Forms Tip of the Week
In the Oregon REALTORS® Purchase and Sale Agreements, the dispute resolution provision has a very distinct process: (1) if there’s a dispute, take it to small claims court. (2) If small claims court can’t deal with the issue, begin a Mediation with Arbitration Services of Portland (ASP). (3) If the mediation is not successful, begin a binding Arbitration with ASP.
The small claims court step is oftentimes a bit of a mystery; this tip will hopefully remove some of the mists.
Small claims court is a way of resolving disputes in front of a judge. Each County will generally have their own small claims court and some of those courts will have a pre-trial mediation program administered through the court. If the issue is just about money [not about specific performance or about forcing someone to do repairs, etc.], and the issue is worth $10,000 or less, the small claims court judge can hear the issue. This means, if the issue is worth $10,001+ or is about various equitable issues, you must take it straight to ASP Mediation.
The small claims process is relatively simple: the complainant files a notice of small claim form and explains the issue and itemized cost of the repair/issue. The claim gets filed where the defendant [the not-injured person] lives, or where the injury occurred [the county the Property is in], or in the county where a person was supposed to perform an action. The complainant has to notify the defendant, either by doing formal service, or by certified mail. Once that notice is given, complainant has 63 days to file the proof of service [certificate of service or acceptance of service], otherwise the case will be dismissed [the court assumes you didn’t give the required notice]. If the defendant denies the claim in the notice of small claims within 14 days after service, a hearing will be scheduled. If defendant doesn’t respond, the complainant can simply ask the judge for a default judgement within 35 days from the date proof of service was filed; this means there are no arguments, no discussions, the complainant simply wins the case.
Small claims court hearings are oftentimes informal, and parties don’t have attorneys present unless the court approves it. The parties will discuss the case and present testimony and evidence to a judge. At the end of the trial, the judge will make a decision and enter judgment. There is no appeal from this decision. The winning party can take this judgement and make demand letters that tell the debtor that they have 10-30 days to pay off the amount due, otherwise further lawsuits can be brought to garnish and recover the money.
Assignment is a legal concept that refers to the transfer of rights from one person to another, and in common law [old British wig-wearing lawyer law] an assignment clause will transfer both the rights and the duties of an existing contract. See Corvallis R. Co. v. Portland Ry. Co., 84 O4 524 (1917). Assignment of rights under a contract does not, however, delegate the duties of the assignor [person assigning the contract] unless the assignee [person taking over the contract] agrees to assume the duties. An assumption agreement is basically the reverse of an assignment agreement. While assignment shows that one party desires to legally give their rights to another person, an assumption agreement shows that one party desires to legally take the rights from another person. They work together, creating a seamless transfer of obligations from one person to another.
The basic rule in contract law is that any contractual right and duty can be transferred to another person. Provisions that restrict assignment are legal, but these anti-assignment clauses must be absolutely clear.
In the Oregon REALTORS® Sale Agreements, there is an assignment clause that reads, “Buyer may not assign this Agreement, or Buyer’s rights hereunder, without Seller’s prior written consent, unless the Parties indicate that assignment is permitted by the addition of “and/or assigns” on the line identifying the Buyer on the first page of this Agreement.” In other words: no assignment unless, either 1) the Buyer is described as “Buyer, and/or assigns” in sale agreement, or 2) the Seller otherwise provides permission in writing.
Assignment and assumption also pops up in the tenant related clauses. If a Buyer is planning to purchase tenant-occupied property and become a landlord, the Seller has to give over the landlordship reins to the Buyer. Otherwise, the tenant may still legally recognize the Seller as the landlord, even though the Buyer owns the land. Assignment to the Buyer gives the Buyer the rights to be the landlord, to collect rent, evict tenants, to do repairs when tenants demand it. Assumption by the Buyer takes the rights from the Seller, affirming that the Buyer intends to be the landlord and is taking over all of the rights that Seller owed the tenants.
The Form 2.1 Counteroffer and Form 2.2 General Addendum both contain reference information that links the agreement back to some original document. The incorporating language reads as either “[t]he Parties accept all of the terms and conditions contained in the above Offer or Counteroffer…” in the Counteroffer form or as “All provisions of the Sale Agreement not modified by this Addendum will remain unchanged.”
This language means the document incorporates the previous contract and does not modify anything that is not expressly modified. Where possible, courts read contracts to avoid internal conflict, which can occasionally create issues. If the previous contract said “Seller must order an appraisal within five Business Days after the end of the Due Diligence Period” and a later addendum was added that stated, “Seller must order an appraisal by September 25, 2023,” the contract would then read “Seller must order an appraisal by September 25, 2023 and within five Business Days after the end of the Due Diligence Period.” If the parties wanted the Seller’s appraisal requirement to be on September 23, regardless of the five-day shot clock, they could have written “Seller must order an appraisal by September 25, 2023. The parties agree to remove all reference to Seller ordering an appraisal within 5 days after the end of the Due Diligence Period.
In situations where the parties have multiple moving parts at once, the general addendum should be as specific as possible. Generally, the best advice is to use the pre-printed forms, use a form clause library [a collection of pre-drafted language for copy-pasting into addendums], or to hire an attorney to draft the language.
There is a classic scenario that happens with surprising regularity. The Buyer puts in their offer, it expires after a week. The Seller forgets about the offer and remembers it a few weeks later. The Seller reviews the offer and, lo and behold, it’s a fantastic offer and the market appears to be cooling off, so the Seller quickly signs the now-stale offer and sends it back to the Buyer with a smile; “We’re on for the sale of Property!” The Buyer figured that the deal was dead when nothing cut through the radio silence, so the Buyer moved on. The cooling market means the Buyer’s two-week old offer is now a mediocre one. The Buyer gets the message from the Seller on the stale, expired offer and immediately asks their agent, “Buyer’s Agent, are we actually under contract?”
The simple answer is: No.
When an offer expires, it is no longer valid, the contract is dead. Simply accepting the offer after the printed expiration date is insufficient. Oregon REALTORS® created a specialized form [Form 2.3 Late Acceptance Addendum] that acts as a pre-printed counteroffer, making a new offer that can be validly accepted.
What if the scenario changes slightly, and the Buyer actually wants to accept the offer? The Seller sends the one-week-past-expiration signed offer back to the Buyer and the Buyer turns to their agent and asks, “Can we still accept this contract?” The answer gets a little more complicated at this stage. Technically, no. Once an offer expires, it is dead and cannot be accepted; however, courts in various places [e.g. New York in Harris v. Reagan, 177 A.D.3d 1056 (N.Y. App. Div. 2010)] have found that actions of the parties after a contract expires creates an “implied contract.” This zombie-contract created through implication takes the form of whatever the parties are agreeing to do; even if that somewhat deviates from the original form of the agreement. In other words, we can pretend a contract exists because the parties are acting like one exists. If I reject your offer to sell me an apple for $1.25, then give you $1 and you hand me an apple, no court in the land will accuse me of theft; we have an implied deal.
Back in the real property world, if the offer expired, but then the Buyer and Seller proceed as though it weren’t expired, the parties may be operating with a dead offer, but there’s an implied contract that rises in place of the dead offer.
While that implied contract may sound great, ORS 41.580 is the statute of frauds and requires that contracts for real estate sales be in writing. If the contract violates the statute of frauds, the law considers that agreement void unless it’s put in writing somehow. So, in that case where the Buyer accepts the expired offer and the Buyer and Seller go skipping off down the road to sell that home; if one party has a change of heart at any point, e.g. Seller realizing they can make more money by putting the home back on the market; either party can shoot down the contract at any moment by pointing out the inherent flaw of the contract and the void nature of the agreement under the statute of frauds. There are arguments that subsequent amendments memorialize the agreement and put it into compliance with the statute of frauds, but those arguments are untested and not sound risk management advice.
