How do I document changes involving the parties named in a pending contract?

QUESTION: I listed a property for sale that was owned by several individuals. We received an offer for the property and the offer was quickly accepted. Prior to closing, it was brought to my attention that a mistake had been made in naming one of the property owners. The parties are willing to amend the contract to correct that error. Can we do so by striking though the incorrect name, adding the correct name, and then getting all the parties to initial that change?

ANSWER: We think the answer depends on the nature of the change that is needed. For example, if the buyer’s lender notices that the name of one of the existing parties has been misspelled and insists that the error be corrected, the method of correcting the contract that you describe would be appropriate since the identity of the parties is not changing. However, if the contract names an incorrect party and that party needs to be removed from the contract, and or the contract fails to name a necessary party who now needs to be added, the change should be made by a more formal amendment to the contract.

The Offer to Purchase and Contract (Standard Form 2-T) states that all changes to the Contract must be in writing and signed by all the parties. Removing a listed seller or adding a new one are changes to the contract that will have significant legal consequences. However, neither change is covered by Form 4-T, the “Agreement to Amend Contract.”

The note at the end of the “Addenda” paragraph of the Offer to Purchase reminds both agents and their clients that, under North Carolina law, real estate brokers are not permitted to draft addenda to the contract. That rule applies equally to contract amendments.

In our opinion, the best way to document the addition or deletion of a party to an existing contract is to have an attorney prepare a simple amendment that states that the parties agree to amend the contract to change the party (either the buyer or seller) identified in paragraph 1 of the Offer to Purchase and Contract from x to y. That amendment should then be signed by all of the original parties to the contract, and by any newly named seller.

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Filed Under: Contract Law,