Chapter 8 - Deeds, Contracts, and Leases Flashcards
“A written, legal instrument that conveys an estate or interest in real property when it is executed and delivered.” is the definition of?
deed
The seller of a property is called the __________. (on Title document)
The buyer is called the _____________.
The seller of a property is called the grantor.
The buyer is called the grantee.
Title officially passes from one party to another when a deed is delivered by the grantor and accepted by the grantee.
For Deed to be legally valid:
- The deed must be in writing
- The grantor and grantee must be clearly identified
- The grantor must be legally capable (for example, not a minor or legally incapacitated)
- The property must be adequately described
- There must be a legally acceptable grantee clause
- There must be a consideration (amount)
- The deed must be signed by the grantor
- The deed must be delivered to the grantee
NOTE: Although a deed must be notarized by a notary public to be recorded, most states do not require a deed to be notarized to be “valid.” However, to protect the interest of parties involved, it is always prudent to have a deed notarized so that it can be filed with the recorder of deeds in the county where the property is located.
A grant deed is defined as
“A deed containing, or having implied by law, some but not all of the usual covenants of title; esp., a deed in which the grantor warrants that he or she (1) has not previously conveyed the estate being granted, (2) has not encumbered the property except as noted in the deed, and (3) will convey to the grantee any title to the property acquired after the date of the deed.”
With a grant deed, the grantor is guaranteeing that they haven’t sold the property to anyone else, and that it is clear of any liens or restrictions. However, they don’t necessarily guarantee that there aren’t any title issues remaining from previous owners.
“Which deed is containing, or having implied by law, some but not all of the usual covenants of title?
Grant Deed
A quitclaim deed is defined as
“A form of conveyance in which any interest the grantor possesses in the property described in the deed is conveyed to the grantee without warranty of title.”
Which is the weakest form of deed?
Quitclaim Deed
A bargain and sale deed is defined as
“A deed that conveys real estate from a seller to a buyer but does not guarantee clear title; used by court officials and fiduciaries to convey property they hold by force of law, but to which they do not hold title.”
Which deed does not guarantee that there is a clear title, but at least the seller (grantor) implies that they do hold title to the property? An example of this might be a sheriff’s deed, which is given to the purchaser of a property at a court-ordered sale.
Bargain and Sale Deed
A tax deed is defined as
“A deed that conveys title to a property purchased at a tax sale; may or may not convey absolute title, free of all prior claims and liens, depending on state law.”
This is essentially a bargain and sale deed, but is used specifically for tax sales where properties have been taken over for non-payment of real estate taxes.
What deed is essentially a bargain and sale deed, but is used specifically for tax sales where properties have been taken over for non-payment of real estate taxes.
Tax Deed
A warranty deed is defined as
“A deed that conveys to the grantee title to the property free and clear of all encumbrances, except those specifically set forth in the document.”
Which deed is the best and most powerful type of deed? The grantor warrants or guarantees that the title being conveyed is free and clear of all encumbrances. If, at a later date, a cloud on the title appears or someone else makes a claim against the title, the grantor must make it right.
Warranty Deed
A deed of trust, or trust deed, is defined as
“A legal instrument similar to a mortgage document, except that three parties are involved in securing the debt: the borrower, a lender, and a trustee who holds property title when the deed of trust is executed and delivered. The trustee transfers title to the lender if the borrower defaults and to the borrower if the note is repaid.”
Which deed is similar to a mortgage? It is the method used in some states to encumber properties in lieu of recording a mortgage. Title is vested in a third party, the trustee, until the mortgage lien is satisfied.
A deed of trust, or trust deed
A reconveyance is defined as
- “Passing of title to real property back to the original owner; e.g., in a deed of trust arrangement, upon liquidation of the debt the property is reconveyed from a third-party trustee to the trustor (borrower).”*
- Example:* If a deed of trust is recorded and then the loan is paid off, the reconveyance document passes title back to the borrower.
If a deed of trust is recorded and then the loan is paid off, the __________ document passes title back to the borrower.
reconveyance
Deeds do/do not have to be recorded to be valid.
Deeds do not have to be recorded to be valid.
However, it is in the best interests of the parties to record the deed in the public records.
To be recorded in the public records, such as the office of a county clerk, recorder of deeds, or prothonotary, most states require an acknowledgement that the grantor’s signature on the deed is valid. This is usually accomplished by the signature and seal of a notary public or other designated official.
“A legally binding agreement between two or more persons that represents their promise to do or not to do a particular thing.” is definition of ________
contract
Contracts involving the ownership of real estate and commercial contracts for goods worth in excess of $_______ - these contracts need to be in writing in order to be enforceable.
$500
Every state has a ____________ that requires certain documents to be in writing.
statute of frauds
“A manifestation of willingness to enter into a bargain, which creates in the offeree the power of acceptance.” is definition of_________
offer
Offers remain open until they are:
- Accepted
- Rejected
- Retracted prior to acceptance
- Countered
- Expired by their own terms
An offer may be revoked at any time prior ___________ .
An offer may be revoked at any time prior to the communication of acceptance of the offer.
An offer may be also revoked by the maker of the offer, by giving notice of revocation to the person to whom the offer was made.
It could be also revoked by the lapse of time set forth in the offer. Perhaps it is stipulated that the offer is only good for 48 hours.
Once any offer is accepted in all the terms by another party, a contract is created and can be ____________
enforced.
Any retractions at this point may lead to consequences under the law. Both parties are bound and neither can withdraw without liability.
“A manifestation of willingness to be bound by the terms of an offer made in a manner invited or required by the offer.” is definition of _________ ?
