Multiboard Real Estate Contract

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Introduction to the Multi-Board Residential Real Estate Contract 6.0

Comparing Contract Versions 5.0 & 6.0 !!!!!

By !!!!

Matthew R. Riley Founder of Vitruvian Law and Attorney

Copyright 2014

Preface !!In 2014, a committee composed of representatives from the Illinois Real Estate Lawyer’s Association (IRELA) and various other boards of Realtors finalized new revisions to the Multi-Board Residential Real Estate Contract 5.0, creating version 6.0. This Contract in general and these revisions in particular aspire to streamline the processes and procedures involved in a real estate transaction while enhancing its comprehensibility for all parties and professionals involved. The Multi-Board Contract 6.0 is the product of the committee’s conversations, debates, and reflections upon problematic issues that came into relief via the use of version 5.0 in real estate transactions since 2009. Multi-Board Contract 6.0, therefore, is an attempt to address and resolve these issues and to provide parties a more suitable basis to initiate and conclude real estate transactions. !!This booklet purposes to help parties involved in a real estate transaction as well as real estate professionals to navigate and understand the changes between versions 5.0 and 6.0 of the Multi-Board Contract. As the revisions involve changes to formatting and substance, this booklet provides a side by side comparison in order that the reader can better see and understand what changes are made. Revisions are highlighted and explanations provided where needed to elucidate the effect such revisions have throughout a real estate transaction.!!!!Contents!!!

- Comparative Analysis of Multi-Board Contract 5.0 & 6.0!- Comparative Analysis of Short Sale Addendum!- Forms: !

• Multi-Board Real Estate Contract 6.0!• Short Sale Addendum!!!!!!!!!!!!!!!!!!

VITRUVIAN LAW IS NOT AFFILIATED WITH, ENDORSED BY, NOR IS THIS BOOKLET MADE IN CONJUNCTION OR ASSOCIATION WITH THE ILLINOIS REAL ESTATE LAWYERS ASSOCIATION (IRELA) OR ANY OTHER BOARDS OF REALTORS. !This material is provided as informational and is not intended as legal advice. For advice on specific legal matters, please contact Vitruvian Law at (312) 924-1352 or visit our website: www.vitruvianlawfirm.com

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COMPARATIVE ANALYSIS OF MULTI-BOARD CONTRACT 5.0 & 6.0

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REVISIONS (1) On line 13 in 6.0, next to “DEEDED SPACE”, a line is added for the parties to write the PIN (Permanent Index Number) for the deeded parking space, if one

is transferred at closing.

REVISIONS (1) On lines 2 and 3 in 6.0 “NAME(S)” is added.

(a) Rationale - When completing the Multi-Board contract, it is the practice of some real estate professionals to not indicate the seller by name, but rather by the designation “OOR” (Owner Of Record). This designation or any other, used to identify either party without using the parties’ names, is invalid when completing paragraph 1. The names of the parties to the transaction must be clearly identified and printed on the 6.0 contract.

(2) On line 4 in 6.0, if the broker represents both the buyer(s) and seller(s) in a real estate transaction, Dual Agency exists and the parties must complete paragraph 31, formerly paragraph 41 in 5.0.

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REVISIONS (1) Paragraph 3 in 6.0 was formerly paragraph 4 in 5.0. (2) In 6.0, matters pertaining to the payment of earnest money are removed and placed in a separate, standalone paragraph (paragraph 4 in 6.0). (3) On line 16 in 6.0, “‘GOOD FUNDS’ AS DEFINED BY LAW” is added and references regarding payment at closing made “BY WIRE TRANSFERS OF

FUNDS, OR CERTIFIED, CASHIER’S, MORTGAGE LENDER’S OR TITLE COMPANY CHECK (PROVIDED THAT THE TITLE COMPANY’S CHECK IS GUARANTEED BY A LICENSED TITLE INSURANCE COMPANY)”, on lines 39-41 in 5.0, are removed. (a) Rationale - The committee believes the inclusion of the term “GOOD FUNDS” makes the listing of the different payment types unnecessary.

Furthermore, whatever the payment method agreed to or used by the parties, the committee recognizes that title companies draft Closing Protection letters to insure funds transferred at closing. Parties therefore, are presumed to understand what payment methods may be used to transfer “GOOD FUNDS” at closing, and may rely upon a title company’s issuance of a Closing Protection letter, as insurance that such funds are in fact transferred.

