Definition of "Statute of frauds"
Generally, a statute of frauds means a legal provision outlining that essential contracts, vulnerable to misrepresentation, must be fixed in a written form to be enforceable. Although negotiations and preliminary agreements often occur orally, the final arrangement must appear in a written contract in real estate transactions.
Some agreements may be enforceable without a written framework; still, they are legally binding. However, an oral settlement often leads to disputes between the participants.
Originated in 17th century England, lawmakers designed the concept of a statute of frauds to prevent such arguments. Though all fifty US states have accepted the state of frauds by now, each has its codified version to cover various kinds of agreements.
What does a statute of frauds contain?
The statute of frauds identifies a contract’s key terms adequate to establish the assets being exchanged lawfully. Secondly, it highlights the fundamental terms and conditions of the agreement. In addition, it identifies the parties to the contract. This way, neither party can commit fraud. As a result, all deeds, mortgages, and real estate contracts must be evidenced by a written form and may not be oral.
Which contracts must be drafted and signed?
The following contracts must appear in written form in most US states.
- Agreements to sell or transfer land or real estate. Also, the statute of frauds demands a written contract in lesser interest in land, for instance, granting a lease or asement. In general, parties involved in any property transfer must draft a written arrangement beforehand to validate it.
- Marriage and life insurance contracts. Note that only some US states have labeled them as mandatory.
- Deals to sell products worth $500 or more. This stipulation relates to the Uniform Commercial Code.
- Agreements that one of the parties can't fully honor in the one year after signing the contract. In other words, an absolute impossibility blocks goods or services delivery in less than 365 days.
- Surety contracts, establishing suretyship or financial promises to meet another individual's debts in time. For instance, you have to name a co-signer (parent or friend) before you sign a student loan who pledges to pay off the debt if you can't.
- Agreements to cover a deceased person's debts from one's budget.
The statute of frauds in real estate
The statute of frauds ensures and enforces real property contracts. These include any agreement to sell real estate interests for more than a year. Therefore, the statute of frauds sanctions lease, mortgage, and easement assignments for more than 365 days.
Land sale covenants must cover the purchase price, the identity of the buyer, and the seller. Furthermore, it must include a written account of the sold real estate.
Prenuptial agreements in estate planning
A couple signs theprenuptial agreement before marriage, by which they agree on property division at an eventual divorce or one of the member's death. Additionally, they can cover inheritance agreements and financial support of the former spouse (alimony) at breaking up. These contracts serve as a viable tool in estate planning. The parties will enlist which property they consider separate assets and those mutual or marital valuables.
Did you know that you can reduce property tax liability by signing a prenup agreement? Several estate planning consultants would advise such contracts. Without it, your real estate division might become a hassle because you risk your property not being distributed the way you initially intended. In community property states, you might not be able to assign a higher percentage to your children from your previous marriage because your spouse will directly inherit even one-half of your assets. In some cases, the spouse can even request more than established in your will.
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