If your offer is expired; use Form 2.3 to make it valid again. It keeps you compliant with the Statute of Frauds and stops potential arguments.
The Oregon REALTORS® purchase and sale agreements all have a “Dispute Resolution” provision that provides next steps when the parties can’t agree on something or when the agreement gets terminated and nobody wants to give up the earnest money. The stance in the OR Forms is that the parties take it to small claims court if possible [issues that are only about less than $10,000 in money], and if the small claims court can’t take the issue, the parties take it to mediation. If mediation fails or nobody follows the mediation outcome, the parties can take the issue to arbitration for a binding resolution.
What are arbitration and mediation? Good question. Let’s start with arbitration. Arbitration is a private gathering of the parties in front of a neutral arbiter. Simply filing an arbitration can cost $700+, so it isn’t a decision to stumble into. Once the arbitration begins, the parties will present their arguments to the arbiter, potentially argue back and forth, but in the end the arbiter will provide a final judgement that is enforceable in a court of law. The arbiter can be a single individual like a retired judge, or can be a council of individuals. Arbiters can also simply be professionals in the field who have immense knowledge and respect in the industry. The arbiter’s award can be brought to a court of law and enforced. For example, the Buyer wins an arbitration and the Seller is required to pay the Buyer for the cost of their inspection. If Seller refuses to pay the Buyer, the Buyer goes to court and the court will “confirm” the award and allow pursuit of remedies just like a person can do when they win a lawsuit. Garnishment and repossession of personal property are both potential options to that Buyer when they ask the court to enforce the arbitration award.
Mediation by contrast is the little brother of Arbitration. A mediation begins with the parties getting together in front of a neutral third party mediator. The mediator will guide the discussion, ask for people’s opinions and thoughts, direct the discussion away from nonproductive debates, and, if necessary, may divide the parties into two separate rooms and ferry information back and forth between the rooms. The mediator has to be a diplomat, whereas the arbitrator is a judge. The result of a mediation, at best, is an agreement between the parties. If the mediator does their job properly, the parties will be able to see through the fog of war and come to a solution that both the Buyer and the Seller can agree upon. If the mediation fails, for example, if a Buyer feels like they are still right despite the mediator explaining that the Seller really is the one in the right, there is no way to enforce the mediated solution [with the exception to that being if the parties are already acting upon the mediated solution, e.g. Buyer agrees to pay seller and tells everyone they’ll do that, but then changes their mind and refuses. The Seller can reasonably say, “The Buyer told me they’d pay XYZ and I relied on that claim.”]. The mediation will regularly come to a positive result though, despite the unenforceable outcome. When given a chance to cool down and allow level heads to prevail, many conflicts resolve voluntarily. Mediations are generally much cheaper than arbitrations, running only a few hundred dollars.
When selling or brokering the sale of a manufactured structure or a recreational vehicle that is more than 8.5’ wide, Oregon law requires that the salesman/company have a current manufactured structure dealer license or temporary/limited manufactured structure dealer license. Under ORS 446.676(14), a real estate broker can validly sell manufactured structures if they are acting in the employ of or on behalf of an individual who is licensed as a Principal Broker and as a licensed manufactured structure dealer. Sales of manufactured structures without a license are Class A misdemeanors.
For brokers, this means you need a license or need to be working with someone who is licensed whenever you are part of the sale of a residential trailer, mobile home, manufactured home, or rather large RV. Unlicensed brokers can always refer the sale out to a broker who is licensed to sell manufactured homes; nothing in Oregon law restricts a broker from accepting a referral fee for assisting in the sale of a manufactured structure.
Purchase and Sale Agreements give Buyers the chance to inspect the property and look for structural issues. Nearly all sale contracts contain a line-in-the-sand provision that prevents Buyers from doing “invasive inspections.” Invasive inspections, sometimes called intrusive inspections, are inspections that do more than a visual evaluation. All of the following are classically considered invasive inspections:
- The inspector is taking pieces of siding or drywall off to look underneath,
- The inspector is slicing a piece of floor tile off for asbestos tests,
- The inspector is probing a pencil into dry rotten segments of the property.
Invasive inspections are typically permissible, but only with the Seller’s approval. If Seller gives the green light to rip the drywall down and look for that bat nest, the inspector can go nuts.
Oregon REALTORS® purchase and sale forms have a unique take on invasive inspections. The Oregon REALTORS® Forms expressly and intentionally call out (1) sewer scopes, (2) mold tests, (3) pest inspections, (4) dry rot inspections, (5) radon tests, and (6) oil tank locates as non-invasive inspections. Other form libraries may consider these types of tests to be invasive, and may require seller approval before the Buyer can do these tests, but the Oregon REALTOR® form Buyer does not need to request seller permission to do these six types of inspections.
Sellers who do not wish to have a radon test occur on the property, or who don’t want buyers to look for pests on the property can simply add a general addendum to the contract that states “Buyer not permitted to do ____ inspection without Seller approval.” Sellers should be cautious, however, about adding this general addendum. When a seller says, “You can’t do dry rot inspections,” it feels a whole lot like the seller is trumpeting to the world, “My house has dry rot.”
Boilerplate, the term for contract provisions that are always in the contract, was originally used in the early 1800s to describe iron that was rolled into plates for steam boilers. Newspapers would use the heavy, thick steel sheets to create engraving copy for continual and regular reprinting [predominantly for ads and syndicated columns]. Newspaper text that would be changed regularly [e.g. the scores in the sports section] would be cast in lead, which was softer and easier to work with. The boilerplate language was the stuff that got used over, and over in the papers. The term has been carried over to legal contracts, and the terms that get reused in nearly all the contracts are commonly called the “boilerplate” provisions in a callback to the old hard-steel, Gilded Age newspapers.
Boilerplate, while repetitive, is there for a reason. They are core provisions that most contracts have because they work. In law, imitation is the sincerest form of flattery, and boilerplate is downright unctuous. Oregon REALTORS® purchase and sale agreements have a handful of standard boilerplate terms, this is what they are and what they mean:
Obligations Survive Death: This provision states that the agreement will survive the death of either or both parties and, “Inures to and is binding upon their successors and estates.” When you sign a contract, your rights in that contract become something you own. When you die, your heirs and estate will sometimes inherit the rights under that contract. For real estate, that is exactly what happens. The death of a Seller does not mean the Buyer simply won’t get the house; it means the Seller’s estate is now in charge of the sale transaction. If the Buyer dies, it doesn’t necessarily mean that the Seller has to find a new buyer; sometimes the Buyer’s heirs will choose to continue the transaction and purchase the property. If the Buyer’s heirs choose to not continue the transaction, it has the same effect as the original buyer terminating the transaction out of the blue: potential loss of the earnest money.
Time is of the Essence: When a contract says “time is of the essence,” it means every single time- and date-related event in the contract is a material term and failure to meet that deadline is a breach of the contract. Without “time is of the essence” provisions in contracts, the dates and deadlines are considered more like suggestions. If time is not of the essence, it would be nice to get the earnest money deposited by June 25, but if we don’t get the money until early July, that’s fine too.
Severability: The law changes around us at all times. Courts may rule a law unconstitutional, legislatures may pass new laws, agencies might pass new administrative rules. When a law changes and a provision becomes unlawful, unconstitutional, impossible to perform, or unenforceable, there is an argument that the whole contract comes crashing down with that unlawful provision. Severability clauses ensure that the contract continues in lieu of the now broken provision.