REVISIONS (1) Paragraph 4 in 6.0, Earnest Money, is carved out from the Purchase Price paragraph (paragraph 4) in 5.0. (2) On lines 19-20 in 6.0, the term “TENDERED” is added, referring to the dates upon which initial and additional earnest money must be given to the

Escrowee. (a) Rationale - It is likely the committee found the use of the term “TENDERED”, rather than “DUE ON” or “BY” on lines 36-37 in 5.0, as a more

descriptive and effective explanation of the Buyer’s obligations to give earnest money to the Escrowee by the dates specified in the contract. The new provisions not only provide the dates upon which earnest money is due, but instructs the Buyer that such funds must be given to the Escrowee by the deadlines established.

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(3) In 6.0, references to payment methods used to pay earnest money to the Escrowee, found on line 36 in 5.0, are removed. (a) Rationale - The committee felt the inclusion of the different payment methods unnecessary because both cash and promissory notes are rarely used to

make such payments. (4) On line 18 in 6.0, a third and additional option is provided for the parties to select when determining an Escrowee for the transaction: “AS OTHERWISE

AGREED BY THE PARTIES AS ‘ESCROWEE’”. (a) Rationale - It is the policy of some brokers to not hold money in escrow for a real estate transaction. Recognizing this, the committee adds an option,

allowing the parties to either, on their own or with the assistance of their lawyer, choose an appropriate Escrowee. The committee believes there is a potential for brokers to engage in the unauthorized practice of law if they advise clients on who may serve as an Escrowee during a transaction, when it is not the brokers themselves acting in that capacity. Therefore, in situations where neither broker will serve as Escrowee, parties should select this new option, opening the way to allow title companies, professional escrow companies, or lawyers to serve in that role during the transaction.

REVISIONS (1) Paragraph 5 in 6.0 was formerly paragraph 3 in 5.0 (2) The phrase “AT NO ADDITIONAL COST” is added in 6.0 on line 21 in the title heading, and on lines 24 and 35.

(a) Rationale - The committee added this phrase to persuade mortgage lenders to refrain from either requiring that fixtures or personal property items be removed from the contract, or from requiring an Addendum to the contract specifying that the fixtures and personal property items have no additional value.

(3) On line 23 of 5.0, “TV ANTENNA SYSTEM” is removed, and in its place “BACKUP GENERATOR SYSTEM” is added to line 30 of 6.0. (a) Rationale - The committee removed “TV ANTENNA SYSTEM” because the item is outdated.

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(4) Line 43 in 6.0, formerly 34 in 5.0, pertaining to a Home Warranty, is revised. If a Home Warranty is provided to a buyer, then the parties must review and initial optional paragraph 34 in 6.0. (a) Rationale - The committee felt the Home Warranty language in 5.0 ambiguous. The committee drafted an optional paragraph when a Home Warranty

is part of a transaction, containing language it deemed to be better suited to explaining the nature and proper execution of such a Warranty. The optional paragraph provides the Warranty is delivered at no cost to the Buyer, the cost borne by either the seller or some third party. Furthermore, the optional paragraph requires evidence of a fully pre-paid policy be delivered to the Buyer at closing.

REVISIONS (1) Paragraph 6 in 6.0 was formerly paragraph 5 in 5.0. (2) On line 44 in 6.0, formerly line 42 in 5.0, the term “ESCROW PAYOUT” is removed.

(a) Rationale - The committee may have removed this term because it is ambiguous. While an Escrowee will release funds held in trust at Closing, in not all cases will the escrow account be completely paid out. For example, there may be post-closing issues, such as proration agreements between parties, which may require the Escrowee to hold funds in escrow beyond the closing date. For this reason, to call the Closing, in the alternative, an “ESCROW PAYOUT”, would be technically incorrect in some cases and therefore could lead to misunderstandings of the Escrowee’s role and responsibilities to the parties.

REVISIONS (1) Paragraph 7 in 6.0 was formerly paragraph 6 in 5.0. (2) The parties are referred to paragraph 40 in 6.0, formerly paragraph 39 in 5.0.

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REVISIONS (1) Paragraph 8 in 6.0 was formerly paragraph 11 in 5.0. (2) On lines 50-51 in 6.0, the title heading has been changed. The following has been added: “IF THIS TRANSACTION IS NOT CONTINGENT ON

FINANCING, OPTIONAL PARAGRAPH 36a OR 36b MUST BE USED. IF ANY PORTION OF PARAGRAPH 36 IS USED, THE PROVISIONS OF THIS PARAGRAPH 8 ARE NOT APPLICABLE.” (a) Rationale - The committee recognizes various instances wherein the Mortgage Contingency provisions in 5.0 are misused by parties in a real estate

transaction. A buyer may represent to the seller that no financing is needed when it is, or that financing is needed when it is not. In drafting optional paragraph 36 in 6.0, the committee creates alternative provisions from which a buyer who represents they do not need financing, can select, and which describe their financial circumstances. These “no-financing” options in paragraph 36 are intended to provide a seller a more true accounting and understanding of the buyer’s financial position in the transaction. Additional comments pertaining to paragraph 36 will be made below when covering those provisions.

