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Statute of frauds in real estate: get it in writing!

JANUARY 20, 2025
statute of frauds in real estate

The Statute of Frauds is a foundation of contract law and real estate. It’s designed to protect buyers and sellers from fraud, misunderstandings, and disputes by making sure important agreements are written down and signed. From a business point of view, knowing the Statute of Frauds helps real estate professionals make safe and legal deals.

Let’s explore its history, purpose, requirements, and application in real estate.

What is the statute of frauds?

The Statute of Frauds requires specific contracts to be in writing to be legally enforceable. These include agreements that involve real estate transactions, debts, or those that take longer than a year to fulfill. The goal? To provide clarity, reduce ambiguity, and safeguard against fraud.

Without this legal protection, verbal agreements can cause expensive disputes. People may forget the terms or act unfairly.

History of the statute of frauds

The Statute of Frauds originated from the Act for Prevention of Frauds and Perjuryes passed by the English Parliament in 1677. This statute ordered written agreements on major transactions to be made to eliminate corruption, perjury, and misunderstandings arising from verbal agreements.

At that period, courts in England faced floods of fraud and reliance on paid witnesses. Written agreements proved an assured method of telling the truth and determining fairness in deals.

The American system then adopted this when the country was born. Its founding fathers knew that putting into writing and signing contracts on major transactions reduced disputes and made conflict resolution less complex. This rule has stood the test of time and also remains one of the cornerstones of modern contract law, especially in real estate.

Why is the statute of frauds important in real estate?

In real estate, where high-value transactions and long-term commitments are common, the Statute of Frauds serves as a safeguard for all parties involved.

Protects against fraud

By insisting that contracts be in writing, it diminishes the chances of parties claiming can terms that were never agreed upon.

Ensures legal clarity

Since the terms are clearly written, misunderstandings and disputes are reduced.

Provides legal recourse

If one party breaches a contract, the written agreement serves as solid evidence in court.

Maintains professional standards

To real estate agents, adherence to the statute indicates due care and professional ethics. Enabling them to gain trust of their clients.

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Key requirements of the statute of frauds

Not all written agreements satisfy the Statute of Frauds. Specific requirements ensure a contract’s enforceability:

1. Signed by both parties

Both parties must sign the agreement. Without signatures, the contract is not enforceable.

2. Accurate quantity and terms

The contract must clearly state all key details, such as property descriptions, purchase prices, or lease terms. Any mismatch between the written agreement and the actual terms can invalidate the contract.

3. Proper dispatch

Written correspondence, such as emails or letters, must be properly addressed and dispatched. Incorrect addresses or failed delivery can render the communication invalid.

4. Timely written objections

If one party disagrees with the agreement, objections must be raised within a specified timeframe. Failure to do so can waive their right to contest the terms.

5. Avoidance of material errors

If one party makes a significant mistake at the time of contract creation, affecting the agreed exchange, the contract may be deemed invalid.

Pro tip: In many cases, emails, invoices, or electronic signatures can satisfy the Statute of Frauds’ requirements. However, they must meet all legal criteria, including clarity, accuracy, and signatures.

Application of the statute of frauds in real estate

Real estate transactions

Contracts for buying or selling property must always be in writing to be enforceable. This applies to both residential and commercial real estate.

Leases over one year

Lease agreements longer than 12 months must also be documented and signed. Shorter leases may be enforceable orally, depending on state laws.

Easements and real estate options

Easements (the right to use another’s property) and real estate options (agreements to buy or lease property at a future date) are subject to the statute as well.

Mortgage agreements

Mortgage contracts, refinancing, or deeds of trust also fall under the Statute of Frauds, protecting borrowers and lenders alike.

Exceptions to the statute of frauds

Despite its strict requirements, there are exceptions where oral agreements may still be enforceable:

1. Partial performance

If one party has taken significant actions to fulfill the agreement—such as paying a deposit or making improvements to a property—the courts may enforce the contract.

2. Promissory estoppel

If one party reasonably relies on a promise to their detriment, the courts may uphold the agreement to prevent injustice.

3. Judicial admission

If a party admits in court that an oral agreement existed, it may be enforceable despite not meeting the statute’s requirements.

These exceptions highlight the importance of written contracts. Relying on verbal agreements can lead to legal uncertainty and unnecessary risks.

Real-life example

Imagine that a seller and a buyer verbally agree on the sale of a house. The buyer pays a deposit, but the seller later reneges on the deal, claiming no such agreement existed. Unless there is a written and signed contract, the buyer has little legal recourse because of the Statute of Frauds. This example goes to show why it is important to provide proper documentation.

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Tips for real estate professionals

  1. Always document agreements: Even minor amendments to contracts should be in writing.
  2. Educate clients: Explain why written agreements protect their interests and ensure clarity.
  3. Work with attorneys: Collaborate with legal professionals to draft and review contracts.
  4. Leverage technology: Use tools for electronic signatures and secure communication to streamline transactions.

Conclusion

The Statute of Frauds in Real Estate means that all important agreements must be in writing, signed, and legally enforceable. It protects buyers and sellers and agents against deception and miscommunication by demand of the contract in writing.

By understanding its history, the requirements, and exceptions will bring much confidence in real estate dealings. For professionals, compliance with the statute demonstrates expertise and builds trust, helping you provide exceptional service to clients.

Remember: if it’s not in writing, it didn’t happen, and when it comes to real estate, that could make all the difference.

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