Dispute in Contract Interpretation. What's your take?

[lawlessroads]

What is the name of your state? Montana

Here's a copy (https://pastebin.com/8gac09pK) of a real estate purchase agreement recently signed by two parties (names and details have been changed for privacy). A difference of interpretation has come up between both parties, and I would like to know your opinion on whom you believe is correct.

Party A ("Jane") and Party B (Steve and Kim) bought a property as tenants in common worth 800,000. Party A contributed about 230,000 in cash, while Party B contributed 17,000. In spite of this unequal contribution, the agreement states the following:

WHEREAS, the parties have made the above-described contributions to the purchase of the Real Property based on their mutual intention that Jane will be the owner of fifty percent (50%) of the Real Property and Steve and Kim combined will be the owner of fifty percent (50%) of the Real Property;

The parties also jointly obtained a loan in the amount of $560,000.00, of which:

both parties agree 30.68% shall be considered as debt for which Party A ("Jane") is responsible and 69.32% shall be considered as debt for which Party B (Kim and Steve) are responsible.

Party A ("Jane") wants to sell the property two months after it was purchased. The agreement includes the following provision:

1. In the event any party wishes to sell the Real Property, the parties shall agree on a real estate agent to perform a market analysis to determine the fair market value of the Real Property, and any party who does not wish to sell shall have the right to purchase the interest of the party who wishes to sell within sixty (60) days. If any dispute arises among the parties related to the determination of the fair market value of the Real Property, a second real estate agent shall be retained to provide a market analysis, and the fair market value shall be determined as the average of the two valuations.

Party B wants to go ahead with purchasing the property by buying out Party A's stake, but a difference of interpretation has come up regarding who is entitled to what. Here is how the legal representative of Party A is framing their client's claim about their interest in the property:

In order to buy out Jane's 50% interest, Steve and Kim need to provide some combination of cash and debt relief to reflect Jane's 50% interest in the home: $400,000.
Let’s assume after several months of mortgage payments, the original mortgage principal of $560,000 is now $550,000, which under the terms of the agreement, Jane is responsible for 30.68% or $168,740. Subtracting that from the $400,000 FMV of Jane's 50% interest means that Steve and Kim– in addition to refinancing the mortgage into their sole names – also need to pay cash to Jane of $231,260 ($400,000 - $168,740). Of course, if the remaining mortgage principal is a different amount, then this calculation would need to be adjusted accordingly. Likewise if the property would be sold to a third party, Jane would recieve $231,260 and Steve and Kim would receive approximately $18,000.

I am concerned that your clients appear to be planning to pay Jane only $120,000 and may well not be able to pay her the full amount she is owed as set forth above.

On the other hand, this is what the legal representative for Party B claims:

As you note, the value of the property is approximately $800,000.00. Lets assume that the outstanding debt is $550,000.00. This leaves an approximate equity balance of $250,000.00. The $125,000.00 would be your client’s share of her 50% ownership interest, and $125,0000 would be my client's share of 50% ownership.
I don’t see anything in the agreement that would support her claim that my clients would need to repay Jane for her original cash contribution. The Agreement simply does not say that either party’s share is limited to the amount of their contribution. Likewise, nothing in the agreement says that each party’s contribution is in anyway applicable to their 50% ownership interest. We agree that Kim and Steve would be responsible for 69.32% of the debt service obligation, however this is irrelevant to their individual ownership interest if the property is sold, because the debt would be paid off from the proceeds. It is equity, not debt that the parties are going to divide if the property is sold.

Who do you think is correct?

 

[Zigner]

What is the name of your state? Montana

Here's a copy (https://pastebin.com/8gac09pK) of a real estate purchase agreement recently signed by two parties (names and details have been changed for privacy). A difference of interpretation has come up between both parties, and I would like to know your opinion on whom you believe is correct.

Party A ("Jane") and Party B (Steve and Kim) bought a property as tenants in common worth 800,000. Party A contributed about 230,000 in cash, while Party B contributed 17,000. In spite of this unequal contribution, the agreement states the following:

The parties also jointly obtained a loan in the amount of $560,000.00, of which:

Party A ("Jane") wants to sell the property two months after it was purchased. The agreement includes the following provision:

Party B wants to go ahead with purchasing the property by buying out Party A's stake, but a difference of interpretation has come up regarding who is entitled to what. Here is how the legal representative of Party A is framing their client's claim about their interest in the property:


On the other hand, this is what the legal representative for Party B claims:

Who do you think is correct?

I think that Steve and Kim need to speak to their own attorneys about this matter. An internet forum is not going to be of use.

 

[LdiJ]

What is the name of your state? Montana

Here's a copy (https://pastebin.com/8gac09pK) of a real estate purchase agreement recently signed by two parties (names and details have been changed for privacy). A difference of interpretation has come up between both parties, and I would like to know your opinion on whom you believe is correct.

Party A ("Jane") and Party B (Steve and Kim) bought a property as tenants in common worth 800,000. Party A contributed about 230,000 in cash, while Party B contributed 17,000. In spite of this unequal contribution, the agreement states the following:

The parties also jointly obtained a loan in the amount of $560,000.00, of which:

Party A ("Jane") wants to sell the property two months after it was purchased. The agreement includes the following provision:

Party B wants to go ahead with purchasing the property by buying out Party A's stake, but a difference of interpretation has come up regarding who is entitled to what. Here is how the legal representative of Party A is framing their client's claim about their interest in the property:


On the other hand, this is what the legal representative for Party B claims:

Who do you think is correct?

I agree with the previous response. However, it does seem to me that the intent of the unequal debt responsibility was to take into consideration A's higher level of initial investment into the property. It also seems to me that if they were to pay A only $125,000 then they would be enriched by the additional investment that A put into the property.

