Buying and Selling Land - Property II Flashcards

Question

When there is a breach in a land transaction agreement what happens to the earnest money deposit? (minority rule) (Defaulting buyers)

Answer 1

defaulting buyers are entitled to restitution of the deposit money in excess of actual damages incurred So if there’s a 35K deposit, but the sellers only incur $17K in damages, you get the rest back.

Answer 2

This creates a breach if the seller in a real estate contract cannot convey marketable title as stipulated in the agreement.

Answer 3

Limits the buyer’s recovery to down payment plus interest and reasonable expenses incurred in investigation title. Note: Ordinary contract damages if the seller acted in bad faith or assumed the risk if a failure to secure title.

Answer 4

Allows the purchaser to recover expectation damages (benefit-of-the-bargain damages), plus any other reasonably foreseeable special damages.

Answer 5

Unless the contract includes a “time-is-of-the-essence” clause, the date for closing or settlement is only a target date. (Can give notice of actual date). If no time is of the essence clause the date is movable and not concrete (Include if you want to sell your house before you buy a new one)

Answer 6

If a purchase agreement is breached there are remedies available for the NON-BREACHING PARTY: (1) Damages (2) Retention of the deposit (if buyer breaches) or refunding of the deposit (if seller breaches); (3) Specific Performance Note: Generally, the winner of the lawsuit may elect which remedy he or she prefers. (But specific performance is harder to get for sellers than for buyers, in practice.)

Answer 7

General Rule (Majority): when a buyer breaches a purchase agreement, the seller may elect to retain the deposit because of the difficulty of estimating actual damages. (1) Retention of up to 10% down is considered a reasonable amount in the absence of a liquidated damages provision. (2) Minority rule: defaulting buyers are entitled to restitution of the deposit money in excess of actual damages incurred. (3) Liquidated damages provision – tells what the specific damages will be if there is a breach. (4) Specific Performance

Answer 8

General warranty, Special warranty, Quitclaim

Answer 9

warrants title against all defect in title weather they arose before or after the grantor took title. [property sold with this deed sells for more than the others – this is the standard for fair market value]

Answer 10

warrant title against the grantors own acts (but not the acts of others who came before the grantor) [ sells at a 19% discount to general warranty deed property]

Answer 11

contains no warrants of any kind. It merely conveys whatever title the grantor had – no matter how bad or good it is [sells at 50% discount compared to general warranty deed property].

Answer 12

General Rule – in most states a deed signed by the grantor and delivered to the buyer is valid without acknowledgement by a notary public. But to be recorded the deed needs to be acknowledged by a notary public.

Answer 13

Rule – A deed MUST contain a description of the parcel of land conveyed that locates the parcel by describing its boundaries. Three Customary Methods of Description include: (1) metes and bounds (reference to natural and artificial monuments) (2) Reference to a government survey, recorded plat, etc. (3) Reference to the street and number or name of the property.

Answer 14

Most courts hold that fraud is voidable against the grantee. But the grantor bears the loss against a bona fide purchaser for value who in good faith buys from fraudulent grantee.

Answer 15

(1) a covenant of seisin – The grantor warrants that they own the estate they are trying to convey (2) a covenant of right to convey – the grantor warrants that he or she has the right to convey the property (3) the covenant against encumbrances – the grantor warrants that there are no encumbrances on the property that are not disclosed. Theses typically include…… (4) a covenant of generally warranty – the grantor warrants that he or she will defend against lawful claims and will compensate the grantee for any loss that the grantee may have because of someone else’s superior title. (5) a covenant of quiet enjoyment (6) a covenant of further assurances – the grantor promises to execute any other documents required to….

Answer 16

Present covenants. (Seisin, Right to Convey, and Against Encumbrances)

Answer 17

A present covenant is broken, if ever, at the time of the deed is delivered the statute of limitations begins to run.

Answer 18

Future Covenants. (General Warranty, Quiet Enjoyment, and Further Assurances)

Answer 19

A future covenant promises that the grantor will do some act, such as defending claims against third parties, etcetera.

Answer 20

A future covenant is not breached until the grantee, or some successor is evicted from the property.

Answer 21

The statute of limitations begins to run on a future covenant when the covenant is broken in the future (usually at the time of eviction.)