Nonwaiver: When something goes wrong in a contract, the nonbreaching party generally has the ability to invoke remedies. For example, a Buyer fails to deposit the earnest money when they are supposed to do so; Seller then has the ability to claim a default or terminate the contract [“invoke remedies”]. If the Seller says, “Buyer, I know you failed to deposit the earnest money, but it’s fine, I’m not worried yet,” then a few days later says, “Buyer, I’m worried now and am sending a notice of default,” the nonwaiver provision means the Buyer cannot claim that the earlier waiver of the default notice prevented Seller from sending a future default notice. Nonwaiver means a Seller can be a reasonable or generous party without being penalized for the magnanimity.
Entire Agreement: Parties sometimes talk before and during the contracting process, outside the earshot of their brokers. When a Buyer and Seller know each other and had a handful of agreements in the past, those previous or past agreements can create issues with the home sale transaction. The entire agreement provision makes it so that all of the terms of the contract are written into the contract and the addenda. Previous agreements have no bearing on the present agreement. If the Seller had previously said, “I’ll give you my fridge if the Seahawks win the Superbowl,” that oral agreement is not going to be a part of the present transaction unless the parties put it in writing in a general addendum.
Counterparts: Normally, contracts are supposed to be personally signed by all the parties. In the olden days, everyone would sit around one table and pass the contract back and forth for signatures. In this era of digital signatures and cross-country contracting, having a single copy of a document can create problems. When the postal service misplaces the only existing copy of a contract, it can cause serious delays and sometimes torpedo the transaction. Counterparts provisions allow the parties to each individually sign copies of the same document. When everyone has signed the a copy, you put them all together and pretend the signatures happened on the same single document.
The Right of First Refusal Form [Form 1.7] is an agreement between the Buyer and the Seller. It is not an amendment to a sale agreement, nor is it a back up offer. Rather, the right of first refusal is a way for the Buyer to pay to ensure they are the accepted offer on a deal. After the Buyer pays the Seller some amount of money and the parties agree to the terms of the right of first refusal, any time the Seller has an offer or counteroffer that they wish to accept (as in, completely accept right that second, not an offer that they would accept after a few more rounds of negotiations), the Seller has to first send a redacted copy of the offer over to the Buyer. The Buyer gets a 5 day period to “accept” the offer and inform the Seller that the Buyer is invoking the right of first refusal. If the Buyer invokes the right; the Buyer and the Seller are under contract on the terms of the redacted offer; the Buyer is treated as agreeing to all the waivers, purchase prices, contingencies, and addendums by reference (the form states “If the Buyer exercises this right of first refusal, the parties agree to sell the property to the Buyer for $100.00 more than the offer. The Buyer may modify the method of payment and loan program provisions and attendant timelines if different from the offer, but otherwise shall agree to identical terms as written in the offer.”). Buyer can pay in a conventional loan (rather than all cash), or can pay with cash (rather than using a loan), but otherwise the terms are the same.
If a Seller is uncomfortable with the Buyer being able to supplant incoming bona fide offers from third-party buyers; Seller should not accept the Right of First Refusal.
Oregon law creates a significant number of tax carve outs and special assessments; each with its own set of rules and qualifications. If your seller knows of any special tax assessments related to the property, the transaction should include Form 2.22 Special Tax Assessment Addendum. In this form, the parties can disclose when the property is subject to one of eight specific tax assessments, or they can fill in the “other” section. Once special assessments are selected and the parties mutually accept the agreement, the Seller will have a period of time to provide documents that demonstrate the special assessment exists and that seller is in compliance with all necessary requirements to maintain the assessment [e.g. a letter from the assessors office stating that the property is presently subject to a special tax assessment].
If the Seller fails to give the needed proof, the Buyer can send a notice of default. If the Seller is ever disqualified for the tax assessment during the transaction, the Seller must inform the Buyer and the Buyer can terminate the transaction at any time until closing.
Some Possible Tax Assessments:
Exclusive Farm Use
Land (or portions of the land) within an exclusive farm use zone and profitably used to grow, breed, train, or prepare various farm and ranch products [see ORS 308A.056]. Land will receive a special assessed taxation rates based on the soil classes of the land; generally taxing the land at a lower value than would otherwise be applied to the property. If the property is disqualified [e.g. the Buyer stops farming the land], up to 10 years of back taxes can suddenly apply to the property. If the property is in the urban growth boundary, only five years of back taxes can be applied.
Farm or Forest Homesite
10+ acre farms or forest spaces with a dwelling used in conjunction with the farm or forest management can qualify for a farm or forest homesite special assessment. The assessment will treat the homesite value as the market value of bare land [plus a small additional amount]. Disqualification from the homesite does not necessarily result in additional back taxes, unless the owner establishes a non-farm dwelling in an exclusive farm use zone.
Riparian Habitat Exemption
If the property has riparian land [land within 100 feet from a waterway] outside the urban growth boundary, it may be eligible for riparian lands tax incentive programs. The land must be zoned agriculture or forest use, wide enough to support stream stability, erosion control, or other conservation functions, must have a specific level of riparian vegetation or vegetation restoration potential, and must have a conservation plan. The usage of the land will be restricted while it is subject to the special assessment. While subject to the special assessment, parts of the property are exempt from ad valorem taxation. If disqualified, back taxes can be applied for the past five years.
If the land has a perpetual, recorded conservation easement and shows that it is or can be “exclusively for conservation” under IRS code section 170(h), it can apply for a special assessment. As long as the land is managed in accordance with the conservation easement terms, the land will be assessed at the lower forest-land or farm land special assessed value. If disqualified, conservation easement land within exclusive farm zones may be subject to 10 years of back taxes, and the rest will be subject to five years of back taxes.
Nonexclusive Farm Use
Similar to the exclusive farm use assessment, except the property is not in an exclusive farm use zone, and has been used for farm/ranch profit for at least the last two years. Disqualification will only apply five years of back-taxes.
The Right of First Offer Form [Form 1.6] is an agreement between a landowner and a prospective buyer. It is not an amendment to a sale agreement, nor is it anything like a back up offer. Rather, a Right of First Offer is a reservation that the Buyer pays for. By giving the landowner some amount of money, the buyer essentially reserves the right to be the first accepted offer on the property. These rights are reserved before the property is even marketed, when the landowner isn’t even a seller yet. It’s worth reiterating: the Right of First Offer is used on property that is not even being marketed yet.
In the act of reserving the first offer right, the Buyer gives the landowner (1) an amount of money, and (2) a fully-filled out, but unsigned purchase agreement; with all of the terms Buyer wants in the offer. If the landowner accepts the money and the right of first offer, the landowner is agreeing that any time they plan to put the property on the market, they will first sign the buyer’s pre-drafted purchase agreement and send it to Buyer for first consideration [in effect, the Seller will be making an offer to the Buyer]. If the Buyer still wants to go through with the agreement, the Buyer will sign the offer and the parties will be under contract. In essence, it’s a Buyer paying to write the Seller’s offer, with a requirement that the Seller present that offer to the Buyer.
It’s a way for the Buyer to pay to reserve land while it’s off market; if the market takes a turn for the better, Buyer may be getting a good deal on the land, if the market takes a turn for the worse, the Buyer can refuse to sign the first offer agreement and simply be one of the buyers making an offer on the property after Seller lists it.
Section 7 of the Form 2.9 On-site sewage addendum references the DEQ “Be Septic Smart” brochure and includes the language, “Buyer understands that owners of certain sewage systems, including sand filter systems permitted on or after January 2, 2014 and all alternative treatment technology systems are required by law to maintain an annual service contract with a certified maintenance provider.” This tip will help you get to that brochure, and understand what systems need that maintenance contract.
The “Be Septic Smart” brochure comes in two variations, Septic Smart for Homeowners, and Septic Smart for Home Buyers. Both can be found at: https://www.oregon.gov/deq/Residential/Pages/Septic-Smart.aspx. The Oregon Septic Smart initiative is designed around giving Oregonians greater access to information about septic systems and giving Oregonians easier access to septic inspectors. Septic inspectors can be added to the SepticSmart Inspectors list, making it much easier for a home buyer or homeowner to find and contact the inspector.
