BAR FLASHCARDS - P11 Conveyance

Question 1

CONVEYANCING—THE PURCHASE AND SALE OF REAL ESTATE

Answer 1

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Question 2

Every conveyance of real estate consists of a two-step process:

Answer 2

Step I: Contract (Conevys Equitable title). The land contract, which conveys equitable title. The land contract endures until step II.
Step II: Closing (Deed passes legal title). The closing, where the deed passes legal title and becomes our operative document.

Question 3

Keeping the Two Steps Separate: Contract vs Closing (deed).
Escrow period between

Answer 3

The closing date is generally set in the contract. The buyer and seller typically meet on that date at a title insurer’s office or similar place to exchange the purchase price for the deed. It’s important to keep the two steps in the real estate sale separate in your mind. Before the closing, Contracts rules apply; after closing, we’re strictly in the realm of Real Property law. It’s a good idea to associate certain issues with before closing and others with after closing.

Question 4

Common Issues Before Closing

Answer 4

If there are going to be problems in the sale of land, they generally arise during the period between the signing of the contract and the closing date. This is sometimes called the escrow period. During this time, any number of things could cause one of the parties to have a change of heart and try to back out of the contract. The buyer might learn of title defects, or termites, or bad plumbing and wish to rescind the contract. The seller may discover that they can get a better price and want to rescind the contract. What if the property is damaged or destroyed during this period? Who will bear the cost of the loss?

Question 5

Common Issues After Closing

Answer 5

Problems between a buyer and seller are less common after closing. These issues are most likely to arise when title problems or encum- brances are discovered after closing. For example, what if it turns out the seller sold the property to multiple buyers? What if, after the closing, the buyer discovers that a neighbor has an easement over the property or a judgment creditor has a lien on the property? Does the buyer have any recourse against the seller?

Question 6

LAND SALE CONTRACTS

Answer 6

Conveyancing starts with the real estate contract. This contract is the same as any other in terms of what is required to make it enforceable. As always, we need an offer, an acceptance, and consideration. The contract must comply with the Statute of Frauds and there must not be any defenses to enforcement.

Question 7

Land Sale Conttracts: Statute of Frauds Applicable

What must the writing have…

Answer 7

• Contract must be in writing
• Signed by party against whom enforcement sought.
  Must also
• identify parties,
• Describe property, and
• State consideration. Include the price (the consideration) or a means of determining the price (such as the fair market value as determined by an appraisal).

These terms must be definite enough for a court to enforce the contract. So, if a court can tell from the documents who the parties are, which parcel is being conveyed, and what consideration is being supplied, the statute is satisfied.

Question 8

Do both parties have to sign the contract?

Answer 8

No, both parties do not have to sign the contract. On the exam, the parties are already at the breach of contract stage, not the drafting stage. Therefore, only the signature of the party being sued is required.

Question 9

Inaccurate Description of Land.

remedy?

Answer 9

Sometimes the land description in the contract will overstate or understate the amount of land being transferred. On the bar exam, you’re more likely to see a contract that overstates the size of the parcel.
Remedy: Speciifc performance with a pro-rate reduction in price.

Question 10

Exception to SoF: Part performance

Answer 10

if there is no writing or the writing falls short of the requirements, the one exception to the Statute of Frauds in a land sale contract—the doctrine of part performance.

Equitable doctrine that Allows buyer to enforce oral contract by specific performance if:
- Oral Contract is certain and clear, and
- Acts of partial performance clearly prove existence of contract.
Acts usually satisfied by 2/3 of the following:
- Buyer took possession of the property,
- Buyer paid purchase price or signficiant portion of it,
- Buyer made substantial improvements to the premises.

Question 11

Example: while chatting at the local diner Kendall and Roman orally agree that Roman will buy Kendall’s farm for $500,000. As so often happens on the bar exam, before closing, the seller, Kendall, meets a tragic and premature end. Kendall’s estate decides that Kendall made a bad bargain and refuses to close, citing the Statute of Frauds.

Answer 11

Exception applies if 2/3 are met. PPI- possession, purchase price, improvements.

