Real Estate Law 101
Real Estate 101: The Fraud Statute is a very old law that originated in England in 1677. It requires that certain transactions must be in writing, signed by the party to be collected, basically the person being sued. Real estate purchases are one of the transactions covered by the fraud statute. In real estate transactions, the SOF further requires that the document contain a description of the property, a description of the parties, the price, and any agreed terms of price or payment.
There are some exceptions to this rule. Partial fulfillment is when someone has paid all or part of the purchase price, taken possession, and/or made substantial improvements to the land. For example, if Bob made an oral contract with Sue to purchase property, paid her a down payment of 25% of the agreed purchase price, and built a house on the land, even if the SOF invalidated the oral contract, Sue could argue that the Bob’s partial compliance proves the existence of the contract.
In addition to partial performance, equitable estoppel and promissory estoppel can be used to prove an oral contract for the sale of land. The equitable impediment is based on an act or a representation. The promissory estoppel is based on a promise.
Once a contract has been signed, the buyer becomes the equitable owner of the title at the time of execution of a binding contract. Under common law, the risk of loss rests with the buyer after signing the sales contract. In other words, if the house burns down between the signing of the contract and the closing, the risk is with the buyer. The buyer will still have to close the deal.
There are some states that have a different rule. States that have enacted the Uniform Buyer’s and Seller’s Risk Act hold that the risk of loss rests with the seller unless legal title or possession of the property has passed. There is a minority of states that have passed this statute. So, in most states, the risk of loss rests with the buyer.
Surprisingly, it is quite common for people to make oral contracts to sell parts of their property, without realizing that it must be in writing. Later, when the buyer does not pay, the seller does not know how to proceed. An attorney familiar with the nuances of real estate law can help with this.