Legal Considerations When Selling Or Purchasing a Vacant Lot in Kendall County?

 Posted on October 06, 2022 in Real Estate

The purchase or sale of a vacant lot contrasts with a normal residential real estate transaction in Kendall County and surrounding areas of Oswego, Yorkville, Plano, Sandwich, and Somonauk. The “Vacant Lot Sales Contract” is the standard real estate contract used for the purchase and sale of a vacant lot. 

A vacant lot is a parcel of property or land that has no houses or buildings on it. Many people purchasing a vacant lot have the intention of building a new construction or customized home on the vacant lot. In my experience, most buyers of a vacant lot have the goal of building a new construction property within the next two to three years or earlier. Illegal dumping of waste and litter is a major issue involving vacant lot owners.

SIGN VACANT LOT SALES CONTRACT

The first step in selling a Vacant Lot is the filling out and acceptance of a contract. At Gateville Law Firm, we assist sellers and buyers with the completion of the Vacant Lot Sales Contract. The Vacant Lot Sales Contract involves twenty (20) provisions, which consist of the Vacant Lot Sales Contract.

The first paragraph involves the Contract Sales Price and Terms. Relevant terms include the sales price and the amount of earnest money along with who will hold earnest money. Earnest money is a deposit, which demonstrates the buyer’s willingness and ability to enter and finalize the real estate transaction. Earnest money is delivered upon signing the Vacant Lot Sales Contract or within a specified time (such as three business days).

The second paragraph explains whether the deal is a cash or financed transaction. Often, vacant lot transactions involve cash. On the other hand, the buyer has the option of financing the purchase of the vacant lot. Paragraph 2(B) has the terms of financing such as whether the deal involves seller financing, or a traditional bank or lender will assist in the acquisition.

The third paragraph involves contingencies such as the mortgage financing contingency. This provision explains the time that the buyer must get a mortgage loan commitment. A mortgage loan commitment is a commitment by a bank or lender. A mortgage commitment letter is an agreement between the purchase and their lender stating that the home loan has been approved. This letter summarizes the basic terms such as the interest rate, the conditions and the offer’s expiration date.

The fourth paragraph describes the closing and possession date. The closing date is the date that the parties intend to close the transaction. The possession date is the date where the seller will deliver the vacant lot to the buyer. On the possession date, the buyer can take control over the vacant lot.

The fifth paragraph describes whether the Broker or the Attorney shall hold earnest money. The earnest money is subject to the terms of the Vacant Land Sales Contract. 

The sixth paragraph describes the process of disbursement of the earnest money. The earnest money may not be disbursed without the written permission of the buyer and seller. In the event of a dispute, the escrow holder may deposit funds with the Clerk of the Circuit Court by filing of an action in an interpleader. Escrowee shall be reimbursed from the earnest money for all costs, including reasonable attorney’s fees relating to the filing of the action. In most vacant lot transactions, the buyer and seller resolve disputes among earnest money.

The seventh paragraph addresses the issues of “Notices.” Notices are described under the contract as written communication between the parties or their attorneys.

The eighth paragraph addresses Transfer Tax Stamps. In Kendall County, transfer tax stamps are a minimum issue. However, City of Oswego recently passed legislation enacting a real estate transfer stamp. A transfer stamp is a tax and/or a process of getting permission from a municipality before the real estate transaction obtains the blessing of the municipality.

The ninth paragraph involves conveyance, which describes the appropriate seller’s documents that will be tendered at closing such as a warranty deed, affidavit of title, and bill of sale (among other items).

The tenth paragraph involves title insurance. Title insurance is a type of insurance where the seller and buyer (if applicable) purchase an owner’s policy and lender’s policy to ensure the transfer of real estate is without any liens, judgments, or other issues.

The eleventh paragraph involves a seller (or buyer) purchasing a survey. The purpose of a survey is to showcase any boundary disputes, easements, lot lines, setback lines and other improvements on the vacant lot. A survey is critical because it informs the buyer and the seller (and its’ lender and the title insurance) company about any issues involving the vacant lot.