Under guidance by the Oregon Department of Environmental Quality, owners of sand filter systems, pressurized distribution systems, recirculating gravel filters, and alternative technology systems, that were permitted before January 2, 2014, must have the septic tank and dosing tank inspected at least once a year for sludge and scum accumulation. If the sand filtration/recirculating gravel/pressurized distribution/alternative tech system was permitted on or after January 2, 2014, the owner must have an active service contract with a certified maintenance provider, must submit a copy of that service contract to DEQ before the system is installed, and must submit annual reports and annual evaluation fees to DEQ under OAR 340-071-0130(17) and OAR 340-071-0140(3).
The various septic systems that have additional maintenance requirements are defined as follows:
Sand filter systems: an alternative system that combines a septic tank or other treatment unit, a dosing system with effluent pump and controls or dosing siphon, piping and fittings, a sand filter, and an absorption facility to treat wastewater. The wastewater is pumped to the top of the sand filter and allowed to trickle down at a controlled pace, catching significant quantities of waste before the water gets to the native drainage soil. Sand filters are best used in areas where there is limited location for a drainage field, or where the soil is too porous to effectively treat water while draining [if the sludge goes through the soil too fast, untreated sludge may get to groundwater, which is bad.]
Pressurized distribution systems: a system that uniformly distributes septic tank or other treatment effluent under pressure in an absorption facility or treatment unit. It blasts the effluent evenly through the entire drainfield, ensuring rapid, even draining; whereas normal septic systems rely on gravity and may have areas where drainage is more concentrated.
Recirculating gravel filters: gravel filter wastewater treatment system where portions of the filtered effluent is mixed into the septic tank effluent to recirculate through the filter. These systems snatch some of the effluent through repeatedly running the wastewater through the same filter tank. The heavy stuff gets filtered over and over again until it gets cleaned, while the cleaner wastewaters gets discharged into the soil dispersal systems; reducing odors and contamination in the discharge.
Alternative technology systems: under OAR 340-071-0100(11), these are “an alternate system that incorporates aerobic and other treatment technologies or units not specifically described elsewhere in this division.” Basically, all the fancy space-age technology that isn’t otherwise described in the rules.
Form 1.8 is the “Letter of Intent,” designed to help a potential Buyer and Seller negotiate a transaction. Letters of Intent are nonbinding, detail-light versions of the purchase and sale agreement that parties can go back and forth over without wasting too many trees on the paperwork. In effect, it is a nonbinding wish-list document that outlays the primary terms; how much does it cost, when will it close, what sort of terms do you plan to use, etc.
It can be used for any of the Oregon REALTORS® purchase and sale agreements, and will provide for many of the malleable terms up front in three concise pages. The parties can modify the terms after agreeing to a Letter of Intent, but once the two sides agree to the Letter of Intent, they know that the agreed upon terms are largely acceptable to both sides and will get the deal done.
There are some parts of the LOI that are binding; such as the agreement that parties will negotiate in good faith and make reasonable efforts to arrive at a mutually agreeable contract, the agreement to keep the LOI information confidential and to provide documents back to the other party, and the acknowledgement that the brokers and real estate agents involved in the transaction were a part of the transaction [for the purposes of receiving a commission if a sale successfully occurs]. These “binding provisions” are only binding if the parties both sign the LOI, so it isn’t like a Buyer can just send the LOI and bind the Seller to silence. Binding provisions only bind when the parties agree to them.
ORS 696.805 and ORS 696.810 establish the requirement for Buyer and Seller’s agents “To disclose in a timely manner to the [client] any conflict of interest, existing or contemplated.” The Oregon REALTORS® Form 9.7 is meant to assist in these disclosures.
Unfortunately, ORS 696 never defines a “conflict of interests,” and in these instances of statutory ambiguity, Oregon has a three-part process to determine the meaning of a term. Under PGE v. BOLI, 317 Or 160 (1993), as modified by State v. Gaines, 346 Or 160 (2009), interpretation of a statute requires (1) examination of the text and context, and a simultaneous (2) review of the legislative history [the discussions the legislature had when passing a law]; if the first two steps fail to yield a result, we resort to (3) “maxims of interpretation” [maxims are general rules about how we construct laws, like “If you have two interpretations and one contradicts other laws, but the other doesn’t contradict any laws, go with the one that doesn’t cause problems”].
The addition of the “conflict of interests” requirement in ORS 696 happened with Senate Bill 446 in 2001, the omnibus bill splitting original broker category into “Broker” or “Principal Broker.” There was no discussion about the conflicts language, so we’re left looking to other areas of the law that do provide clearer definitions of conflicts of interest. Specifically, places like ORS 244, where a conflict of interest is understood as a action that brings private pecuniary benefit or detriment of the person or person’s relative or any business with which the person or relative is associated. In other words, a conflict of interests is a situation where, due to the agency representation, non-commission money is being made by the broker, the broker’s family, or a business owned in part by the broker or the broker’s family. Brokers are hired to assist a client and owes that client a duty of loyalty. The client should never be worried that the broker is more worried about the broker’s own investments or the broker’s sister’s investments.
The client can always agree to let an agent represent them despite the conflict. Brokers can use Form 9.7 to disclose the conflict and by signing the document, the client agrees to let the broker keep representing the client, even with the conflict. In effect, the client would be saying “I don’t mind that it’s your mother’s house that I’m putting an offer on; I want the house and I trust you to do a good job as my agent.”
Fixtures are pieces of property that are part of the land by annexation to or use with the land. There is a constant question about whether an item is a fixture or personal property; courts have given answers that can seem baffling at times. Mining pipes that were moved and removed annually: not a fixture [Roseburg Nat’l Bank v. Camp, 173 P 313 (Or 1918)]. Wheeled prune drying equipment used in the prune orchard: fixture [Metro. Life Ins. Co. v. Kimball, 94 P2d 1101 (Or 1939)].
The test for fixtures is described in Marsh v. Boring Furs, Inc., 551 P2d 1053 (Or 1976):
- Annexation: What is the degree of attachment?
- Adaptation: What is the application of the item to the use or purpose of the realty?
- Intention: Was the intent to make the item permanent?
No single factor is determinative, and this test gives courts wide latitude to fashion an answer based on the particulars of each situation.
When the property has a specific usage, things can be considered “constructively affixed” based on that usage [for example, prune drying equipment]. For that reason, even though you can unscrew the dish washer in most homes, or can remove the range above the stove with just a pocket knife and some elbow grease, we consider those things to be fixtures. It may sound silly, but these questions have been litigated before. In Dean Vincent, Inc. v. Redisco, Inc., 373 P2d 995 (Or 1962), a seller wanted to remove and keep the carpeting in the apartment and argued that their expert could remove it, therefore it was not a fixture. However, the custom shape and usage with the property made it a fixture.
In all the ambiguity of fixtures, the contract can solve the issue. The contract will oftentimes control over case law, so the parties can rely on the terminology within the four corners of the agreement. The Oregon REALTORS® Purchase and Sale Agreements (Form 1.1 through Form 1.5) define fixtures to include any physical property permanently attached to the property and the related controls [keys, fobs, garage door openers, light bulbs, etc.]. The provision then specifically calls out a significant, but not comprehensive list of items:
- Doors and windows including storm doors and windows and door and window screens; window shades; window plantation shutters;
- Installed irrigation equipment;
- Installed landscaping features (including hardscapes and plantings);
- Installed antennas;
- Attached floor coverings;
- Heating, ventilation, air conditioning systems and related components; installed fireplace and fireplace insert components;
- Attached light fixtures and light bulbs;
- Plumbing; water heaters;
- Installed window blinds, and installed curtain or drapery rods (but not curtains or drapes)
If you have a property with items that are not on this list, the parties can and should express their intent in the Sale Agreement: For example “Giant Olmec head statue in the back yard will be considered personal property in this transaction and will remain property of the Seller.”