(3) In addition to the Buyer’s obligation to apply for a mortgage loan within 5 business days after the date of acceptance, lines 59-60 in 6.0 now require, additionally, that the Buyer “SHALL CAUSE AN APPRAISAL OF REAL ESTATE TO BE ORDERED BY THE LENDER NO LATER THAN TEN (10)

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(4) The following part of the mortgage contingency on lines 109-111 in 5.0 is removed and not required in 6.0: “THIS CONTRACT IS CONTINGENT UPON BUYER OBTAINING A FIRM WRITTEN MORTGAGE COMMITMENT (EXCEPT FOR MATTERS OF TITLE AND SURVEY OR MATTERS TOTALLY WITHIN BUYER’S CONTROL) ON OR BEFORE __________, 20___…”. (a) Rationale - Lenders do not typically issue a firm written mortgage commitment to a buyer applying for a mortgage. Rather, the lender issues buyers a

“pre-approval” or “pre-qualification” letter, followed by a “Clear to Close” letter. The committee, therefore, removed the requirement for the buyer to obtain a firm written mortgage commitment from their lender, acknowledging that such a requirement does not comport with the actual practice and process of lenders financing a mortgage for a buyer. Furthermore, the committee found other parts of this contingency provision ambiguous and unworkable. It is not clear, for example, what matters are “TOTALLY WITHIN THE BUYER’S CONTROL” during a transaction. The difficulty in determining the Buyer’s scope of control within a transaction, makes the enforceability of this contingency problematic and inconsistent between transactions.

(5) On lines 63-67 in 6.0 a new contingency is created. The Buyer must provide the Seller “WRITTEN EVIDENCE THAT THE LOAN APPLICATION HAS BEEN SUBMITTED FOR UNDERWRITING APPROVAL BY BUYER’S LENDER” on or before a certain date determined by the parties. If the parties do not specify a date on the contract, the contract provides a default deadline, which is “THIRTY (30) DAYS AFTER THE DATE OF ACCEPTANCE”. The deadline date may be extended or changed ONLY when a written agreement stating such alteration is executed by both parties. At the expiration of the deadline, either party may exercise their right to declare the contract null and void; however, such declaration must be made “NOT LATER THAN TWO (2) BUSINESS DAYS AFTER” the deadline date. If either party fails to exercise their right to terminate the contract within the two days following the expiration of the deadline, both parties waive their right to terminate the contract on the basis of the Buyer’s failure to meet his or her obligations to the Seller. (a) Rationale - The committee created this contingency to replace the “Firm Mortgage Commitment” contingency in 5.0, which is removed in 6.0. The

purpose of the new contingency is to give assurances to the Seller that the transaction is moving at an appropriate pace. The committee felt the time for execution of the old contingency (in 5.0) and new contingency (in 6.0) are similar, as both provide the Seller evidence, early on, that the initial steps necessary for the Buyer to obtain financing are taken. When the contingency period expires without the Buyer meeting their obligations, the committee considered and discussed the time period within which the parties could declare the contract null and void. They felt two business days was an adequate amount of time for the parties to come to a resolution, considering three business days to be an unnecessarily long period of time.

(6) On lines 68-71 in 6.0 another new contingency is created. The Buyer is required to “OBTAIN A WRITTEN ‘CLEAR TO CLOSE’ FROM BUYER’S LENDER” on or before a certain date determined by the parties. If the parties do not specify a date on the contract, the contract provides a default deadline, which is “FORTY-FIVE (45) DAYS AFTER THE DATE OF ACCEPTANCE”. The deadline date may be extended or changed ONLY when a written agreement stating such alteration is executed by both parties. At the expiration of the deadline, either party may exercise their right to declare the contract null and void; however, such declaration must be made “NOT LATER THAN TWO (2) BUSINESS DAYS AFTER” the deadline date. If either party fails to exercise their right to terminate the contract within the two days following the expiration of the deadline, both parties waive their right to terminate the contract on the basis of the Buyer’s failure to meet his or her obligations to the Seller. (a) Rationale - The purpose of the new contingency is to give assurances to the Seller that the transaction is moving at an appropriate pace. When the

contingency period expires without the Buyer meeting their obligations, the committee considered and discussed the time period within which the parties could declare the contract null and void. They felt two business days was an adequate amount of time for the parties to come to a resolution, considering three business days to be an unnecessarily long period of time.

