Buying and Selling Land - Property II Flashcards
Three basic requirements under the Statute of Frauds
(1) A signature by the party sought to be bound
(2) A property description
(3) A price (This doesn’t have to be the price actually paid for consideration).
Exceptions to Statute of Frauds for Real Estate
Part performance allows the specific enforcement of ORAL AGREEMENTS
Only when non enforcement would cause irreparable harm (Estoppel)
4 Important Things to Remember About Land Transactions
- Deeds transfer property. Purchase agreements do not.
- At closing, the SELLER delivers a DEED.
- Buyers GIVE the bank a mortgage (a security interest) in their purchased property – the bank gives money in return.
- A transfer of real property must be in writing and signed by the person transferring possession of the property. This applies to sellers, gifters and transfers of the real property. (Even landlords if the lease is one year plus).
Disclosing Material Defects
(name the majority and minority rule)
Majority rule: The seller has a duty to disclose of all “material” defects that they know about – whether or not they are asked about.
Minority rule: ONLY find a violation if seller concealed the defect (or lied)
Two tests to determine if the defect is material
(1) to whether a reasonable person would attach importance to the defect in deciding to buy or (the majority view.)
(2) A subjective test of whether the defect affects the value of desirability of the property to the buyer. (The minority view.)
Equitable Conversion Rule
If there is a specifically enforceable contract for the sale of land
the buyers viewed an equity as the owner.
From the date of the contract, the buyer has equitable title and the seller has a claim for money
which is secured by the Land’s value itself.
The seller is said to hold legal title as trustee for the buyer.
What is the purpose of Equitable Conversion?
Because “the Court will do the things that ought to be done to make the situation right.”
When does Equitable Conversion arise?
when bad things happen before closing
2 examples of Equitable conversion implementation
Risk of loss - house burns before sale of the house closes
Inheritance - where one of the parties to the purchase agreement dies and the question becomes whether the dissident’s estate has only a right to purchase (personal property) or is the owner of the land (real property).
Title is unmarketable if
it exposes the buyer to the hazards of litigation.
Restrictive Covenants (Land Transactions)
the mere existence of a restrictive covenant makes title unmarketable because it is an encumbrance. It may prevent some use the buyer is contemplating.
Does a zoning restriction constitute an encumbrance?
No, but a violation of a zoning restriction does
Can a party sue over a Stigma Statute?
No.
What is a Stigma Statute?
A Statute requiring the disclosure of prior hauntings or murders in the building etc.
The Compensation, and Liability Act. (CRCLA) imposes strict liability for cleanup costs of a hazardous waste on who?
Any current or prior owner.
Exceptions to “As Is” clauses
If there is fraudulent concealment of information or misrepresentation, then buyers are usually not bound by the as is clause.
“As is” clauses and nondisclosure/misrepresentation of defects
Where a buyer knew the house was unfinished and obvious disrepair, the buyer could not rely on the disclosure form. The less obvious the discoverability, the less likely the lack of disclosure will be set aside.
What is the Merger Doctrine?
When a buyer accepts a deed, the buyer is deemed to be satisfied that all the contractual obligations in the purchase agreement have been met. The purchase agreement is said to merge with the deed.
The effect of the Merger Doctrine
The buyer can no longer sue the seller based on the promises and the purchase agreement. The buyer can only Sue based on what’s in the deed.
Exceptions to the Merger Doctrine
(1) if the promise is collateral to the deed, that is, the promise to do something is outside the transaction. This is the most common way to get around the merger now. (Condition is outside the scope of the transaction)
(2) fraud. Hard to prove, so isn’t used as much as #1.
Implied Warranty of Quality for Builders and Developers
As a matter of law builder or developer of housing gives an implied warranty of quality or skillful construction in purchase agreements for new builds. (Usually this only applies to significant defects in constructions.)
When do lawsuits based on Implied Warranty of Quality for Builders and Developers take place?
Can usually only be had once closing is taken place, because the buyer can sue based on the purchase agreement before closing.
(note that in most states strict liability is not imposed)
What is the equation for Damages for Breach of a Purchase Agreement?
Damages of the difference between the contract price and the market value of the property at the time of breach.
The majority rule allows for the recovery of incidental damages for breach, such as cost of inspection and interest on a loans.
(Contract Price - FMV) + Incidental + Interest = Damages
When there is a breach in a land transaction agreement what happens to the earnest money deposit?
The general rule, is that when a buyer breaches a purchase agreement, the seller may elect to retain the deposit because the difficulty of estimating actual damages. Retention of up to 10% down is considered a reasonable amount.
When there is a breach in a land transaction agreement what happens to the earnest money deposit? (minority rule) (Defaulting buyers)
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.
What happens when a seller cannot convey marketable title?
This creates a breach if the seller in a real estate contract cannot convey marketable
title as stipulated in the agreement.
Buyer’s Recovery for seller breach due to title defect English rule
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.
Recovery for seller breach due to title defect American rule
Allows the purchaser to recover expectation damages (benefit-of-the-bargain damages), plus any other reasonably foreseeable special damages.
Time is of the Essence Clauses - How much do parties have to preform things in the purchase agreement?
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)
Remedies for Breach of Purchase agreement (3)
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.)
What is Retention of earnest money deposit when there is a breach of a purchase agreement? (4)
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
Three Deed Types
General warranty, Special warranty, Quitclaim
General Warranty Deed
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]
Special Warranty Deed
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]
Quitclaim Deed
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].
Things in a Deed - Acknowledgment by a notary Public
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.
Things in a Deed - Tract Description
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.
what if there isn’t a forgery, but there is fraud regarding the deed?
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.
