20. Land Sale Contracts (SOF) Flashcards
What is the procedure for land sales?
1) Land sale contract: Deed delivered to TP
2) Closing: Exchange of deed + purchase price
What is required for specific performance in a land sale contract?
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
What is the doctrine of equitable possession?
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)
Who holds the risk of loss if the property is destroyed before closing under the doctrine of equitable conversion?
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
How does title pass if a party dies before contract completion under the equitable conversion doctrine?
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
What are the fundamental principles of a marketable title?
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
What is a marketable title?
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
What are examples of defects in the record chain of title that would make title unmarketable?
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
What are examples of encumbrances that would make title unmarketable?
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’
Can zoning restrictions make title unmarketable?
Existing violations
What can Buyer do if title is not marketable?
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)
What are Seller’s liabilities after closing?
1) Merger (contract + deed)
2) Seller’s liabilities
- Express promises in deed
- NOT implied covenant of marketable title
Are land sale contracts required to be performed quickly because ‘time is of the essence’?
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’
What happens if a land sale contract is performed late?
Non-breaching party can;
- Sue for incidental losses (additional mortgage interest, tax)
- Cancel contract => NO performance required
When must parties’ performance be tendered?
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
How may a seller be liable for defects on property?
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’)
What remedies are available for breach of contract?
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
What duty does Real Estate Broker (Seller’s agent) owe to Buyer?
1) Disclose material info
2) With actual knowledge
When does Seller owe full commission to Real Estate Broker?
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
What is the purpose of a title insurance policy?
Insures good record title of property at policy’s date
Agrees to defend record title if litigated
What protections exist under the title insurance policy?
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)
What is required for every option in a contract?
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
Who is the seller liable to for defects on the property?
Buyer
Buyer’s successors (some states)
Are options to purchase assignable?
Yes (some states)
No (some states)
Who is generally liable for defects existing on the property?
Buyer
- ‘Caveat emptor’ (Buyer beware)