This can be done in several ways:
- Page 1 of each sale agreement has a space for the parties to specifically write in any personal property that will be included with the sale or any fixtures that will be excluded
- Each sale agreement has an “Additional Provisions” section that the parties can use
- Parties can use a form 2.2 General Addendum
Keep in mind though, the Seller will need a plan to get their things off the property before the transaction closes. If Seller wants to keep the giant statue, Seller needs to plan a way to remove it before they sign at closing.
Some properties in Oregon are considered “historic” because they were famous buildings, famous locations, or are the final resting place of a famous object or sculpture. For example, the USS Blueback submarine at OMSI in Portland is on the National Historic Register, as are Fort Clatsop and University of Oregon’s Knight Library. In some cases, properties may be considered historic, but just haven’t had national recognition yet.
On the Oregon State Parks website, you can find the Oregon Historic Sites database. The Oregon historic sites are at times surprising: drainage ditches on Highway 26; meteorite sites in West Linn; a meadow in Harney County; totem poles in John Day; Fire Hydrants in Granite; the state has a wide array of historic places.
Oregon allows owners of some historic properties to apply for a special tax assessment. Under ORS 358.480(11), the eligible historic property is either (1) on the National Register of Historic Places, or (2) some place the State Historic Preservation Officer believes could be listed on the National Register. The special tax assessment allows the homeowner to freeze the assessed value of the property for up to 10 years at a time (maximum potential freeze of 20 years) while the homeowner does preservation and repair work to the property [this is in addition to the 20% Rehabilitation Tax Credit offered by the federal government]. Depending on how much renovation and restoration the owner is doing, this assessed value freeze can result in significant tax savings for the owner.
If a homeowner does apply for the special assessment, they will have a “Preservation Plan” that they must follow. During the first five years of the special assessment, the plan will require the homeowner to put a certain amount of effort and money into rehabilitating the property and preserving the historic condition. If the homeowner does something that disqualifies the property from its historic classification or special assessment, such as destroying the property or failing to preserve the historic property [e.g. trading out the historic façade with modern composite materials], the special assessment will be lost, and the owner at the time will have to pay back any benefit from the special assessment accrued over the last 10 years, plus 15% more. This means an unsuspecting Buyer of historic property may find themselves paying several thousand dollars in surprise taxes if the Buyer is not informed about the historic property or preservation plan.
Form 4.3 will provide all necessary disclosures and information to avoid these costly mistakes, and has a provision for how the parties plan to pay for the fees if a special assessment disqualification occurs.
The Form 2.18 Attorney Review Addendum is part of the Oregon REALTORS® Forms Library. It is an add-on to a contract, neither required nor referenced within the purchase and sale agreements. A Buyer or Seller can add this form to the transaction (if you are responding to an offer, the counteroffer would state “Add Form 2.18 Attorney Review Addendum as attached”), which modifies the offer by creating an additional termination timeframe.
The Buyer or Seller [check the box for which one, or both] will be given a period of time to have an attorney review the documents. If the Attorney disapproves of the transaction, the reviewing party can simply terminate the transaction and Buyer gets the earnest money back.
The form can be used as a way to sweeten the deal (e.g. “The offer expires in 1 day, but if you agree to it, you get 10 days to have your attorney look at it and tell you what a good deal it is.”), or a way to manage risk (e.g. “There are a lot of addendums and some of them are irregular ones that look like they were custom drafted. I want to accept the offer, but I want to have a chance to have a professional review the unique addendums.”)
If no action is taken by the end of the Attorney Review Period, the termination right is released and the parties proceed as normal.
Parties will occasionally choose to avoid conventional loan programs and have the Seller carry the risk of the loan. In a Seller-carried transaction, the Seller lends the Buyer all the money needed to purchase the Property, and the Buyer promises to pay the Seller back over time, much like a mortgage. These transactions are accomplished in one of two ways: (1) Promissory Note and Deed of Trust [Forms 8.2 and 8.3]; and (2) Land Sale Contract [Form 8.4].
(1) Promissory Note and Deed of Trust
These types of transaction involve a bit of a two-step dance between the parties. At closing, the Seller “lends” the Buyer all the money needed to buy, the Seller signs a deed transferring the property to the Buyer, the Buyer then simultaneously signs a promissory note promising to pay the Seller back over a certain period of time, and Buyer signs a deed of trust that transfers the property to a trusted, neutral third-party (“Trustee”). The Buyer retains their general ownership and usage rights in the property and the Trustee is only permitted to act when the deed of trust lets them act, generally this means the Trustee only gets involved when the Buyer fails to pay on the promissory note or finishes paying on the promissory note.
The promissory note is just what it sounds like, a note where the Buyer promises to pay the Seller back at a certain rate of interest [interest cannot be over 9% because of ORS 82.010; the minimum interest rate will be determined by the IRS’s applicable federal rate, usually somewhere between 2-3%]. The promissory note will outline the payment terms and what the parties are to do when Buyer fails to repay the note. The promissory note is not recorded or attached to the property, it’s a contract between Buyer and Seller.
The parties then collateralize the promissory note using the Deed of Trust. The Buyer essentially says, “I promise to pay you back on the note, otherwise you can sell the house and get your money out of the sale.” The deed of trust is recorded, so it does attach to the property. The Trustee is a neutral third-party, appointed by the Seller, and can usually be replaced at Seller’s discretion. The note gives the Trustee the power of sale for the property and will state the exact times when the Trustee can foreclose the property, though the most common scenario is “Buyer failed to pay on the promissory note.” If there is a foreclosure, the money from the sale goes (1) to pay off Trustee for their services, (2) to pay off the Seller’s note, (3) to pay off junior liens [if any], and then (4) remaining money goes to the Buyer. Usually this means that Buyer can accrue some level of equity in the property over the course of their ownership. If the Buyer has accrued enough equity, they can oftentimes just purchase the property outright by leveraging the equity into a mortgage (functionally, they “refinance”). The Buyer will have a statutory right of redemption (timeframe where the Buyer can pay off the lien and purchase the property) for up to 180 days after the foreclosure auction.
If the Buyer pays off the entire promissory note or redeems the property, the Trustee will complete a “Deed of Reconveyance” that gives all of the Trustee’s interest in the property back to the Buyer. At that point, the Buyer fully owns the property.
(2) Land Sale Contract
A land sale contract is more like a “rent-to-buy” arrangement. The Buyer technically borrows money from Seller and says, “I’ll pay it back to you over time.” During the term of the Land Sale Contract, Buyer has an “equitable interest” in the property, and can live there and utilize the property as their own, with some limitations. The parties record a memorandum of the land sale (or the entire land sale contract itself) to let the world know that the contract exists [Oregon Realtors® has a Memorandum of Land Sale in our Forms Library: Form 8.5]. The Buyer then starts paying on the land sale contract. In a land sale contract, Buyer accrues no equity in the property; they continue to pay until the entire sum is paid off. Once the sum is paid off, Seller is contractually obligated to execute a deed transfer and Buyer becomes the full owner of the property.
If Buyer misses a payment, Seller can auction the property off without giving Buyer the 180 day right of redemption period. Alternately, the Seller can pursue what is known as “strict foreclosure” where the Seller just terminates the Buyer’s interest [almost like terminating a lease], and Buyer simply has to move out. Lastly, Seller can pursue forfeiture, a process where Seller sends a notice to the Buyer explaining the debt owed and the forfeiture date. If Buyer doesn’t pay off all debt they owe by the forfeiture date, Buyer’s entire interest in the property is eliminated.