Answer 22

no. Brown v. Lober

Answer 23

Rule: To be effective, a deed must be delivered with the intent that it be presently operative. Note: Delivery is rarely an issue in commercial transactions. They occur more in donation/gift transactions.

Answer 24

(1) hands the deed to the grantee (the buyer) or (2) hands it to a third party (the mortgage broker, title company, etc), who then hands it to the buyer.

Answer 25

The title delivery relates back to the time the grantor gave the title to the 3rd party, not when the third party delivers to the buyer. Note: When a grantor gives the deed to a third party, the grantor cannot stop the delivery of that deed – it is the same as it being delivered the buyers themselves.

Answer 26

Owner (borrower)

Answer 27

Has an initial below-market rate that increases according to an index based on debt issued by the Federal Reserve.

Answer 28

(aka Alt-A mortgages): These markets make loans available to people with lower credit scores and unverifiable income.

Answer 29

(1) Promissory Note: Contract establishing debt. (2) Mortgage Deed: Secures debt with real property collateral (potentially conveys title if certain conditions are met).

Answer 30

"Lien Theory" (most states): borrower holds title, lender gets lien. "Title Theory" (a few states): Lender holds title.

Answer 31

Judicial, statutory

Answer 32

This is the right that courts (using their equitable powers) give to borrowers. It allows buyers a reasonable time to pay back any past payments BEFORE the court will order a foreclosure. Borrowers have a right to redeem up until the court issues a foreclosure. (That’s what foreclosure means. The foreclosure of the borrower’s right to redeem.)

Answer 33

Statutory Right of Redemption: This is a time period AFTER foreclosure that the borrower has to recover the property. (Comes up more on judicial The borrower must pay all back payments, interest, foreclosure fees, etc.

Answer 34

Under a deed of trust, a borrower conveys title to a person (usually a third-party organization) to hold in trust to secure payment of the debt to the lender.

Answer 35

The trustee is given the power to sell the land without going to court if the borrower defaults. Still have some procedural safeguards with deeds of trust, like notice and public sale, but foreclosures can happen more quickly (and cheaply?) with deeds of trust. Basically, a deed of trust is the same as a mortgage but it is used so there doesn’t need to be foreclosure proceedings.

Answer 36

Contracts are NOT the same as the purchase agreements Land Contracts are security devices (for seller) just like mortgages But the seller contracts to delivery title ONLY after the buyer has paid the purchase price plus interest in installments.

Answer 37

many problems Land contracts often say that if the buyer defaults, they forfeit the land and any payments they made. (statutes protect this, but buyers usually don’t know)

Answer 38

building slums by only extending loans to protected classes or locations. This shit is racist as fuck

Answer 39

(1) Have the property appraised and then set an upset price of the appraisal - 20 %. (2) Advertise an auction in the local newspapers, well in advance of date of sale. (3) reduce the price 10 percent after two months, 10 percent more after another two months. Note: The quicker and less-advertised the sale, the greater the risk.

Answer 40

After the sale, Borrower can get injunction against defective sale Borrower can sue in equity to set aside a defective sale. The borrower may be required to tender the amount due in order to sue. Borrower can bring a suit against the foreclosing mortgagee or trustee for damages. (As in the Murphy case.)

Answer 41

For lenders to avoid foreclosure costs, the lender and borrower can agree that the borrower will tender its deed to the lender so they don’t have to foreclose. In return, the lender agrees to give up any claim for deficiency judgment.

Answer 42

The lender’s right to sue you seeking payment for any costs it failed to recover in the foreclosure process. These can be substantial when the loan is underwater.

Answer 43

The main reason a mortgagee might want to pursue foreclosure is to extinguish junior liens on the property. (If there are second mortgages or home equity lines, etc.)

Answer 44

Of course, but the transfer does not get rid of the mortgage. You must pay it off.

Answer 45

a broad term including surveys, maps, title opinions, anything having to do with title.

Answer 46

a specific contractual obligation

Answer 47

(1) It creates a public database that anyone curious can search to find who owns a certain piece of property. (2) The recording system preserves important documents in a secure place (so they can’t be easily lost or misplaced). (3) Recording protect purchasers for value and lien creditors against prior unrecorded interests.

Answer 48

Almost universally, recording statutes do NOT protect donees and devisees (ppl who take by gift or inheritance).

Answer 49

The most common In the grantor index, all instruments are indexed alphabetically AND chronologically under the grantor’s last name. In the grantee index, all instruments are indexed under grantee’s surname.

