Frequently Asked Questions
Purchase Agreement

Title & Examination | Acceptance | Default | Initials

Calculation of Purchase Price
One of the major changes made by the Forms Committee to the MNAR Purchase Agreement in fiscal year 2004 and clarified again in 2005 occurred on page 1 of the 8/05 revision.

Before the change, this section addressed the calculation of the purchase price as an exact dollar amount.
For example:
Earnest money + Cash Payment + Financing = Purchase Price; or
$5,000 earnest money + $20,000 cash payment + $100,000 financing = $125,000

The revised language, rather than calculating an exact dollar amount, addresses the buyer's payment as a percentage of the case payment and the amount to be financed.
For example:
Earnest Money + Cash Payment = x% of purchase price + financing = x% of purchase price (x + x = 100%)

Your calculation process: $5,000 earnest money + $20,000 cash payment = $25,000 ÷ $125,000 purchase price = 20% + $100,000 financing ÷ $125,000 purchase price = 80% (20% + 80% = 100%)

Fully financed purchases:
Earnest Money + Cash Payment = 0% Financing 100% (0% + 100% = 100%)

There were several reasons that the MNAR Forms Committee decided to make this significant change. First, there are an increasing number of transactions occurring in the market where buyers are choosing to fully finance their purchase (80/20 or 80/10/10 loans) which were not being reflected accurately in the Purchase Agreement. Furthermore, the MNAR Purchase Agreement did not previously have template language to address this type of financing.

Finally, the Forms Committee understood that buyers often change the actual dollar amount of what they put down in cash and what they finance before the closing. Such a change previously necessitated a change in the terms of the Purchase Agreement by recalculating the actual dollar amounts for earnest money, cash payment and financing to total the purchase price.

Title & Examination
The MNAR Forms Committee and Legal Counsel worked with representatives from the Minnesota Real Estate Services Association (MRESA) and the Minnesota Land Title Association (MLTA) to develop the revised Title and Examination language that is in the 8/05 Purchase Agreement.

MNAR received numerous requests in the past to revise the Title & Examination section of the Purchase Agreement for a couple of reasons. First, many did not believe the previous language requiring the seller to pay for an owner's policy of title insurance for the buyer was appropriate. The buyer is the sole beneficiary of the owner's policy of title insurance and it exceeded the seller's obligation to provide evidence of marketable title.

In addition, MNAR was informed that the market practice in the title industry for the majority of real estate transactions has changed significantly in that title companies are commencing title searches on behalf of the buyer's lender regardless of the type of title evidence the seller chooses to provide.

For these reasons, the MNAR Forms Committee decided to modify the Title & Examination language to clarify the seller's options for title evidence and who was responsible for costs relating to title insurance. The most significant change in this section is the elimination of the requirement for the seller to pay for an owner's policy of title insurance. Buyer's are now responsible for, "all additional costs related to the issuance of the title insurance policy(ies) including but not limited to the premium(s), Buyer's name search and plat drawing, if any.

Thus, buyer's representatives should notify their clients that in the event the seller chooses to provide only a commitment for an owner's policy of title insurance and the buyer chooses not to purchase an owner's policy of title insurance at the time of closing, the buyer may incur a significantly higher cost in the future to provide evidence of marketable title when they go to resell the property.

Acceptance and Delivery of Purchase Agreement
Another substantive change was made to the Purchase Agreement on page 2, pertaining to acceptance. The Forms Committee, with advice from MNAR Legal Counsel Don Smith, modified this. An affidavit does not affect or prevent any transfer of ownership of the property.

Default
REALTORS^® have often stated that purchasers and sellers are increasingly unwilling to sign a Cancellation of Purchase Agreement even though they agreed to do so by the terms of the Purchase Agreement. One alternative to a signed cancellation is the statutory cancellation provisions allowed under MN Stat. 559.

Contract termination provisions have existed in Minnesota Statute for decades. MN Stat. 559.21 allows a seller to terminate a contract if a default occurs in the conditions of a contract for the conveyance of real estate or an interest in real estate. The seller terminates the contract by serving upon the purchaser a notice specifying the conditions in which the default has been made and that the contract will terminate 60 days after the service of the notice unless the purchaser complies with a list of corrective actions laid out in the statute.