Form 9.8 is the “Notice of Real Estate Compensation.” The form is largely drawn from ORS 696.582, where the legislature has created the template for a written notice of compensation for brokers to give escrow. If the Notice of Compensation is given to escrow more than 10 days before closing, the Broker who provided the Notice of Real Estate Compensation must also delivery a copy to the principal in the notice [the client]. If the Notice of Compensation was given to escrow within 10 days of the closing, escrow will give the client a copy of the notice at closing.
Under ORS 696.582, escrow is supposed to hold a certain amount of money back from a transaction if (1) a written notice of compensation is given [signed by the broker] and (2) the written closing instructions from the principals [clients] do not honor the terms of the notice of compensation. In effect, money is kept back until the parties figure out the conflict or confusion. Sometimes the error is a simple one, like forgetting to add a zero [$1,000 becomes $10,000], other times the commission payment error can be a little more nefarious. This can be particularly important if the parties decide to simply not pay the agent; the sale closes, both Buyer and Seller refuse to pay a commission to the agent, and the client instructions to escrow didn’t show any payment to a broker.
Without a Notice of Real Estate Compensation, the Seller receives the money from escrow and Broker’s recourse is to bring a dispute or lawsuit against the client for the payment; this gets particularly difficult when the Seller has already packed up and moved out of state or out of country.
When a Notice of Real Estate Compensation is used, escrow will note the discrepancies and either get the issue solved before closing. Otherwise, the commission sum in the Notice of Real Estate Compensation will be set aside and held locally until the commission dispute is solved.
Form 7.2 in the Oregon REALTORS® Library is the Tenant Estoppel Certificate. Estoppel under Oregon law is something that stops an individual from claiming contrary or different information. An Estoppel Certificate is a binding statement by a party stating the current status or conditions of a lease. When a tenant signs an estoppel certificate, they are creating a legally binding statement about the terms of the lease that the tenant cannot dispute. If the tenant brings a lawsuit claiming the lease terms are inaccurate, the new landlord merely needs to pull out the estoppel certificate and say, “Didn’t you say the terms were ____?” and the dispute is effectively over.
This allows a landlord to commit an oral lease to paper and it allows a tenant to lock in the terms and oral arrangements from the occupancy. For Buyers who are inheriting tenants and oral leases, tenant estoppel certificates are necessary. The Buyer wants to have some sort of document in place that outlines the terms of the lease before a dispute with the tenant arises.
Tenant Estoppel Certificates can be used as a Buyer’s tool by guaranteeing terms and allowing Buyer to defend the estoppel terms (e.g. “You stated on your estoppel certificate that the lease was $800/month, but now you’re claiming it’s $500/month?”); Buyer can use the certificate as support when questioning the Seller/Landlord (e.g. “Tenant said you would pay for curtains, but you’re saying you won’t? We need to figure this out before I buy.”); Buyer can use the estoppel certificate to learn about pending expenses and credits that Buyer would inherit.
Tenants can use the certificate to guarantee terms of the lease as the tenant understood them (e.g. “Back in June we agreed it was $500/month and that’s what the certificate said, but now you’re claiming the Landlord said $800/month?); Tenant can use the estoppel certificate to ensure the Buyer/new Landlord knows about unique conditions or entitlements (e.g. service animals, reasonable accommodations, rent credits for yard work, etc.); and Tenant can use the certificate to ensure new landlord knows about and receives the full security deposit and prepayments (e.g. old Landlord ran off with $500 in prepaid rent, new landlord never knew about it and refuses to honor the prepayment).
Section 47 of the Residential Purchase and Sale Agreement states “Except as otherwise agreed by the Parties in writing, Seller shall convey marketable title to the Property by Statutory Warranty Deed, or, if applicable, by personal representative’s deed, or trustee’s deed or similar legal fiduciary’s deed that meets the requirements for conveying interests in real property contained in ORS Chapter 93.”
There are several types of deeds that can be used in real property transactions. The normal set are (1) Statutory Warranty Deed, (2) Special Warranty Deed, (3) Bargain and Sale Deed, (4) Quitclaim Deed, and (5) Fiduciary Deeds. The decision on what deed to use is going to be something for the Buyer and Seller to determine, and they are advised to have an attorney assist in the decision.
1) Statutory Warranty Deed [ORS 93.850]
The Statutory Warranty Deed is the standard absolute conveyance of the property, with five assurances to the Buyer of the land. It passes all of the Seller’s interest in the land unless the deed specifies otherwise (e.g. one half of Seller’s interest in Blackacre). Statutory Warranty Deeds are the default deed for Brokers in Oregon real property transactions. The Buyer can rely on the below five covenants [promises by the Seller to the Buyer]:
(a) Seller is selling their entire interest in the property on conveyance date;
(b) Seller, Seller’s heirs and assigns will not be able to bring lawsuits asserting ownership of or entitlement to the land, and the deed passes any “after-acquired title” [if Seller doesn’t own the property now (it belongs to Seller’s ailing mother), sells it, then later gains ownership through inheritance, the sale is still valid and the Seller’s ‘after-acquired ownership’ automatically transfers to Buyer];
(c) The land is free and clear of encumbrances unless Buyer accepts it with encumbrances as written into the deed [covenant of freedom from encumbrances];
(d) Seller is the rightful owner of the property [covenant of seisin], and Seller has the right to convey the property to Buyer [covenant of marketable title];
(e) Seller will defend Buyer in any title lawsuits regarding the Property, [covenant of warranty] (e.g. someone comes along and claims that they adversely possessed the eastern 20’ of the property during Seller’s ownership, Seller will appear in the lawsuit, pay for Buyer’s lawyer, and assist in combatting these claims).
Covenants (c), (d), and (e) will always be considered a part of the deed, as though they had been written into the deed. Covenants (a) and (b) do not survive the closing and are extinguished [merger doctrine].
2) Special Warranty Deed [ORS 93.855]
Special Warranty Deeds do all of the same things as the Statutory Warranty Deed, except for covenant (c) freedom from encumbrances and covenant (e) are slightly limited. In a Special Warranty Deed, the Seller only guarantees that the land is free from encumbrances “created or suffered by” the Seller. Seller will only defend Buyer in title lawsuits where the complainant claims ownership by, through, or under the acts of the Seller. In other words, the Seller will only guarantee the encumbrances and will only defend the lawsuits that happened while Seller was there.
3) Bargain and Sale Deed [ORS 93.860]
Bargain and Sale Deeds only guarantee covenants (a) and (b). A bargain and sale deed essentially just says “I am selling the whole property, as described on the deed” and “I can’t claim I own it anymore after I sell the land to you”
4) Quitclaim Deed [ORS 93.865]
Quitclaim Deeds guarantee nothing, and only transfer “whatever title or interest, legal or equitable” that Seller had at the time of conveyance. “[if Seller doesn’t own the property now (it belongs to Seller’s ailing mother), sells it, then later gains ownership through inheritance, Buyer does not own the property, they bought Seller’s nonexistent interest in the land and no after-acquired title rights] Quitclaim deeds can be written for things Seller doesn’t own. It would be valid to have a Quitclaim Deed reading “I, Seller, convey to you, Buyer, all of my ownership interest in the northern half of the Moon.” Buyer would be buying all of Seller’s rights [which means: no rights at all] in the property.
5) Fiduciary Deeds [ORS 93.870, permitting other forms of deeds]
Fiduciary Deeds are typically just Bargain and Sale Deeds or Quitclaim Deeds for personal representatives, trustees, and conservators who hold and administer property for another person. Oftentimes, the fiduciary will use a special form of deed to give notice that they are a fiduciary, not the actual owner, that they have no knowledge whatsoever about the condition of the deed or title and that they were not transferring the property fraudulently.
