Conveyances Flashcards
Requirements for Land Conveyances
Every transaction for the sale of land requires a two-step process.
1. Land Contract, which passes equitable title from seller to buyer; and
2. Closing, in which the deed passes legal title from seller to buyer. At closing the contract dies and the deed becomes the legally operative instrument.
Land Contracts and Statute of Frauds
A contract for the sale of land must be in writing and signed by the party against whom enforcement is sought. An oral contract will not be enforceable unless it falls within an exception to the statute of frauds.
Partial Performance in land contracts
Partial Performance is an exception to the statute of frauds. If an oral contract is clear and certain and contract existence can be shown, the contract can be enforced. Existence can be evidenced by two of the following: 1) possession, 2) payment, 3) valuable improvements.
Equitable Conversion
When property is damaged or destroyed during the escrow period and at no fault of the seller, the buyer assumes the risk of loss. However, the seller will be required to credit any insurance proceeds against the purchase price.
Marketable Title
It is an implied covenant in every land sale contract that at closing the seller will provide marketable title. Marketable title is one which is free from any reasonable doubt and free from lawsuits and threat of litigation.
Adverse possession, Encumbrances, and Zoning Violations make a title unmarketable.
Encumbrances can be waived by the buyer. Servitudes or mortgages, easements, restrictive covenants, and outstanding liens are all encumbrances that will make a title unmarketable. However, the seller always has a right to satisfy mortgage at closing using proceeds from the sale.
Zoning Violations - zoning laws are not a defect unless they are violated.
Notice and Cure of Defects
A buyer must give the seller notice of defects and give seller reasonable time to cure even it it will require closing to be postponed.
Remedies for Unmarketable Title
If title is not marketable buyer is entitled to:
1. Rescission of contract
2. Damages
3. Specific performance with a price adjustment
Seller’s Liability for Defects
A seller promises not to make any false statements of material fact. Most states will also hold a seller liable for failure to disclose known latent material defects. A seller will be liable for material lies and omissions.
Failure to Disclose Defects
A seller promises not to make any false statement of material fact. A seller will be liable for material lies and omissions.
To be liable for failure to disclose defects 1) the seller must know or have reason to know of the defect; 2) seller must realize buyer unlikely to discover the defect; and 3) the defect must be serious enough that the buyer would probably reconsider the purchase. Disclaimers such as AS-IS or with all faults will not excuse fraud or failure to disclose known defects.
Warranty of fitness for habitability
There is no implied warranty of fitness for habitability. However, there is an implied warranty of fitness and workman-like construction when the sale is a new home being sold by a builder-vendor.
Time of Performance
Unless indicated otherwise, time is not of the essence in land conveyances. Missing the closing date is not a material breach.
Tender of Performance
Payment and Conveyance obligations occur at the same time. No party can breach until the other party performs. If neither party performs, closing extends until someone does perform.
Remedies for Breach
There are three remedies for breach of land contract: Damages, Specific Performance, and Rescission.
Damages are usually the difference between the contract price and market value. The non-breaching seller can keep the down payment/earnest money as liquidated damages when it is reasonably related to actual damages. 10% or less is usually considered reasonable.
Buyer is entitled to specific performance minus the amount for any defects if seller is unable to produce marketable title but buyer still wants to proceed.
If buyer breaches, seller may rescind. If seller breaches, buyer may rescind and recover the down payment. But a buyer cannot rescind before closing.
Deeds
In order for a deed to be valid, it must be LED Legally Executed and Delivered
Deed Execution
Executing a valid deed requires 1) a writing signed by the grantor, 2) unambiguous description, 3) Identification of the parties (by name or description), 4) words of intent to transfer.
Insufficient Description on a deed
The grantor retains title when a description on a deed is insufficient. Extrinsic evidence will be permitted to clear up ambiguity.
Void Deeds
Void deeds will be set aside regardless of whether it has been passed to a purchaser. A deed is void when it has been forged, the grantor did not know what he signed (fraud in factum), not delivered, or the grantee is dead or does not exist. FFDD.
F - Forged
F – Fraud in Factum (sign this pretend deed for class)
D – not Delivered
D – Dead/non-existent grantee
Voidable Deeds
Voidable Deeds will be set aside if not passed to a bona fide purchaser. A deed is voidable when a party is not of age, incapacitated, there is fraud in the inducement, there is duress/or undue influence, it was obtained by mistake, or there was a breach of fiduciary duty. IFIAMBUD
IF – Fraud in the Inducement
I – Incapacity
A – Age
M – obtained by Mistake
B – Breach of Fiduciary Duty
U – Undue influence
D - Duress
Fraudulent Conveyances
Fraudulent conveyances will be set aside unless taken in good faith and reasonably equivalent value was paid. This is typically when a conveyance is made to avoid grantor’s creditors.
Delivery of the Deed
A deed is presumed to have been delivered when:
1. Grantee has possessin of the deed
2. It is handed to grantee
3. It is acknowledged in front of the notary
4. Is has been recorded
Extrinsic evidence is admissible to prove intent to pass title
Quitclaim Deeds
A quitclaim deed offers not covenants or promises. However, before the deed has been passed there is a promise in the contract to provide marketable title. Once the deed passes, this promise dies.
General Warranty Deed
A general warranty deed warrants against all defects in title, including those caused by grantors’ predecessors. A warranty deed contains three present covenants: Seisin, Right to Convey, and covenant against Encumbrances. These present encumbrances are effective at the moment the deed is delivered. Warranty deeds also contain three future encumbrances that run with the property: Covenant of Quiet Enjoyment, Warranty, and Further Assurances.
Present Covenants – pRESent
R – Right to convey
E – against Encumbrances
S – Seisin (ownership)
Future Covenants – FAWQE
FA – Further Assurance
W – Warranty
QE – Quiet Enjoyment
General Warranties run with the land. Subsequent purchaser may file a claim against the person that granted the general warranty, for the amount that was paid at the time it was conveyed.
Special Warranty Deeds
Special warranty deeds warrants against all defects in title, including the present and future covenants, but only against the defects arising while grantor owned the property, not his predecessors.
Recording
Only Bona Fide Purchasers are protected by the statutes. A bona fide purchaser is one without notice of prior interest and who purchases for valuable consideration. A purchaser has notice if he has actual, inquiry, or record notice. If the purchaser is not a bona fide purchaser, common law rule applies.
Shelter Rule – one that takes from a BFP prevails against any challenge the BFP would have prevailed against. (Umbrella over the grantee).
Missing links in the recording chain destroy notice.
Common Law – first in time, first in right
Race Statute (“first”) - First BFP to record wins
Notice Statute (“notice”) - Last BFP wins
Race-Notice (“first” + “notice”) - First BFP to record wins
Estoppel by Deed
One who conveys realty in which he has no interest cannot later deny the validity of a transfer of interest if he later acquires the interest he claimed to have at the time of the conveyance.
Redemption
Mortgagor’s are able to redeem himself prior to foreclosure by making up missed payments plus interest and costs. Statutory redemption may extend the time past the foreclosure sale.
Acceleration Clauses
Acceleration clauses make the full balance plus interest and costs payable to redeem.
Clogging the Equity of Redemption
A debtor cannot waive right to redemption in event of future default.
Deficiency Actions
If a foreclosure sale does not cover the amount of the debt owed, a mortgagee must bring a deficiency action against the mortgagor to recover that amount.
Defects in Chain of Title That Make Title Unmarketable
Three Defects in Chain of Title that make Title Unmarketable
1. Significant variation in description from one deed to the next
2. Deed not executed properly in the chain
3. Prior grantor lacked capacity to covey
