Land Sale Contracts Flashcards
Every conveyance of real estate consists of these two steps:
Every conveyance of real estate consists of a two-step process:
Step one: the land contract, which conveys equitable title. The land contract endures until step two.
Step two: the closing, where the deed passes legal title and becomes our operative document.
Keeping contract and closing seperate
The closing date is generally set in the contract. The buyer and seller typically meet on that date at a title insurer’s office or similar place to exchange the purchase price for the deed. It’s important to keep the two steps in the real estate sales separate in your mind. Before the closing, contracts rules apply. After closing, we you are strictly in the realm of real property law.
Common issues before closing
If they’re going to be problems in the sale of land, they generally arise during the period between the signing of the contract and the closing date. This is sometimes called the escrow period. During this time, any number of things could cause one of the parties to have a change of heart and try to back out of the contract. The buyer might learn of title defects, termite, or bad plumbing and wish to rescind the contract. The seller may discover that they can get a better price and want to resend the contract. What if the property is damaged or destroyed during this period? Who will bear the cost of the loss?
Common issues after closing
Problems between a buyer and seller are less common after closing. These issues are most likely to arise when title problems, or encumbrances are discovered after closing. For example, what if it turns out that the seller sold the property to multiple buyers? Or the buyer discovers after closing that a neighbor has an easement over the property or judgment creditor has a lien on the property?
Land sale contracts - generally
Conveyancing starts with the real estate contract. This contract is the same as any other in terms of what is required to make it enforceable. As always, we need an offer, acceptance, and consideration. The contract must comply with the statute of fraud and there must not be any defenses to enforcement.
Land sale contracts - SOF applicable
Because the real estate contract involves an interest in land, the statute of frauds requires a writing, signed by the party against enforcement is sought, and other words signed by the party, currently being sued. In addition to that signature, to satisfy the statue, the writing must:
Identify the parties
Describe the property
And
Include the price or a means of determining the price, such as the fair market value as determined by an appraisal.
These terms must be definite enough for a court to enforce the contract. So if a court can tell from the documents who the parties are, which parcel is being conveyed, and what consideration is being supplied, the statute is satisfied.
Land sale contracts - SOF applicable - Inaccurate description of land
Sometimes the land description in the contract will overstate or understate the amount of land being transferred. On the exam, you’re more likely to see a contract that overstates the size of the parcel. The remedy is specific performance with a pro rata reduction in price. 
Land sale contracts - SOF applicable - exception to SOF: Part performance
What happens if there is no writing or the writing fall short of the requirements? There is an exception to the statute of frauds in land contracts: the doctrine of part performance. Part performance is an equitable doctrine, allowing a buyer to enforce an oral real estate contract by specific performance if:
The oral contract is certain and clear
And
The acts of partial performance clearly prove the existence of a contract.
The second requirement is usually satisfied if the buyer can prove two of these three actions:
Buyer has taken possession of the property
Buyer has paid the purchase price or a significant portion of the purchase price
Buyer has made substantial improvements to the premises
Land sale contracts - SOF applicable - exception to SOF: Part performance - possession
Possession is good evidence, but on its own, it is not enough. This is because possession of a property could be equally plausible for it to be a tenant rather than the owner.
Land sale contracts - SOF applicable - exception to SOF: Part performance - purchase price
Giving someone a lot of money is good evidence of ownership of the property, but it does not unequivocally proved that the parties had a contract to sell the property because the money may be unrelated to the property, such as the buyer paying off gambling debt or loaning money to the seller.
Land sale contracts - SOF applicable - exception to SOF: Part performance - improvements
Most people don’t go around fixing up houses they don’t own. And while tenets don’t usually invest money into a rental it is possible, particularly with long-term rentals. So improvements alone or not enough.
Doctrine of equitable conversion - generally
Once we have the enforceable contract in place, we moved into the time between the signing of the contract and closing. This is called the escrow period. Under the doctrine in wall conversion, once the contract is signed, equity regards the buyer as the owner of the real property. the contract thus conveys equitable title to the buyer. By contrast, at the closing, the deed convey legal title to the buyer. The right to possession with the legal title. Thus, the seller is entitled to possession until closing.
