An offer and acceptance result in a legally binding contract.  Thereafter it cannot be changed without the concurrence of both parties.  It becomes the blueprint for the transaction and for that reason is a very important step.

In some states the broker prepares a letter of intent, following which the parties seek the counsel of their lawyers and a formal contract is hammered out.  That is not usually how it works here in northern New Hampshire.  The agreement is often prepared on a form adopted by the state realtors' association. This form - when prepared by a reputable, competent broker -  works quite well in about 98% of the transactions.

But it is a pre-printed, boilerplate, fill-in-the-blank form which, in the wrong hands, can act as an order form that may easily discourage the critical analytical thinking that should contribute to the preparation of a contract for what is probably one of the largest transactions you will ever enter into.

One can imagine the different motivations of the various parties involved in the process.  For their own reasons the buyer and seller are excited about a major life event, and the real estate agent can anticipate a commission which is not only a legitimate reward for bringing this buyer and this seller together, but is compensation for all the unrewarded, unsuccessful attempts that preceded it.

It can be a dash of cold water to introduce a lawyer into this process, whose job it is to explore terms and conditions that may not have occurred to buyer and seller.  Some view the attorney as a deal-breaker, rather than a deal-maker; someone who gets off on complicating things they want to be simple and straight-forward.  Some will rationalize the deferral of tough issues or issues that may seem far-fetched,  unlikely or remote by saying that they will "agree to agree," which is simply a euphemism for wishful thinking.

Unfortunately, ignoring or putting off difficult terms means that the parties will begin to perform their agreement, change their positions and alter their leverage so that negotiation of these difficult terms later on could result in a disappointing outcome. Even in the best of times, both buyer and seller would be well advised at a minimum to have any agreement reviewed, if not prepared, by counsel.

But these are not the best of times in the real estate market.  Even though our market in northern New Hampshire has not suffered as it has in other areas, prices have declined, lending criteria have tightened and the volume of transactions is down.  Every time we go through one of these cycles, we see a resurgence in the popularity of certain transactions that may hold great opportunity but can also present some special pitfalls.  The remainder of this article will discuss several of these briefly.  If you are considering such a transaction, it is especially important that you consult an attorney familiar with them.

Contracts for deed.  Allow me to express my bias on this device, also sometimes referred to as a bond for deed or a land sales contract.  It is a poor substitute for a deed and mortgage back to the seller.

A contract for deed is essentially a P&S which contemplates that the buyer will take immediate possession with closing postponed for a lengthy period of time, often many years, while the buyer makes regular payments to the seller.  It is generally employed when there is no financing available, other than what the seller can extend, and where the buyer has little equity to put into the deal.  Sometimes it is a clumsy attempt to evade a due-on-sale clause in the seller's own mortgage to his bank.

The danger to the seller is that he essentially becomes a landlord for what may be a long time.  His property is hostage to the purchaser who has little "skin in the game."  He is also taken out of the market, so that - if things improve and the market recovers - as long as his purchaser performs the contract for deed he cannot take advantage of improving market conditions.

The perils are even greater for the  buyer.  She may feel like an owner, but she is not.  Legal title remains in the seller.  Usually she has put some money down, and then makes payments akin to a mortgage payment that will apply toward interest on the balance of the sales price and toward principal to reduce that balance.  She may make improvements to property which she does not yet own.  If she defaults though, usually all of these payments and improvements are subject to forfeiture.  She must continue performing the contract in order to get to closing and eventually obtain legal title.

Unfortunately, even if she performs dutifully through the years, her closing and the equity she thinks she is building are in constant jeopardy.  Her seller could die, go bankrupt or simply breach the contract.  He could default on his own mortgage so that the property goes into foreclosure, or other of his creditors could place liens on his title and become uninvited parties to the contract for deed.  Closing the deal may require litigation and that may very well be upsetting, expensive, time-consuming and unsuccessful.

As I confessed at the beginning of this section, I am not a fan of this sort of arrangement.  In my opinion it is almost always better for the seller to deed the property to the buyer and then take a mortgage back for what he is owed.  This may trigger a due-on-sale clause in his own mortgage, but - unless that clause was drafted very poorly - in all likelihood the contract for deed would trigger it as well.

In any case, if you are a desperate seller hoping to engineer some sort of sale to an undercapitalized buyer, or if you are that buyer with more hopes and dreams than cash, recognize that your transaction is decidedly not a routine one, and consult a lawyer familiar with these arrangements who is willing to spend the time necessary to prepare a thoughtful set of documents that will address the many contingencies that could develop over a lengthy period of time.

For sale by owner.  The internet has blown a big hole in the effective monopoly formerly enjoyed by real estate agents.  Now everyone can be his own real estate agent.  Just snap a few digital pictures, upload them to Craig's List or some for-sale-by-owner site, and wait for the offers to flow in.  Only a fool would cough up a 7% real estate commission, right?

