By: Cara Dudek-Petri Gibbons
By the time my office gets a contract for a closing a lot has happened that we are typically not a part of and truthfully, after reading this blog, I hope changes for a lot of people. One of those very important things is the execution and drafting of the contract. The last thing I want to do upon receiving a contract is inform all parties that it has been drafted incorrectly, you’re missing sellers or the person who signed on behalf of the buyer didn’t have authority to do so, and you may not actually be under contract like you thought. I know in a lot of states an attorney assists in drafting the contract, but North Carolina is not one of them (most of the time). Real estate agents, or the individual buyer/seller in a FSBO capacity, actually handle this part of the transaction. There are three situations where we see the most mistakes with contract drafting and they are name changes, entity buyers or sellers (Trusts/LLCs/Corporations/POAs, etc.) and estates. I’ll go through each of them briefly with some tips and tricks, and hopefully this will save everyone involved in the transaction an unwanted headache!
Name changes are the easiest ones to head off. From the buy side it’s easy and only comes into play in limited circumstances. This will be that you have a client that gets married/divorced and/or just changes their name between contract and close, a simple addendum (attorney drafted) will fix your compliance problems. Also, just a side note, highly encourage all your buyer clients to NOT start the name change process between contract and close if you want to close on time. From the sale side, if the name of your client is different than when they initially took title, you can do one of two things. The first being you can put their former name that’s shown on title (AKA or FKA) their now LEGAL name. They would then sign all documents for you with their actual legal name. This is the best practice and helps me as the attorney once I get the contract understand the discrepancy that I will end up discovering in title anyway. Or you could just put their now legal name on the contract. When I get into title, I’ll see the former name and can address the AKA or FKA on their conveyance documents, but the contract will not need to be corrected. But please, do not put someone’s former name only on the contract and advise them to sign that incorrect former name.
The next situation is when you have an entity buyer or seller. We see this on both sides of the transaction being done improperly. An entity buyer or seller is when you have clients that either want to purchase or currently own the property in the name of a Trust, LLC, Corporation, etc. In this situation the entity is your client, not the individual. You need to see a copy of the Trust, the LLC’s operating agreement, a corporate signing resolution, or something that shows who on behalf of the company/trust/etc. can sign on behalf of the entity. Those documents will be required once you’re under contract to be provided to the closing attorney anyway, so having it up front and handy is best. Before you have your entity client execute anything for you, please run those documents once you receive them by your favorite closing attorney to save you issues down the road. It is not your responsibility or job as the real estate agent to interpret those legal documents, so let the attorney do that for you.
Power of Attorneys (POAs) are a separate issue. First, you cannot use a POA if the person who authorized the POA died. The buyer or seller should always be shown as the individual purchasing or the vested owner seller. The person who has a valid POA to sign on behalf of that person is simply just the signatory. When they sign, they sign “the buyer/seller’s name, by their name, agent/attorney in fact/POA/etc.” It’ll look like a full sentence. Never put the POA’s name as the buyer/seller. They are acting solely in a capacity of signing on behalf of that person.
And lastly, the dreaded estate closing. This is where I see the most issues. It’s always going to be on the seller side, but the buyer side also needs to be very well versed as to not lead their buyer client into a situation where they can be harmed. First, shockingly enough, a person who is dead cannot be written on the contract as the seller. You may be thinking, “Come on, Cara! That’s crazy, no one would ever do that!” Well, I assure you it happens more often than you’d think. When someone dies owning property it is complex. There are situations where it is easy. One is a married couple owns property together, one dies, and the other can just sell without having to do anything but provide a death certificate. That is IF the deed when they purchased specifically states they own it either as a married couple, tenancy by the entireties, right of survivorship, etc. The other situations are NOT easy. I could go through 100 horror stories and situations that have run through our office to scare you away from being involved in an estate closing ever again, but that’s not the intent of this blog. The tips I have for estate closings are this; 99% of the time an estate cannot sell the property. So please don’t put the seller as “The Estate of John Smith” unless you’ve spoken with a trusted real estate attorney and they told you that is what you need to do. It has to be specifically referenced in the will of the deceased person that their executor or administrator has the sole right and ability to list, sell, and convey the real property without joinder of the heirs. The first question to ask the person you’re working with is did the vested owner die with or without a will? The basic principle in North Carolina is that immediately upon death, the heirs of the deceased own the property. You also have to consider North Carolina marital property laws as well, so it’s really all of the heirs, and their spouses, that own the property at death. Then you have to see how long ago did the person die? If it’s within the last 2 years, then has an estate been opened in the County where the property is located or at all? If the answer is no, you have some work to do. I could go on as there is a lot more, but I’ve said enough to prove my point and encourage you when you have a seller that is an estate, ask all the questions. If you have a buyer interested in an estate property, you are not out of line by asking those questions of the seller and/or listing agent to confirm they did their legwork before listing.
The goal as an agent or layperson is not to know all the things. It’s to know what you know, and what you don’t know, who to ask. And I promise you, regardless if you think you know exactly what to do and who needs to sign, you’re a better agent or buyer/seller by asking a professional first. We want you all to look good to your clients, and having to double back and re-sign documents, make corrections, or God forbid need a person to join in who is unwilling, does not do that. Our motto is Rest Easy for a reason, so please take us up on that and call me! #CloseWithCara
