Drafting Bullet-Proof Legal Documents

Posted on by Phil Querin

 

Cowboy aiming pistol

Some lawyers are gunslingers litigators, and others aren’t. Either choice is fine, as we  all have our preferences and comfort levels. Life is far too short doing something that is not suitable to our nature.

However, when it comes to drafting of good (i.e. “bullet-proof”) legal documents, what type of attorney is best situated to assist? I submit that the best attorney is the one who has been to court, assuming he or she also has good drafting skills.[1]

Say for example, an attorney represents the seller of real estate who had just received a written offer to purchase it for $750,000. The offer is accompanied by an earnest money deposit of $3,000. The buyer is paying cash, but reserves the right to secure a loan, if they so decide.  Buyer also reserves the right to assign the sale agreement to a third party before closing, but says they really don’t expect to do so. The seller is quite excited over the offer, as it is full price with a quick close.

The experienced litigator will look at the offer with a different eye than his client.  In the eyes of the litigator, the glass is “half full” and going down rapidly. In other words, he views this offer from the perspective of all the things that could go wrong.  Why? Because he’s been to court, he’s litigated the “or assigns” language in these deals, and he knows the risks; he knows what the rules of evidence are, and that the buyer’s verbal representation that he would not likely assign the sale agreement mean nothing in court, and is likely inadmissible.

He’s read the sale agreement, and knows that in the event of the buyer’s non-performance, the seller’s sole remedy is to retain the earnest money deposit. And he knows there is a likelihood that the buyer intends to “flip” the property to another buyer for a higher price, thus making a tidy profit as a middle-man.  He knows that representations of an all-cash transaction mean nothing, since the buyer carved out the possibility of financing. And from experience litigating these issues, he’s aware that if the buyer cannot find a third-party purchaser, for a mere $3,000, he could walk from the transaction with no further legal exposure.

How is the lawyer going to draft bullet-proof terms into the sale agreement to make sure his client is on the stronger side of the transaction? He’s going to draft a counteroffer that is so tight it squeaks:

  • Require that the buyer select either cash or financing, but not both;
  • Require that the buyer provide evidence from their bank that he has sufficient collected funds for either the downpayment (if financing) or the all-cash payment;
  • If the buyer is to seek financing, require that he produce a pre-approval letter from a reputable lender or mortgage broker, for the exact loan he wants;
  • Preferably, he will recommend rejecting the “or assigns” – if the buyer wants to resell after closing, fine. If the “and assigns” language is to stay, the assignee’s financial capacity must be first vetted by the seller. However, there is rarely any basis to permit a buyer to reserve the right to assign the sale agreement, except in development or commercial transactions where a controlled entity will be formed to take title;
  • And, he will recommend that the earnest money deposit be of sufficient size that breaching the agreement would be costly. The litigator-attorney knows the case law rulings on liquidated damage clauses, and will make sure that the amount selected is included with a strong recital that will pass muster by the Oregon courts; and,
  • Lastly, since he’s been to court his whole life, he knows that in today’s judicial system, with budget constraints and long criminal dockets that, due to speedy trial rights, means it could take a year or more before there will be a trial. He also knows that judges are just lawyers in black robes – they may not know anything about real estate disputes. For that matter, he will insist that the sale document includes a good alternative dispute resolution provision, i.e. private arbitration, which is faster, less expensive, and will be heard before qualified arbitrators with real estate experience.

The Take-Away.  Good legal drafting draws upon both skill and experience. Anyone can pull a form off the shelf, plug in names, dates, legal descriptions, and boilerplate terms. But there’s more to the task than being a scrivener. Experience matters and knowledge counts.  A client once told me that he wanted his doctors to be younger than him, and his lawyers to be older. Obviously, at my age, I’m not gonna disagree.  If this post sounds like a blatant attempt at self-promotion – it is. After 40+ years of drafting and litigating, I know whereof I speak. ~PCQ

[1] Drafting skills are addressed below.

Posted in Legal Drafting, Miscellany, Real Estate General, Realtor Risk Management
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