Conveyancing

Question 1

A real estate contract is governed by all regular contract rules plus:

Answer 1

the deed

Question 2

How does the Statute of Frauds apply to real estate contracts?

Answer 2

Any contract of sale of an interest in real property must be writing and signed by the one who is sued. The writing must contain: a description of the property, the names of the parties, and the price or means of determining the price (e.g. “the fair market value as determined by the appraisal.”)

Question 3

Is “at a mutually agreeable price” valid to satisfy Statute of Frauds?

Answer 3

Not at all.

Question 4

What is the doctrine of part performance?

Answer 4

Part performance is an exception to the Statute of Frauds. Part performance is when there are at least two of the following:

• possession of land by the purchaser
• paying all or part of the purchase price
• erecting improvements

Question 5

Who assumes risk of loss during an executory period?

Answer 5

Before closing: if property is damaged or destroyed, the buyer loses. Once the contract is signed, the buyer assumes the risk because of equitable conversion (buyer has title for all practical purposes).

*If the seller is at fault, then the seller loses.

Question 6

What happens if the seller dies before closing?

Answer 6

If seller dies before closing - buyer closes with seller’s estate and the seller’s interest is personal property

Question 7

What happens if the buyer dies before closing?

Answer 7

If buyer dies before closing, the seller closes with the buyer’s estate. The buyer’s interest is real property.

Question 8

What is marketable title?

Answer 8

Every land sale contract has implied warranty that at closing, the seller will give buyer a marketable title that a reasonable person would accept.

Question 9

What defects make title unmarketable?

Answer 9

Defects that make title unmarketable:

• defects in the record chain of title
• presence of encumbrances
• title acquired by adverse possession

Question 10

What is a defect in the record chain of title?

Answer 10

A defect in the record chain of title include variations in the property description, an improperly executed deed, or evidence that a prior grantor lacked capacity to convey property.

This defect makes the title unmarketable.

Question 11

What is a defect of encumbrances?

Answer 11

If there are encumbrances, this includes easements, restrictive covenants, mortgages, options, and etc. that are not mentioned in the contract for the buyer to take subject to.

This defect makes the title unmarketable.

Question 12

Is a zoning ordinance an encumbrance if not included in the contract for sale?

Answer 12

A zoning ordinance does not make title unmarketable, but a violation of a zoning ordinance will.

Question 13

Is a violation of a housing or building code, if not included in the contract for sale, an encumbrance?

Answer 13

Generally, a violation of a housing or building code does not cause title to be unmarketable.

Question 14

G leased her estate to C for 5 years, and in the lease tenant was given an option to purchase the estate at the end of the lease. During the lease, G contracted to sell the property to B. The contract does not mention the option to purchase given to C.

Has G breached the warranty of marketable title?

Answer 14

Yes. The existence of a valid option to purchase is an encumbrance on the title and makes it unmarketable.

Question 15

Is a home that is adversely possessed unmarketable? What can be done to cure this?

Answer 15

Title acquired by adverse possession is not marketable, BUT it can be cured with a judgment of title in the seller or with a quitclaim deed from the party who was adversely possessed from.

Question 16

When must the seller provide marketable title?

Answer 16

Only need to provide marketable title at the day of closing. Before is unnecessary.

Question 17

What are the buyer’s remedies if seller’s title is unmarketable?

Answer 17

Buyer must notify seller and give seller reasonable time to cure the defect, even if it postpones closing.

If problem is not corrected, buyer can:

• walk away (rescission)
• sue for damages for breach
• sue for specific performance + buy title for a lower price to cover the defect

Question 18

What happens if buyer goes to closing and accepts deed without problems being cured?

Answer 18

If the buyer goes to closing and accepts the deed without problems being cured, then there is no recourse against the seller based on the contract thanks to the doctrine of merger. Buyer’s action would need to be based on what is in the deed the buyer receives.

Question 19

What are the remedies available for breach of sales contract?