So, if I were A, I would be insisting that they refinance the loan for enough to cover the existing mortgage, plus pay back A his/her initial investment. Now, if the value of the property had somehow decreased during that period of time, then an adjustment should be made to have the parties equally share in that reduction, but B shouldn't be expecting to receive a $100,000 plus windfall on the deal.

 

[lawlessroads]

I think that Steve and Kim need to speak to their own attorneys about this matter. An internet forum is not going to be of use.

They clearly are already doing that. This is a case where there are two differing legal opinions on the matter (one coming from their attorney) and I'm asking for other opinions from people with expertise in real estate law.

 

[Just Blue]

They clearly are already doing that. This is a case where there are two differing legal opinions on the matter (one coming from their attorney) and I'm asking for other opinions from people with expertise in real estate law.

1. Read the TOS of this site.
2. Contract review is beyond the scope of this or any other advice site.
3. The "opinion" of random people on the internet is not helpful in this situation. They need to bring the contract to another attorney and get a second opinion.

 

[PayrollHRGuy]

I think this is homework.

 

[Litigator22]

What is the name of your state? Montana

Here's a copy (https://pastebin.com/8gac09pK) of a real estate purchase agreement recently signed by two parties (names and details have been changed for privacy). A difference of interpretation has come up between both parties, and I would like to know your opinion on whom you believe is correct.

Party A ("Jane") and Party B (Steve and Kim) bought a property as tenants in common worth 800,000. Party A contributed about 230,000 in cash, while Party B contributed 17,000. In spite of this unequal contribution, the agreement states the following:

The parties also jointly obtained a loan in the amount of $560,000.00, of which:

Party A ("Jane") wants to sell the property two months after it was purchased. The agreement includes the following provision:

Party B wants to go ahead with purchasing the property by buying out Party A's stake, but a difference of interpretation has come up regarding who is entitled to what. Here is how the legal representative of Party A is framing their client's claim about their interest in the property:

On the other hand, this is what the legal representative for Party B claims:

Who do you think is correct?

"Framing"? I thought carpenter's framed and lawyers and politicians complained of it

Whatever, I am one with B's attorney as I fail to see any logic as to why either the disproportionate cash contributions or the agreed contrastive individual responsibilities for payment of the mortgage note need to be factors in arriving at Jane's asking price.

No matter who buys Jane must have assurances that her joint and several liability on the entire mortgage note is fully discharged. In other words, cash and/or refinancing the purchase money loan.

 

[adjusterjack]

Both parties have lawyers. If lawyers can't agree, then it goes to court where a judge will hear both sides and make a decision for them.

By the way, these people were bloody fools to get into this deal in the first place. It was destined to eventually result in two lawyers dancing and singing arm in arm on their way to their banks.

 

[lawlessroads]

1. Read the TOS of this site.
2. Contract review is beyond the scope of this or any other advice site.
3. The "opinion" of random people on the internet is not helpful in this situation. They need to bring the contract to another attorney and get a second opinion.

There's nothing in the TOS against discussing what is effectively a hypothetical legal situation. All the specifics have been modified or removed and therefore no actual real contracts are being reviewed.

I'm not asking for a third legal opinion that would serve as a basis for any action, either. I am an observer of this scenario which is most likely going to be drawn out for a good amount of time and since this is a forum about the legal intricacies of buying and selling a home, it doesn't strike me as being out of place to post this here.

 

[lawlessroads]

Both parties have lawyers. If lawyers can't agree, then it goes to court where a judge will hear both sides and make a decision for them.

By the way, these people were bloody fools to get into this deal in the first place. It was destined to eventually result in two lawyers dancing and singing arm in arm on their way to their banks.

I agree in that the contract is an awful one. It's not nearly specific enough to address both parties' concerns and differences in interpretation and it reflects very poorly on the lawyer that drafted it.

I still think that it's interesting to put it out there and see how it's interpreted by others with experience in real estate law.

 

[adjusterjack]

There's nothing in the TOS against discussing what is effectively a hypothetical legal situation.

True. But what it is, is a waste of our time. I, and probably the other regulars, are loath to comment on hypothetical situations because comments on hypothetical situations are absolutely useless because they don't address the real details of the situation.

The parties can't agree, the lawyers support the demands of their clients. If a settlement can't be reached it goes to court where a judge gets to review the real details and make a real decision to dispose of the case.

I still think that it's interesting to put it out there and see how it's interpreted by others with experience in real estate law.

Again, waste of time without reading the actual contract in its entirety. There are other legal sites where you can upload a redacted copy of the entire contract to elicit helpful comments if you want to do that.

 

[Litigator22]

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[Taxing Matters]

Who do you think is correct?

I think if the contract did not have provisions for how to split proceeds in the event of a sale that was a mistake given the grossly unequal contributions specified in the contract. If it went to court I could not predict how it would come out. And given that two Montana lawyers apparently don't agree on it either, the parties have a problem. I suggest they try hard to negotiate a mutually acceptable buy out. If they go to court, they're rolling the dice on how it would come out and they'd have the expenses of litigation to contend with.

 

[doucar]

No lawyers licensed in Montana follow these boards and real estate contracts are often extremely state law specific. In fact most of the contributors (volunteers) here are not licensed attorneys. Tax has givens you the best advise under the circumstances and he is an attorney, though not in Montana.

 

[adjusterjack]

I think if the contract did not have provisions for how to split proceeds in the event of a sale that was a mistake given the grossly unequal contributions specified in the contract.

I pointed that out on the other site where the complete contract was posted.