The twelfth paragraph involves tax prorations and how real estate taxes will be calculated. In Illinois, real estate taxes are paid in the arrears. For example, 2022 real estate taxes will be calculated and paid in 2023. The tax proration section involves a formula how to calculate real estate state prorations. The prorations also have a special provision for special assessments, which is a major issue in Kendall County. Special Service Area is an area, which often involves new construction neighborhoods. A Special Service Area is for the installation of public improvements such as sidewalks, sewer systems, and other public works. An assessment is often calculated, which provide for an additional payment (in addition to the normal real estate tax bill). This SSA may be explained in the real estate tax bill or may be administered by a third-party. 

The thirteenth paragraph involves crops and expenses such as the amount of rent per acre. Moreover, the seller or buyer shall pay a portion of the Landlord’s share of their crop’s expenses for a particular year. 

The fourteenth paragraph involves mineral rights, such as Seller’s water, oil, gas, coal, or other mineral rights.

The fifteenth paragraph involves Seller’s Representations.

The sixteen paragraph is especially important, which involves the Attorney Modification Period. The Attorney Modification Period is the period where the Attorneys may make changes to the Vacant Land Sales Contract. 

The seventh paragraph explains that the buyer must promptly perform. The consequence of the buyer’s failure to perform creates an opportunity for the seller to keep the buyer’s earnest money funds.

The eighteen paragraph involves tax deferred exchanges such as a 1031 exchange. A 1031 exchange is the IRS tax code provision which addresses real estate investing and tax deferral of taxes. Real estate investors have an investment tool (1031 exchange), which permit them to swap out one investment for another investment. A 1031 exchange if done correctly enables a real estate investor to tax defer their real estate taxes from one transaction to another. A 1031 exchange or otherwise known as a “tax deferred exchange” allows a real estate investor 45 days from the sale of sale of the relinquished property to identify a substitute property. This 45-day window of time is called the “identification period”.

The twenty-first paragraph is the offer and acceptance of the contract. Here, the parties will put their names and attorney’s names (and agent information). 

OBTAIN AN ATTORNEY OR TITLE INSURANCE

The second step of a vacant lot sale is obtaining a real estate attorney. After the real estate attorney has been retained, the real estate attorney will email the Vacant Land Sales Contract to the title insurance company. The title company will search the property and provide the real estate sale’s attorney a copy of their search describing whether any liens, outstanding taxes or any other issues involve the vacant lot.

After the real estate attorney receives the title search package, the real estate attorney will perform a title exam and raise any issues that must be raised. Raising issues means that the real estate attorney will review the title search and inform the title company how to draft the title commitment.

ATTORNEY REVIEW AND INSPECTION PERIOD

Paragraph 16 of the Vacant Land Sale Contract defines the terms of the attorney modification period. The Attorney Modification Period is five (5) business days after acceptance of the contract. The Attorney Modification Period allows a real estate attorney to review the terms of the contract and make proposed changes to the written contract. If the buyer fails to make recommended changes in the written vacant land sales contract, then the attorney review modification period will be waived. 

The inspection period is the period where the buyer will conduct their due diligence. The buyer will often perform an environmental test to inform them whether the land is safe and suitable for the type of development that they may be interested in. Moreover, the buyer may research applicable zoning laws and whether a zoning change is possible. The buyer may also want to survey the property and see whether any encroachments or easements restrict their ability to do what they intend to do.

CLEAR TO CLOSE

The clear to close is the period where the lender or bank has provided a written mortgage commitment letter with the specific terms or otherwise known as the “clear to close.” After the clear to close, the attorneys and parties may enter a closing date.

Kendall County Vacant Lot and Land Sales Attorney

The lawyers of Gateville Law Firm concentrate on residential and commercial real estate law. Our support staff have over twenty years of experience in real estate with many with years of title insurance experience. Our law firm serves the Chicagoland areas such as Yorkville, Plano, Oswego, Sandwich, Somonauk, Newark, and Bristol among many other surrounding areas of Yorkville, Illinois. Call us at 630-780-1034 or via online contact form.