Question 12

If you see an oral contract for the sale of land on an essay question….

Start with the general rule…

Then say the exception…

Answer 12

If you see an oral contract for the sale of land on an essay question and you think the doctrine of part performance may apply, don’t forget to state the general rule first.
Start your answer by stating that the Statute of Frauds requires contracts for the sale of land be evidenced by a writing and signed by the party being sued.
Then state that, here, the contract is oral and won’t be enforceable unless it falls within an exception to the statute. And finally, state your part performance rule and analysis.

Question 13

DOCTRINE OF EQUITABLE CONVERSION

What is the effect of signing the contract?

What is the effect of signing the deed?

Answer 13

*Remember: Once we have the enforceable contract in place, we move into the time between the signing of the contract and the closing (the escrow period).

Equitable title: Contract (Risk of loss) - buyer bears risk unless Contract says otherwise.

Legal Title: Deed (gives buyer right to possess)

Under the doctrine of equitable conversion, once the contract is signed, equity regards the buyer as the owner of the real property.
The contract conveys equitable title to the buyer.

By contrast, at the closing, the deed conveys legal title to the buyer.
The right to possession rests with the party who holds legal title. Thus, seller is entitled to possession until closing.

Question 14

Risk of Loss

Answer 14

Remember that the contract conveys equitable title to the buyer. One important result flows from this: DESTRUCTION.
If between contract and closing, Blackacre (the property) is destroyed through no fault of either party, who bears the risk of loss?

Question 15

If between contract and closing, Blackacre (the property) is destroyed through no fault of either party, who bears the risk of loss?

Answer 15

BUYER, UNLESS K says otherwise. BC Buyer has equitable title to the land once K is signed, so is deemed owner of the land.

Insurance: Even though the risk of loss is on the buyer, if the property is damaged or destroyed, the seller must credit any fire or casualty insurance proceeds they receive against the purchase price the buyer is required to pay.

Allocate risk of loss

Question 16

Passage of Title on Death

Answer 16

What happens if one of the parties meets an unexpected end after the contract but before the closing?
The interests of the departed party pass to their estate.
So, because the buyer is deemed to own the property from the moment the contract is signed, a deceased buyer’s interest passes as real property to their estate.
A deceased seller’s interest, the right to the purchase price, passes to their estate as personal property.
The contract remains enforceable, with the deceased party’s estate taking the decedent’s place in the transaction.

Question 17

The buyer is deemed to own the property from the moment….

Answer 17

So, because the buyer is deemed to own the property from the moment the contract is signed

Question 18

If the property is specifically devised by will, check to see whether….

Answer 18

If the property is specifically devised by will, check to see whether ademption or exoneration rules apply.

Question 19

TWO PROMISES IMPLIED IN EVERY LAND SALE CONTRACT

Answer 19

1. Seller Will Provide Marketable Title (Implied covenant of marketability of title)
2. Seller Will Not Make False Statements of Material Fact

Question 20

PROMISES IMPLIED IN EVERY LAND SALE CONTRACT: Seller Will Provide Marketable Title

The common defects that render title unmarketable are:

Answer 20

Seller’s implied promise to provide title reaosnably free from doubt/threat of ltiigation on closing - title that a reasonably prudent buyer would be willing to accept.

Every contract contains an implied covenant that the seller will provide marketable title at closing. Marketable title is title reasonably free from doubt and the threat of litigation.

The common defects that render title unmarketable are:
- Defects in record chain of title—most often, adverse possession
- Encumbrances (mortgages, liens, easements, restrictive cove- nants)
- Zoning violations

Question 21

Seller Will Provide Marketable Title - Defects in Record Chain of Title

Answer 21

Adverse posssession
Encumbrances
Existing violation of a zoning ordinance
FUture interests held by unborn or unascertained parties.