In the case of Personal Representatives, ORS 116.223 explains that a Personal Representative’s Bargain and Sale Deed does not put the Personal Representative in the chain of title unless they are also an heir or successor [e.g. John Doe dies, home put into estate; John Doe’s child is the Personal Representative who would inherit the house; John Doe’s child sells the house; chain of title will show “John Doe -> John Doe’s Child -> Buyer,” rather than “John Doe -> Buyer”]
Note: a “Trustee’s Deed” is separate from a “Deed of Trust/Trust Deed”. A Trustee’s Deed is a deed from a Trustee of a Trust, transferring property to a third-party. A Deed of Trust is a deed from a Buyer to a third-party in a seller-carried transaction, setting the third party up as a “trustee” who will hold the Buyer’s Property and foreclose it if the Buyer fails to pay off their promissory note with Seller.
If the property has a wood stove, the sale agreement should include the Form 2.13 Wood Stove Addendum. The Clean Air Act requires the Environmental Protection Agency to create “New Source Performance Standards” for all stationary sources of air pollution, and these standards get updated periodically. The EPA has been certifying residential wood heaters since 1988; and in 1991 Oregon passed laws designed around reducing and preventing air pollution caused by “solid fuel burning devices,” partly by ensuring all of Oregon’s solid fuel burning devices meet the EPA emission standards (or any more stringent standards put into place by the EPA or the Oregon Department of Environmental Quality).
ORS 468A.465 describes “solid fuel burning devices” as devices that burn coal, wood, or other non-gas or nonliquid fuels for aesthetic, heating, or water heating purposes in a private Residential Structure or commercial establishment.” This however, expressly does not include cookstoves, antique stoves (woodstoves built before 1940 with ornate construction and higher than normal value), pellet stoves, masonry heaters or fireplaces, and central wood-fired furnaces. Fireplace inserts can be considered “solid fuel burning devices.”
Under ORS 468A.505, in connection with a residential property sale, the wood stove must be removed and destroyed unless the stove was certified by the EPA under 40 C.F.R. part 60, subpart AAA or by DEQ. Typically, the certification will be a small metal tag attached to the stove; however if your stove has no tag, it may still be certified. EPA and DEQ certifications are done for the designs of the stove, not for individual stoves, so if someone clipped the tag off a certified stove, it is still certified. You can consult the manufacturer about certifications or look for the design on www.epa.gov/burnwise.
If there is no tag or if the manufacturer refuses to respond and you can’t find anything on the EPA’s website; Seller must remove the stove and destroy it before closing. Alternatively, the seller and buyer can agree in writing that it is the buyer’s responsibility, in which case the buyer must remove and destroy it within 30 days after closing DEQ guidance requires that the destruction of the stove has to be so complete that “it cannot be restored or reused as a heating device,” so just unhooking it and throwing the stove into the garage is not sufficient. If you have a professional disposal or scrap dealer work the stove over, you need a disposal receipt to give to DEQ proving that you decommissioned the stove. Noncompliance won’t end the sale transaction, but could invalidate homeowners insurance, delay loans, or result in up to $750 in fines.
One of the standard Seller representations is that Seller has no “actual knowledge of any liens or assessments to be levied against the Property, of any boundary disputes or encroachments related to the Property, of any violation of law related to the Property, or of any material defects related to the Property not otherwise described in this Agreement or in any addenda thereto or in a Seller’s Property Disclosure Statement (if provided to Buyer).” (lines 270-273 of Form 1.1).
Questions arise on occasion as to what a “material defect related to the property” may be. Any condition related to the property that would affect a reasonable buyer’s conduct in reference to the transaction, including a reasonable buyer’s willingness to purchase the property and/or the price and terms under which they would be willing to purchase the property, should be presumed to be a “material defect.” See Millikin v. Green, 283 Or. 283, 583 P.2d 548 (Or. 1978). Things like presence of Radon or electromagnetic fields or closeness to toxic facilities (the classic example is a cement factory upwind from the house) can be considered material issues and if the Seller knows about these issues, the Seller must disclose them.
ORS 93.275 establishes a few facts about property that are “not material” by law. Specifically, the following are legally defined as non-material facts and would not require disclosure under the Sale Agreements:
- The fact or suspicion that the real property or a neighboring property was the site of a death by violent crime, by suicide, or by any other manner;
- Note – This is just the property being the site of a death. For example, if there are rumors that the property’s previous owner died there, that fact is immaterial and does not need disclosure.
- By contrast, if there is a body buried on the property, that’s material. A Buyer finding a femur while planting tulips in their new garden will create very real issues for that Buyer. These issues can occasionally result in a lawsuit against the Seller if the Seller chose not to disclose that they had privately buried a family member in the back yard.
- Death is immaterial, but the physical location of the burial is quite material.
- The fact or suspicion that the real property or neighboring property was the site of a crime, political activity, or religious activity or any other act or occurrence that does not adversely affect the physical condition of or title to real property;
- Note – Things like doors being bashed in during a robbery are immaterial as long as the door has been replaced or repaired. If, on the other hand, a crime was committed that leaves lasting impacts [e.g. Meth was cooked on the property and the chemicals are present in dangerous quantities in the walls], the fact of that crime should be disclosed and is material.
- The fact or suspicion that an owner or occupant of the real property has or had a blood-born infection;
- Note – ORS 93.275(2) states that the legislature found no risk of transmission of HIV or AIDS by casual contact, so a previous inhabitant having HIV or AIDS would not be a material fact.
- The fact or suspicion that a sex offender resides in the area; and
- The fact that a notice has been received that a neighboring property has been determined to be not fit for use under ORS 453.876 [generally referring to illegal drug manufacturing sites].
The Seller is under no obligation to disclose the above facts, but may disclose them if the Seller chooses to do so. As a broker, you should not disclose the above facts unless you have discussed the disclosure with your client and received their permission first.
Counteroffers are a bundled concept at law. According to the Restatement Second of Contracts § 39, “A counteroffer is an offer made by an offeree to his or her offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. An offeree’s power of acceptance is terminated by his or her making of a counteroffer, unless the offeror has manifested a contrary intention or unless the counteroffer manifests a contrary intention of the offeree.”
What this means is: when Seller makes a normal counteroffer, Seller has done two things: (1) Seller rejected the previous Buyer offer/counteroffer, and (2) Seller made a fresh new offer for the Buyer to accept or reject. It’s easiest to illustrate with an example.
- Step 1. Buyer makes an offer to Seller.
- Step 2. Seller sends a counteroffer to Buyer [simultaneously making an offer and rejecting the Buyer’s offer].
- Step 3. Buyer rejects Seller’s counteroffer.
- Step 4. Seller cannot now go back and accept the Buyer’s Step 1 offer.
Oregon REALTORS® contracts state, “The Parties accept all of the terms and conditions contained in the [previous] Offer or Counteroffer with the following changes:” This means that a counteroffer “incorporates” all of the language from the previous offer or counteroffer. If there is any overlap between previous offer or counteroffer terms, the most recent counteroffer’s language will be the official terms of the agreement.
If an offer said, “$100,000 and no inspection,” a counteroffer will use those same terms unless stated otherwise. If the counteroffer said, “Purchase price to be $150,000 and yes to inspections,” the terms would be “$150,000 and yes to inspections.”
By contrast, if the offer said “$100,000 and no inspection” and the counteroffer only said “also no appraisal!” the terms would be “$100,000, no inspection and no appraisal!”