During the height of the real estate boom, there might have been some truth to this.  Some properties sold themselves.  There were assuredly some real estate agents who should not have been in the business, and were probably no more qualified to present a seller's property to a buyer than were the parties themselves.   The downturn we are suffering through now is washing those people out of the system, and leaving us with an industry of professionals who are in the business for the long haul.  A good real estate agent has even more to offer a seller and a buyer now than during the halcyon days that ended a couple of years ago.

Still many sellers who have watched their equity evaporate are hoping to find a buyer directly and save a commission, while many buyers are scavenging the properties for sale in the hopes of picking up a great deal without kicking in any extra to cover a commission.

If you are a seller who can effectively present your own property to a prospective purchaser, or if you are a purchaser who can manage without the insights and buffer provided by a real estate broker, then you are special indeed.  Be that as it may, if a seller and buyer do manage to arrive at a deal without an intermediary, there still needs to be a P&S.  The general advice above still pertains.  Your contract should be prepared or reviewed by an attorney.  Congratulations on avoiding that real estate commission, but you are truly enjoying a false economy if you try to whip up your own contract, perhaps by mimicking one you or a friend used on another transaction or by using a form you bought in a legal stationery store or on-line.

You still ought to have counsel to prepare the closing documents, act as escrow agent, investigate the title to the property, and act as settlement agent.  Do him and yourself a favor and let him in on the deal at its inception.  Confronted with a flawed contract, even the most skilled attorney may be powerless to bring your transaction in line with your expectations.

Short sales.  For many years I was a director of a bank which was a major mortgage lender in the state.  For much of that time, until the boom of the late 80's, the bank never lost money on a real estate mortgage.  The loans were carefully underwritten and they were held in the bank's portfolio.

During our most recent real estate boom, many lenders threw out their underwriting standards and became little more than mortgage brokers, originating loans and immediately peddling them into the secondary market where investors are now being bailed out.  This has given rise to the familiar phenomenon known as "the short sale."  This is nothing more than a lender (or the servicer of a loan sold to investors in the secondary market) facing reality, accepting the fact that the property is worth less than the loan balance and agreeing to accept less than it is owed in order to facilitate a private sale by its borrower as an alternative to the costly and time-consuming foreclosure process.

This may present a great opportunity for the buyer.  She can pick up a property, not only for less than it sold for just a few years back, but for less than the lender has in it.  It is important, however, to recognize that - if the seller is planning to pay less than the total balance owed to his lender - he is really not the decision maker.  You have a third-party to your contract who can put the kibosh to the entire deal.

Many a P&S has a financing contingency whereby the buyer's obligation to buy is dependent upon her getting a mortgage loan approved; in a short sale there is a contingency, whether it is stated in the contract or not, that the seller can talk his lender into taking less than it is owed.

I was furious in a recent transaction when neither the seller nor his agent disclosed to my client that it was in fact a short sale.  The broker has an obligation to determine if it is a short sale and to disclose this.  And the seller has an obligation to disclose it to his broker and the buyer, and needs to have this contingency clearly stated in the contract.

In the recent transaction to which I allude, this was not done and my client changed his position in reliance upon a contract.  I discovered it was a short sale while performing my due diligence on his behalf, and he was put to great inconvenience and some unanticipated expense while the lender's severely understaffed workout department (inconveniently located in Colorado) went through their lengthy tortured bureaucratic process before eventually approving the short sale.

Although I have not encountered it firsthand, recently I have learned that some lenders' "approvals" are conditional.  One lender stated that the short sale approval was void if it (the lender) determined that the seller or buyer "participated in any way" in a fraud.  It is little comfort that you may be confident you are not defrauding anyone, when the lender decides unilaterally that you or the other party has.  Another lender apparently felt that did not go far enough, and it simply reserved "the unlimited right to revoke this short payoff approval within 30 days of receiving purchase documents."  Plainly one cannot rely upon such "approvals."

There may be plenty of money to payoff the seller's lender, but there may be other obligations or encumbrances that will result in a de facto short sale, such as delinquent taxes, liens or attachments, or obligations spelled out in the seller's divorce decree.

Mr. Seller, if you are underwater on your property be sure to disclose this to your broker and be sure your broker discloses to all prospects that it is a short sale, and insist that any offer or agreement reflects that this is a contingency with appropriate deadlines for obtaining the approval from the lender or others; and Ms. Buyer, if you have any reason to suspect that the seller's obligations cannot be totally satisfied from the proceeds of the sale to you, it is important to investigate this and confirm with all parties exactly who will be absorbing the shortfall and then to document this.