Question 22

Defects in Record Chain of Title - Adverse Possession:

Answer 22

Adverse Possession: If even a portion of the title rests on adverse possession, it is unmarketable. For title to be marketable, the seller must be able to provide what kind of title? GOOD RECORD TITLE.
Unless a suit has been brought to quiet title, title acquired by adverse possession does not appear in the record. (is unmarketable, and thus is not good record title)

Question 23

Defects in Record Chain of Title - Encumbrances:

Answer 23

Encumbrances: Generally, mortgages, liens, restrictive covenants, easements, options to purchase, and significant encroachments render title UNMARKETABLE, unless the buyer has waived them. If an encroachment is very slight (a matter of inches) and doesn’t inconvenience the owner of the encroached-on parcel, the encroachment won’t render title unmarketable.
But, an encroachment of a foot or more likely will. An easement that is beneficial (for example, a utility easement to service a property), visible, or known to the buyer does not impair the marketability of title.
Purchasers are generally presumed to have contracted to accept the land subject to visible (obvious) easements.

Question 24

if the closing will result in a mortgage’s discharge….

Answer 24

a seller has the right to satisfy a mortgage or lien at closing with the proceeds of the sale. Thus, prior to closing, the buyer cannot claim that title is unmarketable because it is subject to a mortgage if the closing will result in that mortgage’s discharge.

Question 25

Defects in Record Chain of Title: Zoning Violations

Answer 25

Zoning restrictions do not affect marketability, but an existing violation of a zoning ordinance does render title unmarketable.

Question 26

Defects in Record Chain of Title: Future Interests Held by Unborn or Unascertained Parties

Answer 26

When a holder of a future interest is unborn or unascertained, it is impossible to convey marketable title. Courts will not appoint a guardian ad litem to represent the unborn or unascertained parties for the purposes of conveying land.

Question 27

When Title Must Be Marketable

Answer 27

Title must be marketable on the day of closing. The seller has up until that time to clear up whatever defect is making the title unmar- ketable. In an installment land contract, the seller need not provide marketable title until the buyer has made his last payment.

Question 28

if the closing has already occurred….

Answer 28

Avoid answer choices referring to the implied covenant of marketability of title if the closing has already occurred. Once the closing occurs and the deed changes hands, the seller is no longer liable on this implied contractual covenant. The seller is then liable only for express promises made in the deed.

Question 29

Remedy If Title Not Marketable

Answer 29

The buyer must notify the seller that title is unmarketable and give the seller reasonable time to cure the defects. If the seller fails to cure the defects, the buyer’s remedies include rescission, damages, specific performance with abatement, and a quiet title suit. But if closing occurs, the contract and deed merge, and the seller’s liability on the implied contractual covenant ends.

Question 30

A Quitclaim deed

Answer 30

A quitclaim deed does not in any way affect the implied covenant to provide marketable title.
Don’t be fooled into choosing the answer that lets the seller off the hook for title defects because the contract calls for a quitclaim deed.

Question 31

PROMISES IMPLIED IN EVERY LAND SALE CONTRACT: Seller Will Not Make False Statements of Material Fact

Answer 31

Seller will not make any false statements of material fact, AND Seller liable for failure to disclose latent material defects.

The second implied promise is that the seller will not make any false statements of material fact.
The seller may be liable to the purchaser after the closing for defects, such as a leaky roof, flooding basement, or termite infestation, if they knowingly made a false statement of material fact that the buyer relied on, actively concealed a defect (for example, wallpapered over water damage), or failed to disclose known defects in the property.

Failure to Disclose: To be liable for failure to disclose:
• The seller must know or have reason to know of the defect;
• The seller must realize that the buyer is unlikely to discover the defect; and
• The defect must be serious enough that the buyer would proba- bly reconsider the purchase.
Factors increasing the likelihood that liability will be imposed in these cases include whether the property is a personal residence, whether the defect is dangerous, and whether the seller created the defect or made a failed attempt to repair it.

Question 32

To be liable for failure to disclose: (TEST)

Answer 32

Failure to Disclose: To be liable for failure to disclose:
• The seller must know or have reason to know of the defect;
• The seller must realize that the buyer is unlikely to discover the defect; and
• The defect must be serious enough that the buyer would proba- bly reconsider the purchase.
Factors increasing the likelihood that liability will be imposed in these cases include whether the property is a personal residence, whether the defect is dangerous, and whether the seller created the defect or made a failed attempt to repair it.