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(7) On lines 72-73 in 6.0, the following provision is added: “A PARTY CAUSING A DELAY IN THE LOAN APPROVAL PROCESS SHALL NOT HAVE THE RIGHT TO TERMINATE UNDER EACH OF THE PRECEDING PARAGRAPHS”. The “PRECEDING PARAGRAPHS” relate to the two new contingencies in 6.0 discussed above in paragraphs 5 and 6: (a) providing written evidence that a loan application is submitted; and (b) obtaining a “Clear to Close” letter from the Buyer’s lender. (a) Rationale - The purpose of this provision is to ensure that those who act in bad faith are unable to derive benefit from their actions. A party that

intentionally, negligently, or by accident causes a delay to the mortgage loan process, and thereby causes a contingency to not be met by the Buyer, cannot thereafter claim a right to terminate the contract based upon the Buyer’s failure to meet such contingency. This is because they produce the detrimental circumstance through their own actions and should not benefit from it.

(8) On lines 73-75 in 6.0, the contract makes clear that the right to declare the contract null and void can be waived if neither party makes such a declaration “AS OF THE LATTER OF THE DATES SPECIFIED” in the contingency paragraphs on lines 63-71 in 6.0. This date will usually relate to the second contingency on lines 68-71, the “Clear to Close” contingency, and will be two days after the date specified or established by default for that contingency. After this date the “CONTRACT SHALL CONTINUE IN FULL FORCE AND EFFECT WITHOUT ANY LOAN CONTINGENCIES”. (a) Rationale - The committee may feel that in order to maintain good faith and fair dealing between parties in a transaction, when a party’s right to

terminate a contract arises, there must be established a restricted and specified period of time within which the party can exercise that right, or it is waived. Forcing a party to exercise termination rights within an established timeframe, when they arise, gives incentives to both parties to talk and attempt to resolve the issues that gave rise to such rights. This incentive provides an opportunity for both parties to assess each other and the circumstances of the transaction, providing the opportunity to form the basis of a decision to continue on with the transaction, or not.

(9) On lines 126-131 in 5.0, the Seller’s option to seek financing for the Buyer is removed from 6.0. (a) Rationale - Attorneys on the committee felt the provision was unnecessary and disfavored. This provision is one commonly excised by attorneys

during the Attorney Review period and therefore, it was deleted in the current 6.0 contract. (10) On line 76 in 6.0, reference to optional paragraph 32 was formerly optional paragraph 31 in 5.0. This optional paragraph must be utilized by the parties

when the transaction is contingent upon the sale and/or closing of the Buyer’s existing real estate.

REVISIONS (1) Paragraph 9 in 6.0 was formerly paragraph 7 in 5.0. (2) The formatting in 6.0 is modified in order to set each statutory disclosure upon its own separate and individual line.

(a) Rationale - The committee felt the new format would be easier for parties to read and complete.

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(3) On line 81 in 6.0, formerly lines 49-50 in 5.0, “REPORT” is deleted from the first disclosure. (a) Rationale - The committee felt the term may cause confusion for the parties. Under the Illinois Residential Real Property Act, the “DISCLOSURE”,

includes both, the “REPORT” and other “PERTINENT PORTIONS OF THE ACT”. The committee therefore, intends that “DISCLOSURE” represent both aspects of the Act.

(4) On line 84 in 6.0, formerly line 52 in 5.0, the term “PAMPHLET” is deleted. (a) Rationale - The committee removed this term in order to preserve the new format in 6.0, which sets each statutory disclosure upon its own separate

and individual line.

REVISIONS (1) Paragraph 10 in 6.0 was formerly paragraph 8 in 5.0. (2) On lines 99-100 in 6.0, the following provision was added: “THE REQUIREMENTS OF THIS PARAGRAPH SHALL SURVIVE CLOSING”.

(a) Rationale - The committee may have included this provision to ensure neither party is confused regarding the obligations each has to the other party after closing.

(3) On line 96 in 6.0, optional paragraph 22, pertaining to special proration arrangements between parties that occur after closing, was formerly optional paragraph 20.

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REVISIONS (1) Paragraph 11 in 6.0 was formerly paragraph 9 in 5.0. (2) On line 111 in 6.0, formerly line 79 in 5.0, the paragraph referenced to determine notice requirements is 11(c), formerly 9(c).

