Land Sale Contracts Flashcards
Common Issues Before Closing
- known as escrow period
- various things could cause either party to try to back out
-> buyer could learn of defects, termites, bad plumbing, etc
-> seller may discover can get better price + want to rescind - if property damaged or destroyed during this time, buyer bears costs
Process for Conveyance of Real Estate
Two steps:
1- land contract -> conveys equitable title -> endures until step 2
2 - Closing -> deed passes legal title + becomes the operative doc (no more contract)
- note that prior to closing, Contract Law applies, vs. after, Real Property law applies
Common Issues After Closing
- problems between buyer + seller are less common after closing
- most likely to be that title issues or encumbrances are discovered after closing
Land Sale Contracts - General
- same as other contracts - need offer, acceptance, and consideration
- must comply with SOF
- must not be any defenses to enforcement
Statute of Frauds - Applicability + Requirements to Satisfy
- b/c real estate K involves interest in land, SOF requires writing signed by the party against whom enforcement sought
-> BOTH parties need to be identified, but only the party you’re enforcing against needs to have signed - terms must be definite enough for court to enforce K-> need to be able to tell who the parties are, which parcel being conveyed, + what consideration is being supplied
Elements Required to Satisfy SOF:
- identify the parties
- describe the property
- include the price (consideration) or a means of determining the price (ex: fair market value as determined by an appraisal)
Exception to Statute of Frauds
- doctrine of part performance
Allows buyer to enforce an oral real estate K by specific performance if:
- the oral contract is certain and clear AND
- the acts of partial performance clearly prove the existence of a K -> need 2 out of 3:
-> buyer has taken possession of property
-> buyer has paid purchase price or significant portion of it
-> buyer has made substantial improvements to premises
Doctrine of Part Performance - Reminder for Essay Q’s
- DON’T FORGET TO STATE THE GENERAL RULE FIRST
- if you think this doctrine applies, you need to make it clear first that you know it’s an EXCEPTION to the rule
-> start by stating that the Statute of Frauds generally requires all contracts for the sale of real estate to be in writing + signed by the party being sued
-> THEN you can note that the K in the exam q is oral + won’t be enforceable unless it falls within an exception to the statute
-> THEN you state the doctrine of part performance rule and apply it to the facts
Doctrine of Equitable Conversion
- says that once the K is signed, the buyer is considered the owner of the property in equity
- vs. legal title is transferred at closing -> right of possession belongs to property w/ legal title, so seller still has that
Doctrine of Equitable Conversion - Risk of Loss
- risk of loss is on the buyer once the K is signed
- BUT seller needs to credit any fire or casualty insurance proceeds they receive against the purchase price the buyer is required to pay
Doctrine of Equitable Conversation - Passage of Title on Death
- b/c buyer is deemed owner of the property once the K is signed, the buyer’s interest passes to their estate as REAL PROPERTY if the buyer dies
- vs. seller has the right to the purchase price -> passes to their estate as personal property
- K remains enforceable -> whoever dies, their estate takes their place in the real estate transaction
Two Promises in Every Land Sale Contract
- Seller will provide Marketable Title
- Seller will not Make False Statements of Fact
Promise to Provide Marketable Title
-every K contains implied covenant that seller will provide marketable title at closing
- marketable title = title reasonably free from doubt + threat of litigation
Common Defects That Render Title Unmarketable
- defects in record chain of title (most often, adverse possession)
- encumbrances (mortgages, liens, easements, restrictive covenants)
- zoning violations
Defects in Record Chain of Title
- adverse possession -> unmarketable if even a portion of the title rests on adverse possession
-> unless a suit has been brought to quiet title, title acquired by adverse possession doesn’t appear in the record - encumbrances: mortgages, liens, restrictive covenants, easements, options to purchase, + significant encroachments render title unmarketable unless buyer waived
-> note that encroachment might not count if it’s very slight (matter of inches) + doesn’t inconvenience other parcel
Defects in Record Chain of Title - Easements
- generally render title unmarketable unless buyer has waived
- BUT doesn’t impair marketability if beneficial, visible, or known to the buyer
-> buyer generally presumed to have contracted to accept the land subject to visible/obvious easements
Mortgages + Seller’s Rights Re Marketability
- seller has right to satisfy a mortgage or lien at closing w/ the proceeds of the sale
- means that prior to closing, buyer can’t claim title is unmarketable because it is subject to a mortgage if the closing will result in the discharge of that mortgage
Defects in Record Chain of Title - Zoning Violations
- zoning restrictions don’t affect marketability
- BUT an existing violation of a zoning ordinance renders title unmarketable
Defects in Record Chain of Title - Future Interests Held by Unborn or Unascertained Parties
- IMPOSSIBLE to convey marketable title when a holder of a future interest is unborn or unascertained
