Dispute over contract interpretation. What's your take?

[lawlessroads]

Jurisdiction

Montana

Here's a copy ([URL="https://pastebin.com/8gac09pK"]AGREEMENT THIS AGREEMENT is entered into this ____ day of _______________, 2 - Pastebin.com[/URL]) 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?

 

[flyingron]

The second view appears to be complete drivel. The interest is the value of the property, not the supposed "equity" in it.

The first view puts it quite accurately and succinctly.
AMOUNT DUE = FMV/2 - 30.68% of the loan balance.

This presumes that Party A and party B paid their respective shares on the mortgage payments that were made.

However, we're not able to read the contract and presumably the lawyers can. You should let the lawyers duke it out.

 

[adjusterjack]

details have been changed

I won't even comment because that's not the real contract.

 

[Zigner]

OP takes issue on the other site that he posted it when advisors tell him the attorneys need to deal with this.

 

[army judge]

OP takes issue on the other site that he posted it when advisors tell him the attorneys need to deal with this.

Cheapskate reap what cheapskates begrudgingly refuse to do.

 

[army judge]

Who do you think is correct?

It matters NOT what anonymous internet denizens think.

Whose opinion matters?

The judge or jury judging the matter at trial in an as yet unknown Montana Court.

 

[adjusterjack]

OP takes issue on the other site that he posted it when advisors tell him the attorneys need to deal with this.

It was I who suggested that he find another site where he could post the actual contract.

He is still choosing not to do that.

 

[lawlessroads]

It was I who suggested that he find another site where he could post the actual contract.

He is still choosing not to do that.

The contract is linked in its entirety at the top of the post only with names changed and locations redacted. Everything else is there.

 

[army judge]

It was I who suggested that he find another site where he could post the actual contract.

He is still choosing not to do that.

...

 

[lawlessroads]

OP takes issue on the other site that he posted it when advisors tell him the attorneys need to deal with this.

The attorneys are dealing with this. Why is that a recurring response? All that's being asked is for people with supposed expertise on the matter to weigh in on a situation.

 

[doucar]

The attorneys are dealing with this. Why is that a recurring response? All that's being asked is for people with supposed expertise on the matter to weigh in on a situation.

No one here is a Montana licensed attorney and Real Estate is very state law specific. Most of the posters here are not attorneys, they are volunteers trying to answer generic questions unless they have a particular insight.

 

[army judge]

No one here is a Montana licensed attorney and Real Estate is very state law specific.

Please answer ONLY those things you know.

You have no idea as to how many states in which I'm licensed to practice law, and/or countries, for that matter.

 

[doucar]

Please answer ONLY those things you know.

You have no idea as to how many states in which I'm licensed to practice law, and/or countries, for that matter.

that's true, I guess no one here knows how many states I am licensed in.

 

[adjusterjack]

Here's my take.

FMV 810,373.03
Less the mortgage balance 550,000
Equity 260,373

50/50 ownership.

Upon the sale Jane would get 130,186.52 less half the cost of sale.
Kim/Steve would get 130,186.52 less half the cost of sale.

For Kim/Steve to buy out Jane's 50% of the equity they would pay her 130,186.52.

Here's why.

"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."

Nowhere in that section and nowhere in any other part of the contract is any agreement to a division of the equity other than the 50/50 ownership agreement.

The contribution to the mortgage is irrelevant once the property is sold or a party's is bought out interest is bought out.

Poor Jane.

 

[lawlessroads]

Here's my take.

FMV 810,373.03
Less the mortgage balance 550,000
Equity 260,373

50/50 ownership.

Upon the sale Jane would get 130,186.52 less half the cost of sale.
Kim/Steve would get 130,186.52 less half the cost of sale.

For Kim/Steve to buy out Jane's 50% of the equity they would pay her 130,186.52.

Here's why.

"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."

Nowhere in that section and nowhere in any other part of the contract is any agreement to a division of the equity other than the 50/50 ownership agreement.

The contribution to the mortgage is irrelevant once the property is sold or a party's is bought out interest is bought out.

Poor Jane.

See, now that wasn't so hard, was it?

I agree with your assessment, for the most part.

Tenancy in common is specifically designed to guard unequal contributions. The segment that seems to screw Jane over is the one dividing ownership 50-50, instead of aligned with each party's original contributions.

On the other hand, the argument made by Jane's lawyer doesn't seem too far fetched either. But since the mortgage contract itself is a traditional joint one (50-50, I know of no other) the segment about the mortgage debt just seems like a clarification of how the monthly responsibilities are to be divided.

I appreciate your input.

 

[adjusterjack]

So, the end result is that you are seeing merit in both sides and the issue was not resolved here.

Now you see why we don't like to waste our time on this kind of stuff.

You're arguing with yourself now.



Thread locked.