
I could go on and on, but the bottom line is that it is easy to screw up a contract for deed if you don't have the legal background necessary to understand how best to draft the contract for a specific client in a specific situation.
By-the-way, most people who undertake a legal act without a license do not have insurance that will cover any mistake that they might make. If unsure, you might want to contact your insurance carrier.
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NOTICE The foregoing is not intended to constitute legal advice for any specific circumstance, but is intended to reflect broadly applicable principles, under Minnesota law, relevant to a typical situation. Each set of facts and each contract is, or can be unique; the unique facts and specific language of the contract may require a different legal analysis and may result in a different outcome. Before proceeding in reliance upon this or any other general description of law, consult with an attorney competent in the field of practice relevant to your situation. Copyright 2011 Nash Law Firm |