Foreclosure auctions. When a borrower defaults on his mortgage, the lender may foreclose the mortgage.  This divests the prior owner of his title.  In some states this is a time-consuming, expensive, cumbersome court procedure.  In some states this procedure is then followed by a period during which the defaulting borrower may redeem his property.  Many states, however, have more expeditious procedures such as that in New Hampshire.

Virtually all mortgages in New Hampshire contain a statutory power of sale.  Our law recognizes the irrevocable power of attorney which this grants to the lender to conduct a foreclosure auction sale of the property in accordance with the statutory requirements.

Among the statutory notice requirements is one that requires a legal notice be published once a week for three consecutive weeks.  Since this notice need appear only in a newspaper of general circulation within the town where the property is located, you cannot be assured by a perusal of the local weekly that you are going to be aware of all the foreclosure sales coming up in your area.

Case law now strongly encourages foreclosing lenders to engage a professional auctioneer who will deploy his promotional arsenal which will ordinarily include a wider range of advertising than the minimum prescribed by the statute.

If you attend a foreclosure auction, you will be bidding against others including the lender itself.  Sometimes the auctioneer will impose a buyer's premium which is added on to the successful bid.  The successful bidder will generally be required to sign a purchase and sale agreement immediately upon the closing of the bidding.  Needless to say, there is no negotiating this agreement.  What a person planning to bid must do is get hold of a copy of the agreement before the auction and understand its implications.

One of the implications is that there are no contingencies.  You will not have the opportunity to conduct inspections and renege on the deal if the property fails to satisfy you in some regard.  Your successful bid will not be contingent upon your selling your existing home or your obtaining financing.

So, among other things, you need to go into a foreclosure auction knowing that you have all the resources necessary to complete the purchase.  Most lenders will arrange for a day when prospective bidders can access the property to look around.  Unless you are qualified to judge the structure and systems yourself, you would be well advised to engage a professional inspector or contractor to accompany you on this occasion.

One contingency that ought to be in that agreement that otherwise advances only the lender's interests is a provision whereby the lender promises that the foreclosure deed will convey marketable title to you.  If the mortgage is properly foreclosed in accordance with the statutory requirements, it will convey all the title that the borrower had when he granted that mortgage and will extinguish all subsequent liens and interests.  A title examination is not complete in this instance unless the foreclosure proceedings themselves are evaluated by counsel.  But this still leaves open the possibility that there were defects or other items of record that pre-dated the mortgage that could impair marketability.  Some people think that a foreclosure guarantees a clean title; it does not.  You still need competent counsel to evaluate the title records.

Lender sales from REO. REO, that acronym is banker's jargon for "Real Estate Owned" by the lender, ordinarily as the result of a foreclosure. While it might be possible immediately after a foreclosure to deal directly with a lender, especially one of our local community banks, these properties are generally listed with a real estate broker.

The larger, out-of-state lenders often have an arrangement with a single real estate firm whereby all of its REO in New Hampshire is listed with that one agent. This frequently means the agent is from out of the area, has no particular familiarity with the property and simply dumps the property into the multiple listing service where local agents gain access to the listing and can show the property to prospective purchasers.

My suspicion is that some of these listing agents are selected to represent the lender for political reasons, not for their competence.  In my experience, some of them - they are your only channel to the selling institution - have on several occasions actually impeded the information flow and ironically proved a hindrance to a successful negotiation.

So, we have property being sold by an owner who is aloof and likely unfamiliar with the property, listed with an agent who may be indifferent and have never even visited the property. The result is a huge information void. This places a larger burden than normal upon the buyer to research the property and conduct her due diligence. A capable, persistent broker familiar with the local area who represents the prospective buyer can in this instance be very valuable.

This is one instance where it may make sense to use the brokers' P&S form to present your offer. The basic terms can be conveniently filled in the blanks. There will be ample opportunity to fine tune your offer because it probably will be rejected.

Even if your price and proposed closing date are acceptable to the selling institution, in all likelihood the lender will add a multipage addendum, the terms of which are often almost insulting in their brazen one-sidedness. This constitutes a counteroffer, and is not effective unless you in turn accept that counteroffer and agree to the terms of the addendum.

Essentially this addendum will provide that, no matter what your offer says, it is trumped by the terms contained in the lender's addendum. This pumps new life into the phrase "caveat emptor," LET THE BUYER BEWARE. It is imperative that you have this dense document, and your original offer, reviewed by an attorney possessed of both adequate eyesight to scrutinize the tiny print and the determination actually to read all that stuff, then to interpret it and your offer together and explain to you how they will work.

As irritating as these addenda are to me, I can appreciate that they are necessary in the case of an out-of-state lender who does not have the information available to it which a seller normally would have. The lender cannot afford to make an inadvertent representation or promise which they cannot keep.

There can be great opportunity in picking up a property from a lender eager to reduce its REO inventory, but you must understand the additional responsibilities which this imposes upon you.