Doctrine of equitable conversion - risk of loss
The buyer bears the risk of loss between contracting and closing, unless the contract says otherwise.
Even though the risk of losses on the buyer, if the property is damaged or destroyed, the seller must credit any fire or casualty insurance proceeds they receive against the purchase price the buyer is required to pay.
Doctrine of equitable conversion - passage of title on death
If one of the parties to the contract dies before closing, the interest of the decedent pass to their estate. Because the buyer is deemed to own the property from the moment, the contract is signed, that is ceased. Buyers interest passes as real property to their state. A deceased, sellers interest, the right to the purchase price, Passes to their estate as personal property. The contract remains enforceable with the deceased parties of state taking the decedent’s place in the transaction. 
Two promises implied in every land sale contract:
seller will provide marketable title
seller will not make false statements of material fact
Two promises implied in every land sale contract - seller will provide marketable title - generally
Every contract contains an implied covenant that the seller will provide marketable title at closing. Marketable title is title, reasonably free from doubt and the threat of litigation.
The common defects that render title and marketable are:
Defects in chain of title: most often adverse possession
Encumbrances such as mortgages liens, easements, restrictive covenants
Zoning violations
Two promises implied in every land sale contract - seller will provide marketable title - defects in record chain of title - adverse possession
If even a portion of the title rest on adverse possession, it is un marketable. For title to be marketable, the seller must be able to prove good title. Unless a suit has been brought to title, title acquired by adverse possession, does not appear in the record.
Two promises implied in every land sale contract - seller will provide marketable title - defects in record chain of title - encumbrances
Generally, mortgages, liens, restrictive, covenants, easements, options to purchase, and significant encroachments render title on marketable, unless the buyer has waived them. If an encroachment is very slight, as in a matter of inches, and doesn’t inconvenience the owner of the encroached on parcel, the encroachment will not render title on marketable. But, an encroachment of a foot or more likely will. An easement that is beneficial, for example, a utility easement to service the property, visible, or known to the buyer does not impair the market ability of title. Purchasers are generally presumed to have contracted to accept the land of subject to visible Easements.
Remember that a seller has the right to satisfy a mortgage or lien at closing with the proceeds of the sale. Thus, prior to closing, the buyer cannot claim the title is marketable because it is subject to a mortgage if the closing will result in that mortgage is discharge.
Two promises implied in every land sale contract - seller will provide marketable title - defects in record chain of title - zoning violations
Zoning restrictions do not affect market ability, but an existing violation of a zoning ordinance does render title unmarketable. 
Two promises implied in every land sale contract - seller will provide marketable title - defects in record chain of title - future interests held by unborn or unascertained parties
When a holder of a future interest is unborn or unascertained, it is impossible to convey marketable title. Courts will not appoint a guardian ad litem to represent the unborn or unascertained parties for the purposes of conveying land. 
Two promises implied in every land sale contract - seller will provide marketable title - when title must be marketable
Title must be marketable on the day of closing. The seller has up until that time to clear whatever defect is making the title on marketable. In an installment land contract, the seller need not provide marketable title until the buyer has made his last payment.
Remember to avoid choosing answers referring to the implied covenant of market ability of title if the closing has already occurred. Once the closing occurs and the deed changes, the seller is no longer liable on this implied contractual covenant. The seller is liable only for express promises made in the deed.
Two promises implied in every land sale contract - seller will provide marketable title - remedy if title not marketable
The buyer must notify the seller that title is unmarketable and give the seller reasonable time to cure the defects. If the seller fails to cure the defects, the buyers remedies include rescission, damages, specific performance with abatement, and a quiet title suit. But if closing occurs, the contract indeed merge, and the sellers liability on the implied contractual covenant ends.
But remember, a quitclaim does not in any way affect the implied covenant to provide marketable title.
Two promises implied in every land sale contract - Seller will not make false statements of material fact - generally
The seller will not make any false statements of material fact. The seller may be liable to the purchaser after the closing for defects, such as a leaky roof, flooding basement, or termite infestation, if they knowingly made a false statement of material fact that the buyer relied on, actively conceal the defect, or failed to disclose known defects in the property.
