Posted by Stacy (AZ) on January 21, 1999 at 15:23:26:
That’s a safe approach, I can’t argue with you. But just as an example, the Florida Association of Realtors purchase contract has it like this (according to Rob FL):
ASSIGNABILITY: (CHECK ONE): Buyer [] may assign and thereby be released from any further liability under this contract; [] may assign but not be released from liability under this contract; [] may not assign this contract.
Rob says he always checks the first box, of course. I know in my state it’s appropriate in the original contract, but, once again, that just for my state.
Posted by d.newton on January 21, 1999 at 13:02:06:
I read some where that I should check my state laws to see if assigning contracts are legal in my state. Is this true? I thought they were legal in all states. can somebody help me?
Posted by Redline on January 21, 1999 at 13:35:23:
What I think you saw was a discussion on whether or not contracts were assignable if they didn’t specifically say anything about assignment.
Don’t worry about any of that. Just make sure your contract spells out the fact that the contract is assignable. After you assign it, then you will want to get the sellers to release you from any further liability by getting them to sign a separate “release” document.
Posted by Stacy (AZ) on January 21, 1999 at 13:12:04:
Assigning contracts is legal in all states. However, there are nuances in each state’s laws regarding how to do it. Liability after assignment is an important thing for every assignor to understand. You can typically assign your RIGHTS under a contract, but you cannot assign your LIABILITIES, unless you have a signed release from the seller. Once again, it’s very important to understand your state’s statutes.
Hi. What do you mean a separate release? Is there another contract form that’s needed like the Purchase Agreement form? Since I do flips I will need this form right? Thanks.
Posted by d.newton on January 21, 1999 at 13:33:58:
thank you for responding. I’m new at this so please could you explain what you mean by liabilitys? I’m from PA so how could I find out my state statues?
Posted by Redline on January 21, 1999 at 14:07:29:
The whole idea is, like Stacy said below … simply assigning the deal to someone else (Thanks JPiper!) does NOT relieve you of the legal liabilities of that contract. Once you assign the contract, now you need the sellers to sign off on a “release” document that’s going to state something like “you agree to the new buyer and will hold me harmless from this point on”. You get the picture. This allows you to walk away from the transaction as safely as possible should something go sour afterwards.
I would furnish you with a copy of this release form, but I currently don’t have one. Poke around a little to find one, or consult an attorney.
Posted by Stacy (AZ) on January 21, 1999 at 15:15:01:
An example of an obligation:
You sign a contract as “and/or assignee” with a seller and flip it to a rehabber. You collect your assignment fee, and go on your merry way. Three weeks later, you are informed that the rehabber decided not to close on the property. Maybe he couldn’t get the funds, changed his mind, whatever. Unless you were released from your obligations (liability) by the seller, the seller decides to come after you to close on the contract. Surprise! You now have to buy the property or risk getting sued.
In my state you can do this via a separate “release of liability” signed by the seller after you find someone to flip the contract to, or you can include the clause in your original contract. THIS is for my state; it may be different in yours. If you include it in your original contract (see my above post), be sure that you discuss the clause with your seller, and that they understand, before you sign the contract. If you don’t, they may be unaware of what the clause means, and still try to take you to court (and may win).
My state’s revised statutes are available via the internet. It’s possible yours are, too. Try a search on “yourstate statutes” and see if you get anywhere. You can also get a copy of the revised statutes at a government office, I’m sure. But, the most efficient use of your time may be to just pay a lawyer to review and revise your contracts. Money well spent (what other surprises are hiding in your contract?)
Posted by Stacy (AZ) on January 21, 1999 at 14:56:54:
Here’s what I’ve done, after researching my state’s statutes and receiving advice from five different lawyers. Please keep in mind that you should research your own state’s statues, and not just adopt my solution. State’s laws can vary on this. I am not a lawyer. This is an example, only.
In my Purchase contract I have the following clause:
ASSIGNMENT: This agreement is fully assignable by either party. Buyer may assign and thereby be released from any further liability under this contract.
In my assignment contract, I have the following clause:
I, [assignee], accept the above assignment of that contract dated. I agree to perform all obligations to be performed by assignor under the contract, according to the terms and conditions therin stated, and to indemnify assignor against any liability arising from the performance or nonperformance of such obligations.
[assignee’s signature and date]
I go over every clause in the contract with the seller. If I get concerns about the assignment clause, I will show them my assignment agreement, where the assignee agrees to honor the purchase contract, including all obligations. If the sellers don’t want the clause in the contract, I will walk.
Posted by Redline on January 21, 1999 at 15:16:32:
Now, I understand you’ve talked with lawyers on this but I have also been told by others on here that it’s not good enough.
Personaly, after hearing both sides I’d want your language in the contract IN ADDITION to the seller signing off on a document later on stating “I accept this assignment, you’re off the hook”.
You have to love these assignment discussions. Soon we?re all going to have these down pat. Anywhere here?s some further thoughts.
I think Stacy?s clause in his contract is a good one. To me this would be sufficient for a deal that was all cash, or where the buyer obtained a new loan. Along with this, my contract limits my liability under the contract to the amount of the earnest money deposit, and is written in the name of a corporation. These two clauses further serve to limit the potential consequences of the contract coming apart.
I also like the basic idea expressed in Stacy?s assignment agreement, although my preference is to further embellish that basic idea?..that the assignee agrees to hold me harmless from various consequences under the contract.
There is a circumstance where I use a separate release of liability document that the seller would sign. That circumstance is where the contract contains owner financing provisions of any type, where I am assigning. The other circumstance is a lease/option assignment. What these two forms of financing have in common is their ongoing liability.
I think it?s possible that Stacy?s clause may well be sufficient protection even in these circumstances. However what is true in these circumstances is that you?re attempting to have someone agree to accept a third party who will have an ongoing liability to perform?..all without the seller being aware of the assignee?s qualifications to perform that liability. I?m not personally comfortable with this. I can imagine a set of circumstances where a seller would later claim that he didn?t understand the ramifications of his agreement with one of these clauses, that he was naïve, that the buyer was a sophisticated professional who didn?t set forth the ?whole? story as it pertained to this clause. I can see a court ruling in his favor.
Has it happened? I don?t have personal knowledge of it. However my preference is to be overly conservative in this type of transaction. Again, what I?m referring to is an assignment which includes owner finance or is a lease/option assignment.
I don?t use a separate release of liability in the case of cash transactions or new loan transactions.