LAND SALE CONTRACTS

Question 1

LAND SALE CONTRACTS

Answer 1

• Conveyancing starts w/ real estate K.
• Need offer, acceptance, & consideration.
• K must comply w/ SOFs & there must not be any defenses

Question 2

STATUTE OF FRAUDS APPLICABLE

Answer 2

• 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.

Question 3

Tip

Answer 3

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.

Question 4

Inaccurate Description of Land

Answer 4

• Sometimes land description in K will overstate/ understate amount of land being transferred.
• You’re more likely to see K overstating parcel size

Question 5

Exception to Statute of Frauds—The Doctrine of Part Performance

Answer 5

• 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

Question 6

Exception to Statute of Frauds—The Doctrine of Part Performance: Possession

Answer 6

• 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.

Question 7

Exception to Statute of Frauds—The Doctrine of Part Performance: Purchase Price

Answer 7

• 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.

Question 8

Exception to Statute of Frauds—The Doctrine of Part Performance: Improvements

Answer 8

• 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.

Question 9

Tip

Answer 9

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.

Question 10

DOCTRINE OF EQUITABLE CONVERSION

Answer 10

• 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.

Question 11

Risk of Loss

Answer 11

• K conveys equitable title to buyer.
• One important result flows from this: DESTRUCTION.

Question 12

Tip

Answer 12

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

Question 13

Passage of Title on Death

Answer 13

• 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.

Question 14

Tip

Answer 14

If the property is specifically devised by will, check
to see whether ademption or exoneration rules
apply. See Conveyance by Will below.

Question 15

TWO PROMISES IMPLIED IN EVERY LAND SALE CONTRACT: Seller Will Provide Marketable Title

Answer 15

• 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

Question 16

Defects in Record Chain of Title

Answer 16

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.

Question 17

Tip

Answer 17

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.

Question 18

When Title Must Be Marketable

Answer 18

• 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.

Question 19

Tip

Answer 19

• 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.

Question 20

Remedy If Title Not Marketable

Answer 20

• 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

Question 21

Tip

Answer 21

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.

Question 22

Seller Will Not Make False Statements of Material Fact

Answer 22

• 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

Question 23

Failure to Disclose

Answer 23

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.

Question 24

Disclaimers of Liability

Answer 24

• 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.

Question 25

NO IMPLIED WARRANTIES OF FITNESS OR HABITABILITY

Answer 25

• Land K contains no implied warranties of fitness/ habitability. Caveat emptor is CL norm.

Question 26

Exception—New Home Construction

Answer 26

• Most cts recognize a warranty of fitness/quality in sale of new home by builder.

Question 27

Negligence of Builder

Answer 27

• Person may sue builder for negligence in performing a building K.
• Some cts permit ultimate buyer to sue builder despite lack of privity.

Question 28

TIME OF PERFORMANCE

Answer 28

• Time is not “of the essence” in real estate Ks.
• Closing date isn’t absolutely binding, party late in tendering their own performance can still enforce K if they tender w/in a reasonable time (ex, 2 months) after closing date.

Question 29

When Presumption Overcome

Answer 29

• Time is of the essence if:
  (1) K so states,
  (2) circumstances indicate that was parties’ intent, or
  (3) one party gives other notice that time is of the essence.

Question 30

Liability

Answer 30

• If time is of the essence, a party who fails to tender performance on closing day is in breach & may not enforce K
• Even if time is not of the essence, party who is late in tendering performance is liable for incidental losses.

Question 31

TENDER OF PERFORMANCE

Answer 31

• Buyer’s & seller’s obligations are concurrent conditions; so, neither party is in breach until other tenders performance (even if closing date passes).
• If neither party tenders performance, closing date is extended until one of them does so.

Question 32

When Party’s Tender Excused

Answer 32

• A party is excused from performing if other party has repudiated K or it is impossible for other party to perform, such as when unmarketable title can’t be cured.

Question 33

REMEDIES FOR BREACH OF SALES CONTRACT

Answer 33

• The nonbreaching party is entitled to damages (difference between K price & market value on date of breach, plus incidental costs) or, b/c land is unique, specific performance.
• Note that if buyer wishes to proceed despite unmarketable title, they can usually get specific performance w/ a reduction of purchase price.

Question 34

Liquidated Damages

Answer 34

• Sales Ks usually require buyer to deposit “earnest
  money” w/ seller & provide that if buyer defaults
  in performance, seller may retain this money as liquidated damages.
• Cts routinely uphold seller’s retention of earnest money if amount appears to be reasonable in
  light of seller’s anticipated & actual damages.

Question 35

REAL ESTATE BROKERS.

Answer 35

• Real estate brokers are seller’s agents but should
  disclose material info about property if they have actual knowledge of it.
• Traditionally, agents earned their commissions when they produced a buyer who was ready, willing, and able to purchase the property.
• Therefore, commission was owed regardless of whether deal actually closed.
• The growing trend, however, is to award commission only if sale actually closes or if it fails to close b/c of fault of seller

Question 36

Exclusive Listing Agreements

Answer 36

• Under an exclusive listing agreement w/ a real estate broker, broker’s best efforts to sell property is consideration for broker’s commission.
• “Best efforts” includes expenditure of time, effort, or money.
• If property is sold by seller/another agent during listing period, seller still may have to pay a commission.
• Exclusive agency agreements prohibit listing property w/ other brokers during time of the listing.
• Exclusive right-to-sell agreements additionally preclude seller from selling property themselves w/o paying commission.

Question 37

TITLE INSURANCE

Answer 37

• Title insurance policy insures that a good record title of property exists as of policy’s date & promises to defend record title if litigated.
• An owner’s policy protects only person who owns policy (usually property owner/ mortgage lender) and does not run w/ the land to subsequent purchasers.
• A lender’s policy follows any assignment of mortgage loan.