Regardless, if you are a first-time homebuyer or someone 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 offers a property, it is exactly that, “your offer”.
As a Buyer, when you make an offer on a Property, you must remember that this is your offer. When signing the contracts and attaching their Exhibits, you must make sure that the clauses are for your benefit. Keep in mind that the real estate agent is working for himself and therefore to protect himself and not you, the Buyer or even the Seller in many cases.
What is a Form 122 – Mutual Release?
This is a contract. The real estate agent puts you on the line if he thinks you are backing out of the original contract, which was signed to buy the property. This contract is solely for the benefit of the Realtor and the Real Estate Company for which the Realtor works. This contract must be signed by both the ‘Buyer’ and the ‘Seller’. Buyer is asked to sign first. The contract is then passed to the Seller for his signature.
Here is the catch. When the Buyer signs the form (meaning you), they are automatically releasing the real estate company to return their deposit money. You just gave up your rights to sue for your deposit, should it come to this. Then the Realtor passes this form to the Seller for his signature. If they sign it, everything should run smoothly and your deposit should be returned. If they choose not to sign this contract, you will not get your deposit back. The Seller also does not receive his deposit and remains in the Real Estate Trust Account. At this point, you will need to sue the seller to get your deposit back.
When constructing your clauses in your Exhibits, make sure that your writing is exact and precise. One or more of its clauses must clearly state an irrevocable instruction in the Agreement that addresses the situation. This is the only way you can be sure that you will get your deposit back. Any and all clauses having to do with an irrevocable timeline or waiver of a condition (that it is an irrevocable timeline) must be followed up with a clear statement saying that the deposit will be returned in full immediately .
Always have your documents reviewed by a Lawyer. In fact, keep in touch with your Lawyer throughout the process, to ensure that the Contracts will be protecting you at all times.
The reason I suggest this is because you may think you have (and very well may have) a soundproof contract that will protect you. While doing your due diligence on the Property, you discover that some of the terms are unsatisfactory and you exercise your right to back out of the deal. Beware of the real estate agent who doesn’t know how to read contracts and thinks he’s just backing out of the deal. The real estate agent will refuse to return your deposit money (which is held in trust) and will insist that you sign and fill out a 122 – Mutual Release form.
This form is controversial and if you do research on it you will find many definitions. Here is mine. The bottom line is that once you sign it, you have negated your original contract and left it up to the seller and realtor to get your deposit back. What the real estate agent does not understand is that the original contract will stand up in court. However, it is a huge inconvenience and a waste of time for an investor.
So make sure your contracts are set up correctly, because you never know when you’ll need that contract to go to court.
We hope you found this information enlightening and beneficial for the next time you bid and build your contract.
