Land sale contracts Flashcards
Implied covenant of marketable title
The implied covenant of marketable title is implied in a real property contract unless specifically disclaimed.
The covenant of marketable title looks at the effect of an encumbrance or defect on the ability of the buyer:
- to enjoy not only ownership of the property,
- but also the rights of that ownership—e.g., the ability of the buyer to subsequently sell the property.
It is sometimes characterized as protecting the purchaser from buying a lawsuit—i.e., by guaranteeing that title is free of unreasonable risk of litigation arising from encumbrances or title defects.
Implied covenant of marketable title: risks of litigation
Risks of litigation considered under the implied covenant of marketable title include those from:
(1) Title by adverse possession that has not been quieted;
(2) Private encumbrances, including mortgages, covenants, and easements;
(3) Violations of zoning ordinances;
(4) Title defects, for example:
(a) A misnamed grantor or grantee; or
(b) A variance in the description of property between different different deeds; and
(5) Opposition to the conveyance of the property by future interests in the property.
Implied covenant of marketable title: breach
The seller is not required to deliver marketable title until closing.
If a seller delivers an unmarketable title, a buyer may:
- rescind the contract and recover payments,
- sue for breach of contract, or
- bring an action for specific performance with an abatement of the purchase price.
Implied warranty of fitness or suitability
The implied warranty applies in a land sales contract for the purchase of a newly constructed residence.
Under the majority rule, both the initial homeowner–purchaser and subsequent purchases may recover damages.
By contrast, under the minority rule, only the original buyer can recover.
An action for breach of the implied warranty may be subject to statutes of limitations and repose.
Duty to disclose defects
Under the majority rule, a seller must disclose all
(1) known,
(2) physical, and
(3) material defects,
especially latent or hidden defects.
General disclaimers will not satisfy the seller’s duty to disclose, although “as is” is sufficiently clear and specific to operate as a disclaimer.
Risk of loss: majority approach
Under the majority approach, the buyer holds the risk of loss:
(i) The buyer holds equitable title between execution of the contract and closing/delivery of the deed;
(ii) Meanwhile, the seller holds legal title—i.e., the right to possess the property.
If the seller is insured, however, she must credit the buyer the amount of the insurance proceeds against the purchase price.
Risk of loss: acts by the seller
The seller holds the risk of loss if the loss is attributable to her intentional or negligent acts.
Risk of loss: minority approach
The seller holds the risk of loss until closing and delivery of the deed under the minority approach and under the Uniform Vendor and Purchaser Risk Act.
Time-is-of-the-essence clause
If there is not a time-is-of-the-essence clause in a real estate contract, a court will not grant rescission on failure to strictly adhere to a closing date.
Anti-ademption statute
In a jurisdiction that has adopted an anti-ademption statute, the devisee of the seller–decedent’s real property is entitled to the sale proceeds.
By contrast, at common law, the proceeds from the sale of the property under contract were treated as personal property that passed to the devisee of the seller–decedent’s personal property. The devise of the real property itself was treated as having been adeemed.
Implied warranty of fitness or suitability: disclaimer
A warranty of suitability—also known as a warranty of fitness, quality, workmanlike construction, performance, or habitability—cannot be disclaimed by general disclaimer language, such as “property is sold as is.”
Doctrine of equitable conversion
Upon execution of a land sales contract, the seller only holds legal title to the property, which it is obligated to convey to the buyers at closing. The buyers, meanwhile, have equitable title.
Thus, judgment liens against the seller after the contract was executed are no longer enforceable against the property, as it no longer belongs to the seller.
Implied covenant of marketable title: installment land contract
In an installment land contract, marketable title is not required to be given until delivery occurs after all installment payments have been made.
