Land Sale Contracts

Question 1

Conveyance of land

Answer 1

Two step process:
1. Land sale contract (conveys equitable title - risk of loss)
-Escrow is the time between contract and closing for the buyer to conduct due diligence
2. Closing (deed passes legal title - right to possess)

Question 2

Land sale contract (S/F)

Answer 2

Statute of frauds applies to oral contracts for land:
-Must be signed by party being sued
-Must identify the parties, describe the property, and include the price or means of determining the price (in definite terms)
-Exception to statute of frauds for full performance
-Exception for part performance:
1. clear and certain terms; and
2. 2/3 of buyer possession; buyer payment of substantial portion of purchase price; and buyer made substantial improvements

Question 3

Doctrine of equitable conversion

Answer 3

Once the contract is signed, equity regards the buyer as the owner of the real property
-Risk of loss shifts to the buyer the moment the contract is signed unless the contract states otherwise
-If property is destroyed between contract and closing and is of no fault to either party, the buyer bears the risk of loss
-However, the seller must credit any fire or casualty insurance proceeds they receive against the purchase price the buyer is required to pay

If death occurs before closing,
-A deceased buyer’s interest passes as REAL property to estate
-A deceased seller’s interest (right to purchase price) passes as PERSONAL property to estate

Question 4

Two promises implied in every land sale contract

Answer 4

1. Implied covenant of marketable title
2. Implied covenant that seller will not make false statements of material fact

*NO IMPLIED WARRANTIES OF FITNESS OF HABITABILITY (BUYER BEWARE)
-Exception for sale of new home by a builder

Question 5

Implied covenant of marketable title (seller)

Answer 5

Marketable title is title reasonably free from doubt and the threat of litigation, including:
-Defects in record chain of title (i.e., adverse possession)
-Encumbrances (mortgages, liens, easements, restrictive covenants, and significant encroachments unless waived by the buyer or visible/known, beneficial easement)
-Zoning violations (no matter how small the violation)

*Seller has right to clear encumbrances with proceeds at closing
*Title must be marketable on the day of closing (not when contract signed)
*If title is not marketable, Buyer must notify Seller and allow reasonable time to cure the defect
-If Seller doesn’t cure, Buyer can (1) sue for damages; (2) specific performance for abatement (forced sale with reduction in purchase price); or (3) rescind contract

Question 6

Implied covenant that seller will not make false statements of material fact

Answer 6

Seller may be liable to Buyer after the closing for defects if they knowingly made false statements of material fact, actively concealed defects, or failed to disclose latent defects

Liability for failure to disclose requires:
1. Seller knew or had reason to know of defect
2. Seller must realize Buyer is unlikely to discover defect; and
3. Defect is serious enough that Buyer would have reconsidered purchase