The purpose of this Blog is to provide timely information regarding all issues concerning the residential real estate practice. We will regularly post articles for general discussion. If you are new to "blogging", you can read the posts and if you wish, comment on them. We welcome your comments to our postings. To comment just click on "comments" in the lower right hand corner of each posting. If you post a question we will try to respond within 24 hours. To view the response, log back into this site.

Tuesday, July 25, 2006

Review of Multi Board Residential Real Estate Contract 4.0 - "How 10 days can kill you"

Linked is an outline that our firm has used in giving seminars on the Multi Board Residential Real Estate Contract 4.0 as revised as of 2006. If your office is interested in a seminar, please feel free to contact Tom Anselmo (630-983-3393) or Robb Rappe (630-637-2926) and we can set up a time to schedule a seminar for your office.

As part of our review of the "new contract," we are going to post a number of articles on various parts of the contract that we believe warrant discussion. This is Part One and its focus is the "automatic kill" provision of the Attorney Review and Home Inspection Contingencies (paragraphs 9 and 10 in version 4.0).

Many industry professionals are aware of the dreaded "10th day" and the need to reach a resolution of the attorney modifications and home inspections within 10 business days after the contract was executed by all parties. Many form contracts have a 10th day provision (ALTHOUGH EVERY CONTRACT SHOULD BE REVIEWED TO VERIFY THE TIME FRAME), including the Multi Board Form 4.0. Form 4.0 however has drastically changed the legal effect of this "10th day." The relevant portions of the old version (3.0) and the new version (4.0) are listed below (emphasis in bold is exactly how the contracts appear):


Paragraph 12, lines 102-104 (Attorney Review)

"If within ten (10) business days after Date of Acceptance written agreement on proposed modification(s) cannot be reached by the Parties, this Contract shall be null and void and earnest money refunded to Buyer upon written direction of the Parties to Escrowee."

Paragraph 11, lines 89-92 (Professional Inspections)

"If within ten (10) business days after Date of Acceptance, written agreement cannot be reached by the
Parties with respect to resolution of inspection issues, then either party may terminate this Contract by
written notice to the other Party and this Contract shall be null and void and earnest money refunded to the Buyer upon written direction of the Parties to Escrowee."


Paragraph 9, lines 76-78 (Attorney Review)

"If prior to the expiration of ten (10) Business Days after Date of Acceptance, written agreement is not reached by the Parties with respect to resolution of proposed modifications, then this Contract shall be null and void."

Paragraph 10, lines 87-89 (Professional Inspections)

"If prior to the expiration of ten (10) Business Days after Date of Acceptance, written agreement is not reached by the Parties with respect to resolution of home inspection issues, then this Contract shall be null and void."

Under form 3.0, the parties had 10 business days after contract acceptance to reach a WRITTEN resolution as to all attorney modifications and home inspection issues. After the 10th day, either buyer or seller could terminate the contract if home inspection issues were not resolved by SENDING WRITTEN NOTICE to the opposing party. It is arguable that this also applied to attorney modification(s). Under 3.0, it is not entirely clear whether the contract is immediately null and void and written direction is needed only to direct the return of the earnest money (why would written direction be needed for a ministerial act where the contract is already null and void?), or is written direction required to terminate the contract and return the earnest money?

Any ambiguity under 3.0 has now been resolved as form 4.0 changes these provisions to state that if written agreement is not reached by the 10th day, the contract automatically becomes null and void. No action need be taken by either party -the contract is simply dead. This is an example of a self-executing contingency.

OUR ADVICE-RESOLVE ALL MATTERS PRIOR TO THE EXPIRATION OF THE 10TH DAY. This also means that parties/attorneys will now have to be careful that a document or letter is executed by the parties or their attorneys (if authorized) which specifically revives the contract and acknowledges it as being in full force and effect if an agreement is reached after the 10th day. This should give all parties a greater sense of urgency to get all matters resolved by the 10th day so as to avoid losing a buyer who might be looking at other houses, or from the buyer's perspective, to avoid losing their dream house because the seller has another offer and the 10th day has come and gone without a final written agreement having been reached.

Robert H. Rappe, Jr © 2006. Senior Partner
Freedman, Anselmo, Lindberg & Rappe, LLC.
Thomas Anselmo, Real Estate Practice Partner

Thursday, July 20, 2006

Quinlan and Tyson Law Update

We all know that you cannot act as a real estate broker in Illinois without a broker’s license. Likewise, only licensed attorneys can practice law. In the fog of a real estate transaction, the line between these two roles can get blurred. In 1966, the Illinois Supreme Court drew a line between real estate brokers and attorneys that profoundly affected the way real estate closings are handled in Illinois. Recently, that decision was revisited.

In some states, attorneys play little or no role in residential real estate transactions. In others, attorneys play a prominent role, including such matters as title examination. Illinois falls somewhere between the extremes, and the difference has largely to do with the view that each state has taken regarding what constitutes the practice of law.

