5

Question 1

Three basic types of listing agreements

Answer 1

1) Open Listing- earn commission by securing a ready, willing, and able buyer (Seller can list property w/ other brokers)
2) Exclusive Agency- Seller agrees that the broker will be the only real estate professional allowed to sell the property (BUT if seller finds buyer on their own than broker will not get paid commission)
3)Exclusive Right to Sell- (broker earns commission regardless of who finds buyer

Question 2

A broker earns a commission when the broker locates a buyer who is

Answer 2

Ready, Willing and Able to buyer the property
- Has potential buyer expressed a willingness to enter a binding K for the purchase of the property?
- Does the buyer have the financial wherewithal to pay the purchase price?

Question 3

Lien

Answer 3

are security interests in property that provide security for a debt or other obligation. If the owner of the property defaults on the obligation secured by the lien, the holder of the lien can force the sale of the property through foreclosure and use the proceeds to satisfy the obligation. The most common type of lien is a mortgage

Question 4

A Mortgage

Answer 4

Is a Security interest that the borrower grants to the lender to secure a loan

Question 5

Liens can be divided into two major categories

Answer 5

Consensual liens are created by a voluntary transaction. Mortgages are a common example. If you grant a mortgage to a bank, you do so in return for the bank loaning you money as part of a voluntary transaction. Involuntary liens are created by operation of law and do not arise out of a voluntary transaction. Some involuntary liens arise out of common law. Others arise out by statute and, not surprisingly, are called statutory liens.

Question 6

Mechanic’s Liens.

Answer 6

Mechanic’s liens secure payment for contractors and other people making improvements to property. For example, if you have a contractor remodel your kitchen, a mechanic’s lien will secure your obligation to pay the contractor for the work. Mechanic’s liens have common-law origins, but today they are typically statutory liens.

They often take priority as of the date of visible construction, not the date of recording, under the doctrine of relation back

Question 7

Real Estate Transactions Present Two major risk

Answer 7

Title Risk- A real estate transaction involves a transfer of title (i.e., legal ownership of the property) from the seller to the buyer. This transfer occurs when the seller delivers a deed to the property to the buyer at closing. The buyer in a real estate transaction is faced with the risk that there will be problems with the title delivered by the seller.

Physical Condition Risk-
The buyer in a real estate transaction is faced with the possibility that there will be problems with the physical condition of the property being purchased. The most common physical condition problems arise from defects in buildings and other improvements on the land.

Question 8

Three Common Types of Title Problem

Answer 8

1. Ownership, Seller might not have the interest in the property that they are purporting to convey to the buyer
2. Encumbrances
3. Encroachment- is a physical intrusion onto the property, typically by a neighboring property owner.

Question 9

Recording Acts Three Things they do

Answer 9

1) Create a system of public land records
2) Establish consequences for the failure to record a document (Recording has NO effect on the validity of the legal document as b/t the parties to that document, BUT failure to record, will often render it invalid and unenforceable against other people who might assert ownership claims
3) Establish Priority b/t competing claims relating to the property

Question 10

By recording the deed, the grantee gives

Answer 10

constructive (or “record”) notice to everyone.

give “notice to the world” that title to certain property has
already been conveyed, and thus to put subsequent purchasers on guard.

Question 11

What Can Be Recorded—Instrument Affecting an Interest in
Land

Answer 11

Practically every kind of deed, mortgage, contract to convey, or
other instrument creating or affecting an interest in land can be
recorded. Note: A judgment or decree affecting title to property
can also be recorded. And, even before judgment, where a lawsuit
is pending that may affect title to property, any party to the action
can record a lis pendens (notice of pending action), which will
effectively put third parties on notice of all claims pending in the
lawsuit

Question 12

Marketable Title Acts

Answer 12

These acts help establish certainty in land title and limit how far back in time a title searcher needs to go to establish that a person has good title to a real property interest. These acts typically do two things. First, the acts define good and marketable title as an unbroken chain of title that goes back a certain amount of time.

