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Real Estate Finance Spring 2014 Dean Don WeidnerBackground on Contracts and ConditionsContract ConditionsIllusory ContractsIllusory Contracts (cont’d)Homler v. Malas (Text p. 92)Homler v. Malas (cont’d)Slide 8Slide 9Definitions of Good FaithLiuzza v. Panzer (Text p. 94)Kovarik v. Vesely (Text p. 95)Kovarik v. Vesely (cont’d)Slide 14Slide 15Variables that Determine Debt ServiceLoan to Value RatioLoan to Value Ratio (cont’d)Appraisals: Three Basic Indications of (or ways of approaching) ValueAppraisals: Three Basic Indications of Value (cont’d)PowerPoint PresentationCapitalizing Value of Net Operating IncomeNCF versus NOISlide 24Capitalizing Value of NOISlide 26Capitalizing Value of NOI (cont’d)Slide 28Slide 29Slide 30Plaza Hotel FactsPlaza Hotel HighlightsSlide 33More from Plaza HotelPlaza Hotel (cont’d)A Different View on “Free and Clear” AppraisalLength (“Term”) of LoanRate of InterestPointsSlide 40Slide 41Slide 42Florida Statute on Balloon Mortgages (Supplement p. 39)Florida Statute on Balloon Mortgages (Cont’d)Slide 45Pre-Depression Residential FinancingPost-Depression Mortgage InsuranceThe American Dream of Home Ownership“NEW” TYPES OF CONSUMER MORTGAGES (Text p. 374)1) ADJUSTABLE RATE MORTGAGEAdjustable Rate Mortgages (cont’d)Slide 522) GRADUATED PAYMENT MORTGAGEGRADUATED PAYMENT MORTGAGE (cont’d)3) RENEGOTIABLE RATE MORTGAGE (a.k.a. “Rollover Mortgage”)Goebel v. First Federal (Text p. 368)Goebel (cont’d)Slide 58Slide 59Slide 60Note to Goebel v. First Federal4) SHARED APPRECIATION MORTGAGE5) PRICE LEVEL ADJUSTED MORTGAGE6) Reverse Annuity MortgageDonald J. Weidner1Real Estate Finance Spring 2014Dean Don Weidner•Eight sets of slides for the Spring 2014.–Are available on my web page.–Are also posted on the web blackboard for this course under “Course Library”.•May be amended slightly. •Course Syllabus.–Is posted on my web page and on the web Blackboard for this course under “Syllabus”.•Includes some basic material for those with no background• Assignments.–We shall proceed directly though the Syllabus–The slides will also take us directly through the Syllabus.Donald J. Weidner2Seller Broker BuyerSellerBuyerLenderListingAgreementContract of Sale“Interim Contract”ClosingBackground on Contracts and Conditions Consummation (“Closing”) of the Contract of Sale is subject to certain conditions, which must be satisfied within a particular period of time, usually involving: a) title; b) physical condition; and c) financing.Donald J. Weidner3Contract Conditions•Text says conditions “are essentially substitutes for information.” –About legal title, physical condition, availability of financing•Conditions may also be inserted by the buyer to postpone making a commitment.•Conditions range from the extremely general to the extremely specific.•Conditions may leave so much open that a contract arguably fails to satisfy the requirement of a writing under the Statute of Frauds.•Even if the Statute of Frauds is satisfied, the contract may be too indefinite to support an award of specific performance.Donald J. Weidner4Illusory Contracts•“Since conditions will characteristically be phrased in general terms, and their fulfillment left to the exclusive control of one of the parties, there is the added question of illusoriness or mutuality of obligation.”•“Generally, the problem is small, for the concept of good faith goes far toward preventing reneging parties from using a financing, title or other condition as an excuse for nonperformance.”Illusory Contracts (cont’d)•On the “excuse” issue, the text says:“In such cases the court will examine the motive of the party relying on the condition.”•If a written contract gives me a right, must I show that I am pure of heart before I may enforce it?–Not everyone thinks so. Courts split on their role in applying the “good faith” requirement»As we shall see in more detail»Gap filler versus mandatory ruleDonald J. Weidner5Donald J. Weidner6Homler v. Malas(Text p. 92)•Seller sought to specifically enforce a buyer’s promise to purchase a single-family residence.•Contract, on a standard form, had a “subject to financing” clause that conditioned Buyer’s performance.–on Buyer’s “obtaining a loan” (“ability to obtain” had been deleted).–For 80% of the purchase price.–Repayable monthly over a term of no less than 30 years.–However, there was no mention of:•Interest rate (left blank).•The amount of monthly payment (left blank).•Amortization terms.Donald J. Weidner7Homler v. Malas (cont’d)•Buyer said the contract “is too vague and indefinite” to be specifically enforced because the “terms of the financing contingency are not sufficiently identified.”–Other Georgia courts had said that a failure to specify a buyer’s interest rate “causes a failure of a condition precedent to the enforceability of the contract.”•Seller said that there is no need to specify the interest rate in a contract that anticipates third-party financing.–Can you see what the argument might be?Donald J. Weidner8Homler v. Malas (cont’d)•Court said: it is not as if the contract had specified interest at the “current prevailing rate.”•The contract assumed a search for third-party financing.•Why not use the concept of good faith as a gap filler?•That is, the concept of good faith would fill the interest rate gap by implying into the contract that interest would be “at the current prevailing rate”•Stated differently, the default rule (the rule that would apply unless the parties specified a different rule) would be that the unspecified interest rate is the “current prevailing rate”Donald J. Weidner9Homler v. Malas (cont’d)•How would you decide this case?•Court concluded the contract was too “vague and indefinite” to be enforced against the buyer and ordered the buyer’s deposit to be refunded.•Why did the court refuse to use the concept of good faith to fill the interest rate gap?–Everyone agrees the buyer is under a duty to proceed in good faith. The split is on what that means.•Does the strikeout suggest a different argument?•“Mutuality of obligation” is a separate issue from “vague and indefinite” [and apparently, in the eyes of the court, an issue that was not raised]–Could Buyer have enforced the contract against Seller?•If not, did the contract merely give


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FSU REE 4204 - Contract and Conditions

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