Answer 19

If there is a breach in the sales contract, available remedies are:

• damages (difference between contract price and value of land on day of breach)
• liquidated damages (buyer’s deposit can be forfeited as long as not more than 10% of sales price)
• specific performance

Question 20

What is seller’s liability for new construction?

Answer 20

Sellers are liable under a warranty of good workmanship and a warranty of habitability in the sale of a new home.

These warranties provide that the builder is promising that the quality of construction meets a certain level and that the residence is suitable for living. These warranties only cover material latent defects.

Question 21

What is the seller’s liability for existing land and buildings (resale)?

Answer 21

The seller of existing land and buildings doe snot make any implied warranties regarding the physical condition of the property. Seller must disclose serious defects that the seller knows of and are not obvious to the buyer.

Question 22

There was an oral contract of sale of land and buyer went into possession and was making periodic cash payments to the owner when the owner died. Buyer sues for specific performance of oral contract.

Should the doctrine of part performance apply?

Answer 22

To satisfy part performance, there must be at least two of the following:

• possession of the land by the purchaser
• paying all or part of the purchase price
• erecting improvements

The doctrine of part performance should not apply because the buyer only has possession of the land. The cash payments are not necessarily indicative of a sale agreement because they are also indicative of making payments for a lease.

Question 23

Buyer and seller enter into a contract for the purchase of land near Dallas, TX. Before closing, the seller’s house burns down because of the seller’s negligent neighbors. Does the buyer have to go through with the closing even though the house is destroyed?

Answer 23

No. Unlike in common law, TX statute puts the risk of loss during the executory period on the one who has possession. Here, the seller has possession so he would be liable.

Question 24

What is a deed?

Answer 24

A deed is a document that transfer legal title. It must comply with the Statute of Frauds and have a proper execution, delivery, and acceptance.

Once a deed is executed, delivered, and executed, the contract merges into deed and is destroyed and all contract provisions are lost unless they are included in the deed.

The deed must: identify the grantor and grantee, contain a property description that sufficiently describes the land, include conveying language, and be signed by the grantor.

Question 25

What happens if the deed’s grantee is dead?

Answer 25

If the grantee is dead, the deed is invalid. But the contract of sale can be enforced by either the seller or the buyer’s estate, and a need deed is made to the buyer’s estate.

Question 26

T/F: A land description by metes and bounds always controls over a description by acreage or any other description contained in the deed.

Answer 26

True. A land description by metes and bounds always controls over a description by acreage or any other description contained in the deed.

Question 27

What is the legal test for delivery of a deed?

Answer 27

Delivery of a deed is solely a question of intent to pass title.

Question 28

What raises the presumption of delivery of a deed?

Answer 28

Presumptions of delivery of a deed include:

- recording, even if grantee never sees the deed and knows nothing about it

Question 29

What is a conditional delivery of a deed?

Answer 29

A conditional delivery of a deed is when the grantor hands over deed but tries to condition delivery on some event. This can be a valid condition depending on the facts.

Question 30

The deed language is: “to A, but not until I die,” and the deed is handed to grantee.

Is this valid delivery?

Answer 30

This deed is a valid delivery of a future interest. A has a vested remainder in fee simple and O has a life estate.

Question 31

The deed language is, “Sarge to Arnold,” but in handing the deed over Sarge tells Arnold that “of course this wouldn’t become effective unless you marry my daughter.”

Is this valid delivery?

Answer 31

Arnold is conveyed a fee simple absolute and Sarge has nada. This is a valid delivery, but the oral condition does not need to be satisfied because the writing controls.

Question 32

Is making delivery conditional on paying the purchase price a valid delivery?

Answer 32

Yes, provided grantor makes delivery to a 3rd party in escrow with instructions to deliver to grantee when the condition is satisfied.

Once the deed goes to the escrow agent, grantor cannot get deed back. As long as grantee satisfies the condition, grantee gets property no matter what subsequent change of mind the grantor has.