Second, the acts typically void any conflicting interest that arises from any conveyance or other transaction that occurred before the conveyance that created the root of title.

Question 13

Types of recording acts (protecting subsequent interest holders)

Answer 13

(Burden is on the subsequent taker to prove that they qualify for protection under the statute.)
1) Notice Statute- A subsequent BFP prevails over a prior grantee who failed to record. Had NO Actual or Constructive Notice.
2) Race-Notice Statues- a subsequent BFP is protected only if
she records before the prior grantee. Rationale: The best evidence
of which deed was delivered first is to determine who recorded first.
Race Statutes- Minority, whoever records first wins. Actual notice is
irrelevant. The rationale is that actual notice depends upon extrinsic
evidence, which may be unreliable.

Question 14

Who is protected by the Recording Acts?

Answer 14

Only Bona Fide Purchasers for value, are entitled to prevail against a prior transferee under Notice and Race-Notice Statutes
1) Be a purchaser (creditor or mortgagee if state statute allows)
2) Take WITHOUT NOITCE
3) Pay Valuable Consideration

First in time prevails under common law if the person not protected

Donees, Heirs, and Devisees NOT protected

Question 15

“Without Notice” for Recording Acts

Answer 15

means that the purchaser had no actual, record, or
inquiry notice of the prior conveyance at the time she paid the consid
eration and received her interest in the land. While no one has a legal
duty to perform a title search, a subsequent purchaser will be charged
with the notice that such a search would provide, whether or not she
actually searches. However, the fact that the purchaser obtains knowl
edge of the adverse claim after the conveyance but before she records
it is immaterial; she only has to be “without notice” at the time of the
conveyance

Question 16

Three types of notice

Answer 16

1) Actual Notice
2) Record Notice- all documents that have properly been recorded + found in a title search
3) Inquiry Notice- facts that would have been found if a) a reasonable person under the circumstances would have inquired further into the facts + b) a person had performed a diligent inquiry into these circumstances
(This is triggered by facts)

Question 17

Wild Deed

Answer 17

A “wild deed” is a recorded deed that is not connected to the
chain of title. It does not give constructive notice because the
subsequent BFP cannot feasibly find it

Question 18

Shelter Rule

Answer 18

O conveys to A on May 1. O conveys to B, a donee, on May 15.
B records on June 1. A records on June 15. B conveys to C on
July 1. C has no actual notice of the O-A deed.
B v. A: As between A and B, A would win because B (a donee)
was not a BFP.
C v. A: In notice statute jurisdictions, most courts hold that C
will prevail over A because the O-A deed was recorded “late”
and is not in C’s chain of title; i.e., the search burden is too
great if C is required to search “down” the grantor index to the
present time for each grantor in the chain.
In several race-notice jurisdictions, however, A’s recordation is
treated as giving constructive notice to any purchaser subse
quent to such recordation. In these states, the title searcher
must search to the present date under the name of each per
son who ever owned the property in order to pick up deeds
recorded late.
(1) Exception—Shelter Rule
If B in the example above were a BFP, C would win in
any event, for she would “shelter” under B. This result
would be the same even if C had actual knowledge of
the O-A deed; otherwise B’s power to transfer would be
restricted.

Question 19

Deeds Recorded Before Grantor Obtained Title
There is a split of authority on whether a recorded deed,
obtained from a grantor who had no title at that time but who
afterwards obtains title, is constructive notice to a subsequent
purchaser from the same grantor

Question 20

Technical Defects for Recording Statutes

Answer 20

To be recorded, it needs to be notarized

Question 21

Marketable Title

Answer 21

There is an implied covenant in every land sale K that at closing the seller will provide the buyer with a title that is marketable. Seller can only avoid this obligation if the K expressly states that the seller is not obligated to convey marketable title
- Title Free from reasonable doubt + free from lawsuits/ threats of litigation
1) Adverse Possession
2) Encumbrances
3) Zoning Violations

