20. Land Sale Contracts (SOF)

Question 1

What is the procedure for land sales?

Answer 1

1) Land sale contract: Deed delivered to TP

2) Closing: Exchange of deed + purchase price

Question 2

What is required for specific performance in a land sale contract?

Answer 2

Statute of Frauds

1) Writing
2) Signed by party ‘to be charged’
3) Description (Parties + Land + Price)

NO writing => 2/3 of the following elements must be met;

• Possession by Buyer
• Buyer’s substantial improvements
• Purchase price payment

Question 3

What is the doctrine of equitable possession?

Answer 3

Possession

• Legal title => Seller (Seller holds in trust for Buyer as security for purchase price owed by Buyer) (possession ultimately follows legal title)
• Equitable title (after Buyer signs contract) => Buyer (real property)

Proceeds of sale
- Proceeds => Seller (personal property)

Question 4

Who holds the risk of loss if the property is destroyed before closing under the doctrine of equitable conversion?

Answer 4

Fault of party
- Responsible party holds risk of loss

Fault of NO party

• Majority rule: Buyer holds risk of loss via equitable title (must pay ‘purchase price’)
• Majority rule: Seller must give credit to Buyer by removing insurance proceeds from purchase price (avoid Seller’s unjust enrichment)
• Uniform Vendor and Purchaser Risk Act: If Seller has legal title/possession at time of loss => Seller holds risk of loss

Question 5

How does title pass if a party dies before contract completion under the equitable conversion doctrine?

Answer 5

Seller’s death

1) Legal title passes to Seller’s devisees/heirs
2) Legal title passes to Buyer (at closing)

Buyer’s death

1) Buyer’s devisees/heirs can demand land conveyance (at closing)
2) Buyer’s devisees/heirs must pay purchase price

Question 6

What are the fundamental principles of a marketable title?

Answer 6

1) Implied
- NO need to be expressly stated

2) Every contract
- Including quitclaim deeds

3) Seller’s ability to provide
- NOT possess

4) Marketable title
- Reasonably free from doubt
- NO unreasonable risk of litigation

5) At closing
- NOT before closing

Question 7

What is a marketable title?

Answer 7

Reasonably free from doubt
- Reasonably prudent person would be willing to accept (not perfect title, but free from questions that might present unreasonable risk of litigation)

Examples

• Defects in record chain of title
• Encumbrances
• Zoning restrictions

Question 8

What are examples of defects in the record chain of title that would make title unmarketable?

Answer 8

Variations in description of land (between contract + deed)

Grantor’s lack of capacity

Deed defectively executed

Adverse possession

Future interests held by unborn/unascertained parties who transfer title

Question 9

What are examples of encumbrances that would make title unmarketable?

Answer 9

Easements (reduces land value)

• NOT visible to Buyer
• NOT known to Buyer
• NOT beneficial to Buyer at closing

Covenants

Encroachments (significant)

• By Seller’s land/To Seller’s land
• NOT minor
• NO lawsuit to be enforced

Mortgages/Liens
- UNLESS purchase price can ‘satisfy’ mortgage/lien ‘at closing’

Question 10

Can zoning restrictions make title unmarketable?

Answer 10

Existing violations

Question 11

What can Buyer do if title is not marketable?

Answer 11

Buyer must notify Seller within reasonable time to cure defect
- Mortgages/Liens only

Seller fails to cure defect => Buyer’s remedies include;

• Rescission
• Damages
• Specific performance + Purchase price abatement
• Quiet title (clear actions vs title) (some states)

Question 12

What are Seller’s liabilities after closing?

Answer 12

1) Merger (contract + deed)

2) Seller’s liabilities
- Express promises in deed
- NOT implied covenant of marketable title

Question 13

Are land sale contracts required to be performed quickly because ‘time is of the essence’?

Answer 13

No (generally presumed)

• Closing date is NOT binding (in equity)
• Seller/Buyer can tender late performance ‘within reasonable time’

Yes

• Contract specifically states ‘time of the essence’
• Circumstances indicate parties’ intent
• Notice re ‘time of essence’

Question 14

What happens if a land sale contract is performed late?

Answer 14

Non-breaching party can;

• Sue for incidental losses (additional mortgage interest, tax)
• Cancel contract => NO performance required

Question 15

When must parties’ performance be tendered?

Answer 15

Concurrently

• Seller’s obligation to convey
• Buyer’s obligation to pay
• Otherwise NO breach until both tendered

Closing date extension automatically
- NEITHER party tendered

Tender excused

• Contract repudiated
• Contract is impossible

Question 16

How may a seller be liable for defects on property?

Answer 16

Negligent builders

• Buyers
• Subdivision buyers (despite lacking privity with Builder)

Implied warranty of fitness/quality
1) Newly constructed home
2) Buyer had NO opportunity to inspect
=> Constructed in reasonably workmanlike manner + suitable for human habitation

Existing buildings

• Misrepresentation/Fraud (Seller knew/negligent re statement + Buyer relied on statement + Statement materially affected property value)
• Active concealment by Seller
• Failure to disclose (Seller knew/should have known of defect + Seller knows Buyer unlikely to discover defect by reasonable inspection + Serious defect)
• UNLESS specific disclaimer in contract relieves liability (NOT general disclaimer - ‘as is’/’with all faults’)

Question 17

What remedies are available for breach of contract?

Answer 17

Damages

1) Contract price LESS market value on date of breach
2) Incidental costs (storage costs)

Specific performance

• Buyer: ONLY unique land (e.g. real estate lots) (damages NOT adequate) + Abatement of purchase price
• Seller: ‘Mutuality of remedy’

Liquidated damages

• Buyer provided Seller with deposit
• Buyer defaults in performance
• LDs must be ‘reasonable’ in light of Seller’s anticipated and actual damages

Question 18

What duty does Real Estate Broker (Seller’s agent) owe to Buyer?

Answer 18

1) Disclose material info

2) With actual knowledge

Question 19

When does Seller owe full commission to Real Estate Broker?

Answer 19

Ordinary contracts

• Sale closes
• Sale fails to close (Seller’s fault)

Exclusive listing agreements

1) Property NOT listed with other brokers during listing period
2) Seller/Other broker found buyer during listing period

Question 20

What is the purpose of a title insurance policy?

Answer 20

Insures good record title of property at policy’s date

Agrees to defend record title if litigated

Question 21

What protections exist under the title insurance policy?

Answer 21

Landowner’s policy

• Protects Landowner + Mortgage lender
• NOT protect Landowner’s assignees (NOT run with land) (UNLESS named in policy)

Mortgage lender’s policy

• Protects Mortgage lender
• Protects Mortgage lender’s assignees (runs with land)

Question 22

What is required for every option in a contract?

Answer 22

1) Consideration
- Like in contracts (option to keep offer open)

2) Option to purchase
- Buyer’s right to purchase property ‘during option period’

2) Right of first refusal
- Buyer’s right to purchase property ‘if Seller agrees to sell’
- If Buyer then exercises right => Seller must sell to Buyer
- If Buyer then does NOT exercise right => Seller must sell to TP

Question 23

Who is the seller liable to for defects on the property?

Answer 23

Buyer

Buyer’s successors (some states)

Question 24

Are options to purchase assignable?

Answer 24

Yes (some states)

No (some states)

Question 25

Who is generally liable for defects existing on the property?

Answer 25

Buyer

- ‘Caveat emptor’ (Buyer beware)