[I am away from the computer, and cannot respond to e-mails until 9/10. In
my place are daily commentaries from a series of very knowledgeable mortgage
industry people with different backgrounds, and they have been given very
little direction about what to write about - the latest is below. Our views
may or may not coincide, but I thank them for their time in volunteering and
helping out.]
To Contract or Not to Contract
Every day mortgage originators across the country engage in activities that
can be thought of a executing contracts, whether it is locking in a loan
with a borrower or agreeing to abide by buy-back provisions. So therefore it
is critical for them to understand the basics of formalizing agreements in a
written contract.
At the outset, it should be noted that although there are many fundamental
contract principles which are universal, each state has their own laws and
regulations with regards to contractual relationships. In addition, many
professional associations mandate certain constraints, requirements and
ethical codes when contracting with clients. You should always check those
local regulations first and consult with an attorney in your area.
Ok. Enough caveats. Many people confuse the notion of a contract with an
agreement.
They often think that you need to have a written contract in order to have
an agreement, and they make the further mistake of assuming that a written
contract is more powerful than an oral agreement. I remember a professor I
had in school (Go Bears!) who was famous for saying (in a Texan accent): "A
contract won't protect you from stupidity or dishonesty." Among all the
things I learned in school, this is the only statement that has remained
absolutely true over the years.
A contract is memorial of an agreement. Lawyers often call it a "recital" of
the reciprocal obligations. However, a written agreement is not magical.
Many states will enforce an oral agreement as binding upon the parties.
Certain agreements, such as transfers of land, must be in writing. However,
the list of contracts the must be in writing is remarkably short in most
states. So the fact that you do not have a written contract does not mean
you cannot enforce your agreement. So don't panic if you have always made
hand shake arrangements, or continue to do so today.
People often also make the false assumption that a written contract somehow
protects them in a special way. Don't get me wrong, a written agreement is
far superior to an oral agreement in that the terms and obligations are in
black and white for everyone to see. However, if the contract is poorly
written or if terms are ambiguous, the contract may not be enforced by a
court, or certain clauses in the contract may be given no legal affect.
Unfortunately, those clauses could have been the ones you were counting on
in order to get paid! Of course, some people can simply choose to disregard
a contract, and you have no choice other than spend your own money to sue
the party, spend several years of your life fighting the suit, and hope you
win. Remember: a contract is only as good as the people who sign it.
You are fully able to draft a contract yourself. You may want to consult
books that contain form contracts, or use self-help legal books. Nolo Press
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1107397336389&s=8721&e=001ccl3yt
9fLDxNlkrVDCjznvuRthOPcJmS7nhRYVsu4jJww-AqBLdrzp2gLTZzIEDyiAYx_xIMWglX__20W-
DcBvWMTqjq-EQ9tBuqulA3CCM=])
is the best known publisher in that realm. If the contract is complex, it is
strongly recommended that you seek the advice of a lawyer. Always have a
lawyer review any contract presented to you for signing.
If you choose to write it yourself, here are a few pointers:
1. Use simple language - say what you mean and mean what you say. Even among
lawyers, there is a movement away from "legalese". Use the KISS method.
2. Do your best to describe all of the terms and obligations. It is helpful
to have paragraphs labeled "Obligations of Me" and "Obligations of You".
Fill in proper names for "Me" and "You.".
3. Make the contract fair to both sides. If you make the contract heavily
weighted in your favor, there is a good chance the other party will just
walk away from it, and a court may not look favorably on your
heavy-handedness. Even if you sneak a certain clause past the other party,
you won't sneak it past a judge.
4. Try to think of some worst case scenario. It is difficult, but when you
write a contract you need to think of a day when you and the other party
are not speaking to each other anymore (picture a pre-nuptial). It's not
fun, because now is the time when business is great and everyone is smiling.
Prepare for the rainy day in your contract. You will be happier when that
day comes. Notice, I didn't say "if"
that day comes.
5. Have a lawyer review it, or at the very least, show it to someone with
experience in your industry. Two heads are better than one, and if this is
your first time at this, you should get some advice.
6. Have everyone sign and date the document and produce two originals so
each party has a copy.
A carefully drafted contract that accurately describes the obligations, and
one that is fair to all parties, is a very useful tool. It will be a
document that you will refer to often during the relationship. If disputes
arise, it will be invaluable to quickly prevent a disintegration of the
relationship. Months down the road you will not remember what you agreed to.
If you have a written contract, you can quickly review what the parties need
to do. You may be surprised to find out that they are right and you are
wrong!
Contracting is Vital; Legal contracts are not
Depending on your type of business, a few of the things you might want to
include in a contract are:
The last thing I'll leave you with is "take your time." You should never
draft a contract quickly or rush through it because you are anxious to
start the work.
This is a sure-fire way of writing a contract that does not fully describe
the relationship.
You may also end up with a contract that is sloppy in its construction and
proves itself useless in Court. If you follow these simple rules you will
find that your business relationships are much smoother, and many difficult
situations can be avoided.
Happy contracting!
Feel free to e-mail with any questions - thanks for reading!
Tony Faulker
Principal, CTC International
If you're interested, visit my twice-a-month blog at the STRATMOR Group web
site located at www.stratmorgroup.com
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106435366068&s=4179&e=001SVt-lj
bp53436QjxD9vbwURtIPPjV05jEcEKyBN3SjS2forXe0C_foO8RjEV-Uye0N7Z_Sh1il0SRXPx6P
jQauayNXQjni-Hc9Sseu-hhZcR1ujeZyAEpw==]
. The current blog takes a look at the recent news sweeping the MBS investor
market regarding a new mass refi plan by the government. If you have both
the time and inclination, make a comment on what I have written, or on other
comments so that folks can learn what's going on out there from the other
readers.
Rob
(Check out
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=fkxmalhab.0.epg7qedab.zy6u9cdab.8
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ress%2Fdefault.aspx]
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=fkxmalhab.0.v7uif6dab.zy6u9cdab.8
721&ts=S0672&p=http%3A%2F%2Fwww.thebasispoint.com%2Fcategory%2Fdaily-basis].
For archived commentaries, go to www.robchrisman.com
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=fkxmalhab.0.fpg7qedab.zy6u9cdab.8
721&ts=S0672&p=http%3A%2F%2Fwww.robchrisman.com%2F].
Copyright 2011 Rob Chrisman. All rights reserved. Occasional paid notices
do appear.
This report or any portion hereof may not be reprinted, sold or
redistributed without the written consent of Rob Chrisman.)
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