If title is unmarketable, the buyer can typically back out of K w/o penalty. (Executory phase of the transaction allows buyer to perform due diligence on the property)

Question 22

Equitable Conversion

Answer 22

Equity Regards the Purchaser as the owner of the real property. The seller’s interest, which consists of the rights to the proceeds of sale is considered personal property
- Risk of Loss
Maj- Buyer pays the K price despite loss
Min- Adopted the Uniform Vendor and Purchaser Risk Act, which places risk on the seller. (Unless buyer has legal title or possession of the property at time of loss

Question 23

Land Sale K

Answer 23

Statute of Frauds Applicable
- To be enforceable
1) Writing signed by the party to be bound
2) Describe Real Estate
- Functionalist, Street Adress
- Formalist, Metes and Bounds
3) State the price + Consideration (calculate purchase price/ Fair Market Value)

Doctrine of Part Performance applies

Preferred remedy for breach of K is specific performance b/c land is unique

Question 24

Doctrine of Part Performance

Answer 24

2 of 3 required

1. Possession of the land by the purchaser;
2. Making of substantial improvements; and/or
3. Payment of all or part of the purchase price by the purchaser

Question 25

Encumbrances (Marketable Title)

Answer 25

Generally, mortgages, liens, easements, and covenants render title unmarketable unless the buyer waives them. Mortgages and Liens- A seller has the right to satisfy a mortgage or lien at the closing with the proceeds from the sale. Therefore, as long as the purchase price is sufficient and this is accomplished simultaneously with the transfer of title (usually through the use of escrows), the buyer cannot claim that the title is unmarketable; the closing will result in a marketable title. Easements- An easement that reduces the value of the property (e.g., an easement of way for the benefit of a neighbor) renders title unmarketable. The majority of courts, however, have held that a beneficial easement (e.g., utility easement to service property) or one that was visible or known to the buyer does not constitute an encumbrance. Some courts go so far as to hold that the buyer is deemed to have agreed to take subject to any easement that was notorious or known to the buyer when she entered into the contract. Covenants and Options Restrictive covenants and options to purchase render title unmarketable. Encroachments- A significant encroachment constitutes a title defect, regard less of whether an adjacent landowner is encroaching on the seller’s land or vice versa. However, the encroachment will not render title unmarketable if: (1) it is very slight (only a few inches) and does not inconvenience the owner on whose land it encroaches; (2) the owner encroached upon has indicated that he will not sue on it; or (3) it has existed for so long (many decades) that it has become legal by adverse possession, provided that the state recognizes adverse possession titles as being marketable Zoning Restrictions Generally, zoning restrictions do not affect the marketability of title; they are not considered encumbrances. An existing violation of a zoning ordinance, however, does render title unmarketable. Waiver Any of the above-mentioned title defects can be waived in the contract of sale

Question 26

Time of performance for a land K

Answer 26

Presumption—Time Not of the Essence In general, the courts assume that time is not “of the essence” in real estate contracts. This means that the closing date stated in the contract is not absolutely binding in equity, and that a party, even though late in tendering her own performance, can still enforce the contract if she tenders within a reasonable time after the date. (A month or two is typically considered a reasonable time. When Presumption Overcome Time will be considered “of the essence” if: -The contract so states; or -The circumstances indicate it was the parties’ intention; e.g., the land is rapidly fluctuating in value or a party must move from out of town and has no other place to go; or -One party gives the other notice that she desires to make time of the essence, and does so within a reasonable time prior to the date designated for closing. Effect of Time of the Essence Construction If time is of the essence, a party who fails to tender performance on the date set for closing is in total breach and loses her right to enforce the contract. Liability When Time Not of the Essence Even if time is not of the essence, a party who is late in tendering performance is liable in damages for the incidental losses she has caused, such as additional mortgage interest, taxes, etc