Question 33

How do you determine acceptance of a deed?

Answer 33

Acceptance of deed by grantee is presumed unless facts show otherwise. Basically, grantee has to reject.

Question 34

What happens if a grantor makes no promises regarding title or the interest conveyed?

Answer 34

If a grantor makes no promises regarding title or the interest conveyed, the grantee gets a quitclaim deed - essentially whatever the grantor may have.

Question 35

What happens if a grantor makes promises regarding title?

Answer 35

If a grantor makes promises regarding title, they are covenants for title. If a deed contains all six traditional covenants or at least the covenant of general warranty or quiet enjoyment, then that deed is called a general warranty deed.

Question 36

What are the six traditional covenants?

Answer 36

• covenant of seisin - grantor has power to covenant (title and possession)
• covenant of right to convey - authority to make grant (has title)
• covenant against encumbrances
• covenant for quiet enjoyment - not be disturbed by 3rd party’s lawful claim of title
• covenant of warranty - grantor will defend against reasonable claims by 3rd party and compensate grantee for loss
• covenant of further assurances

Question 37

What happens if there is a breach of one of the six traditional covenants?

Answer 37

When there is a breach of one of the six traditional covenants, damages are limited to purchase price received by warrantor + incidental damages.

Question 38

B conveyed the farm to T with a covenant of warranty, and the purchase price was $5,000.

Later, T conveyed the farm to R with no warranty and the purchase price was $10,000. R was ousted by the true owner M.

Can R sue T, from whom she brought the property from?

Answer 38

R cannot sue T even if she bought the farm from T that did not have a warranty. The original seller B did not have title to give to T.

Question 39

B conveyed the farm to T with a covenant of warranty, and the purchase price was $5,000.

Later, T conveyed the farm to R with no warranty and the purchase price was $10,000. R was ousted by the true owner M.

Can R sue B, who gave the warranty in his deed to T?

Answer 39

R can sue B. The covenant of general warranty runs with the land and can be enforced by subsequent purchasers. R’s damages would be $5,000 because she is limited to the purchase price received by the warrantor (T).

Question 40

What are the damages for breach of covenant against encumbrances?

Answer 40

IF the property is subject to an encumbrance that was not excepted from coverage, the damages are: the cost it would be to remove the encumbrance from the land OR the diminished fair market value if the encumbrance cannot be removed.

Question 41

What is estoppel by deed?

Answer 41

Estoppel by deed protects a purchaser who receives a deed from someone who does not own the deed. For instance: A deeds property to B but A does not own the property, and A later acquires title. B would get the title because grantor gave an implied covenant that title would be transferred to the grantee.

Question 42

What is the limits of estoppel by deed?

Answer 42

Estoppel by deed occurs when:
A, without title, deeds property to B. Later A does acquire title, so B gets title because of an implied covenant that title would be transferred to grantee.

If grantor transfer deed to a bona fide purchaser after getting title, then the original grantee (B) loses.

Question 43

In April, a seller entered into a valid written agreement to sell her home to a buyer. The provisions of the agreement provided that closing would be in May, and that the seller would deliver to the buyer marketable title, free and clear of all encumbrances.

On the date of closing, the seller offered to the buyer the deed, but the buyer refused to go ahead with the purchase because there was a recorded a lis pendens on May 1 against the property regarding a $10,000 contract dispute he had with the seller. The seller indicated that she was unaware of the lien, but that she was willing to go ahead with the sale and set aside funds from the purchase price to cover the contractor’s claim until the dispute was resolved. The buyer still refused to proceed, stating that the seller had breached the contract.

If the seller brings an action against the buyer for specific performance, what is the probable result?

Answer 43

The seller will likely prevail because she is entitled to clear the encumbrance with the proceeds of the sale. In a contract for the sale of real property, the seller of the land is entitled to use the proceeds of the sale to clear title if she can ensure that the purchaser will be protected. The seller’s offer to escrow the funds in this case should act as such guarantee.

