Land Purchase_Sale

Question 1

2-step process for every conveyance of real estate

What are the 2 steps in the conveyance of real estate?

Answer 1

Step #1) The land Contract, which endures UNTIL…

Step #2) The closing, where the DEED becomes the operative document

Question 2

RISK of LOSS

How is risk of loss apportioned in land sales?

NOTE: NY Distinction

Answer 2

The standard method of assesing the risk of loss is to apply the doctrine of Equitable Conversion

Equitable Conversion is the doctrine where “equity regards as done, that which ought to be done”

Under Equitable Conversion, once the contract is signed, the BUYER IS THE OWNER of he land (subject to the condition to pay purchase price at closing)

At sigining, the risk of loss (i.e. destruction without FAULT) is on the BUYER (i.e. has to pay FULL K price), UNLESS the K states otherwise

**NY DISTINCTION: in NY so long as the buyer is w/out fault, the risk of loss remains with the SELLER until the buyer takes possession

Question 3

REQUIREMENTS OF A LAND CONTRACT

What are the requirements of the land K?

Answer 3

A land contract must be:

1. a SIGNED WRITING
2. DESCRIBING the land, and
3. STATING the CONSIDERATION

RQMT #1) The land K must be in WRITING, signed by the would-be ∆ (p/t SOF)

SOF EXCEPTION = 
the "DOCTRINE of PART PERFORMANCE" = if you have TWO of the following THREE elements the the SoF has been SATISFIED and you DON'T need a signed writing...									
EITHER (choose 2 of 3):
A. Buyer takes possession;
B. Buyer pays ALL or PART of the price;
C. Buyer makes subtl improvements

RQMTS #2 and #3) Th land K must describe Blackacre and state some consideration?

Note: When the amt of land recited in the K is MORE than the actual size of the parcel, the REMEDY is specific performance w/a pro rata reduction in price

Question 4

IMPLIED PROMISES IN EVERY LAND CONTRACT

What are the 2 implied promises in everyland K?

What is NOT an implied promise?

**GUARANTEED BAR QUESTION

Answer 4

The 2 implied promises by a seller in everyland contract are:

1) promise to provide MARKETABLE title at the closing; AND
2) promise not to make any false stmt of material fact
BUT NOT
3) NO warranty of fitness or habitability
————————————————————————————
1) Seller’s promises to provide MARKETABLE title at the closing
The standard = the title is free from reasonable doubt, including free from litigation or the threat of litigation

3 circumstances that will lead to UNMARKETABLE TITLE

1) Adverse Possesion: Title acq’d by adverse possession, even if just PART of the title was acquired by adverse possession will render the Title unmarkatable
→ Seller must be able to provide good record title
→ BUT, if the seller brings a successful CoA to quiet title and is successful, then CAN sell

2) Encumberances: Marketable title means an unencumbered fee simple, thus no servitudes or mortages, UNLESS waived by the buyer

NOTE: seller obvi will have a right to satisfy the existing mortgage w/ sale proceeds

3) Zoning violations: Title is unmarketable when it violate a zoning ordinance.
→ Note when blackacre is merely subject to an adverse zoning rqmt that it is in compliance with then title is still marketable
————————————————————————————
2) Seller promises not to make any FALSE STATEMENT of material fact

ALSO – In the majority of states, Seller is liable for failure to disclose LATENT material defects— and Seller is liable for any MATERIAL LIES and OMISSIONS

BUYER CANNOT WAIVE SELLER’S LIABILITY FOR FRAUD or FAILURE to disclose
→ Even if contract states a general disclaimer of liability (e.g. “property sold as is”), it wont relieve seller from liability for FRAUD or FAILURE to disclose
————————————————————————————
3) The land contract contains no implied warranties of fitness or habitability

The common law norm is CAVEAT EMPTOR (BUYER BEWARE)

Question 5

Do land Ks contain implied warranties of fitness OR habitability?

Answer 5

At common law, NO! (caveat emptor)

EXCEPTION: the implied warranty of fitness and workmanlike construction APPLIES to sale of a NEW home by a BUILDER vendor

Question 6

THE DEED

What is the purpose of a deed?

Answer 6

The deed is the second step for a conveyance of real estate after the Title

the PURPOSE of the deed is that at closing, the deed PASSES legal title from the seller to the buyer

Question 7

REQUIREMENTS FOR DEED TO PASS LEGAL TITLE

What are the 4 requirements for a deed to pass legal title?

Answer 7

Thew deed pass legal title from seller to buyer WHEN it is LEAD”: Lawfully Executed And Delivered.

(LE) Lawful execution of the deed
(AD) And Delivery of the deed

Question 8

LAWFUL EXECUTION OF THE DEED (LE)

What is the std for the lawful execution of a deed?