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REVISIONS (1) Paragraph 12 in 6.0 was formerly paragraph 10 in 5.0. (2) On lines 137-138 in 6.0, the following provision was added to subparagraph (c): “SAID NOTICE SHALL NOT INCLUDE ANY PORTION OF THE

INSPECTION REPORTS UNLESS REQUESTED BY SELLER”. (a) Rationale - The committee wanted to avoid situations where the Seller would be required to amend their Residential Real Property Disclosures based

upon the results of the Buyer’s inspection reports. While the Buyer has the right to declare the Contract null and void based upon any unacceptable conditions revealed in their inspection report, such declarations must be made by giving the Seller notice within five (5) business days after the date of acceptance. Notice cannot include conclusions found in the inspection report, unless the Seller specifically requests the disclosure of such conclusions to them. If the Seller requests the Buyer disclose the unacceptable condition or their inspection report findings, ONLY then can the Buyer deliver such findings. The Seller, by requesting and receiving these findings, thereby obtains notice and knowledge of the unacceptable condition, and therefore may be required to amend the Residential Real Property Disclosures to reflect what the findings in the report state. These amended Residential Real Property Disclosures must thereafter be delivered by the Seller to any current or future prospective Buyer. If, on the other hand, no request is made by the Seller for the inspection reports or for the disclosure of its conclusions, the Buyer CANNOT deliver to the Seller such reports or state its conclusions. The Buyer is allowed therefore, to terminate the contract without disclosing the unacceptable condition that forms the basis of that decision, while the Seller, so long as they ask no questions of Buyer about the condition, is allowed to maintain the status quo in presenting prospective buyers their Residential Real Property Disclosures unchanged.

(3) On line 140 in 6.0, paragraph 12 is referenced, formerly paragraph 10 on line 107 in 5.0.

REVISIONS (1) Paragraph 13 in 6.0 was formerly paragraph 12 in 5.0.

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REVISIONS (1) Paragraph 14 in 6.0 was formerly paragraph 13 in 5.0. (2) On line 148-149 in 6.0, the following provisions is added and replaces lines 138-140 in 5.0: “BUYER SHALL HAVE THE OPTION TO DECLARE THIS

CONTRACT NULL AND VOID IF THE REAL ESTATE IS LOCATED IN A SPECIAL FLOOD HAZARD AREA”. (a) Rationale - The committee felt the determining factor for whether a Buyer may exercise a right to declare the Contract null and void should not be

dependent upon whether a disclosure is made about the location of the real estate in a flood area, but rather, should be based on a Buyer’s consideration and reasoned assessment of the costs associated with flood insurance. In 5.0, a buyer could only terminate the contract under this paragraph if the Seller did not disclose that the real estate was located in a flood area. In 6.0, however, even if such disclosures are made, the Buyer still retains the option to declare the contract null and void, so long as the property is located in a flood area and the declaration is timely made under the notice requirements on lines 149-152 in 6.0.

(3) On line 150 in 6.0, the paragraph referenced to establish a date at which the right to terminate the contract under this provision is paragraph 8(c), formerly 11 in 5.0, relating to Mortgage Contingencies. Specifically, the reference is to the date specified by the parties for the first mortgage contingency, which requires the Buyer submit written evidence that a loan application is submitted to a lender. It is important to note that if the parties do not specify a date for this contingency or if no Mortgage Contingency exists, the default date in this paragraph applies (ten (10) days).

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REVISIONS (1) Paragraph 15 in 6.0 was formerly paragraph 14 in 5.0. (2) Throughout 6.0, a short hand is used for “THE DECLARATION OF CONDOMINIUM/COVENANTS CONDITIONS AND RESTRICTIONS”, which is

abbreviated to “DECLARATION/CCRs”. (3) On lines 165-167, paragraph (c) in 6.0, the following provision was added, which previously was in the proration paragraph in 5.0: “SELLER SHALL

NOTIFY BUYER OF ANY PROPOSED SPECIAL ASSESSMENT OR INCREASE IN ANY REGULAR ASSESSMENT BETWEEN THE DATE OF ACCEPTANCE AND CLOSING”. Once notice is delivered to the Buyer, “THE PARTIES SHALL HAVE THREE (3) BUSINESS DAYS TO REACH AGREEMENT” regarding how such assessment shall be paid by the parties. If no agreement is brokered between the parties, either may declare the contract null and void.

(4) Lines 168-173, paragraph (d) in 6.0, was formerly lines 157-164, paragraph (c) in 5.0. In 6.0, the obligations of the parties in relation to disclosure information is changed. The Buyer is no longer required to first request disclosure items from the Seller before receiving them. Rather, the Seller has the duty to apply, within 5 business days after the date of acceptance, for those disclosure items required by the Illinois Condominium Property Act. Once received, the Seller must deliver such disclosure items to the Buyer in a timely manner as required by law. (a) Rationale - The committee drafted these provisions to reflect the requirements set out in Section 22.1 of the Condominium Property Act, which

removed the Buyer’s burden to affirmatively request disclosure items from the Seller before obtaining them. The paragraph was drafted without citing specific section numbers referenced in the Act, or without explicitly setting out the time frame within which the law requires the Seller to deliver disclosure items to the Buyer. The committee did this in order to preserve the functionality of the contract even as the law and what it requires from the Seller changes in the future. Nevertheless, even though the legal requirements for the Seller are not explicitly provided for in this paragraph, the parties are presumed to know what the law requires, or if they do not, that they can obtain legal advice and counsel to acquire the pertinent knowledge to act appropriately.