Question 27

Remedy is title not marketable

Answer 27

1) Rescission, Damages, Specific Performance In the absence of a contractual stipulation to the contrary, if title is not marketable, the buyer can rescind, sue for damages for breach, get specific performance with an abatement of the purchase price, or, in some jurisdictions, require the seller to quiet title. The seller cannot sue successfully for damages or specific performance

Question 28

Merger

Answer 28

If the buyer permits the closing to occur, the contract is said to merge with the deed (i.e., it disappears) and, in the absence of fraud, the seller is no longer liable on the implied covenant of marketable title. However, the buyer may have an action for violation of promises made in the deed, if any Note: The merger rule does not apply to most nontitle matters, such as covenants regarding the physical condition of the property. Deed Warranties + Seller Disclosure law

Question 29

Seller Disclosure Laws

Answer 29

This can be brought up post-closing These statutes are typically limited to residential transactions. - most of the defects covered by the statutes are physical defects covers “Legal issues affecting title or that would interfere with use and enjoyment of the property.” Seller disclosure laws typically require the delivery of the disclosure statement before the parties enter into a purchase and sale contract. In some jurisdictions, then, these laws create a pre-contract method of title assurance. The statutes typically provide an action for money damages as a remedy and do not give the buyer the option to rescind the contract and avoid closing. This remedy is created by statute and as a result is not affected by merger. A buyer therefore can bring a lawsuit for nondisclosure either pre- or post-closing

Question 30

Deed Formalities

Answer 30

Transfer of title to an interest in real property occasionally occurs through operation of law; but in most circumstances, transfer can be accomplished only by a deed that satisfies various formalities required by statute 1) SOF - Be in writing and signed by the grantor - State essential terms of the conveyance - Identify Parties - Legal description of the property (MUST be Unambiguous) - Contain words of conveyance (intent) 3)Consideration NOT Required (can be inter vivos gift) 2) Be delivered to and accepted by grantee

Question 31

Types of Deeds

Answer 31

1) General Warranty Deed 2)Special Warranty Deed 3) Quiet Claim The major difference between these deeds is the scope of assurances (covenants for title) they give to the grantee and the grantee’s successors regarding the title being conveyed

Question 32

Void and Voidable Deeds

Answer 32

. A fraudulent deed is a deed which the true owner actually signs, but under an intentional misrepresentation by a third party. A forged deed is a deed which the true owner does not sign. Someone other than the true owner signs the true owner’s name on the deed without the owner’s authority. A forged deed is void. It can never pass good title, even if conveyed to one who qualifies for protection under the jurisdiction’s recording act. A fraudulent deed is either void or voidable, depending on the grantor’s culpability. If the deed is void, then the deed can never pass good title, even if conveyed to one who qualifies for protection under the jurisdiction’s recording act. If the deed is voidable, as between the grantor and grantee, the grantor still has a superior claim to the property and can void the deed. If, however, the grantee conveys it to a party who qualifies for protection under the jurisdiction’s recording act, the subsequent bona fide purchaser will be protected against the claim of the true owner.

Question 33

For a deed to be effective it must be delivered

Answer 33

Physical transfer of a deed is not necessary for a valid delivery. Nor does physical transfer alone establish delivery (although it might raise a presumption thereof). Rather, “delivery” refers to the grantor’s intent; it is satisfied by words or conduct evidencing the grantor’s intention that the deed have some present operative effect; i.e., that title pass immediately and irrevocably, even though the right of possession may be postponed until some future time