Question 33

Disclaimers of Liability

Answer 33

Can the seller avoid liability for fraud or failure to disclose by including in the contract a general disclaimer of liability, such as “property sold as is” or “with all faults”?

If the disclaimer identifies specific types of defects (for example, “seller is not liable for any defects in the roof”), it will likely be upheld.

Question 34

NO IMPLIED WARRANTIES OF FITNESS OR HABITABILITY in a LAND contract

Answer 34

The land contract contains no implied warranties of fitness or habit- ability.
Caveat emptor is the common law norm.

Exception—New Home Construction: Most courts recognize a warranty of fitness or quality in the sale of a new home by the builder.

Negligence of Builder: A person may sue a builder for negligence in performing a building contract. Some courts permit the ultimate buyer to sue the builder despite lack of privity.

Question 35

Exception to Caveat emptor in a land contract

Answer 35

New home construction: Sale of new home by builder - Most courts recognize a warranty of fitness or quality in the sale of a new home by the builder.

Question 36

TIME OF PERFORMANCE

Answer 36

Courts presume that time is not “of the essence” in real estate contracts.
Thus, the closing date isn’t absolutely binding, and a party late in tendering their own performance can still enforce the contract if they tender within a reasonable time (for example, two months) after the closing date.

When Presumption Overcome: Time is of the essence if: (1) the contract so states, (2) the circum- stances indicate that was the parties’ intent, or (3) one party gives the other notice that time is of the essence.

Liability: If time is of the essence, a party who fails to tender performance on the closing date is in breach and may not enforce the contract. Even if time is not of the essence, a party who is late in tendering perfor- mance is liable for incidental losses.

Question 37

TENDER OF PERFORMANCE

Answer 37

The buyer’s obligation to pay and the seller’s obligation to convey are concurrent conditions; so, neither party is in breach until the other tenders performance (even if the closing date passes). If neither party tenders performance, the closing date is extended until one of them does so.

When Party’s Tender Excused: A party is excused from performing if the other party has repudiated the contract or it is impossible for the other party to perform, such as when unmarketable title can’t be cured.

Question 38

REMEDIES FOR BREACH OF SALES CONTRACT

Answer 38

The nonbreaching party is entitled to damages (difference between contract price and market value on the date of breach, plus incidental costs) or, because land is unique, specific performance.
Note that if the buyer wishes to proceed despite unmarketable title, they can usually get specific performance with an abatement of the purchase price.

Liquidated Damages: Sales contracts usually require the buyer to deposit “earnest money” with the seller and provide that if the buyer defaults in performance, the seller may retain this money as liquidated damages. Courts routinely uphold the seller’s retention of earnest money if the amount appears to be reasonable in light of the seller’s anticipated and actual damages.

Question 39

REAL ESTATE BROKERS

Answer 39

Real estate brokers are the seller’s agents but should disclose material information about the property if they have actual knowl- edge of it. Traditionally, agents earned their commissions when they produced a buyer who was ready, willing, and able to purchase the property. Therefore, the commission was owed regardless of whether the deal actually closed. The growing trend, however, is to award
the commission only if the sale actually closes or if it fails to close because of the fault of the seller.

Exclusive Listing Agreements: Under an exclusive listing agreement with a real estate broker, the broker’s best efforts to sell the property is consideration for the broker’s commission. “Best efforts” includes expenditure of time, effort, or money. If the property is sold by the seller or another agent during the listing period, the seller still may have to pay a commis- sion. Exclusive agency agreements prohibit listing the property with other brokers during the time of the listing. Exclusive right-to-sell agreements additionally preclude the seller from selling the property themselves without paying the commission.

Question 40

TITLE INSURANCE

Answer 40

A title insurance policy insures that a good record title of the property exists as of the policy’s date and promises to defend the record title if litigated. An owner’s policy protects only the person who owns the policy (usually either the owner of the property and their succes- sors to the property by operation of law, such as heirs or devisees, or the mortgage lender) and does not run with the land to subse- quent purchasers. A lender’s policy follows any assignment of the mortgage loan.