Real estate is usually sold by first drawing up a contract between the prospective seller and buyer providing that the seller will sell on certain terms and at a certain price and the buyer will buy upon those terms and at that price provided the title is found good upon examination of the abstract of title or guaranty policy to be furnished by the seller.
While the contract between the buyer and seller may take any form and while there may be indeed no contract of an enforceable sort prior to the deed, yet, as a rule, we find that where real estate is sold there is usually a contract of sale drawn up between the parties whereby the seller agrees to sell and the buyer to buy on certain terms within a certain time and upon certain conditions. An abstract is to be furnished by the seller and examined by the buyer in order to discover the soundness of the title. Then after this time, all having been found satisfactory, the deed is made.
As we know from our consideration of the subject of contracts, contracts to sell real estate, though they may be carried out if oral, are not enforceable unless in writing if one of the parties sees fit to break the agreement and to avail himself of this technical defense.
The contract of sale is often upon a blank form prepared for that purpose and it provides the seller shall give a merchantable title and that the buyer shall assume the burdens and conditions therein named.
A form of a contract of sale is set forth in the back of this book and should be studied by the reader. Customary forms vary in different localities, but their general purpose is to bind the seller to make a deed" and the purchaser to take the land provided it appears that the title is good. When parties agree to buy and sell it is desirable that the bargain be bound between them and yet of course there must be an opportunity to look into the title and fix up the defects if any there be. In this contract of sale, the terms are all agreed upon. The price is stated and if a mortgage is to be given back by the purchaser or to be assumed by him, this is there set out. After the contract is signed it becomes the seller's duty to furnish an abstract of title within a certain time therein stated and it becomes the seller's privilege to then examine the abstract and to report any defects on the title therein found. These defects are then cleared up, if possible, by quitclaim deeds, affidavits and the like and the deed is then given. According to some forms, the buyer, when he signs the contract, agrees to assume all building restrictions which may be of record and consequently he should know if there are any such restrictions before he signs the contract because by his agreement to assume them he could not afterwards object to them if any were found. Of course it may be his desire to have building restrictions on the land, but at any rate he should know what they are. In reference to other burdens of various sorts he does not assume them unless it is specifically noted in the contract and therefore all these burdens and defects must be removed by the seller before the buyer can be compelled to take the title. After this abstract has been furnished by the seller and examined by the buyer and the title found to be or made satisfactory, the deed is then made between the parties.
In some localities the seller agrees to furnish a policy guaranteeing the title instead of an abstract. In that case the procedure is much the same as above described, except as modified by this difference.
Sometimes when the real estate is sold upon installments the contract provides that a certain number of installments are to be paid before a deed is to be given and if the installments are of substantially the same amount as rent would be, it is provided that in case of default by the buyer the installments shall be retained by the seller as liquidated damages.
It is almost always provided in any contract of sale that a sum deposited with the seller by the buyer shall be retained by the seller as liquidated damages in case the buyer does not perform his agreement and to be returned to the buyer in case the seller cannot make a good title or a title satisfactory to the buyer.
This contract of sale must be recorded by the buyer if he would secure absolute protection, unless he goes into immediate possession. At the same time, it is not desirable from the seller's standpoint that the contract be recorded because it may result in clouding his title in case the contract is not carried out by the buyer and the buyer refuses to give him a release from the contract, and this would necessitate proceedings in court to clear up the title. It also if recorded increases the record of the title, thereby lengthening and increasing the cost of further abstracts. For these reasons it is customary not to record a contract of sale but merely to wait until the deed is made and then record that.
The seller agrees to convey a merchantable title subject to burdens assumed by the buyer. A merchantable title is a title which has in it no serious defects preventing its free transfer by the buyer or subjecting him to expenses to clear up his title.
The seller is supposed to give and by his contract stipulates to give a good, merchantable title. A merchantable title is one that is practically free of defects and burdens except such as are specifically assumed in the contract by the purchaser. Thus outstanding mortgages not assumed by the purchaser, unreleased dower, claims of heirs of prior owners, unacknowledged deeds found in the record, defective conveyances, etc., are all burdens upon the title and detract from its merchantability and all these things must be cleared up by the seller before he can compel the buyer to take a deed. The purpose of examining the abstract is to find the possible defects and report them to the seller that he may have them cleared if he can.