REAL ESTATE DOCUMENTS
Whenever someone is purchasing or selling real estate, they will often times need additional addendums and legal documents created in order to make certain that the transaction will be successful. Our firm has experience in providing the additional real estate documents to our clients.
This is a contract between the owner of an asset (the lessor) and a group or individuals who pay to utilize the asset (the leese.) Lease agreements are commonly used to outline the terms and agreements for real property, buildings, equipment and vehicles.
In real estate, lease agreements cover the guidelines for property usage between a landlord and the tenant. When you’re renting a house or business space, you sign a lease that states what you can and can’t do while occupying the property. As a landlord renting real property to a tenant, you use a lease agreement to guarantee how long the tenant will occupy the property, when their rent is due, and terms for moving out and eviction.
A promissory note, also known as a note payable, is a legally binding “I.O.U.” This document acknowledges one party being indebted to another party. Promissory notes guarantee the debtor will repay the lender. They also state the terms of remuneration, interest rates and penalties should the debtor not meet the terms of the note.
If you’re loaning someone significant capital so they can invest in real estate, you’d use a promissory note to ensure you’re repaid. You can also use promissory notes with real property loans. For example, let’s say you own a commercial property and you want to lease it to a new startup. They don’t have cash upfront, but you believe in their business model and ability to repay. You’d use a promissory note to guarantee the real estate loan and your repayment.
Owner financing allows a buyer to purchase an asset from the seller through a series of payment installments. This lets the buyer make smaller, predetermined payments on a large sum purchase without needing to get a loan.
Owner financing, also called seller financing, is a popular practice in real estate. Buyers can borrow money from the real estate owner. The real property owners can sell directly to the buyer without involving banks and mortgages. The seller of an owner financed property sets the terms of repayment, interest rates and penalties.
Deed Of Trust
A deed of trust is a legal document specific to the world of real estate and lending. A deed of trust is an arrangement where the buyer of a property signs the property rights over to a neutral third party. This third party, or trustee, retains the title (legal ownership) of the property while the buyer pays their debt on the property.
When a buyer purchases a property via owner financing, a promissory note, or any other loan, the seller may request a deed of trust. While the buyer can use the property as if they owned it themselves, they won’t have the title until their debt on the property is satisfied. In a deed of trust arrangement, the trustee often acts as a legal throughway for the buyer, the lender and the seller. The trustee may distribute repayment funds, sell the property if the borrower defaults on the loan and/or relinquish the property to the buyer once they pay their debts.
Joint Venture Partnerships
A joint venture partnership agreement, or co-venture agreement, is used to legally state the temporary partnership between two or more people for the purpose of investing and/or cooperative business activities. These agreements align two companies for the sake of mutual benefits like profit, development, and offsetting costs.
In real estate, joint venture partnerships are usually formed to the sake of financing real estate purchases. A real estate developer can sign with a joint venture partner who pays for the construction, permits and other costs of developing the property. The developer provides the resources and labor, the financing partner covers expenses and they both share in the profits. Some terms included in a joint venture partnership agreement include responsibilities in the partnership, management rights, the benefits of the partnership (i.e. profit share) and terms of exiting the partnership.
Limited Liability Company (LLC)
A limited liability company (LLC) is a flexible partnership agreement between two or more individuals that wish to form a company. With an LLC, the members (owners) of the company are not personally responsible for company debts. An LLC also lets members distribute profits at their discretion.
There are a few documents you need to file to form an LLC. The specific legal documents you need to file vary from state-to-state, but they commonly include:
- Articles of Organization. These are the state and federal documents you or your lawyer need to file to make your LLC a legal and registered company.
- Operating Agreement. A document that outlines member and management responsibilities within the LLC. Terms included in this agreement can include financial obligations, working operations and what to do if a party wants to leave the LLC.
- Tax Identification. An LLC may choose to register for a tax identification number with the IRS. This allows the LLC to pay taxes as a legal entity separate from the operating members.
In real estate, LLCs are often formed specifically for two or more people to buy, sell and/or invest in real property together. Joint venture partnership agreements are often backed by an LLC.
“Rent to Own” Lease Options
Sometimes a renter of a property (the lessee) makes payments to the owner (the lessor) with the intention of purchasing the property for themselves. This option to buy the property at the end of the lease term is referred to as “rent-to-own” agreement or a lease option.
This real estate document contains two provisions, the rental rate and the lease term. The document tells the buyer how much they have to pay each month and up until when they have the opportunity to purchase the property. A lease option allows the buyer to lock in a future purchase price even if they don’t presently have cash for a down payment. Landlords and owners enjoy lease options because it gives them a chance to sell their property to a familiar and qualified party.
A deed is used to legally declare and guarantee the transfer of an asset or real property from one party to another.
In real estate, this legal document is also called a property deed. These agreements let the original property owner (the grantor) transfer complete rights of the real property to the new owner (the grantee.) A deed is not the same thing as a title. Think of a deed like a receipt of transaction and a title as the receipt of real property ownership.As you can see, there are many different real estate documents that can go hand in hand with the purchase or sale of a property and there are a lot of details that need to be properly addressed. For a buyers seller on their own, the process can be confusing and frustrating and it is very possible key details may be overlooked. It is important for a buyer or seller to work with a real estate attorney to ensure the entire process goes smoothly and efficiently. When you hire our firm, we can make sure that you both your legal and real estate interests are protected.
To learn more about the hidden benefits of working with an agent who is also an attorney, please be sure to download our informative guide, “The Hidden Benefits Of Working With An Agent Who Is Also An Attorney.”
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