Conveyance Flashcards
What are the two steps of a conveyance?
- Land contract
- Deed (after closing)
What are the three required terms of a land contract?
- Writing, signed by party to be bound (SoF)
- Must describe the property
- State some consideration
What is the remedy for incorrect descriptions in the land contract? (2)
- Specific performance AND
- Pro rata price reduction
What is the exception to the statute of frauds for land contracts?
(Doctrine of Part Performance)
(Doctrine of part performance)
If Buyer has any two of:
- Possession,
- Payment of some or all of the price, OR
- Substantial improvement,
Equity will decree specific performance of an ORAL CONTRACT for the sale of the land.
What are the risk of loss rules for land contracts?
(MBE)
(NY)
Multistate: Equitable conversion (equity regards as done that which ought to be done): Once the contract is signed, buyer owns the property
NY: If buyer is without fault, risk of loss remains with seller until buyer takes title or possession
What happens if a property is destroyed between when the land contract is signed and the closing?
Buyer bears the risk of loss unless the contract says otherwise
What are the two implied promises in land contracts?
- Seller promises to provide marketable title (title free from reasonable doubt) AT CLOSING
- Seller promises not to make any false statements of material fact (and in most states, failure to disclose latent material defects as well) (seller is liable for material lies and material omissions)
(No implied warranty of fitness or habitability)
What constitutes marketable title?
Title free from reasonable doubt
(i.e., free from lawsuits and the threat of litigation)
What three circumstances will render title unmarketable?
- Any part of title relies on adverse possession (seller must provide good record title)
- Encumbrances (must be unencumbered fee simple—no servitudes or mortgages, unless buyer waives; seller may use sale proceeds to satisfy lien at closing)
- Zoning violations (must be violation, not mere presence of a zoning scheme)
What is the effect of general disclaimers of liability?
(e.g., with all faults)
No relief to seller from liability for fraud or failure to disclose
What is the exception to the general rule of no warranty of fitness or habitability?
There IS an implied warranty of fitness and workmanlike construction
(N.B. Applies only to a sale of a new home where the builder is also the seller!)
After closing what is the controlling document?
The Deed (passes legal title from seller to buyer)
How does the deed pass legal title?
(LEAD)
Lawfully Executed And Delivered
What makes a deed lawfully executed? (2)
- Must be in writing, signed by the grantor
- Description of land need not be perfect (need only be unambiguous description and good LEAD)
(no need for consideration to make a deed valid)
What satisfies the description of land?
It is possible to research and know the meaning of the words in the description
What satisfies the delivery requirement of a deed?
- Grantor physically transfers the deed to the grantee (mail; agent; messenger all work (Does NOT necessarily require physical transfer of the instrument itself)
–> Test of present intent (legal standard): Did grantor have the present intent to be bound, irrespective of whether the deed itself is handed over?
What is the effect of recipient’s express rejection of a deed?
Express rejection defeats delivery
What is the effect of oral conditions at delivery or a deed?
If the deed is absolute on its face, oral condition has no effect (not provable) and drops out
e.g., O delivers an absolute deed to Blackacre to A, but says “Blackacre is yours only if you survive me.” The oral condition is VOID, and delivery is done.
What is delivery by escrow?
Transfer of title to a 3d party escrow agent:
Effective; may impose conditions on release of title
Title passes when conditions are met (even if grantor is incapacitated)
What are the three types of deeds?
- Quitclaim
- General warranty deed
- Statutory special warranty deed
What is a quitclaim deed?
Contains no covenants (Grantor doesn’t even guarantee that he has title)
BUT, even here, grantor did implicitly promise in the land contract to provide marketable title AT CLOSING.
If there are any problems post-closing, grantor is not on the hook for them.
What is a general warranty deed?
Deed that warrants against ALL defects in title (including those of grantor’s predecessors)
(The best deed)
What are the six covenants of a general warranty deed?
- Seisin (present)
- Right to convey (present)
- Against encumbrances (present)
- Quiet enjoyment (future)
- Warranty (future)
- Further assurances (future)
When are present covenants breached?
At the time of delivery
(thus, SoL starts to run at moment of delivery)
When are future covenants breached?