REVISIONS (1) Paragraph 16 in 6.0 was formerly paragraph 15 in 5.0. (2) On line 185 in 6.0, formerly line 176 in 5.0, the term “GENERAL” is deleted as a designation for the type of Warranty Deed required to be delivered to the

Buyer at closing. (a) Rationale - The committee recognized the increased use of Special Warranty Deeds at Closings for real estate transactions. The use of these deeds

benefits the Seller, insofar as their obligations to the Buyer post-closing are reduced, while not having an adverse impact upon the Buyer, since these deeds remain insurable by title companies.

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REVISIONS (1) Paragraph 18 in 6.0 was formerly paragraph 16 in 5.0. (2) On line 202 of 6.0, formerly on line 188 in 5.0 - the term “PRESUMPTIVE EVIDENCE” replaces the term “CONCLUSIVE EVIDENCE” when referring to

the reliability of the title as evidence of good and merchantable title. (a) Rationale - The committee revised this term in consideration of dictum articulate in a 2012 case, United Community Bank v. Prairie State Bank & Trust.

In this case, the court stated that title insurers have an unfettered right to ignore intervening liens in the chain of title when issuing a title commitment. The court, therefore, suggests that a title commitment cannot be relied upon by a buyer as a guarantee that the property is free and clear of all liens. Noting this court’s opinion, the committee feared that the language of this provision, particularly its use of the term “CONCLUSIVE EVIDENCE”, could be construed as a waiver of the Buyer’s covenant of good and merchantable title. Such a waiver would foreclose the opportunity for the Buyer to establish a basis to enforce a claim against the Owner’s Policy of Title Insurance. Use of the term “PRESUMPTIVE EVIDENCE”, the committee believes, better preserves the rights of a buyer to enforce such a claim when it is realized after closing and counter to the representations made in the title commitment, that there exists intervening liens attached to the conveyed real property.

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REVISIONS (1) Paragraph 23 in 6.0 was formerly paragraph 21 in 5.0. (2) The last sentence in 5.0, on line 253 of paragraph 21, is moved to the first sentence in 6.0, on line 244 of paragraph 23: “SELLER’S REPRESENTATIONS

CONTAINED IN THIS PARAGRAPH SHALL SURVIVE THE CLOSING”. (a) Rationale - The sentence was relocated to the beginning of the paragraph to emphasize to both parties the listed representations made by the Seller

are valid and enforceable against them after closing. (3) On lines 245-246 in 6.0, “ANY” is added in modify written notices the Seller receives; “ASSOCIATION” is added as a valid entity whose written notices

must be disclosed to a buyer when they are received by a seller; and, “GOVERNMENTAL ENTITY” replaces the term used in 5.0, “GOVERNMENTAL BODY”, which describes the type of entity whose issuance of a written notice must be disclosed to a buyer when it are received by a seller.

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(a) Rationale - The committee’s revisions increase the Seller’s obligation to disclose information it acquires from third parties about detrimental issues related to their real property. At the same time, the revisions better ensure the Buyer acquires important information necessary to make an informed and reasoned decision to purchase the property or not. The issues listed on lines 247-255 in this paragraph are material and consequential factors Buyers consider when determining whether to purchase real estate. Because these issues are important factors weighed heavily in the Buyer’s ultimate decision, the committee likely sought other sources, beyond the government, from which such information might be found out. Associations write notifications regarding the listed issues, and these, the committee believes, are reliable and accurate in their assessment and representations about those issues. Because of this, such written notifications are effective in supplementing and informing the Buyer’s decisions during the transaction. Therefore, as with notifications received by the government, any and all notifications received by a seller from any association regarding the issues listed in the paragraph, must also be disclosed to the Buyer.

(4) On line 253, subparagraph (g), in 6.0, formerly on line 239 in 5.0, the words “INITIAL” and “FINAL” are added and modify the term “PERMITS”. (a) Rationale - The revision clarifies the scope of the Seller's obligations to disclose information relating their failure to acquire either type of permit.

