Regardless, if you are a first time home buyer or a person who has chosen to Invest or become an Investor in Real Estate, you should read this first. Real Estate Agents can also benefit. A reminder that when a person puts an offer on a property, it is exactly that, „their offer“.
As a Buyer, when you put an offer in on a Property, you need to remember that this is your offer. When signing the contracts and attaching your Schedules, you need to make sure that the clauses are to your benefit. Be aware that the Realtor is working for themselves and therefore out to protect themselves and not you the Buyer or even the Seller in a lot of cases.
What is a Form 122 – Mutual Release?
This is a contract. It is brought into play by the Realtor, if the Realtor believes that you are backing out of the original contract, which was entered into to purchase the property. This contract is solely for the benefit of the Realtor and the Real Estate Company that the Realtor is working for. This contract needs to be signed by both the ‚Buyer‘ and the ‚Seller‘. The Buyer is asked to sign first. Then the contract is passed over to the Seller for their signature.
Here is the catch. When the Buyer signs the form (that’s you), you are automatically letting the Real estate company off the hook for returning your deposit money to you. You have just relinquished your rights to sue for your deposit, if it should come to this. Then the Real estate Company passes this form onto the Seller for their signature. If they sign it, everything should go smoothly, and your deposit should be returned. If they decide not to sign this contract, you do not get your deposit back. The Seller does not get your deposit either and it remains in the Trust Account of the Real estate Company. At this point, you would need to sue the Seller in order to have your deposit returned.
While constructing your clauses in your Schedules, make sure that your writing is accurate and precise. One or several of your clauses should clearly state an irrevocable instruction in the Agreement that addresses the situation. This is the only way that you can rest assured of having your deposit returned. Each and every clause that has to do with an Irrevocable time line or the waiving of a condition (which is an irrevocable time line) should be followed up with a clear statement, saying that the deposit is to be returned in full immediately.
Always have your documents checked over by a Lawyer. In fact, keep in touch with your Lawyer throughout the entire process, to make sure that the Contracts will be protecting you at all times.
The reason that I am suggesting this, is because, you may think that you have (and you very well may have) a sound proof Contract, that will protect you. While doing your due diligence on the Property, you find that some of the terms are not satisfactory and you exercise your right to walk away from the deal. Be aware of the Realtor, that does not know how to read contracts and thinks that you are just backing out of the deal. The Realtor will refuse to return your deposit money (which is being held in trust) and insist that you sign and fill out a form 122 – Mutual Release.
This form is a controversial form and if you do your research on it, you will find many definitions. Here is mine. The bottom line is that once you sign it, you will have negated your original contract and left it up to the Seller and the Realtor to get your deposit back. What the Realtor does not understand, is that the original contract will stand up in court. However, it is a huge inconvenience and time waster for an Investor.
So please make sure that your contracts are set up properly, because you never know when you will need that contract to stand up in the Court of Law.
We hope that you have found this information both enlightening and beneficial for the next time that you are putting an offer together and constructing your contract.