A Few Points of Clarification… - Posted by JPiper
Posted by JPiper on January 06, 1999 at 17:59:04:
Here?s a few points of clarification about assignments.
First, you cannot assign ANY contract in ANY state if it says nothing about assignments. This is contrary to what some of you evidently believe. To make it simpler, you cannot assign ANY contract. Let me give you an example. A contract that contains owner finance in some states cannot be assigned without prior approval of the seller unless the contract specifically permits the assignment. (I say ?some? states because I don?t know if this is true in all states, although I believe it should be if it isn?t).
What?s the big deal?? You put ?and/or assigns? in your contract. Or, check the law out in your state. Just make sure you?re speaking with an attorney who knows, because all of them don?t.
Next point. Assigning a contract does not relieve you of the responsibility of performing under the contract. If you assign a contract containing owner finance, and the assignee defaults somewhere down the road, guess what?? You could be held secondarily liable under the contract unless the owner gave you a release of liability.
If you assign ANY contract and the assignee does not perform by closing, you may be held liable under the contract. In other words, if you assign any contract to a new buyer, and he fails to close, the seller could come after you.
Here are the steps I take to cope with these issues. One, I write all contracts in the name of my corporation and/or assignee. Why?? First, it gives me the right to assign. Second, any contract liability is a corporate liability rather than a personal liability.
Two, in ANY contract containing some form of owner finance or a lease/option contract I insert a clause that 1) specifically permits me to assign and 2) gives me a release of liability if the owner approves the assignee.
I keep being asked about this step. Do you need to get a specific release of liability from the owner?? Could we simply insert a clause in the original contract that says if the contract is assigned that the owner releases the buyer from all liability?? My answer is to ask your attorney. I?m not comfortable with the concept that I get an owner to pre-release my liability under a contract which I intend to assign to an unknown party. I?m not comfortable with the idea that in a court of law I will not be held liable when the seller says I tricked him, and that he didn?t know this new buyer. Call me cautious. I get a separate release of liability indicating approval of the new buyer from the seller when I assign any contract that contains owner finance or is a lease/option.
In any contract I limit my liability to the earnest money consideration. Why?? Because that?s all I can lose.
So here?s how it stacks up. My contract reads buyer is ?corp and/or assignee?. The corporation will have to be sued if there is to be a lawsuit. The liability is limited to the amount of earnest money. I get a specific release of liability if there is ANY form of ongoing liability under the contract (like owner finance). If you take these steps you will have minimized your contract liability significantly.