Not until grantee is disturbed in possession
(SoL starts when disturbance happens)
What is a covenant of Seisin?
Grantor owns this estate
What is a covenant of right to convey?
Grantor has the power to transfer (no temporary restraints on alienation; no grantor disabilities)
What is a covenant against encumbrances?
No servitudes or mortgages on blackacre
What is a covenant for quiet enjoyment?
Grantee won’t be disturbed in possession by a 3d party’s lawful claim of title
What is a covenant of warranty?
Grantor will defend grantee against lawful title claims brought by others
What is a covenant for further assurances?
Grantor will do what’s needed in the future to perfect the title
What is a statutory special warranty deed?
(Grantor makes two promises only on behalf of himself—no representations on behalf of predecessors!)
- Grantor promises he hasn’t conveyed blackacre other than to grantee
- Blackacre is free from encumbrances made by grantor
NY QUESTION
What is a statutory special warranty deed called in NY?
Bargain and sale deed
What are the two bright line rules for recording systems?
- IF NOTICE JURISDICTION: If later buyer is a bona fide purchaser, later buyer wins
- IF RACE-NOTICE JURISDICTION: First BFP to record properly wins (i.e., If later buyer is a bona fide purchaser, later buyer wins only if she records properly first)
NY QUESTION
What recording system is used in NY?
Race-notice
(First BFP to properly record wins)
What are the two categories of persons protected by recording acts?
- Bona fide purchasers
- Mortgagees
What constitutes a bona fide purchaser for recording systems?
- Buys blackacre for value (substantial pecuniary consideration—need not be FMV)
- Without notice that someone else got there first
Who do recording systems not protect? (3 types of people)
- Donees;
- devisees;
- heirs UNLESS the shelter rule applies
What are the three types of notice that may be imputed to a buyer? (AIR)
- Actual Notice
- Inquiry Notice (constructive)
- Record Notice (constructive)
What constitutes actual notice to a later buyer for record systems?
Later Buyer has ACTUAL notice IF, prior to his closing, he learns of an earlier buyer
What constitutes INQUIRY NOTICE to a later buyer for record systems?
- Later buyers are on inquiry notice of whatever an inspection of blackacre would show (e.g., another person in possession)
- If a recorded instrument makes reference to an unrecorded transaction, grantee is on inquiry notice of whatever a reasonable follow-up would show
What constitutes record notice to a later buyer for record systems?
Later buyer is on record notice of an earlier buyer’s deed if at the time later buyer takes, earlier buyer’s deed was recorded properly
Who wins as between:
- an earlier buyer and a later buyer
- if the earlier buyer has not recorded (or properly recorded) at the time of later purchase?
Depends on which recording statute the jurisdiction has enacted:
- In a notice state, later buyer wins
- In a race-notice state (like NY), later buyer must win the race to record
What satisfies proper recording of a deed?
Recording it in the chain of title (through search of the grantor-grantee index)
What are the three hot bar exam chain of title problems?
- The shelter rule
- The wild deed
- Estoppel by deed
What is the shelter rule? (applies to both systems)
One who takes from a BFP will prevail against any entity that the transferor or BFP would have prevailed against (even if the subsequent taker has actual notice of an earlier transfer)
What is the rule of the wild deed? (recorded deeds that fail to connect to the chain of title, e.g., because O to A was not recorded but A to B was)
A wild deed is incapable of giving record notice (later buyers from O will win no matter what)
What is estoppel by deed?
One who conveys realty in which he has no interest is estopped from denying the validity of that conveyance if he later acquires the interest he previously transferred
What is a mortgage?
Conveyance of a security interest in land, intended by the parties to be collateral for repayment of a debt
How is a mortgage created?
(union of two elements)
- A debt
- A voluntary transfer of a security interest in debtor’s land to secure the debt
(typically must be in writing to satisfy the SoF)
What may the writing for a mortgage (legal mortgage) be called on the bar? (5 things)
- Mortgage deed
- The note
- Security interest in land
- Sale leaseback
- Deed of trust
What is an equitable mortgage?
Transfer to a creditor of a deed that is absolute on its face (with no mention of mortgage or security interest)
Parol evidence between debtor and creditor is freely admissible to show intent BUT, subsequent fraudulent sale by the creditor to a BFP is valid—debtor may only proceed against creditor for sale proceeds and fraud
What are the rights of parties to a mortgage?
