understanding buying and selling...
TRANSCRIPT
Understanding Buying and Selling Farmland
WIA WebinarOctober 26, 2016
Sarah M. Everhart
Agriculture Law Education Initiative
The Agriculture Law Education Initiative is a collaboration between the University of Maryland Francis King Carey School of Law and College of Agriculture & Natural Resources, University of Maryland, College Park. Through the University of Maryland Extension - the statewide, non-formal agriculture education system - the collaboration partners with the School of Agricultural and Natural Sciences, University of Maryland Eastern Shore.Website: www.umaglaw.orgTwitter: @MdAgLawFacebook: www.facebook.com/MdAgLawEmail: [email protected]
University of Maryland MPower
The University of Maryland: MPowering the State brings together two universities of distinction to form a new collaborative partnership. Harnessing the resources of each, the University of Maryland, College Park and the University of Maryland, Baltimore will focus the collective expertise on critical statewide issues of public health, biomedical informatics, and bioengineering. This collaboration will drive an even greater impact on the state, its economy, the job market, and the next generation of innovators. The joint initiatives will have a profound effect on productivity, the economy, and the very fabric of higher education.• http://www.mpowermaryland.com
ALEI website-umaglaw.org
•Sponsored by ALEI, Crop Insurance Education Program, and AREC
•3-4 posts a week and a weekly news update
•Great place to find answers to common ag law questions
Risk Management Blog www.aglaw.umd.edu
• November 18th, Annapolis, MD• 8a.m.-4p.m. (lunch provided)• Featuring many hot topics
– Alternative energy on the farm– Nutrient management regulation
update– Water quality and the Bay
• Register Now-www.umaglaw.org/2016ALEIConf
Ag and Environmental Law Conference
DisclaimerThis presentation is intended to provide general information and should not be construed as providing legal advice. It should not be cited or relied upon as legal authority. State laws vary and any attempt made to discuss laws of states other than Maryland is for general information to help the viewer better understand Maryland law. For advice about how these issues might apply to your individual situation, consult an attorney.
•Farmland transactions are different from residential transactions. How?
–Soil health –Zoning –Water –Access –Relationships with neighbors
Buying/Selling Farmland
• Roles/responsibilities in purchase transaction
• Typical contract provisions
• Understanding a deed, a mortgage, title insurance, etc.
• Don’t sign documents you don’t understand!
Buying and Selling Farmland
• Seller’s/Listing agent• Buyer’s agent• Dual Agency• Attorney (hire before you
sign the contract)• Surveyor (reviews
property boundaries)• Title company (reviews
chain of title- seller has right to sell property)
• Appraiser- verifies value for lender
Roles in Farmland Purchase
• Realtors can provide a lot of helpful information.
• Standard real estate contracts created by the State Association of Realtors.
• A seller's agent works for the real estate company that lists and markets the property and exclusively represents the sellers. A Seller’s agent may assist the buyer, but his or her duty of loyalty is only to the seller.
• A buyer’s agent assists the buyer in evaluating properties and works in the best interest of the buyer. – The agent's fee is paid
according to the written agreement between the broker and the buyer.
• Dual Agency• 1) One agent represents
both parties and/or• 2) The seller’s agent and the
buyer’s agent are affiliated with the same real estate agency.
• Parties must agree in writing
Realtors
• Why hire a lawyer? – Negotiate contract terms,
make sure contract protects client.
– Verify zoning, read and interpret covenants and easements.
– Explain exceptions to title insurance coverage
– Provide guidance on Right to Farm laws
– A lawyer gets paid whether or not a sale occurs!
Lawyer
• Why hire a surveyor? – No one in the transaction (not
the realtors, attorneys or title company) is going to ensure that you actually get the acreage the described in the deed.
– Surveyor is the only one who will walk the property and verify boundaries and acreage.
– Discover discrepancies before you buy! Don’t assume a tree line is a boundary.
Surveyor
• The contract is not the offer, it is the agreement to buy & sell
• Who is buyer? (individual, couple, business entity)
• Payment terms: understand what happens to deposit if deal falls through& understand buyer’s obligation to pursue financing.
• Settlement date: choose a settlement date that will allow for inspections to occur and for you to acquire financing.
Contract Provisions
• Environmental Inspection Provision: What do you need to know? – Underground storage tanks– Soil analysis– Lead paint – Mold– Water Quality
• What happens if the buyer is displeased with results? – Can buyer back out of deal and
get deposit back?– Does seller have the right to
remedy?