A trust or a business entity (LLC, Corporation, Partnership, etc.) can own and hold property. These entities are able to buy and sell property, but the entity does not sign on the sale agreements. The Revocable Living Trust, LLC, and Corporation are all abstract entities; they only exist on paper and do not exist in the real world. Nonetheless, these abstract legal entities frequently interact with the real world and generally authorize a real, live human-being to handle the physical elements of the entity’s existence.
When a Trust is selling property, the Trust does not sign the documents; rather, the Trust oftentimes has a “Trustee” who is the person charged with administering the acts of the trust. The Trustee is the “legal owner” of the trust’s assets [they “hold the assets in trust”], and the Trustee will only act as directed in the Trust documents. If the Trustee determines that selling real property held in the Trust, and determines that the trust documents permit the sale, it is the Trustee who actually sells the property and signs the paperwork, not the Trust.
When signing on the “Seller Signature Line” the Trustee should write “John Doe, Trustee of the Doe Family Revocable Living Trust.” They should not sign the document as simply “Doe Family Living Trust.” If the Trustee is signing as a Trustee, they need to make it clear that they are not signing as themselves individually [e.g. signing as “John Doe” without any reference to his title], but rather are signing the sale documents in their capacity as Trustee.
The same is true for businesses. The signature should not be “ABC, LLC” it should be “John Doe, Manager of ABC, LLC,” thereby indicating that it is the person signing is a manager with signatory authority (being a “signatory authority” means you are authorized to sign documents for the business). If the LLC is member-managed, the person would sign as “John Doe, Member of ABC, LLC,” or in a similar way identifying the person’s signatory authority within the business.
The Buyer and Seller Advisory are Forms 10.1 and 10.2 in the Oregon REALTORS® Forms Library. These advisories cover a wide array of topics and provide your client with information to shield themselves from unscrupulous parties. By reading the advisories, clients can learn how to protect themselves from pitfalls such as wire fraud and Visual Artist Rights Act lawsuits. They also protect principal brokers and brokers should a dispute arise between client and agent.
For example, a Buyer wants to purchase a property, among other reasons, because the listing says “2,400 square feet.” The client does not look into the square footage and merely assumes that the listing was accurate. After closing, the Buyer measures the property and finds that it is, in fact, 2,200 square feet. In a fit of buyer’s remorse, the Buyer sues everyone they can sue, including their agent. The Buyer’s argument against their agent is, “You should have told me that the square footage in listings are just estimates; I really wanted that extra 200 feet and it’s your fault I don’t have it.” In the dispute, the broker can point to page 4 of the advisory, showing that the client was, in fact, told that square footage on listings are just estimates and are not to be relied upon.
To help manage risk for both clients and agents, Oregon REALTORS® has implemented two approaches to ensure that clients do in fact read the advisories. First, our residential purchase and sale agreement on lines 5-6 states in bold type “Buyer and Seller acknowledge that they have read and understand the Oregon REALTORS® Buyer and Seller Advisories, respectively.” Second, Forms 10.1 and 10.2 have a space for initials on every page of the document.
If you don’t want your client to go through the risk-management process of initialing every page of the advisory, Oregon REALTORS® has version of the advisory available with smaller font and no space for client initials. These smaller versions are available here. These shortened versions still require the client to sign on the last page, and the client will still be required in the purchase and sale agreement to acknowledge that they have read and understand the advisory, but the documents have no place for the client indicate on each page that they have reviewed that particular page. Your brokerage should decide which variant of the advisory you wish to use for your clients after weighing the pros and cons of each. Regardless of which variant of the advisories you use, we recommend building the advisories into your initial client consultation process.
Agency documents, certain advisory documents and the Seller Property Disclosure Statement are exceptions.
Forms libraries are designed to be internally consistent but not consistent with other forms libraries. An addendum from one library refers to provisions in the base sale agreement and the other addenda from that particular library. Stitching a contact together with multiple forms libraries creates a “Frankencontract” and it may be difficult to ascertain the meaning of the contract or the intent of the parties. Any single transaction should be conducted using a single forms library. The following are exceptions to this rule:
A) Agency Documents: Listing agreements, buyer representation agreements, disclosed limited agency agreements, and other agreements between client and agent (rather than buyer and seller) should not prevent the buyer-seller transaction from taking place using a different forms library.
B) Seller Property Disclosure Statement: The Oregon REALTORS® Forms Library is compatible with any Seller Property Disclosure statement (including those from other forms providers) that complies with the Seller Property Disclosure Statute, ORS 105.464. Per OREF Guidance, the same is true for the OREF library.
C) Certain Advisory Documents: Advisory documents that advise clients generally about issues that could arise in a real estate transaction (i.e. wire fraud) but that do not reference specific forms or provisions of specific forms can be used regardless of which forms library is used to conduct the transaction.
In addition to the guidance above, always be sure to follow any policies that your brokerage has in place.
Even if a Seller is not required to provide the Seller Property Disclosure Statement (SPDS) or is exempt from providing the SPDS (e.g. Seller is a court appointed Conservator), the Seller will still have disclosure requirements both under law and in the purchase and sale agreement.
Seller Representations [Section 41 of Form 1.1] require the Seller to disclose if they know of any liens, assessments, encroachments, or material defects related to the property otherwise not described in the SPDS. ORS 92.465 prohibits express misrepresentations, and Oregon courts have upheld actions for “reckless misrepresentation.” If the Seller knows that there is a lien/encroachment/defect in the property, or believes that one exists, they are bound by contract and by law to disclose the truth of the matter.
E.g. Seller knows that the house floods every May due to bad drainage. Seller is a court-appointed Conservator and is exempt from providing an SPDS, the Seller representation section will still require Seller to inform the Buyer that the material defect exists.
Seller should disclose these defects in writing, whether that’s on the SPDS or in a separate email or letter. Even when exempt, the Seller may want to use the SPDS as a checklist to ensure they have met all their disclosure requirements.
The Seller Property Disclosure Statement (SPDS) must be delivered to the Buyer under Oregon law. If a Buyer indicates that they are not using the property as a residence for Buyer or Buyer’s family, Seller does not need to provide a SPDS. Otherwise, ORS 105.465 requires the SPDS for a few types of properties. Even if the property is the right kind, Sellers can still be exempt. Check ORS 105.470 to see if it applies to your Seller. One exclusion states the Seller doesn’t need to give the SPDS if “Seller is a court appointed: Receiver, Personal Representative, Trustee, Conservator, or Guardian”
Courts will appoint trustees on occasion if a professional trustee is required, but most trustees are not court appointed. If a Seller is a trustee and was appointed by the grantor of the trust (not by the court), that trustee will still need to fill out the SPDS, even if their answer on most questions will be “unknown.”
The Bill of Sale can be used to transfer personal property alongside your real estate sale. It is meant to be a stand alone contract selling furniture, appliances, and tangible things; not just an extension of the “included personal property” section of the Purchase and Sale Agreement. Items marked as “included personal property” are treated as a part of the real estate sale and are mixed into the sale; if the sale falls apart, the included personal property has not been sold. The Bill of Sale is used to transfer things that are not covered by the lender, and if the sale falls apart, the items in the Bill of Sale do not necessarily return to the Seller.
Use the Form 2.4 Bill of Sale to transfer items the lender refuses to pay for, for example, furniture or furnishings. Make sure there is some amount of money exchanging hands to make it a valid contract with valid consideration.
“Business Day” is defined in Section 36 of the Agreement as “[a]ny day other than Saturday, Sunday, or a legal state holiday under ORS 187.010.” Oregon REALTORS® uses the statutory list of legal Oregon holidays to avoid potential confusion about differences between official legal holidays and other holidays that are merely recognized by the legislature or Congress. When you want to know if a day is a holiday (and therefore not a Business Day), you can always look up the statute directly here. And know that if the legislature ever establishes a new legal holiday, we’ll be the first to tell you!