- Debtor-mortgagor has right to title and possession unless and until foreclosure
- Creditor-mortgagee has a lien (right to look to blackacre if a default)
What is the rule for transferability of rights of parties to a mortgage?
Rights are freely transferrable
Mortgage automatically follows a properly transferred note
How can a creditor-mortgagee transfer his interest?
- Endorse the note and deliver it to transferee
- Executing a separate document of assignment (new holder becomes a holder in due course)
What are the rights of a holder in due course?
- Takes the note free of any personal defenses that could have been raised against the original creditor-mortgagee (may foreclose despite such defenses)
- BUT is still subject to real defenses
What are the personal defenses to a mortgage? (ordinary breach of contract defenses) (5)
- Lack of consideration 2. Fraud in the inducement 3. Unconscionability 4. Waiver 5. Estoppel
What are the real defenses to a mortgage? (MAD FIFI^4)
- Material Alteration 2. Duress 3. Fraud In the Factum (a lie about the instrument) 4. Incapacity 5. Illegality 6. Infancy 7. Insolvency
What must be satisfied to become a holder in due course? (5)
- The note must be negotiable (made payable to the named mortgagee) 2. The original note must be endorsed (by the original mortgagee) 3. The original note must be delivered to the transferee 4. Transferee must take the note in good faith without notice of any illegality 5. Transferee must pay value for the note (merely more than nominal)
What happens when a property subject to mortgage is sold by the debtor-mortgagor?
The lien remains on the land, so long as the mortgage was properly recorded (recordings statutes protect mortgagees)
Who is personally liable on a mortgage that has been transferred by a debtor-mortgagor?
If buyer assumes the mortgage: Both buyer and seller If buyer takes subject to the mortgage: Only seller has personal liability; (BUT, if recorded, mortgage remains on the land)
How must a mortgage be foreclosed?
Proper judicial proceeding (land is sold, proceeds go to satisfy the debt)
What happens if the amount recovered on a foreclosure sale is different than the amount of the loan?
If too little: Mortgagee brings a deficiency action against the debtor If surplus: Junior liens are paid off in order of their priority; remaining surplus goes to debtor
What is the waterfall for foreclosure sale proceeds?
- Attorney fees, foreclosure expenses, any accrued interest on highest priority lender 2. Most senior creditor paid in full 3. Each junior creditor, in full, in order of seniority
What is the effect of foreclosure on competing interests?
- Terminates interests junior to the mortgage being foreclosed (juniors will proceed for a deficiency judgment, but their security interest is finished) 2. Has no effect on any interests senior to the foreclosed interest (buyer takes subject to these)
Who are the necessary parties to a foreclosure action? (all must be joined)
- Junior creditors 2. The debtor-mortgagor
What happens if a necessary party is not joined?
His interest is preserved, thus his mortgage remains on the land
How is creditor-mortgagee priority determined?
- Purchase money mortgages (debt used to acquire the land) have super-priority (always first, if recorded) 2. Otherwise: first in time, first in right (first to record); If not recorded, no priority at all 3. Subordination agreements (these are allowed—senior agrees to subordinate to a junior)
What is an after-acquired collateral clause?
A clause that grants security interests in all subsequently acquired holdings (these are valid); aka floating lien These are not purchase money mortgages
What is an equitable redemption?
(universally recognized up to date of sale) 1. At any time up to the foreclosure sale, debtor can try to redeem the land 2. Once a valid foreclosure has taken place, the right to equitable redemption is gone 3. The right may NOT be waived in the mortgage itself (known as clogging, and is prohibited)
How is the right of equitable redemption exercised?
By paying off the missed payment or payments plus interest plus costs (if acceleration clause: full balance plus accrued interest plus costs)
What is a statutory redemption? (recognized in half the states, but NOT NY)
Debtor has the right to redeem for some fixed period after the foreclosure sale has occurred; Usually 6mo – 1yr Amount to be paid is the foreclosure sale price (rather than the amount of the original debt) Usually, mortgagor has the right to possess blackacre during the statutory period Statutory redemption undoes the foreclosure sale (redeeming owner is restored to title)