Although there will be litigation over the contract dispute, the litigation will not affect the title to the land because the contractor is claiming only money damages and not an interest in the property.

Question 44

A seller owned a tract of land, on which he built a single-family residence. The seller entered into a contract to sell the land to a buyer. One week before closing, the buyer had a survey of the property conducted. It revealed that a portion of the seller’s house was 5.98 feet from the sideline. The applicable zoning ordinance requires a six-foot sideline setback. The buyer refused to go ahead with the purchase of the land on the ground that the seller’s title was not marketable.

If the seller brings suit against the buyer for specific performance, will he prevail?

Answer 44

The seller will not prevail because his title was unmarketable. There is an implied covenant in every land sale contract that at closing the seller will provide the buyer with title that is marketable. It need not be perfect title, but it must be free from questions that might present an unreasonable risk of litigation. Because the placement of the seller’s house violated the zoning ordinance, the buyer could be subject to suit.

Even though the de minimis nature of the setback violation would probably allow for a solution to the problem, it would not give the seller a right to specific performance.

Question 45

If a grantor executes a deed but fails to deliver it during her lifetime, __________

Answer 45

If a grantor executes a deed but fails to deliver it during her lifetime, title does not pass. A deed is not effective to transfer an interest in realty unless it has been delivered by the grantor and accepted by the grantee. The delivery requirement is satisfied through words or conduct evidencing the grantor’s intent that that title pass immediately and irrevocably. Without adequate delivery, there is no conveyance of title to the intended grantee.

Question 46

T/F: An easement that is beneficial, visible, or known to the buyer does not impair the marketability of title.

Answer 46

True.

Question 47

T/F: Buyer cannot claim that title is unmarketable because it is subject to a mortgage prior to closing, if the closing will result in a marketable title.

Answer 47

True. Seller has right to satisfy a mortgage or lien at closing with the proceeds of the sale.

Question 48

If closing has already occurred, can the buyer hold the seller liable for implied covenant of marketability?

Answer 48

No. Once the closing occurs and the deed changes hands, the seller is no longer liable on this implied contractual covenant. The seller is liable only for express promises made in the deed.

Question 49

T/F: Sale contracts normally require buyer to deposit “earnest money.”

Answer 49

True. If required, in case of buyer defaulting the seller may retain this money as liquidated damages.

Question 50

Is a general disclaimer in the sales contract (“property sold as is” or “with all defects”) sufficient to protect seller’s liability for defects?

Answer 50

No. The disclaimer must be specific.

Question 51

What is a general warranty deed?

Answer 51

• covenant of seisin - grantor has power to covenant (title and possession)
• covenant of right to convey - authority to make grant (has title)
• covenant against encumbrances
• covenant for quiet enjoyment - not be disturbed by 3rd party’s lawful claim of title
• covenant of warranty - grantor will defend against reasonable claims by 3rd party and compensate grantee for loss

Question 52

What is a special warranty deed?

Answer 52

Similar to a general warranty deed but promises to warrant and defend title only against claims arising by, through, or under the grantor. It does not warrant against defects in title that existed before grantor was deeded the property.

Question 53

What is a quitclaim deed?

Answer 53

It releases whatever interest the grantor has. No covenants of title are included or implied.

Question 54

A seller entered into a written contract with a vintner on April 4, whereby the seller agreed to convey a vineyard to the vintner for $2 million. The terms of the contract set the closing date as June 1. At the time the seller entered into the agreement with the vintner, the seller had no interest in the vineyard. On April 15, the seller entered into a written agreement with a landowner, whom the seller believed to be the owner of the vineyard. According to the terms of the agreement, the landowner was to convey the vineyard to the seller on or before May 25. Another term of the agreement stated “time is of the essence.”

