Earnest Money: More may be less, and vice versa

We buy and sell property in an odd and awkward way. Among the puzzling steps in the process we use is the packaging of earnest money with our purchase-offer contract.

Earnest money is a buyer’s deposit that’s held in trust, pending ultimate acceptance or rejection of the offer. It is parked in a trust account where it’s not used for any purpose before or during escrow, which is the time when the purchase contract is in effect.

Few other types of purchases involve buyers depositing earnest money.

Real-estate brokers, representing either buyer or seller (but usually the latter), hold these deposits in trust. Real-estate lawyers also have trust accounts. I’ve always felt most comfortable as a buyer putting my earnest money in my lawyer’s trust account, and I’ve never had a seller complain.

A buyer dealing with For-Sale-By-Owner sellers should use his own lawyer’s trust account. Buyers should never give earnest money directly to sellers. I have seen FSBO sellers pocket such deposits when the sale fell apart. Read more »

What is the property that is being sold, and how do you know?

Both sellers and buyers need to understand what is being sold.

When a seller lists property with a broker or advertises as a FSBO, he should establish both the nature of his ownership and its extent.

Real-estate law conceptualizes property as a bundle of rights. A seller may be selling all his rights in a property or just some, with or without limitation in either case.

One or more rights can be severed–sold, leased or given away. A common severance involves separating subsurface minerals from the surface. In some states, where surface is owned by one party and subsurface by another the situation is referred to as a “split estate.” I’ve evaluated properties where ownership of timber, water and wind have been separated from the bundle of surface rights being sold.

The sale, lease or donation of rights in property should be recorded. Most mineral sales and leases are, but I’ve found sales of timber rights not recorded and not disclosed.

A complete bundle of rights in property is referred to as “fee simple absolute.” The shorthand is, property “owned in fee.” Where subsurface rights have been severed from surface rights, that property is not being sold in fee. Read more »

Purchase-offer contracts need to define the seller and what the seller owns

Buying country property raises a number of issues for buyers that differ from those commonly faced when pursuing a house in or near a city. These issues take on legal importance when they are threaded into the language of a purchase-offer contract.

In the next few weeks, I’ll discuss the contract snags that can catch buyers unawares.

Who is the seller and what does he own? In the first or second paragraph of the standard purchase contract, the names of the seller and the buyer are filled in. If the seller is represented by a broker or agent, that individual will insert the seller’s name.

This seems simple enough, but, occasionally, it gets complicated.

The buyer wants the exact name(s) of the seller(s) who owns the property. The buyer does not want a name of an individual included as a seller who is not a legal owner, nor does the buyer want the name of a legal owner left out.

Country property often involves one or more generations of heirs. As the family farm was passed down in equal ownership shares to children and then their children, each ownership share became a smaller percentage of the whole. A dozen heirs is common; two or three times that number is not uncommon in rural communities. I’ve seen one property conveyed by 256 owners. Read more »