Answer 8

The standard for lawful execution of the deed = the deed must be:
(1) in WRITING (signed by the grantor); AND

(2) have a DESCRIPTION of the land
Note: The land description doesn’t have to be perfect, just an UNAMBIGUOUSdescription to be a good LEAD → YES, ACCEPTABLE: “All of O’s land” (we can know the meaning of all through research)
→ NO, NOT ACCEPTABLE: “Some of O’s land” (even with research we will not know the meaning of some)

NOTE: need not recite consideration, NOR must consideration pass to make a deed valid (the contract MUST state consideration though)

Question 9

DELIVERY REQUIREMENT FOR A DEED

What is requirements for a deed to be properly “delivered”?

Answer 9

For a lawfully executed and delivered deed, the “Delivery” requirement is accomplished…

1) When grantor PHYSICALLY transfers deed to the grantee (via the mail, an agent OR a messenger);

HOWEVER, a PHYSICAL TRANSFER of the INSTRUMENT itself is NOT REQUIRED

The standard for delivery is a legal standard, and is a test solely of PRESENT INTENT. IF grantor had the present intent to be BOUND then grantor will be bound irrespective of whether or not the deed itself was handed over. (**GUARANTEED TEST QUESTION)

2) When the deed has been LEGALLY transferred (governed by grantor’s present INTENT); OR
3) When delivered by ESCROW (via an escrow agent once conditions are met);

BUT

4) NOT when the grantee expressly REJECTS the deed

NOTE: if deed (absolute on its face) is transferred to grantee with an ORAL condition, the ORAL condition DROPS OUT (it’s not provable), BUT delivery is deemed to be accomplished

So cannot have a fee subject to an ORAL condition if the delivery of the deed has occurred then it is a fee simple

BUT ESCROW IS ALLOWED
Grantor may deliver an executed deed to a third party, known as an Escrow Agent, with instructions that
the deed be delivered to grantee once certain conditions are met. Once the conditions are met, title then passes to the grantee.

Question 10

TYPES OF DEEDS

What are the 3 types of deeds?

NOTE: NY Distinction

Answer 10

Covenants for title and the three types of deed:

1) The quitclaim deed (containing NO cov’ts) (the “Shaggy Deed”)
2) The general warranty deed (containing 6 cov’ts) (The “Mother Theresa Deed”)

3) The statutory special warranty deed (containing 2 cov’ts)
* ***NY DISTINCTION: in NY known as a “bargain and sale deed”

Question 11

THE QUITCLAIM DEED

What is a quitclaim deed?

“The Shaggy Deed”

Answer 11

The Quitclaim Deed = A deed that contains NO COV’TS

Grantor isn’t promising that the deed won’t have any post-closing issues and grantor isn’t even promising that he has Title to convey

The sales K ONLY has an implied promise to deliver marketable title at CLOSING. Any problems post-closing and grantor is off the hook.

The WORST possible deed for a buyer

Question 12

THE GENERAL WARRANTY DEED

What is a general warranty deed AND it’s 6 cov’ts?

“The Mother Theresa”

Answer 12

This is the BEST DEED a buyer could hope for!

3 present cov’ts whereSOL starts running from the instance of delivery at closing

1) Cov’t of seisin = promise that the grantor owns this estate
“I own this ish”

2) Cov’t of right to convey = promise that grantor has the pwr to trnfr (i.e. he’s under no RESTRAINT or DISABILITY like age/sound mind)
“I run this bitc$”

3) Cov’t against encumbrances = promise that there are NO servitudes or mortgages on blackacre
“Ain’t nothing holding us back”
————————————————————————————
3 future cov’ts where SOL for breach does not begin to run UNTIL the breach occurs (e.g. the date of the disturbance) b/c a future covenant cannot be breached, if ever, until the grantee is disturbed while IN POSSESSION

1) Cov’t for quiet enjoyment = promise that grantee won’t be DISTURBED in possession by a 3d party’s lawful claim of title
2) Con’t of warranty = promise that grantor will defend grantee against lawful claims of title asserted by others (indemnification)
3) Cov’t for further assurances = promise that grantor will do what’s needed to perfect to the title in the future (post-closing)

Question 13

THE STATUTORY SPECIAL WARRANTY DEED

What is a statutory special warranty deed AND its 2 cov’ts?

“The Selfish Deed”

NOTE: NY Distinction

Answer 13

The statutory special warranty deed is a deed that’s provided for by statute in many states and it contains TWO promises that the grantor makes ONLY on behalf of himself (and NOT on behalf of his predecessors)

1) Grantor promises that he hasn’t conveyed this estate to anyone other than grantee
2) Grantor promises that the estate is free from encumbrances MADE BY the grantor

**NY DISTINCTION: in NY this type of deed is called a bargain and sale deed

Question 14

SHELTER RULE

What is the shelter rule?

(GUARANTEED EXAM QUESTION)

Answer 14

Scenario:
O→A (does NOT record);
O→B, BFP (records);
B→C (C is B’s heir, and has knowledge of O→A transaction, so NOT a BFP)

Shelter rule says…C takes shelter in B’s BFP status (steps into B’s shoes)
→ RULE: One who takes from a BFP will prevail against any entity that transferor or BFP would have prevailed against
→ PURPOSE: Protects B, and BFP’s right to transfer land
→ C wins, in both a notice and race-notice state,
because of THE SHELTER RULE. C steps into the shoes
of B, who was a BFP who recorded first EVEN IF C had actual notice of the O→A transaction, so NOT a BFP!