(5) On lines 257 and 259 in 6.0, with regard to special assessments, spaces are added at the beginning of each line to accommodate the initials of the parties and to designate the parties’ assent to the terms that follow. (a) Rationale - For these provisions, the committee wants to ensure meaningful disclosures occur between parties. By requiring the initials of each party,

the committee ensures both parties make representation regarding the disclosure of issues concerning special assessments, Special Assessment Areas, and Special Service Areas.

(6) The provision on lines 261-264 in 6.0 replaces the provision on lines 248-253 in 5.0. In 6.0, time limitations for the Buyer to exercise their right to terminate the contract after receiving notification that the Seller’s representations have change, are deleted. Rather, in 6.0 the Seller is obligated to notify the Buyer “PROMPTLY” when their representations need modification. Once notified, the Buyer preserves the right to declare the contract null and void from the time they receive notification until closing. (a) Rationale - Removal of the timeframe specified in 5.0, which requires the Buyer to exercise their right to terminate the contact within a certain time, may

provide both parties more time to renegotiate the terms of the contract. Although the existence of issues over which the Seller makes specific representations to the Buyer about are many times dispositive to whether a transaction will succeed or not, the modification of a representation previously made a seller does not guarantee the transaction will fail. Other terms of the contract can be renegotiated to reflect changes in the parties expectations. Such renegotiations and revisions to the contract may take longer than the timeframe set out in 5.0. The committee therefore decided to provide a more flexible arrangement to control these situations, hoping that resolutions can be brokered between parties and more transactions successfully concluded.

REVISIONS NONE

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REVISIONS (1) Provisions on lines 268-274 in 6.0 are added. Additional provisions relate to acceptable delivery methods through which parties’ signatures are validly

executed and transmitted. In addition to the methods specifically mentioned, “AN ACCEPTABLE DIGITAL SIGNATURE MAY BE PRODUCED BY USE OF A QUALIFIED, ESTABLISHED ELECTRONIC SECURITY PROCEDURE MUTUALLY AGREED UPON BY THE PARTIES”. The parties may also establish their own procedures for the transmission of the digital signature during the transaction. (a) Rationale - The committee recognizes the variety and ever-changing ways business transactions are executed by parties today. In order to establish

expectations for performance in a transaction, it is important for parties to agree upon acceptable practices and procedures for each to follow throughout the duration of the real estate transaction. The additional provisions in this paragraph provide such practices and procedures which can set clear guidelines for parties to follow when producing and delivering signatures throughout the transaction.

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REVISIONS (1) The language in 6.0 departs substantially from that in 5.0. Lines 279-294 in 6.0 were added.

(a) Rationale - The committee redrafted this paragraph to clarify when and how funds held in escrow can be distributed by the Escrowee. These revisions were undertaken because the committee felt the language in 5.0 was confusing, as well as recognizing that many real estate brokers changed their business practices to no longer serve as Escrowee in a transaction. To resolve the ambiguity in 5.0 and in response to the fact that brokers are no longer taking the role of Escrowee, instructions were drafting providing the Escrowee more comprehensive guidance than that offered in 5.0.

(2) Lines 279-294 in 6.0 provides two options for the Escrowee to elect when they have neither received written direction from both parties or an order of the court to release escrow funds, in cases where the Contract is declared null and void by a party or if the transaction fails to Close as required by the contract. The first option is for the Escrowee to notify the parties of the manner in which the monies will be to disbursed as per the contract. Once notified, the parties have 14 days to deliver their objections to the Escrowee. If no objection is received, escrow funds are disbursed according to the manner proposed. If objection is properly made by a party, the Escrowee must wait for either a joint written direction from both parties or a valid court order. The second option provides that the Escrowee may file suit for Interpleader. If the funds in escrow are insufficient to cover the court costs or attorney’s fees, both parties will be help jointly and severally liable for the deficiency. (a) Rationale - In drafting these options, the committee used the Illinois Real Estate License Law for reference. !

REVISIONS (1) On line 295 in 6.0, formerly 280 in 5.0, paragraph 32(c)(2) is referenced in relation to the manner of service for “kick-out”.

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REVISIONS NONE

REVISIONS (1) The title heading in 6.0 is changed to “CHOICE OF LAW AND GOOD FAITH”.

REVISIONS (1) On line 320 in 6.0, formerly line 308 in 5.0, the term “ADDITIONAL” is added to modify “ATTACHMENTS”.

(a) Rationale - The committee added the term “ADDITIONAL” to discourage parties or real estate professionals from listing in the space provided the optional paragraphs that apply in a transaction. Rather, when there is an added attachment to the contract, such as a Short Sale Addendum or an Installment Agreement for Deed, such attachments should be listed and referenced in the available space.

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REVISIONS (1) Optional provisions in 6.0 start on line 322, formerly on line 310 in 5.0.


