As a real estate professional, there is a great amount of knowledge you need to learn and retain regarding the types of contracts and the terms of the contract in real estate transactions. While many of the details are often easy to understand, such as the contingencies, other details are a bit more confusing due to the legalities surrounding them.
One such element is the Statute of Frauds, which isn’t necessarily part of a real estate written contract, but rather defines certain types of contracts. It is especially important to be knowledgeable about the Statute of Frauds as it pertains to a real estate contract because it can determine the enforceability of a contract if a dispute arises.
What is the Statute of Frauds?
Put simply, the Statute of Frauds is a legal doctrine that states that certain types of contracts must be in writing, and signed by the parties involved, in order to be considered enforceable. Some of the minor details of the Statute of Frauds can vary from state to state, but real estate contracts; contracts for the sale or lease of a real property, or for a mortgage on a real property, fall under this statute.
Basically, if it isn’t in writing, or if it was an oral contract, there may be no legal recourse during a dispute by one or more of the parties in a real estate transaction.
Additional details pertaining to the Statute of Frauds include:
- Contracts that are unable to be performed within one year after the date the contract was formed
- Collateral contracts; an example is a promise to be responsible for fulfilling the debt or duty of another person
- Promises made in consideration of marriage, such as a prenuptial agreement
- A contract for the sale of goods when the value is $500 or more
And, there are also exceptions to the Statute of Frauds, which may make an oral contract enforceable. This is referred to as partial performance, and it states that if a party has taken partial possession of a property and paid a portion of the price discussed between the parties, and if the property cannot be returned to its pre-contractual position, a court can order the contract to be performed.
Another exception involves a promissory estoppel, in which a promiser must fulfill the terms of their promise if the promisee has performed actions to their detriment based on the promise. The promiser is subsequently stopped from denying the contract’s existence.
When a violation of the terms of a contract occurs, or, more specifically, a real estate written contract, it constitutes a statute of frauds. And because, in order to be enforceable, the contract was signed by the parties, both are legally obligated to fulfill the terms and conditions of the contract or possibly face legal repercussions.
A statute of frauds in real estate typically occurs when there is a breach of contract by either the buyer or the seller. Perhaps the seller has decided he or she no longer wishes to sell the property. The buyer, while usually much more protected by the terms and conditions of a real estate contract than the seller, can also be in breach of contract under certain circumstances.
A real estate dispute could arise simply because the contract contains terms that seemed fair at first, but have been realized to be too difficult to complete. Quite often, legal counsel is required to settle this dispute, or, if necessary, bring the matter to court. But the ultimate purpose of the written contract is to avoid the need for litigation and unnecessary damages.
There might also be a matter of unlawful or fraudulent conduct on the part of the buyer or seller. This can encompass many things, including potential real estate fraud or mortgage wire transfer fraud. Such incidents bring forth trickier and complicated undertakings, especially in the case of one party engaging in identity theft to knowingly and willingly deceive the other party.
In most cases, the statute of frauds will not cause a real estate contract to be void, but some types of criminal and/or fraudulent activity could render the contract unenforceable. One party can also use frauds as a defense to remove themselves from the contract without penalty. However, such actions must satisfy the statute. As mentioned above, if partial performance can be proven, or in cases where promissory estoppel is observed due to unfair terms of the contract, the contract falls under the statute of frauds and can still be deemed enforceable.
While not every circumstance that may cause a real estate dispute can be foreseen, nor can every fraudulent action by one party be prevented, a good portion of the risk can be mitigated by utilizing an ACH electronic payment transfer system.
Paymints.io is a fully electronic, secure, and compliant payment solution specially designed to benefit the real estate industry and reduce incidents of fraudulent activity. Utilized in favor of wire transfers and cashier’s checks, which are highly subject to potential fraud, ACH transfers provide more security and offers a complete digital solution for making earnest money deposits, transferring funds into escrow accounts, or paying closing costs.
Paymints.io also uses one of the strong bank-level security encryption protocols available, offers real-time tracking of all money transfers, and advanced identity protection. Real estate professionals can avoid some of the pitfalls and risks of wire transfers, as well as make things more convenient for both themselves and their clients by using an ACH transfer platform.
Learn more about legal issues and other information pertaining to the real estate industry by asking questions in online forums and visiting industry blogs. You’ll find a wealth of resources that further explain many of the more complicated aspects of the types of contracts used in real estate, as well as information on upcoming trends and technologies.
To learn more about how using paymints.io can be safer and more secure than a wire transfer, as well as especially convenient for both the real estate professional and the home buyer, schedule a free demo today!