Two promises implied in every land sale contract - Seller will not make false statements of material fact - failure to disclose
To be liable for failure to disclose:
The seller must know or have reason to know of the defect
The seller must realize that the buyer is unlikely to discover the defect
The defect must be serious, and after the buyer would probably reconsider the purchase.
Factors increasing the likelihood that liability will be imposed. In these cases include whether the property is a personal residence, whether the defect is dangerous, and whether the seller created the defect or made a failed attempt to repair it. 
Two promises implied in every land sale contract - Seller will not make false statements of material fact - disclaimers of liability
Seller cannot avoid liability for fraud or failure to disclose by including in the contract a general disclaimer of liability, such as property is sold as is or with all faults. However, if the disclaimer identifies specific types of defects, it will likely be upheld.
No implied warranties of fitness or habitability - generally
The land contract contains no implied warranties of Fitness or habitability. Caveat emptor is the common law norm.
No implied warranties of fitness or habitability - exception
Most courts recognize a warranty of fitness or quality in the sale of a new home by a builder
No implied warranties of fitness or habitability - negligence of builder
A person may sue a builder for negligence in performing a building contract. Some courts permit the ultimate buyer to sue the builder, despite lack of privity.
Time of performance - generally
Courts presume that time is not of the essence in real estate contracts. Thus, the closing date is an absolutely binding, and a party late and tendering their own performance can still enforce the contract if they tender within a reasonable time after the closing date, for example, two months.
Time of performance - when presumption overcome
Time is of the essence if: the contract so states, the circumstances indicate that was the parties, intent, or one party gives the other notice that time is of the essence.
Time of performance - liability
If time is of the essence, a party, who fails to tender performance on the closing date isn’t breach and may not enforce the contract. Even if time is not of the essence, a party who is late and tendering performance is liable for incidental losses.
Time of performance - tender of performance
The buyers obligation to pay, and the sellers obligation to convey our concurrent conditions. 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 is extended until one of them does so.
Time of performance - when party’s tender excused
A party is excused from performing if the other party has repudiated the contract, or it is impossible for the other party to perform, such as when unmarketable title cannot be cured. 
Remedies for breach of sales contract - generally
The non-breaching party is entitled to damages of the difference between the contract price and the market value on the date of breach, plus incidental damages
Or, because land is unique, specific performance.
Note that if the buyer wishes to proceed despite on marketable title, they can usually get specific performance with an abatement of the purchase price
Remedies for breach of sales contract - Liquidated Damages
Sales contracts usually require the buyer to deposit earnest money with the seller and provide that if the buyer defaults in performance, the seller may retain this money as liquidated damages. Courts routinely uphold the sellers retention of earnest money if the amount appears to be reasonable in light of the sellers anticipated and actual damages.
Real Estate Brokers - generally
Real estate brokers are the sellers agents, but should disclose material information about the property if they have actual knowledge of it. Traditionally, agents earned their commission when they produced a buyer who was ready willing and able able to purchase the property. Therefore, the commission was owed, regardless of whether the deal actually closed. The growing trend, however, is to award the commission only if the sale actually closes or if it fails to close because of the fault of the seller.
Real Estate Brokers - exclusive listing agreements
Under an executive listing agreement with a real estate broker, the brokers best efforts to sell the property is consideration for the brokers commission. Best efforts includes expenditure of time, effort, or money. If the property is sold by the seller or another agent during the listing., The seller still may have to pay a commission. Exclusive agency agreements, prohibit listing the property with other brokers during the time of the listing. Exclusive right to seller agreements additionally preclude the seller from selling the property themselves without paying the commission.
Title insurance
A title insurance policy ensures that a good record title of the property exist as of the policies, date and promises to defend the record title if litigated.
And owners policy protects only the person who owns the policy, usually either the owner of the property and their success to the property by operation of law, such as errors or divisees, or the mortgage lender, and does not run with the land to subsequent purchasers. A lenders policy follows any assignment of the mortgage loan.