Question 15

BONA FIDE PURCHASER

What is a bona fide purchaser (BFP)?

What 2 requirements MUST be met to be a BFP?

Answer 15

Bona Fide Purchaser (BFP) =

1) Purchases land for value; AND

2) Does NOT have NOTICE of another’s claim to the land “Notice” = “A-I-R” (A) Actual Notice;
(I) Inquiry Notice (whatever land exam would’ve revealed);
(R) Record (properly recorded)
————————————————————————————
(A) Actual: this means that prior to the closing, the purchaser must have actually learned that there is prior BFP

(I) Inquiry: whether he looks or not, a party is on inquiry notice of whatever an inspection would have revealed
→ The buyer of real estate has a duty to INSPECT before transfer of title, to see, for example, whether anyone else is in possession. If another is in possession, the buyer will be DEEMED to have INQUIRY NOTICE regardless of whether the buyer actually bothered to inspect or not.
→ NOTE: If a recorded instrument makes reference to an unrecorded transaction, the grantee is on inquiry notice of whatever reasonable follow-up would have uncovered

(R) Record: whether he looks or not, a party is on record notice IF a deed was recorded properly within the chain of title

Question 16

DESCRIPTION OF NOTICE STATUTE vs. RACE-NOTICE STATUTE

How do you identify a notice statute vs. a race-notice statute?

NOTE: NY DISTINCTION

Answer 16

1) NOTICE STATUTE = “A conveyance of an interest in land shall NOT be valid against any subsequent purchaser for value, without notice thereof, unless the conveyance is recorded.”
→ In a NOTICE state the LAST BFP ALWAYS WINS!
→ It doesn’t matter if the last BFP loses the race to record after making the BFP (but if a prior BFP records BEFORE the next next party becomes a full BFP then that second party’s action will be defeated as they will not be able to claim BFP status)
→ It doesn’t matter if the last BFP NEVER records (although NOT recommended b/c double dealer could keep on w/nefarious ways)

2) RACE-NOTICE STATUTE(**NY!!) = “Any conveyance of an interest in land shall NOT be valid against any subsequent purchaser for value, without notice thereof, whose conveyance is 1st recorded”
→ To prevail, the party MUST be a BFP AND MUST Win the race to record!

• *****IMPORTANT: Recording acts exist to protect ONLY:
  i) Bona Fide Purchasers; AND
  ii) Mortgagees

Question 17

ESTOPPEL BY DEED

What is estoppel by deed?

Answer 17

SCENARIO:
A owns Blackacre in 1950
X→A (1950) (X does NOT own property; A records); 
O→X (1960) (X records); 
X→B (1970) (B records); 

Estoppel by Deed = One who conveys property in which she had no interest, but subsequently acquires an interest is estopped from later denial of the validity of the initial transfer

Btwn 1960-1969 X is estopped from denying the trxn; A would win during this time…

BUT after 1970, when B is a BFP, he’d have title under rnjx and njx

A’s recording in 1950 is a nulltity b/c B is allowed to operate under the assumption that NO ONE SELLS LAND UNTIL THEY FIRST OWN IT

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Question 18

THE WILD DEED

What is a wild deed?

Answer 18

Scenario:
O→A (A does NOT record);
A→ B (B records) (recording VOID b/c it is of a wild deed)

A→B = WILD DEED
Wild deed = a recorded deed that has a grantor (here A) unconnected to the chain of title (b/c A never recorded the O→A transfer)

A wild deed INCAPABLE of giving record notice to subsequent BFPs → so the last grantor with GOOD title can STILL convey to another BFP

B’s recording is VOID

Here, if O→C (BFP; records), then the A→B wild deed does NOT give C notice; C WINSin both rnjx ORnjx !!!!!

Question 19

DOUBLE DEALER BRIGHTLINE RULES

What are the 2 Brightline rules when dealing with “a case of the double dealer”

NOTE: NY DISTINCTION

Answer 19

Scenario:
First: O→A
Second: O→B
O is a double dealer and he has skipped town. In the battle of A vs. B, who wins?

Remember two brightline rules:
1) If B is a BONA FIDE PURCHASER, and we are in a NOTICE JURISDICTION, B wins, regardless of whether or not she records before A does.

2) If B is a BONA FIDE PURCHASER and we are in a RACE-NOTICE JURISDICTION, the FIRST person to properly record will win.
* ***Note: NY DISTINCTION: New York is a race-notice jurisdiction

Question 20

PROPERLY RECORDING THE DEED IN THE CHAIN OF TITLE AND 3 DISCRETE CHAIN OF TITLE PROBLEMS

Answer 20

To GIVE record NOTICE to subsequent takers, the DEED must be RECORDED PROPERLY, within the CHAIN OF TITLE, which refers to that sequence of recorded documents capable of giving record notice. In most states, the chain of title is established through a title search of the grantor-grantee index

The 3 chain of title problems that may exist are:

1) The Shelter Rule
2) The problem of the Wild Deed
3) Estoppel by Deed