On May 24, the landowner conveyed his interest in the vineyard to the seller. When the seller went to record the deed, she discovered from records in the recorder’s office that the landowner held clear title to only seven-eighths of the vineyard. It took some time for the seller to remove the cloud from the title and procure ownership in full of the vineyard. She finally did so on August 1, and on that day she tendered a warranty deed to the vineyard to the vintner. The vintner refused to tender $2 million or any other sum to the seller, asserting that the seller had broken her agreement by failing to close on June 1. The seller then sued the vintner for specific performance.

If the vintner prevails, what is the likely reason?

B - Title was unmarketable, because the seller only owned seven-eighths of the vineyard on the closing date.

D - A two-month delay in closing is determined to be unreasonable.

Answer 54

(D) If the vintner prevails, it will be because the court determines that the seller’s two-month delay in closing was unreasonable. Generally, time is not “of the essence” in real estate contracts. This means that the closing date stated in the contract is not absolutely binding in equity, and that a party, even though late in tendering her own performance, can still enforce the contract if she tenders within a reasonable time after the date. Here, if the court finds that a two-month delay is unreasonable, the seller will not be able to specifically enforce the contract.

(B) is incorrect because the seller has a reasonable time after the date set for closing to tender performance unless the contract or circumstances indicate that time is of the essence. Here, nothing in the contract or the surrounding circumstances indicates that time was of the essence in the seller-vintner contract. Moreover, although title was unmarketable on June 1, the seller was able to clear title to the remaining one-eighth of the vineyard and tender performance to the vintner two months after the closing date. A delay of one month after the closing date has been deemed acceptable by courts where the buyer has been delayed in obtaining financing or the seller has been delayed in obtaining marketable title. Nevertheless the court could find that two months is an unreasonable delay, as in (D).

Question 55

A woman purchased a tract of land from a man by warranty deed. Unbeknownst to the woman, the man was not the actual owner of the tract. The woman built a home on the tract and moved into it. Two years later, the actual owner learned of the man’s transaction with the woman and prevented the woman from entering the tract from that point forward. This led to a costly court battle. When the woman notified the man and told him that she thought it was his duty to straighten this out, he ignored her. The statute of limitations for actions on deed covenants is fours years.

The woman would succeed in a suit for damages against the man for breach of which of the following covenants of title?

A - The covenant of quiet enjoyment only.

B - The covenants of seisin, right to convey, quiet enjoyment, warranty, further assurances, and the covenant against encumbrances.

C - The covenants of seisin, right to convey, quiet enjoyment, warranty, and further assurances.

D - The covenants of seisin and right to convey only.

Answer 55

(C) The woman would succeed in a suit for damages against the man for breach of the covenants of seisin, right to convey, quiet enjoyment, warranty, and further assurances, but not on the covenant against encumbrances. A general warranty deed gives the grantee six covenants of title: the right to seisin, the right to convey, a covenant against encumbrances, the covenant of quiet enjoyment, the covenant of further assurances, and a general warranty. Under the covenants of quiet enjoyment, warranty, and further assurances, the man promised that (i) the woman would not be disturbed in her possession of the tract; (ii) he would defend the woman’s title against lawful claims; and (iii) he would perform whatever acts are necessary to perfect the woman’s title. Because the man neither owned the tract of land nor was acting as the actual owner’s agent, he breached the covenants of seisin and right to convey at the time of the conveyance to the woman. When the actual owner prevented the woman from re-entering the property, this interfered with the woman’s quiet enjoyment, and the man’s refusal to “straighten this out” was a breach of the covenant of further assurances.

Question 56

A landowner validly conveyed a small office building to the Green Party “as long as they use it for operating quarters until the next presidential election.” After the next presidential election, which was in three years, the building would go to a private organization that monitors and prepares comprehensive listings of gas prices throughout the country. A year after the conveyance, the landowner died, validly devising all of her property to her son. Although this jurisdiction is a common law jurisdiction with respect to all real property considerations, the state’s probate laws provide that future interests or estates in real property may be passed by will or descent in the same manner as present or possessory interests. Last week, the Green Party and the gas monitoring organization joined together to sell the office building in fee simple absolute to a developer. The son filed suit to prevent the sale of the property to the developer.