Question 34

Covenants for Title in a General Warranty Deed

Answer 34

A general warranty deed is one in which the grantor covenants against title defects created both by himself and by all prior titleholders. In a special warranty deed, however, the grantor covenants only that he himself did not create title defects; he represents nothing about what prior owners might have done Present Covenants (SOL runs at delivery) 1) The covenant of seisin is a covenant that the grantor has the estate or interest that she purports to convey. Both title and possession at the time of the grant are necessary to satisfy the covenant 2) The covenant of the right to convey is a covenant that the grantor has the power and authority to make the grant. Title alone will ordinarily satisfy this covenant, as will proof that the grantor was acting as the authorized agent of the titleholder 3) The covenant against encumbrances is a covenant assuring that there are neither visible encumbrances (easements, profits, etc.) nor invisible encumbrances (mortgages, etc.) against the title or interest conveyed. Future Covenants (Not broken until grantee disturbed in possession) 4) The covenant for quiet enjoyment is a covenant that the grantee will not be disturbed in her possession or enjoyment of the property by a third party’s lawful claim of title 5)The covenant of warranty is a covenant wherein the grantor agrees to defend on behalf of the grantee any lawful or reason able claims of title by a third party, and to compensate the grantee for any loss sustained by the claim of superior title 6)The covenant for further assurances is a covenant to perform whatever acts are reasonably necessary to perfect the title conveyed if it turns out to be imperfect

Question 35

Special Warranty Deed

Answer 35

A special warranty deed has the same covenants as the general warranty deed but promises to warrant and defend the title only against claims arising by, through, or under the grantor. It does not warrant against defects in the title that existed before the grantor was deeded the property.

Question 36

Quitclaim Deed

Answer 36

No promises, If the deed contains warranties, it is not a quitclaim deed

Question 37

Estoppel by Deed

Answer 37

If a grantor purports to convey an estate in property that she does not then own, her subsequent acquisition of title to the property will automatically inure to the benefit of the grantee. In other words, the grantor impliedly covenants that she will convey title immediately upon its acquisition

Question 38

Title Insurance

Answer 38

Post closing protection against title defects - American Land Title Association a) is it listed in the covered risk section b) is not taken back in the exclusions from coverage sections - Usually Mechanic liens - usually discoverable from a survey of property * Usually Covers "Gap Risk"

Question 39

Implied Warranty of Fitness + Workman Like Construction

Answer 39

promises about the quality or physical condition will typically be deemed to be unrelated to the seller’s obligation to deliver title and so will likely fall outside of the scope of merger. The builder (vendor), "merchants of housing" of a new home implicitly warrants that the premises were constructed in a workman like manner, that the construction will be completed in a competent and skillful manner consistent with professional standards. - Old rule had to be physically injured - new rule rejecting this distinction between physical injury and pecuniary loss and are allowing claims by remote grantees against the contractor for both kinds of claims.

Question 40

Seller Liability for Marketable Title

Answer 40

Seller promises not to make any false statements of fact to the buyer (or else could render title unmarketable) Show that the buyer relied on the statement, and that it materially affected the value of the property. The seller must either have known that the statement was false, or have made it negligently Seller can be liable for "Active Concealment" The seller is liable as above, even without making any statement, if the seller took steps to conceal a defect in the property Failure to Disclose A majority of states now hold sellers liable for failure to disclose defects if the following factors are present: - The seller knows or has reason to know of the defect; -The defect is not obvious or apparent, and the seller realizes that the buyer is unlikely to discover it by ordinary inspection; and -The defect is serious and would probably cause the buyer to reconsider the purchase if it were known. These decisions are more likely to impose liability on the seller if the property is a personal residence, if the defect is dangerous, and if the seller personally created the defect or previously attempted to repair it and failed to do so

Question 41

Disclaimers of Liability Sellers sometimes attempt to avoid liability for property defects by inserting clauses in sales contracts exculpating the seller

Answer 41

“As Is” Clauses A general clause, such as “property sold as is” or “with all defects,” is not sufficient to overcome a seller’s liability for fraud, concealment, or (in the states that recognize it) failure to disclose. Specific Disclaimers If the exculpatory clause identifies and disclaims liability for specific types of defects (e.g., “seller is not liable for leaks in the roof”), it is likely to be upheld

Question 42

A contract to purchase real property is, in reality, a contract to purchase title to real property. The quality of title the seller has to deliver is subject to the express terms of the contract. Absent an express provision governing the quality of tide to be delivered, the quality is marketable title.

Answer 42

Express provisions can modify the quality of title to be delivered (Q. 2 Exam 5)