The concept of contract redlining is commonly discussed during the contract negotiation process. It should be noted that, in addition to the main contracts, other documents are written after the main agreement is signed. Memorandums, reports, and emails are examples of such documents. Each of these can alter, add to, or remove the commitments that people make in the main contract. Therefore, contract redlining is not a one-time activity but a continuous contract drafting activity that requires attention throughout the contract’s life cycle. Today we will take a look at best practices, key factors, and common pitfalls surrounding contract redlining.
Best Practices for Contract Redlining
- Use the example of the date, person, and place on the contract as markers. If someone redlines over those three things it is likely a fraudulent contract.
- Look for repetitive information that is suspiciously uniform or uncommon. For example, if all borrowers have only cell phone numbers and business addresses in the same neighborhood, these are indicators of possible fraud.
- Compare loans that have different information to each other. This means comparing signatures with dates and amounts that should correspond (for example: compare two pages of interest rates at once instead of just one page). Determine what parts are wrong with the original document and what parts match the duplicate/counterfeit version.
- If you can create a list of items that are commonly found on good loans and compare contracts to see if the redline version has some or all of these, then it is likely to be fraudulent. For example, full legal names, complete addresses, signatures in blue ink, dates written as month-day or day-month, etc.
- Record the original contract so that it will be easier to understand what parts have been redacted (ex. by photographing both sides).
- If there is any information on your own policies/guidebooks about potential fraud indicators, note those as well because they are most up-to-date. The general best practices for redlining are not always effective against new forms of fraud.
- Consider redlining over a span of time, then comparing those contracts to each other as opposed to only one contract at a time. This will allow for greater visibility and easier identification of fraud.
- Remember that more than just financial information should be examined. For example, look at the names of borrowers, property addresses, etc., in order to identify inconsistencies and abnormalities that would indicate possible fraud such as using the same name for multiple properties or borrowers living in different cities/states with the same full legal name (it is possible but unlikely).
- It may also be helpful to use software tools such as Intelliscore Polygon Imaging Plus from ISI which can analyze data on mortgages and determine how likely they are to be fraudulent according to the best practices outlined here and in other places.
If you suspect fraud, contact your local police department as soon as possible and describe the potential problem with an emphasis on any indicators of commonality (to increase the likelihood of asset forfeiture).
Key Factors to Consider
Don’t skimp on the deal
Despite being redlined to make money, some people forget to redline the entire document and put the deal in jeopardy. Particularly when you’re afraid of risk or if the person is an attorney, they may be too tough. Your job may be at risk if you blow up a deal. This can be avoided if you are careful during contract redlining and write a document that will make money.
Redline only the most important parts
Often, people make contract changes on all the terms at first glance, even though not every term needs to be adjusted. There are many cases where contracts are poorly written, and you cannot use contract redlining to help you with that. This is because it slows things down. If you have had a chance to see the edits of the other party, then don’t be bothered by them if they aren’t that important. You should draw your attention to blatantly unacceptable or unclear terms.
Communicate with Generosity and Consideration
It is always a good idea to think about what people will react to when they see your legal contract redlining. If you omit large sections of an agreement without explaining why, for example, you might put the other party on the defensive. You should always call the other party before deleting any part and explain your reasons.
Pitfalls that you Should Avoid During Contract Drafting and Redlining
There are a number of common pitfalls that parties should avoid when drafting and redlining documents, following are some of them: –
- Drafting in ambiguous language that opens up the redlined document to multiple possible interpretations.
- Inserting new provisions into the document without negotiating these amendments with the other side.
- Failing to take necessary precautions to prevent confidential information from becoming public during negotiations such as withholding certain terms or deleting entire sections during contract redlining.
- Click-wrap contracts can be risky because courts may interpret them as clear and unambiguous assent to terms, which is more difficult to disclaim than mere browse-wrap agreements; and
- Disclaiming warranty and liability for negligence can be risky because courts may also interpret this as an unfair contract term if such language is significantly one-sided (e.g., exculpating the party in control of the product from any liability), or where disclaimer would preclude a party from recovering damages for personal injury or death caused by its product.
Including provisions that are not negotiable without compromising other terms of the agreement.