Land Transfer and Financing Flashcards
Basic Requirements of Real Estate K
6
1) Parties with contractual capacity
2) K has legal purpose
3) Offer
4) Acceptance
5) Consideration
6) Statute of Frauds
Statute of Frauds 1677
The agreement or some memorandum thereof must be IN WRITING and SIGNED
Common Issues of Oral Ks
Oral K:
- void or unenforceable
- signed or subscribed
- signed by whom?
Both parties, party to be charged, or sellerOral K
Void or Unenforceable
Void: K is no good; as if K does not exist
Unenforceable: courts won’t enforce but you are free to carry it out on your own (bound by agreement)
Oral K
Signed or subscribed
Signed: mark made with present intent to convey
Subscribed: underneath; signed at the bottom/end of the document
Statute of Frauds in TX
Promise or agreement MUST be in writing
NOT enforceable
Signed by party to be bound (or authorized rep)
Oral amendments MUST be in writing
Who does the Statute of Frauds protect?
Non-parties
Meant to protect against false claims
Partial Performance
K enforceable if proof of oral K plus:
- Possession by purchaser, or
- Possession plus pmt, or
- Possession plus valuable improvements, or
- Possession plus change in position causing irreparable injury, or
- Writing req’d
Partial Performance in TX
Purchaser takes possession, AND
Purchaser pays consideration, AND
Purchaser EITHER:
- makes valuable and permanent improvements on land with seller’s consent, or
- other factors exist to show transaction would be fraud on purchaser if not enforced
Contents of Writing (Req’ts)
1) Identity of buyer and seller
2) Description of property
3) Key terms (date, price, etc.)
4) Signature
Without these, agreement is too vague or inconsistent
Real Estate K must:
Comply with state laws
Be adapted to local custom
Individualized for client’s exact situation
Sources of Forms
Real Estate Commissions State Bar Associations Commercial Publications User Developed Forms Form might be mandated by state law
Benefits of using Forms
Predictability
Efficiency
Reduces chances of error
Provides safety against malpractice (not immunity though)
Detriments of using Forms
Not all forms are universal
Bends client’s situation to fit the form
Form may not be up-to-date
Time for Performance Situations
1) No time stated/silent
2) Exact time stated
3) Time of the essence
Time for Performance:
Silent
Bad K
Reasonable time from K date
Time for Performance:
Exact time stated
At law: time deemed of the essence
At equity: Specific performance
which is used depends on what remedy is being sought; at law if looking to get out of the K; at remedy if wanting performance anyways
Time of Performance:
Time of the Essence
How do you know time is of the essence?
By express statement (use exact phrase)
By surrounding facts and circumstances
Nature of the property
Financing Arrangements Buyer’s Performance
Situation: someone wants to buy property but does not have the money to do so
Needs to become a debtor
Seller’s Options to Buyer’s Performance
4
Refusal
Obtain promise to repay
Obtain surety
Obtain collateral
Seller’s Options to Buyer’s Performance:
Refusal
Seller does not have to accept financing; can request cash payment (not common)
Seller’s Options to Buyer’s Performance:
Obtain Promise to Repay
Unsecured creditor (high interest rates) General creditor
If buyer fails to pay, seller has right to sue to recover payment
Seller’s Options to Buyer’s Performance:
Obtain surety
Co-signer
Accommodation Party
Guarantor
Seller’s Options to Buyer’s Performance:
Obtain Collateral
Safest thing for creditor to do
Personal property: security interest
Real property: mortgage or deed of trust
Purchase Money Mortgage
Seller = Lender
(5)
1) Mutual K
2) Purchaser gives down payment to seller
3) Purchaser signs promissory note
4) Seller delivers deed to Purchaser
5) Mortgage: provides collateral for note
Purchase Money Mortgage
Seller = Lender
Purchaser roles
Debtor Maker of note Borrower Grantee Mortgagor
Purchase Money Mortgage
Seller = Lender
Seller roles
Payee Creditor Lender Grantor Mortgagee
Purchase Money Mortgage
Seller is not Lender
(6)
1) Mutual K
2) Purchaser gives down payment to seller
3) Lender = Bank; purchaser gets note from lender
4) $ from note goes to Seller
5) Seller conveys to Purchaser
6) Purchaser has mortgage with Lender
Seller happy b/c gets $ up front
Purchase Money Mortgage
Seller is not Lender
Purchaser roles
Maker of note Borrower Debtor Grantee Mortgagor
Purchase Money Mortgage
Seller is not Lender
Seller role
Grantor
Purchase Money Mortgage
Seller is not Lender
Lender’s role
Payee
Creditor
Mortgagee
Deed of Trust
TX (5)
1) Mutual K
2) Down payment from Purchaser to Seller
3) Lender = bank; Purchaser gets note from Lender
4) $ from note goes to Seller
5) Purchaser gains Deed of Trust through Lender from Trustee
Deed of Trust
Purchaser roles
Maker of note
Debtor
Borrower
Grantor of Deed of Trust (not deed)
Deed of Trust
Seller roles
Grantor of deed
Deed of Trust
Lender role
Payee
Creditor
Mortgagee
Beneficiary
Deed of Trust
Trustee role
Holds deed until Purchaser fulfills payment on note
Attorney for lender, corp. officer of lender, or any third party
Installment Land K or K for Deed
4
1) Mutual K
2) Purchaser gives down payment to Seller
3) Purchaser pays Seller
4) Seller gives Purchaser deed once paid in full
Failure to Pay Mortgage
CL
Mortgagor lose all rights to property
Failure to Pay Mortgage
ML
(3)
Equity of Redemption
Strict Foreclosure
Foreclosure by Sale
Equity of Redemption
Ability to redeem if in default; can get property back tendering full payment of the note
Problem b/c if couldn’t make the pmts, how can you pay the full note off?