In this action, who should prevail?

A - The Green Party and the gas monitoring organization, because together they own a fee simple absolute in the building.

B - The Green Party and the gas monitoring organization, because the attempted restrictions on the use of the property violate RAP.

C - The Green Party and the gas monitoring organization, because the deed restriction was an unlawful restraint on alienation.

D - The son, because he did not sign the contract of sale.

Answer 56

The son may enjoin the sale because he has an interest in the property. A fee simple determinable is an estate that automatically terminates on the happening of a stated event. The Green Party’s interest in the office building is a fee simple determinable because it lasts as long as the Party is using the building for operating quarters. But the grant does not provide for the contingency of the Green Party ceasing to use the building as operating quarters before the next presidential election. This gap would be filled by a possibility of reverter retained by the landowner. Because the landowner passed that interest to her son in her will, there can be no contract to sell the property without his signature.

Note: Although the gas monitoring organization appears to have an indefeasibly vested remainder (i.e., it is created in an ascertained company, is certain to become possessory, and is not subject to being defeated, divested, or diminished in size), its interest is not capable of taking on the natural termination of the preceding estate and so is characterized as a springing executory interest.

Question 57

An uncle’s will devised his lakefront estate “to my butler for life, remainder to my niece.” The 40-acre estate includes a mansion, a 20-acre orchard, a beach, and gardens. At the time of the uncle’s death, the butler was 40 years old and of modest means. The niece was 18 years old and quite wealthy. The estate was encumbered by a mortgage that was not entitled to exoneration. After the first year, the butler could no longer make the mortgage payments, so the niece paid them.

Ten years after the uncle’s death, the town in which the estate was located became a hot resort area. A major resort chain approached the butler with a multimillion-dollar offer for the easternmost 20 acres of the estate, which included the residence and beach. The resort chain planned to raze the mansion to erect a high-rise hotel. The butler approached the niece about the offer. He proposed to give her most of the money from the sale and offered to build any house she desired on the remaining land. The niece refused to go along with the plan. The butler decided to proceed with the sale, and the niece brought a suit to enjoin the butler’s proposed actions.

Which of the following is the niece’s best argument?

A - The eventual use of the property by the remainderman will be as a residence.

B - Destruction of the mansion constitutes waste.

Answer 57

The niece’s best argument is that destruction of the residence constitutes waste. The other choices do not present arguments giving her a chance of success.

A life tenant is entitled to all ordinary uses and profits of the land, but he cannot lawfully do any act that would injure the interests of the remainderman. A grantor intends that the life tenant have the general use of the land in a reasonable manner, but that the land pass to the owner of the remainder, as nearly as practicable, unimpaired in its nature, character, and improvements.

Even ameliorative waste, which actually increases the value of the land, is actionable if there is no reasonable justification for the change. A life tenant can substantially alter or even demolish existing buildings if (i) the market value of the future interests is not diminished and either (ii) the remainderman does not object, or (iii) a substantial and permanent change in the neighborhood conditions has deprived the property in its current form of reasonable productivity or usefulness. Here, the market value of the property would not be diminished. The remainderman (the niece), however, is objecting, making option (ii) unavailable. Furthermore, although the neighboring properties have been sold for hotels and resorts, it does not necessarily follow that the conditions have changed to such a degree that the estate should be similarly converted. The property is large enough to be somewhat isolated from the changes in the surrounding areas; thus, despite the surrounding hotels, an owner could still enjoy the land as a private residence, orchard, and beach. Therefore, the property is still useful and option (iii) is also unavailable. In this case, the life tenant’s desire to raze the mansion is not because the changes in the neighborhood have made the mansion uneconomical or impractical. The life tenant can make more money by tearing the mansion down, but its usefulness and value are apparently unaffected by the changes in the neighborhood. Thus, the niece will be able to enjoin the butler from allowing the resort chain to raze the mansion and build a hotel.