Posted by Stacy (AZ) on January 14, 1999 at 12:49:33:
Jim, I received a fourth opinion from a lawyer, which (I think) addresses your concern. If I interpret correctly, the assignment of a contract that contains seller-financing provisions is perfectly acceptable, legally. It is a fine point, I agree. I also think I would have done what you did if someone tried to assign one of my contracts, although I don’t think if taken through court there would have been a basis. The threat of legal action, especially regarding something as vague as assignments, would probably be enough to stop the assignment. What do you think?
Reply from lawyer #4:
You haven’t altered the seller’s risk one iota by assigning your rights under that contract to any buyer you wish. Nor have you lessened YOUR risk in the slightest, as upon default the property is the primary
security, you are secondarily-liable and the person to whom you “assign” the contract has tertiary liability.
Your contract with your Buyer does not affect your relationship to the person to whom you obligated yourself to pay the purchase price.
Follow-up: Law of Assigning Contracts - Posted by Stacy (AZ)
Posted by Stacy (AZ) on January 13, 1999 at 11:40:25:
To follow-up a series of post below, entitled “The Law: Assigning Contracts”, I’m replying with some information I’ve received from three lawyers. The question I posed to them had to do with assigning RE purchase contracts when there are seller financing provisions in the contract. This is for general information only. Please check your state’s laws. I’m posting an excerpt from one of the lawyers, which best summarizes the opinions.
QUESTION:
I’ve read an article from a local AZ attorney, where he states that all real estate contracts are assignable in AZ.
What if the contract contains seller-financing provisions? If the seller agrees to finance a part of the purchase as a carry-back mortgage in a contract he signs with ME as the buyer, it seems that by me assigning the contract to a third party, I have changed the level of risk the seller has. If I assign to a third party that has poor credit, for example, haven’t I increased the seller’s risk? Then again, if the seller didn’t want to afford me the opportunity to assign the contract, he should have stipulated that the contract could not be assigned within the contract.
ANSWER:
Good points; since I don’t practice in Arizona, obviously I don’t know anything about the state law there. But basically, when a buyer assigns a contract which includes future payment obligations, the assignor is NOT
relieved of those obligations (unless the seller/mortgagor consents to such a release). You can assign your rights, but not your obligations.
So, the main thing I’ve learned, is that assigning contracts gives all my RIGHTS to the assignee, not my OBLIGATIONS. Even if my assignment agreement with the assignee states that I am to be released from any liability, the seller is still looking to me to fulfill my contractual obligations. This has reinforced the need to get a release of liability signed with the seller every time I flip a contract.
Jim Piper, thanks for the probing question. It forced me to dig deeper.
I thought you had this correct to begin with. Your original article discussed the ongoing liability of contracts to the assignor in the absence of a release of liability…or at least I thought it did.
In any case, I was not in any doubt that there was an ongoing liability…in Arizona or any other state without the release of liability. Rather, I was discussing whether a contract containing owner finance provisions could be assigned at all. It’s actually kind of a fine point, because even if you can assign it, you are still liable under it until the seller releases you.
I bring this up, because I was involved at one point in a situation where a buyer attempted to assign MY contract to a third party. The contract contained an owner finance provision. I was able to successfully stop this assignment. At that time I was told that such assignment was not legal under the California law at that time (about 10 years ago).
Again though, a provision in your contract permitting assignment covers this…and shouldn’t create a problem normally.