Acceptance
All of the terms of the offer must be accepted without change or condition.
Acceptance may occur as an ____ act or an _______ act
express act or an implied act.
An ____________ contract is an agreement with clearly stated terms to which both parties are bound at the time it is formed.
express
An express contract may be either oral or written.
In an ____________contract, the existence of the contract and its terms are inferred from the conduct of the parties. The contract is created by the actions of the parties who perform the terms of the contract.
implied contract
For example, if you sit down in a restaurant and order a meal, you imply a promise to pay for the food. The restaurant serves it to you on the basis of that promise.
A ___________ contract is one in which both parties have made promises to each other. One promise is in exchange for another.
A bilateral contract
A real estate sales contract is a bilateral agreement; Party A agrees to sell the property and Party B agrees to buy the property - under certain specified terms.
A _____________ contract is one in which one party makes a promise in order to induce another party to do something. The second party is not legally compelled to comply. However, if the second party accepts and performs, then the first party must keep the promise.
unilateral contract
A real estate option is a good example of a unilateral agreement. Party A agrees to sell his property to Party B for $200,000, anytime within the next six months. Party B is under no obligation to perform, that is, Party B can decide to exercise the option and buy the property or let the option expire without doing anything. If Party B decides to exercise the option, then Party A must sell.
What is the purpose of a state’s statute of frauds?
- gives the FBI jurisdiction over state authorities in certain cases
- prohibits fraud in real estate transactions
- establishes penalties for all criminal activities
- requires certain documents to be in writing
requires certain documents to be in writing
An__________ contract is one that has been fully performed. The promises have been fulfilled according to the terms of the contract, and there is nothing left to be done.
An executed contract
An example would be a real offer to purchase after all contingencies have been met and the closing has occurred.
An___________ contract is one that is not been fully performed or completed. Something is still left to be done.
Executory contract
A good example of this is a listing contract. A real estate agent tries to sell the property during the term of the contract. A mortgage would also be considered an executory contract until it is finally paid off or satisfied.
A _________ contract is one that is binding and enforceable on all parties. It contains all the valid elements of a contract and is still in force.
A valid contract
That is akin to a real estate purchase transaction that has cleared all the contingencies but has not yet closed escrow.
A___________ contract is one that has no legal force or effect even though it contains the elements of a valid contract.
void contract
t could be “null and void” because it contains some illegal element that could not be enforced. For example, a contract could contain a clause that requires racial discrimination. Or, it could be for an illegal purpose such as to commit a crime or some act in violation of a legal use. Voiding a contract could also be the result of an act of God that is beyond the control of the parties; such as a fire or flood that destroys a property.
A __________ contract is one that results from the failure of the parties to meet some legal requirement.
Voidable contract
For example, if a minor signs a contract to purchase real estate, it usually is voidable within a reasonable time after the minor reaches legal age. However, the parties are not required to void the contract. Most courts consider a voidable contract to become a valid contract if the eligible party does not act to disaffirm the agreement within a reasonable time.
An ___________ contract is one that appears to be valid but would not be enforceable in court.
Unenforceable contract
For example, if one party tries to enforce an otherwise valid contract after the statute of limitations has expired, that contract would be unenforceable.
Other examples would be contracts that are vague and poorly worded, or verbal contracts in situations where written ones are required, as in real estate. However, even though they may not be enforceable in court, unenforceable contracts may still be considered valid if both parties still wish to complete performance.
There are five essential ingredients in a valid contract for the purchase of a real property interest that would be binding and enforceable on all parties:
- Competent parties
- Mutual agreement
- Consideration
- Lawful objective
- In writing and signed
Define Competent Parties
For a contract to be valid, the parties have to have the capacity to enter into a contract. Minors, for example, do not have the capacity to contract. The legal age, or age of majority, varies from state to state. Check your own state to determine the legal age.
The general rule is that the contract of a minor is voidable at the minor’s option. The minor can hold an adult to a contract, but the adult cannot legally hold the minor to a contract.
Another consideration is the mental capacity of the parties. Under the Restatement Second of the Uniform Commercial Code (UCC), a contract is voidable if a party “by reason of mental illness or defect is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of this condition.”
The general rule is that the contract of a minor is voidable at the ________ option.
is voidable at the minor’s option
The minor can hold an adult to a contract, but the adult cannot legally hold the minor to a contract.
Mutual Agreement
For a contract to become binding, the parties must enter into it voluntarily and with a full understanding of the terms. There must be mutual assent and a “meeting of the minds.”
Lack of mutual agreement could be evidenced by such things as (5):
- Fraud
- Misrepresentation
- Mutual mistake
- Undue influence
- Duress
Contracts signed by a party under undue influence or duress are voidable by that party or a court.
Examples of Duress or Undue Influence:
Undue Influence might result if a party is elderly, sick, under great stress or under the influence of drugs or alcohol.
Duress was defined as:
“feebleness on one side, overpowering strength on the other.”
“If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.”
Define Consideration in cotract
An agreement must be based on good and valuable consideration; something of value. This could be:
- Money
- Property
- A promise of performance or a promise to pay
- Forbearance: a promise to refrain from doing something
The amount must be stated definitively, and should state it is payable in exchange for the right received. Consideration must arise in the context of a bargained for exchange.
The parol evidence rule states that
written contracts take precedence over oral agreements
The ___________ rule states that written contracts take precedence over oral agreements
parol evidence
Discharge of Contracts
Contracts can be terminated or discharged by (4):
- Agreement of the parties
- Performance of the contract
- Impossibility of performance
- Operation of law