The MNAR successfully pursued legislation in 2004 establishing new statutory cancellation provisions in the law allowing tow additional statutory cancellation options for residential real estate transactions. This new language is under MN Stat. 517.217 and is summarized below.

1.

In the event there is a default or an unfulfilled condition in the terms of a residential purchase agreement, and there are no terms of cancellation stated in the PA, this statute allows either a buyer or a seller to initiate a cancellation of a residential purchase agreement which includes a 15-day cure period (Cancellation with Right to Cure). The purchase agreement is canceled unless, within 15 days after the service of notice, the party upon whom the notice was served fully complies with the conditions in default and completes the unfulfilled conditions or secures from a court an order suspending the cancellation.

2.

The second option allows either a buyer or a seller to initiate a statutory cancellation of a residential PA in the event there is an unfulfilled condition in the terms of the PA. Fifteen days after service of notice, the PA is deemed canceled (Declaratory Cancellation - no Right to Cure.) This option may be used when there are terms of cancellation stated in the PA. The PA is deemed canceled unless, within 15 days, the party upon whom the notice was served secures from a court an order suspending the cancellation.

Affidavit of cancellation. (a) After a cancellation under (1) or a confirmation of cancellation under (2), the PA is void and of no further force of effect, and any earnest money held under the PA must be distributed to, and become the sole property of, the party completing the cancellation of the PA (with the exception of the pursuit of legal remedies under this statute which a court would then determine which party is entitled to the earnest money.)

Other Important Provisions

·	Residential property under this statute means real property, including vacant land, occupied by, or intended to be occupied by, one to four families as their residence.
·	If the party upon whom the notice is served commences a proceeding to obtain a court order to suspend the cancellation of a purchase agreement, the court shall award court filing fees, attorney fees and costs of service actually expended to the prevailing party in an amount not to exceed $3,000.
·	In the event that either a seller or purchaser initiates a cancellation proceeding under this section and before completion of the proceeding the other party initiates a cancellation proceeding, the purchase agreement is deemed canceled as of the date the second cancellation notice is served upon the other party and either party can later pursue legal remedies at law to recover the earnest money.
·	The Form of Notice of Cancellation for both options is strictly laid out in the statute and is required to be served upon the other party to the PA as well as any third party holding the earnest money under the PA.

To commence a statutory cancellation, have the broker of your office contact legal counsel or the MNAR Legal Hotline.

Why doesn't MNAR have buyer and seller initial lines on each page of the Purchase Agreement?
The MNAR did have initial lines on the first page of the Purchase Agreement many years ago. We learned from many licensees at that time those initial lines increased broker and salespersons' liability since the initial lines were often overlooked and not appropriately completed. This of course led to confusion and litigation.

There is no need to have initial lines on each page of the Purchase Agreement. The signatures on the last page of the Purchase Agreement constitute acceptance of the entire Purchase Agreement. Just before the signature lines on the Purchase Agreement, the buyer(s) and seller(s) acknowledge that they, "accept this Purchase Agreement and have reviewed all pages of this Purchase Agreement."

Real estate licensees should be numbering all pages of the Purchase Agreement, including all addenda. The Purchase Agreement states "Other addenda may be attached which are made a part of this Purchase Agreement. (Enter total number of pages of this Purchase Agreement, including addenda, on line two (2) of page one (1)."

NOTE: DO NOT include separate disclosures and/or agreements in the numbering of pages to the Purchase Agreement. (e.g. Seller's Property Disclosure Statement or Arbitration Disclosure and Residential Real Property Arbitration Agreement.)

In addition, real estate licensees are required by MN Statute 82.37, Subd. 4 to furnish to the parties to the transaction at the time the documents are signed or become available a true and accurate copy of any record, instrument or document that is material to the transaction and that is in the licensee's possession.

What should I do if another party began initialing the Purchase Agreement?
One of two options; 1. make sure all of the parties have initialed in every place the parties commencing initialing have initialed; or 2. demand a new Purchase Agreement with no initials.