- courts won’t appoint a guardian ad litem to represent the unborn or unascertained parties for purpose of conveying the land
When Title Must Be Marketable
- ON THE DAY OF CLOSING
- seller has up until that time to clear up whatever defect is making the title unmarketable
- in an installment land K, seller need not provide marketable title until buyer has made his last payment
Implied Covenant of Marketability - Exam Tip Re Closing
- once closing occurs + deed changes hands, seller is NO LONGER LIABLE on this implied covenant
-> liable only for express promises made in the deed - SO on exam, AVOID answer choices referring to implied covenant of marketability if closing has already occurred
Remedy if Title Not Marketable
- buyer must notify seller that title is unmarketable + give seller reasonable time to cure defects
- 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
Quitclaim Deed and Marketable Title
- book notes NOT to be fooled into letting seller off hook for title defects b/c K calls for quitclaim deed
- quitclaim deed does NOT affect implied covenant to provide marketable title
Implied Promise Not to Make False Statements of Material Fact
Seller may be liable to purchaser after closing for defects (leaky roof, flooding basement, termite infestation) if:
- knowingly made a false statement of material fact that the buyer relied on
- actively concealed a defect OR
- failed to disclose known defects in the property
Failure to Disclose - Requirements for Liability
To be liable for failure to disclose:
- seller must know or have reason to know of the defect
- seller must realize that the buyer is unlikely to discover the defect AND
- defect must be serious enough that the buyer would probably reconsider the purchase
Failure to Disclose - Factors Increasing Likelihood That Liability Will be Imposed
- whether the property is a personal residence
- whether the defect is dangerous
- whether the seller created the defect or made a failed attempt to repair it
Disclaimers of Liability
- if the disclaimer identifies specific types of defects (ex: “not liable for any defects in the roof”) likely upheld
- think unlikely to be upheld though if more general (“with all faults” or “sold as is”)
Land K’s and Warranties of Fitness/Habitability
- DON’T APPLY -> no such warranties in land K’s
- caveat emptor = common law norm
- EXCEPTION: new home construction -> most courts recognize warranties if new home sold by builder
-> may sue builder for negligence in performing a building K
Time of Performance
- courts presume time NOT “of the essence” in real estate K’s
-> closing date NOT absolutely binding
-> party late in tendering own performance can still enforce K if tender w/in reasonable time of closing date (ex: two months)
Timing of Performance - When Timing IS of the Essence
Presumption re timing overcome when:
1) contract so states
2) circumstances indicate that was the parties’ intent OR
3) one party gives the other notice that time is of the essence
Timing of Performance - Liability
- if timing IS of the essence, a party who fails to tender performance on closing date is in breach + can’t enforce K
- if time not of essence, party who performs late is liable for incidental losses
Tender of Performance
- buyer’s obligation to pay + seller’s obligation to convey are concurrent conditions
-> NEITHER party in breach until other performs
-> if neither performs, closing date is extended until one of them does so
When Party’s Tender Excused
- happens if other party has repudiated the K
OR - impossible for other party to perform (ex: unmarketable title can’t be cured)
Remedies for Breach of Sales Contract
- nonbreaching party entitled to damages (difference between contract price + market value on date of breach, plus incidental costs)
- OR b/c land unique, can get specific performance
- if buyer wishes to proceed despite unmarketable title, can usually get abatement of purchase price
Liquidated Damages
- sales K’s usually require buyer to deposit “earnest money” with the seller + provide that if buyer defaults in performance, seller may retain this money as liquidated damages
- courts routinely uphold seller’s retention of earnest money if amount appears to be reasonable in light of seller’s anticipated + actual damages
Real Estate Brokers
- seller’s agents, but should disclose material info about property if they have actual knowledge of it
- traditionally, earned their commissions when they produced buyer willing, ready, + able to purchase property
-> under this theory, commission was owed regardless of whether deal closed - BUT under growing trend, commission awarded only if sale actually closes or if it fails to close because of the fault of the seller
Exclusive Listing Agreements
- under such agreement, broker’s best efforts to sell the property = consideration for broker’s commission
- best efforts include expenditure of time, effort or money
- if property sold by seller or another agent during listing period, seller may still have to pay a commission
- might have exclusive agency agreements (no other agencies allowed) or exclusive right-to-sell agreements (seller can’t even sell solo w/o paying commission)
Title Insurance
- insures that a good record title of the property exists as of the policy’s date + promises to defend the record title if litigated
- owner’s policy protects only the person who owns the policy + doesn’t run w/ land to subsequent purchasers (though could go to successors by operation of law, i.e. heirs/devisees)
- lender’s policy follows any assignment of the mortgage loan