Contract Provisions
• Inclusion provision: what is included in the transaction needs to detailed in the contract.
• Examples:– Gates– Livestock panels– Portable sheds– Fence posts– Feeders
• Existing leases(farming/hunting)? If the lease doesn’t terminate upon sale (typical)- what are your obligations?
Contract Provisions
• Sewage disposal provision: Do you need a percolation test?
• If so, is there a valid recorded percolation or will you have time to have a percolation test performed (seasonal).
• If you plan to renovate existing house, will a new test be required?
Contract Provisions
• Condition of Property provision: “Except as otherwise specified in the contract, the property is sold “as is.”
• What does this mean? • It means that the contract
must specify the inspections the buyer wants and what the inspection results allow the buyer/seller do.
• In a residential situation- seller has to make disclosures of certain latent defects in contract.
Contract Provisions
• Deed and Title provision: “Buyer assumes the risk that restrictive covenants, zoning or other recorded documents may restrict or prohibit the use of the property for the purpose intended by Buyer.”
• Regardless of anything said by the seller or an agent- it is the Buyer’s responsibility to do their homework.
Contract Provisions
• Farm/Crops/Timber Rights– Seller or tenant of seller shall be allowed to
harvest, sell or assign any annual crops which have been planted on the Property prior to the Date of the Contract Acceptance, even though the harvest time happens subsequent to the date of settlement, unless agreed otherwise.
• Suggestion- if no written lease get the arrangement details in writing signed by seller and tenant.
– If timber, neither Seller nor tenant of seller shall have any right to harvest the timber unless agreed in an addendum to the contract.
Contract Provisions
• Conservation Easement: There should be an addendum and copy of easement if there is a conservation easement. – Read it! Easements vary and it may preclude
certain uses-agritourism, alternative energy, etc.
• How to modify a standard realtor contract? – Strikethrough a provision and have both parties
initial.
Contract Provisions
• Ag Declaration of Intent• A signer promises to keep land
in ag use for 5 years following the sale to avoid ag transfer tax.
• Ag use designation significantly lowers the property tax assessment.
• Failure to maintain ag triggers requirement for owners to inform SDAT and will result in ag transfer tax and penalty
• More on this-http://www.aglaw.umd.edu/blog/selling-or-buying-farmland-make-sure-you-understand-the-agricultural-use-assessment?rq=ag%20transfer%20tax
Ag Declaration of Intent
• Promissory Note /Loan Agreement• Document in which
borrower agrees to repay the debt.
• Payment terms are outlined.
• Understand escalation/balloon clauses.
• There will be references in the document about how the debt is secured.
Financing Documents
• Mortgage/Deed of Trust• Document in which the
borrower transfers the title to a third party (trustee) to hold as security for the lender.
• When the loan is paid in full the trustee transfers the title back to the borrower.
• By signing this document, the borrower gives the lender the right to take back the property if borrower fails to repay your loan as agreed.
Financing Documents
• Who is promising to make the payments? – Who is named in the agreement
and who is being asked to sign? – Are you or someone else giving a
personal guarantee?– Are you signing in your individual
capacity on behalf of the entity? • Example: Charlie Brown vs. Charlie
Brown, Member, Peanuts, LLC– If you are signing as an individual
you are giving a personal guarantee for the loan (acting as a guarantor)
– A personal guarantee means if there is a default the lender can go after your personal assets
Financing Documents
• Title Policy/Insurance (2 part transaction)1. The company or attorney searches property records (60 years) to ensure that there haven't been any errors, omissions in deeds, unknown liens or fraud involving the deed. Verifies that the seller really owns the property and is free to sell it. 2. The entity doing the search contracts with an underwriting company to issue an insurance policy that will pay to defend the buyer/lender in court if anyone challenges the title and cover losses.
-Buyer/Lender policy?• Read the exceptions to the policy-
understand what is not covered!
Title Policy
• Buyer is responsible for all settlement/closing costs unless negotiated. Get an estimate and be prepared!
• Seller and Buyer split recordation tax and State or local transfer taxes unless negotiated otherwise.
Closing
-Thanks to Bob Rich(Ag realtor)Miller Commercial Real Estate [email protected]/410-200-6625
Questions?Sarah [email protected]
Questions/Thanks