Answer 50

Because the SOL may not have begun to run on a certain interest (like mineral rights, easements, remainder interests, etc.).

Answer 51

limit title searches to reasonable periods – typically 30 to 40 years.

Answer 52

The doctrine of idem sonans states that if an incorrectly spelled name is used that sounds substantially the same as the correct name, the variance is not material.

Answer 53

Race jurisdiction, Notice Jurisdiction, Race-Notice Jurisdiction

Answer 54

Under a race statute, as between successive purchasers of property, the person who wins the race to record prevails.

Answer 55

If a subsequent purchaser has notice of a prior interest, the purchaser cannot prevail over the prior grantee. ……………(But this essentially means subsequent purchasers against prior UNRECORDED interests.)

Answer 56

a subsequent purchaser is protected against prior unrecorded interest only if the subsequent purchaser (1) is without notice of the prior interest and (2) records before the prior interest is recorded.

Answer 57

The subsequent purchaser’s knowledge of the prior purchaser’s claim is IRRELEVANT – just must win the race. Don’t need to determine who knew what and when. So it helps avoid legal battles over that difficult “knowledge” question. Limits title searchers inquiries to matters on the record. (Anything off the record doesn’t matter.) Note: Only Louisiana and North Carolina have pure “race” statutes today for deeds.

Answer 58

The main purpose of notice statutes is to promote fairness between two conflicting claims. But a notice jurisdiction protects subsequent purchasers who never record, so long as they do not have notice of the prior purchaser before they get their interest in land. And notice statutes are less efficient because “what constitutes notice” is often not clear and must be litigated. Note: About half the states have notice statutes.

Answer 59

(1) Actual notice: is where a person is personally aware of a conflicting interest in real property, often due to another’s possession of the property. (2) Record notice: Notice of a prior interest that would be revealed by an appropriate title search. (3) Inquiry notice: Notice based on a purchaser’s duty to investigate relevant circumstances. (i.e. are there circumstances that would lead a reasonable person to inquire about another person’s interest in the property?) Note: 2 & 3 are both types of constructive notice.

Answer 60

Race-notice tends to strike a balance between the two competing interests of Race & Notice statutes. Race-Notice statutes help eliminate lawsuits turning on extrinsic evidence about which deed was delivered first. And helps to avoid “notice” only questions. Race-notice also punishes non-recording, so it helps make the records complete. Note: Michigan is a race-notice state, as are the remaining half of the states

Answer 61

A person who takes from a bona fide purchaser protected by the state’s recording act has the same rights as their grantor. If the person who bought it is protected, all subsequent purchasers are protected.

Answer 62

Literally, the chain of title. Who had it and when blah Important note: Just delivering the document to the recording office doesn’t usually mean it is “legally” recorded.

Answer 63

Most state recording statutes require that for an instrument to be “recorded,” it must be acknowledged before a notary public (or some other public official). And many states require that the state transfer tax be paid before a deed can be recorded. If these requirements are not met, a deed delivered to the recording office may not actually be “legally” recorded.

Answer 64

Possession of the property gives inquiry notice to others that the possessor could have an interest in the property. So they must inquire about it and can’t play dumb.

Answer 65

insurance for title problems. Title Insurance has no fixed term and continues for as long as the insured maintains an interest in the property. (It does not continue on to later purchasers.) If you pay in cash you do not need title insurance.

Answer 66

(1) The mortgagee’s policy, which insures the mortgage lender and not the homeowner. This policy insures that the mortgage lien is valid, enforceable, and that it is a first lien against all others. (2) The owner’s policy, which insures the homeowner. Note: The standard title insurance policy excludes losses arising from government regulations, and excludes losses for things like unrecorded easements

Answer 67

Title insurance policies insure title as shown by the public record, including the validity of all records within the chain of title. Warranty covenants assure against title defects of record and off-record claims.

Answer 68

The title insurance company agrees to defend any attack on title resulting from a defect insured against or to pay the cost of removing a cloud on title. A covenant of warranty promises to defend only against attacks by the owner of a paramount claim.

Answer 69

An existing lien is a title defect because it is an encumbrance of the property AND because it is something the company can find.

Brainscape's Knowledge GenomeTM

Buying and Selling Land - Property II Flashcards

Brainscape's Knowledge Genome^TM