Land Sale Contracts

Question 1

Common Issues Before Closing

Answer 1

• 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

Question 2

Process for Conveyance of Real Estate

Answer 2

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

Question 3

Common Issues After Closing

Answer 3

• problems between buyer + seller are less common after closing
• most likely to be that title issues or encumbrances are discovered after closing

Question 4

Land Sale Contracts - General

Answer 4

• same as other contracts - need offer, acceptance, and consideration
• must comply with SOF
• must not be any defenses to enforcement

Question 5

Statute of Frauds - Applicability + Requirements to Satisfy

Answer 5

• 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)

Question 6

Exception to Statute of Frauds

Answer 6

• 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

Question 7

Doctrine of Part Performance - Reminder for Essay Q’s

Answer 7

• 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

Question 8

Doctrine of Equitable Conversion

Answer 8

• 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

Question 9

Doctrine of Equitable Conversion - Risk of Loss

Answer 9

• 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

Question 10

Doctrine of Equitable Conversation - Passage of Title on Death

Answer 10

• 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

Question 11

Two Promises in Every Land Sale Contract

Answer 11

• Seller will provide Marketable Title
• Seller will not Make False Statements of Fact

Question 12

Promise to Provide Marketable Title

Answer 12

-every K contains implied covenant that seller will provide marketable title at closing
- marketable title = title reasonably free from doubt + threat of litigation

Question 13

Common Defects That Render Title Unmarketable

Answer 13

• defects in record chain of title (most often, adverse possession)
• encumbrances (mortgages, liens, easements, restrictive covenants)
• zoning violations

Question 14

Defects in Record Chain of Title

Answer 14

• 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

Question 15

Defects in Record Chain of Title - Easements

Answer 15

• 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

Question 16

Mortgages + Seller’s Rights Re Marketability

Answer 16

• 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

Question 17

Defects in Record Chain of Title - Zoning Violations

Answer 17

• zoning restrictions don’t affect marketability
• BUT an existing violation of a zoning ordinance renders title unmarketable

Question 18

Defects in Record Chain of Title - Future Interests Held by Unborn or Unascertained Parties

Answer 18

• 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

Question 19

When Title Must Be Marketable

Answer 19

• 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

Question 20

Implied Covenant of Marketability - Exam Tip Re Closing

Answer 20

• 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

Question 21

Remedy if Title Not Marketable

Answer 21

• 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

Question 22

Quitclaim Deed and Marketable Title

Answer 22

• 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

Question 23

Implied Promise Not to Make False Statements of Material Fact

Answer 23

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

Question 24

Failure to Disclose - Requirements for Liability

Answer 24

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

Question 25

Failure to Disclose - Factors Increasing Likelihood That Liability Will be Imposed

Answer 25

• 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

Question 26

Disclaimers of Liability

Answer 26

• 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”)

Question 27

Land K’s and Warranties of Fitness/Habitability

Answer 27

• 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

Question 28

Time of Performance

Answer 28

• 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)

Question 29

Timing of Performance - When Timing IS of the Essence

Answer 29

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

Question 30

Timing of Performance - Liability

Answer 30

• 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

Question 31

Tender of Performance

Answer 31

• 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

Question 32

When Party’s Tender Excused

Answer 32

• happens if other party has repudiated the K
  OR
• impossible for other party to perform (ex: unmarketable title can’t be cured)

Question 33

Remedies for Breach of Sales Contract

Answer 33

• 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

Question 34

Liquidated Damages

Answer 34

• 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

Question 35

Real Estate Brokers

Answer 35

• 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

Question 36

Exclusive Listing Agreements

Answer 36

• 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)

Question 37

Title Insurance

Answer 37

• 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