LAND SALE CONTRACTS Flashcards
LAND SALE CONTRACTS
- Conveyancing starts w/ real estate K.
- Need offer, acceptance, & consideration.
- K must comply w/ SOFs & there must not be any defenses
STATUTE OF FRAUDS APPLICABLE
- SOFs requires writing signed by party being sued
- Writing must also:
(1) Identify parties
(2) Describe property, and
(3) Include price (consideration)/ means of determining price (appraisal) - Terms must be definite enough for ct to enforce K.
Tip
Don’t be fooled into thinking both parties have to
sign K. Parties are already at breach of K stage, not drafting stage. Therefore, only signature of party being sued is required.
Inaccurate Description of Land
- Sometimes land description in K will overstate/ understate amount of land being transferred.
- You’re more likely to see K overstating parcel size
Exception to Statute of Frauds—The Doctrine of Part Performance
- Part performance allows buyer to enforce oral real estate K by specific performance if:
(1) Oral K is certain & clear, and
(2) Acts of partial performance clearly prove existence of K - This second requirement is usually satisfied if buyer can prove 2 of the following:
(1) Buyer has taken possession of property
(2) Buyer has paid purchase price/ significant portion of purchase price
(3) Buyer has made substantial improvements to premises
Exception to Statute of Frauds—The Doctrine of Part Performance: Possession
- The evidence that the parties entered into a K must be unequivocal.
- There must not be any other plausible explanation for their actions.
- So, possession is good evidence, but on its own, it’s not enough.
Exception to Statute of Frauds—The Doctrine of Part Performance: Purchase Price
- What if the buyer says, “I gave the seller $200,000!
- That’s a lot of money.
- And it happens to be about how much the house is worth.”
- That’s great evidence, but by itself, it doesn’t unequivocally prove the parties had K to sell the property.
- The money may be unrelated to the property.
- Maybe the buyer is paying off a gambling debt or loaning money to seller.
Exception to Statute of Frauds—The Doctrine of Part Performance: Improvements
- Most people don’t go around fixing up houses they don’t own.
- A lot of times, people improve houses right after they buy them.
- They build a new porch, install swimming pool, pave the driveway, etc
- Usually, tenants don’t invest that type of money into a rental, but it’s possible, particularly with a long-term rental.
- So, improvements alone are not enough.
Tip
If you see an oral contract for the sale of land on
an essay question and you think the doctrine of
part performance may apply, don’t forget to state
the general rule first. Start your answer by stating that SOFs requires contracts for the sale of land be
evidenced by a writing and signed by the party being
sued. Then state that, here, the K is oral and won’t be enforceable unless it falls within an exception to the
statute. And finally, state your part performance rule and analysis.
DOCTRINE OF EQUITABLE CONVERSION
- Once we have enforceable K in place, we move into escrow period).
- Under doctrine of equitable conversion, once K is signed, equity regard buyer as owner of the real property.
- K conveys equitable title to buyer.
- By contrast, at the closing, deed conveys legal title to buyer.
- Right to possession rests w/ party who holds legal title.
- Thus, seller is entitled to possession until closing.
Risk of Loss
- K conveys equitable title to buyer.
- One important result flows from this: DESTRUCTION.
Tip
Even though risk of loss is on buyer, if property is damaged/ destroyed, seller must credit any fire/ casualty insurance proceeds they receive against purchase price buyer is required to pay
Passage of Title on Death
- What happens if one of the parties meets an unexpected end after K but b/f closing?
- The interests of departed party pass to their estate.
- So, b/c buyer is deemed to own property from moment K is signed, deceased buyer’s interest passes as real property to their estate.
- Deceased seller’s interest, right to purchase price, passes to their estate as personal property.
- K remains enforceable, w/ deceased party’s estate taking decedent’s place in the transaction.
Tip
If the property is specifically devised by will, check
to see whether ademption or exoneration rules
apply. See Conveyance by Will below.
TWO PROMISES IMPLIED IN EVERY LAND SALE CONTRACT: Seller Will Provide Marketable Title
- Every K contains an implied covenant that seller
will provide marketable title at closing. - Marketable title is title reasonably free from doubt & threat of litigation.
- Common defects that render title unmarketable are:
(1) Defects in record chain of title—usually adverse possession
(2) Encumbrances (mortgages, liens, easements, restrictive covenants)
(3) Zoning violations
Defects in Record Chain of Title
Adverse Possession
- If even a portion of title rests on adverse possession, it is unmarketable.
- Unless a suit has been brought to quiet title, title acquired by adverse possession does not appear in the record.
Encumbrances
- Ex. mortgages, liens, restrictive covenants,
easements, options to purchase, and significant encroachments render title unmarketable unless buyer has waived them.
- If encroachment is very slight (a matter of inches) & doesn’t inconvenience owner of encroached-on parcel, it won’t render title unmarketable.
- Encroachment of a foot/more likely will.
- Easement that is beneficial, visible, or known to buyer does not impair marketability of title.
Zoning Violations
- Zoning restrictions do not affect marketability, but an existing violation of a zoning ordinance does render title unmarketable.
Future Interests Held by Unborn or Unascertained Parties
- When a holder of a future interest is unborn/ unascertained, it is impossible to convey marketable title.
- Cts will not appoint a guardian ad litem to represent unborn/unascertained parties for purposes of conveying land.
Tip
Seller has right to satisfy a mortgage/lien at closing w/ sale proceeds. Thus, prior to closing, buyer cannot claim title is unmarketable b/c it is subject to a mortgage if closing will result in mortgage’s discharge.
When Title Must Be Marketable
- Title must be marketable on closing day.
- Seller has up until that time to clear up defects making title unmarketable.
- In an installment land K, seller need not provide marketable title until buyer has made his last payment.
Tip
- Avoid answer choices referring to implied
covenant of marketability of title if closing has
already occurred. - Once closing occurs & deed changes hands, seller is no longer liable on this implied contractual covenant.
- Seller is then liable only for express promises in deed.
Remedy If Title Not Marketable
- Buyer must notify seller that title is unmarketable & give seller reasonable time to cure.
- If seller fails to cure, buyer’s remedies include rescission, damages, specific performance w/ abatement, & quiet title suit.
- But if closing occurs, K & deed merge, & seller’s liability on implied contractual covenant ends
Tip
Don’t be fooled into choosing the answer that lets seller off the hook for title defects b/c K calls for a quitclaim deed. A quitclaim deed does not in any way affect the implied covenant to provide marketable title.
Seller Will Not Make False Statements of Material Fact
- 2nd implied promise is that seller will not make any false statements of material fact.
- Seller may be liable to purchaser after closing for defects if they knowingly made a false statement of material fact that buyer relied on, actively concealed a defect or failed to disclose known defects
Failure to Disclose
To be liable for failure to disclose:
(1) Seller must know/have reason to know of defect;
(2) Seller must realize that buyer is unlikely to discover defect; and
(3) Defect must be serious enough that buyer would probably reconsider the purchase.
- Factors increasing likelihood that liability will be imposed in these cases include whether property is a personal residence, whether defect is dangerous, and whether seller created defect/made a failed attempt to repair it.
Disclaimers of Liability
- Can seller avoid liability for fraud/failure to disclose by including in K general disclaimer of liability, “property sold as is” or “with all faults”?
- If disclaimer identifies specific types of defects (ex. “seller is not liable for any defects in the roof”), it will likely be upheld.
