Land Sale Contracts Flashcards
Land sale contract and the SoF
Transfers of interest in land must be in writing signed by the party against whom enforcement is sought (SoF). The writing must describe:
- Who the parties are,
- Which parcel is being conveyed, and
- What consideration is being supplied
Two Steps to Convey of Title
- Land Contract (conveys equitable title)
- Closing (deed passes legal title)
What is the Escrow Period
Gap in time between contract and closing
B enters into a contract to purchase a farm. The contract recites that the farm is 100 acres. When B has a survey done, B learns that the farm is actually 98 acres. What is B’s remedy?
B is entitled to specific performance with a pro rata reduction in price
Partial Performance as an Exception to the SoF
A buyer can enforce an oral real estate contract by specific performance ONLY IF:
- The oral contract is certain and clear
- The acts of partial performance clearly prove the existence of a contract
Sufficient acts of partial performance= 2/3 of these:
- Buyer has taken possession of the property
- Buyer has paid the purchase price (or a significant portion of it)
- Buyer has made substantial improvements to the premises
Equitable Conversion Rule
Once the contract is signed, it conveys EQUITABLE title to the buyer.
At the closing, the deed conveys LEGAL title to the buyer.
The right to possession rests with the party who holds legal title. Thus, seller is entitled to possession until closing.
Who Bears the Risk of Loss on Real Estate Contracts?
Buyer bears risk of loss from the moment the contract is signed UNLESS contract says otherwise.
If the property is damaged or destroyed before closing, buyer bears the loss unless contract says otherwise.
Two Implied Promises in Every Land Sale Contract
- Seller Will Provide Marketable Title
- Seller Will Not Make False Statements of Material Fact
Seller’s Promise to Provide Marketable Title
Implied promise to provide title reasonably free from doubt/threat of litigation at closing
Common defects:
i. Chain of Title (most often, title acquired by adverse possession is not marketable title)
ii. Encumbrances (mortgages, liens, easements, restrictive covenants) UNLESS the buyer has waived them
iii. Zoning Violations
Title must be marketable on the day of closing
Remedy If Title Not Marketable:
- Buyer must notify the seller and give seller reasonable time to cure the defects. If the seller does not cure, then buyer can do rescission, damages, specific performance with abatement, and a quiet title suit.
- If closing occurs, the contract and deed merge, and the seller’s liability on the implied contractual covenant ends.
Seller’s Promise to Not Make False Statements of Material Fact
Seller may be liable to the buyer after closing for any false statements of material fact if:
(1) They knowingly made the false statement that the buyer relied on
(2) They actively concealed a defect, or
(3) Failed to disclose known defects in the property
Seller is liable for failure to disclose latent material defects if:
i. The seller knows or has reason to know of the defect,
ii. The seller realizes the buyer is unlikely to discover the defect, and
iii. The defect is serious enough that the buyer would probably reconsider the purchase.
Seller’s Disclaimers of Liability for Fraud or Failure to Disclose
Ok if the disclaimer identifies specific types of defects (e.g., “seller not liable for any defects in roof)
BUT general disclaimers are not permitted (e.g., “property sold as is”)
Implied Warranties of Fitness or Habitability in Land Sale Contracts
NONE of these in land sale contracts. Caveat Emptor is the CL norm.
Exception: sale of new home by builder
Time of Performance in a Real Estate Contract
Presumption that time is not of the essence in real estate contracts. A party late in tendering their own performance can still enforce the contract if they tender within a reasonable time (e.g., 2 months). However, they may be liable for incidental losses.
However, this presumption is overcome if:
(1) the contract says so
(2) the circumstances indicate that was the parties’ intent
(3) one party gives the other notice that time is of the essence.
If time is of the essence, the breaching party may not enforce the contract.
Tender of Performance by Both Parties
The buyer’s and seller’s obligations are concurrent, so neither party is in breach until the other tenders performance (even if the closing date passes).
If neither party tenders performance, the closing date extends until one of them does so.
Breach of a Land Sale Contract
Non-breaching party is entitled to damages (difference between contract price and market value on the date of breach, plus incidental costs)
OR
Specific performance
OR
The buyer can proceed with the sale despite unmarketable title with an abatement of the purchase price.