Today in Illinois, one important aspect of attorney participation in real estate closings is document review and document preparation. Prior to 1966, brokers often handled those aspects of the transaction. It was the Illinois Supreme Court’s decision in Chicago Bar Association v. Quinlan & Tyson, Inc. that changed this by establishing the rules that are used to determine what aspects of document review and preparation actually constitute the practice of law.

Quinlan & Tyson, Inc. was a prominent Chicago real estate brokerage that, like most Illinois brokerages, took the view that the broker’s job was to complete the documents required to close a transaction, including deeds, bills of sale, escrow agreements, affidavits waiving title objections, etc.

The Chicago Bar Association sued, charging that the preparation of such documents by brokers actually constituted the unauthorized practice of law. Before the Illinois Supreme Court, Quinlan & Tyson argued that the preparation of these documents was not the practice of law because it entailed only filling out forms, that the matters at hand were simple and did not require legal training, and that preparing such documents was merely incidental to the broker’s professional role. The Chicago Bar argued essentially that even though a legal form may be simple, knowing its possible consequences is not simple and does require legal training. Thus the issue was framed an the court drew the line as follows:

. . .[W]hen the broker has secured the signatures on the usual form of preliminary contract or offer to purchase, completed by the insertion of necessary factual data, he has fully performed his obligation as broker. The drawing or filling in of blanks on deeds, mortgages and other legal instruments subsequently executed requires the peculiar skill of a lawyer and constitutes the practice of law. Such instruments are often minuments of title and become matters of permanent record. They are not ordinarily executed and delivered until after title has been examined and approved by the attorney for the purchaser. Their preparation is not incidental to the performance of brokerage services but falls outside the scope of the broker’s function.

The court emphasized that its guiding consideration in reaching a decision was not the title or purpose of any specific document, but rather the character of the acts required to complete them. Without much further illumination, this is where the line has remained since 1966 when it comes to the preparation and review of documents necessary to close a real state transaction.

Recently, the Illinois Supreme Court revisited the Quinlan & Tyson decision and strongly reaffirmed its basic principles, adding some further light as to where the line lies between broker and attorney. In King v. In First Capital Financial Services Corp., a class of plaintiffs brought suit against area mortgage lenders, comparing the preparation of mortgage loan documents used in real estate closings to the preparation of deeds, bills of sale, etc. The plaintiffs argued that mortgage lenders were engaging in the unauthorized practice of law by preparing mortgage loan documents for their customers and charging a fee for the preparation.

Relying almost entirely on its earlier opinion in the Quinlan & Tyson case, the court held that the preparation of such documents does, in fact constitute the practice of law. However, the court held, a mortgage lender can prepare these documents for transactions in which it is the lender because lenders, like anyone else, are entitled to represent themselves. In reaching its decision, the court reaffirmed every aspect of its opinion in the Quinlan & Tyson case.

The King case also sheds some further light on the principle expressed in Quinlan & Tyson that “it is the character of the act” that determines the question. In King, the court examined the record for indications that the lenders either advised their borrowers regarding the legal effect of the documents or in any way prevented borrowers from seeking independent legal advice, and found that the lenders had done neither. Had the court found otherwise, it probably would have held that the lenders engaged in the unauthorized practice of law.

Where the Quinlan & Tyson opinion established the principle that it is the “nature of the act” that determines where the line is drawn between broker and attorney, it did so only in the context of filling out particular documents necessary for a real estate closing. The King opinion illustrates that the principles laid down in Quinlan & Tyson are not limited to the question of document preparation but are applicable to all aspects of real estate transactions, and demonstrates its application in an additional context by equating document preparation with the rendering of legal advice.

Douglas Oliver © 2006

Tuesday, July 18, 2006

Tenancy by the Entirety

Tenancy by the Entirety is a manner of holding title to real estate in Illinois. You may have often heard the term at a closing but be unfamiliar with the requirements and protections of this doctrine. Attached is an article that was published by the Illinois State Bar Association in the Real Property newsletter a number of years ago that gives an in-depth analysis of Tenancy by the Entirety and how Illinois courts have interpreted the doctrine, as well as the Illinois legislature's response to the court decisions.

In a nutshell, Tenancy by the Entirety can be used only for married couples and only for their principal residence. The doctrine is similar to Joint Tenancy in that if one person dies, title immediately vests in the surviving spouse (typically referred to as "right of survivorship"). However, Tenancy by the Entirety also protects each spouse from each other. For example, the husband is sued for some debts that wife had nothing to do with and a judgment is taken against the husband and a memorandum of judgment is recorded against the property. If the property is held as tenants by the entirety, in most cases the judgment creditor will be unable to force a sale of the residence to satisfy the judgment. The tenancy by the entirety protects the "innocent" spouse.

Please feel free to join in with any comments or questions about this post or the attached article.

Robert H. Rappe, Jr © 2006

Tenancy Article