Allowed for debtor to sell the property and possibly make a profit (won’t work if upside down on the note)
Strict Foreclosure
Rare
Mortgagee keeps property and forgives debt
Mortgagor unhappy b/c he won’t get anything back (down payment, improvement costs)
States are reluctant to use b/c the mortgagee gets a windfall
Foreclosure by Sale
Common
Auction off property; competitive bidding
Mortgagee can only receive the amount left unpaid on the note (to prevent windfall)
Money earned in excess of note balance is given to the mortgagor
Failure to pay Deed of Trust
Allows trustee to sell property without court proceedings
Faster, cheaper than traditional mortgage
Mortgagor gets surplus
If deficiency in amount sold for, the trustee can sue mortgagor for the difference
Failure to pay Installment K
CL: seller keeps all pmts and land; buyer has no redemption rights
ML: buyer has protections
Merchantable/Marketable Title
Seller’s Performance
Tests to Determine Merchantable/Marketable Title
2
Reasonable Person test (TX)
Specific Performance test
Merchantable Title:
Reasonable Person Test
TX
Title does not have to be perfect so long as it is not subject to doubt by a reasonable
Merchantable Title:
Specific Performance Test
Title is good enough that a court is willing to order an unwilling purchaser to buy (forced sale)
- forced performance of sales K
What would make a title un-merchantable?
Interest less than FSA
Encumbrances (mortgages, tax liens)
Restrictions (easement, covenant)
Break in chain of title (lacks vertical privity)
Correction of Defects
Before seller is in breach of K, buyer MUST:
Give seller NOTICE
Allow seller REASONABLE time to fix
Remedy for Un-merchantable Title
Quiet Title Suit
Quiet Title Suit
Bring all claimants together to resolve claims
Tender
One party MUST tender to place the other party in brech
- Buyer: tenders $ or agreed upon financing
- Seller: tenders deed which conveys merchantable title and K
Anticipatory Repudiation
Excuses tender b/c retracted tender before performance date
Assignment
Ability to transfer K right or performance (unless performance is a personal service; CANNOT transfer duty to perform but can transfer right to $)
Why might the seller assign their rights?
- Why transfer to someone else before the sale?
Need $$ quick
A sells property to B for $200k but transfers to C for $180k; C must go through with the sale; A gets $180k quickly and C makes $20k profit
Why might the seller assign their rights?
- Why transfer the land to someone before the sale for MORE than amount from sale?
Someone is willing to pay more
Seller wants more $$
A sells property to B for $200k but transfers to C for $220k; C must still go through with sale to B; why would C do this? C believes he can make money off of the land (cultivating, drilling for oil, etc.) he can make a profit if he can get more than $20k out of the land before the sale
Why might the buyer assign his rights?
Doesn’t want to buy the land anymore
Got a better deal from someone else
Who is liable for the rights of the assigned?
Original Party
What type of land is usually affected by Assignment?
Residential/Farmland
Rarely used with commercial land
Buyer Remedies for Breach of K:
Seller has breached
Terminate K and recover funds already paid
Specific Performance
Damages
Buyer Remedies for Breach of K:
Terminate K and recover funds already paid
Was time of the essence?
Was seller given reasonable time to fix title problems?
Buyer Remedies for Breach of K:
Specific Performance
Court may force the seller to sell to the buyer b/c every piece of property is unique
Buyer Remedies for Breach of K:
Damages CL
English Rule
damages only if bad faith on seller’s part
- Pre-K position (“do over”) give everyone back what originally had and try again
Buyer Remedies for Breach of K:
Damages ML
American Rule (TX)
Benefit of the Bargain
Market value minus K price
As if K were fully performed (make whole)
Law date
Performance date when parties tender
Closing date
Exchange of $ for deed
Seller Remedies for Breach of K:
Buyer Breached
Specific Performance
Damages
Terminate K
Seller Remedies for Breach of K:
Specific Performance
Court can force buyer to purchase the property
Seller Remedies for Breach of K:
Damages (3)
Benefit of the Bargain
Out of pocket
Liquidated damages
Seller Remedies for Breach of K:
Benefit of the Bargain
K price minus market price
Seller Remedies for Breach of K:
Liquidated Damages
Seller keeps down payment
Often deemed void as penalty
If reasonable amount is difficult to calculate, then it is allowed and not a penalty
Equitable Conversion
Time between SIGNING date and CLOSING date
Purchaser: equitable owner and has interest in real property
Seller: creditor holding title as security for pmt and has interest in real property
Significance of Equitable Conversion
How property passes through intestacy or will if death occurs btwn K date and closing date
Method for creditors to reach property
Risk of Loss
Risk of Loss
What happens if house burns down, is flooded, or a tornado destroys it?
Prior to K: all risk on SELLER
After closing: all risk on BUYER
What about in between? depends
Risk of Loss (TX)
Seller shall restore property to its previous condition as soon as REASONABLY possible, but in any event by the CLOSING DATE.
Risk of Loss if K is silent
3
Majority (English)
Minority (Massachusetts)
Uniform Vendor and Purchaser Risk
Risk of Loss:
Majority Rule
English rule
Purchaser has risk of loss b/c of equitable conversion
ALL risk on purchaser
Hardly any state follows anymore
Risk of Loss:
Minority Rule
Massachusetts Rule
Seller has risk of loss b/c of implied condition that the premises will be transferred as they existed on date of K
ALL risk on seller b/c of implied condition that property will be in same condition as when purchase was agreed to
Risk of Loss:
Uniform Vendor and Purchaser Act
TX follows
SELLER has risk of loss UNLESS buyer has taken possession of property prior to closing date