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REVISIONS (1) Paragraph 32 in 6.0 was formerly paragraph 31 in 5.0 (2) Throughout 6.0, the wording “SAID REAL ESTATE” is removed, and replaced with the wording “BUYER’S REAL ESTATE”. (3) Throughout 6.0, all references to subparagraphs in paragraph 32 are changed from references in 5.0 to subparagraphs within paragraph 31.


REVISIONS (1) Paragraph 34 is a new optional paragraph added to 6.0.

(a) Rationale - To address a number of concerns, the committee removed the issue of “HOME WARRANTY” from paragraph 5 in 6.0, pertaining to property and fixtures, and drafted this standalone optional paragraph to be used instead. The primary purpose of the committee’s decision is to remove ambiguities present in 5.0. If a home warranty is part of the transaction, the Seller must provide, at no cost to the Buyer and delivering evidence of such warranty at closing, a pre-paid policy, the actual cost of which must be disclosed to the Buyer in the optional paragraph provided. These changes provide the Buyer a better understanding of the warranty being purchased, as well as elucidating the obligations and responsibilities the Seller owes to the Buyer in acquiring the Home Warranty for them.


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REVISIONS (1) Optional paragraph 36 is a new paragraph added to 6.0.

(a) Rationale - To discourage the Buyer from misusing the mortgage contingency provisions, as is done in 5.0, optional paragraph 36 was added in 6.0. The Mortgage Contingency paragraph, paragraph 8 in 6.0, provides information related to the financial position of the Buyer in a real estate transaction. If the transaction is dependent upon the Buyer acquiring mortgage financing from a lender, then the terms in paragraph 8 apply to the transaction. Otherwise, if mortgage financing is not required but preferred by the Buyer, or if the Buyer will purchase using “all-cash”, the terms in paragraph 8 do not control and the terms in this paragraph 36 apply. The committee drafted paragraph 36 to include two distinct options from which the Buyer is required to choose, and which further disclose the manner in which the Buyer plans to purchase the real estate. Subparagraph (a) should be selected by the Buyer when they intend to use “all-cash" to purchase the property at closing. Under this option, the title company closing fee is split between and paid out by both parties. Subparagraph (b) should be selected by a Buyer who does not need a mortgage to purchase the real estate, but who would like to obtain one for some other purpose, i.e. so as to avoid depletion of liquid assets or for tax purposes. Under this second option, the title company closing fee is paid solely by the Buyer. Any Buyer who requires any financing to purchase the real estate, even though confident such financing will be approved or is forthcoming, should not make any election under optional paragraph 36. Rather, the terms and provisions in paragraph 8 should control the transaction.

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REVISIONS (1) Paragraph 41 in 6.0 was formerly paragraph 40 in 5.0. (2) On lines 487-488 in 6.0, the following provision is added: “BUYER’S NOTICE SHALL NOT INCLUDE A COPY OF THE INSPECTION REPORT, AND

BUYER SHALL NOT BE OBLIGATED TO SEND THE INSPECTION REPORT TO SELLER ABSENT SELLER'S WRITTEN REQUEST FOR SAME”. (a) Rationale - The committee wanted to avoid situations where the Seller would be required to amend their Residential Real Property Disclosures

based upon the results of the Buyer’s inspection reports. While the Buyer has the right to declare the Contract null and void based upon any unacceptable conditions revealed in their inspection report, such declarations must be made by giving the Seller notice within five (5) business days after the date of acceptance. Notice cannot include conclusions found in the inspection report, unless the Seller specifically requests the disclosure of such conclusions to them. If the Seller requests the Buyer disclose the unacceptable condition or their inspection report findings, ONLY then can the Buyer deliver such findings. The Seller, by requesting and receiving these findings, thereby obtains notice and knowledge of the unacceptable condition, and therefore may be required to amend the Residential Real Property Disclosures to reflect what the findings in the report state. These

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amended Residential Real Property Disclosures must thereafter be delivered by the Seller to any current or future prospective Buyer. If, on the other hand, no request is made by the Seller for the inspection reports or for the disclosure of its conclusions, the Buyer CANNOT deliver to the Seller such reports or state its conclusions. The Buyer is allowed therefore, to terminate the contract without disclosing the unacceptable condition that forms the basis of that decision, while the Seller, so long as they ask no questions of Buyer about the condition, is allowed to maintain the status quo in presenting prospective buyers their Residential Real Property Disclosures unchanged.

REVISIONS NONE



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COMPARATIVE ANALYSIS OF SHORT SALE ADDENDUM

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FORMS: !

Multi-Board Real Estate Contract 6.0 &

Short Sale Addendum

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Multiboard Real Estate Contract

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Transcript of Multiboard Real Estate Contract