land transfers Flashcards
what is a real estate broker, and what relationship do they have with their clients
aka a real estate agent, represents the interest of either a buyer or a seller in the land sale transaction
they have a fiduciary relationship with the clinet, meaning that they are acting in a posistion of trust with the client
what does the fiducary relathionship entail?
a duty of good fatih (acting in good faith for the interest of the clinet) and a duty of loyalty(acting only in the interest of the client without self dealing)
does the real estate broker have a fiduciary duty with the buyer?
no just the seller; the real estate broker does not have to adhere to the common law rule of good faith and loyalty with the buyer, unless otherwise stated in a contract
what is the purpose of the contract for sale/does it pass title?
IT DOES NOT PASS TITLE; rather it obligates the seller to provide title to the buyer at closing and it obligates the buyer to provide consideration for the tittle to the seller at closing; its an agreement for to transger the land in the future
can you transfer land without a contract or consideration?
yes, that would be considered a gift
what is earnest money and what happens if the buyer backs out/or actually buys the land?
usually a provision in the land sale contract; it represents a deposit on the property that the buyer places with an escrow agent;
if the buyer changes his mind and does not honor his contractual oblication to buy the proeprty, the seller gets the earnest money
if the buyer completes the purchase of the property, the seller gets the earnest money as part of the agreed upon purchase price
what does the closing part of the contract do?
its where both the transfer of the title and the transfer of the money occur; ie execution and delivery of the deed
what is the ‘time for performance’ part of the k
usually says ‘time is of the essense’ ; if a party does not meet any of the specifed deadlines, the k may be terminated
what is the inspection period?
its within the executory period and its when any disclosures should come out; the buyer usually hires an inspection company, and at this state renogtaiom is common/ if no agreement can be reached, the buyer can cancel the contrac without penalty (and get their earnest money back)
what is the executory period
its the period after youve entered the k, but before the closing; lasts about 1-2 months, the buyer is probably getting their financing together, doing inspections/
what is the risk of loss provision and what is the equitable conversion doctrine?
the equitable conversion doctrine is the common law; it says if the property were damaged during the executory period, the buyer would be responsble for that loss
the risk of loss provision places any risk of loss/damages during the exeutory period on the seller
what would happen if a risk of loss provsion were not in a contract?
under common law equitable conversion, if the house were destroyed, in a fire for example, the buyer would still have to buy
This risk of loss provision switches it to prevent the common law doctrine equitable conversion from kicking in
what is absolutely necessary for a contract to transfer real property?
stems from the SOF; must be in wrirting, must identify the parties
Describe the land
Reference the purchase price
State an intent for the seller to transfer title to the buyer at closing
what kind of writing requirement is needed for a valid contract?
any writing will do; and officla k written up by a lawyer, written down without laywer ect
what are the two exceptions to the SOF writing requirements for a contract that would allow a party to enforce an oral agreement wheich would otherwise fail because of the writig requirment?
part performance: an oral k for the sale of land may be enforced when there are acts of partial performance including payment of some of the purchase price, delivery of possion to the buyer, or improvements on the property by the buyer
equitable estopel – an oral k for the sale of land can be enforced when the buyer has reasonably relied on that oral k to his detriment; if failure to perform the k would relsult in unjust enrichment or unconscionable injury
what would a part performance fact patten look like
payment of some of the purchase price
delivery of possession to the buyer or
improvements on the property by the buyer
what is the caveat to the exceptioms to the SOF in terms of enforcing the sale
the oral k needs to be definite enough; a mere ageement to agree is not enough; it must contain all the necessary elements that a written k would have
Lemming v Mogan - alleged oral agreement to partner to purchase houses
Lemming and morgan entered into an oral agreement; lemming was to use his business connections and influence people to locate real estate, help morgan finance to purchase the property; lemming and morgan AGREED to temporarily put title to the property in Morgan’s name and morgan was to transfer one half of his interest in the property to lemming and spilt any proceeds earned. Long story short, morgan refused to transfer the one half interest in the properties and lemming sued for breach of k
Morgan moved for summary judgment because the claim is barred via the SOF
Lemming argues partial performance
Issue: is lemming’s partial performance of holding up his end of the deal enough to survive the strict SOF requirement for transfers of real property
Holding: no
Reasoning
For an oral contract to be enforced based on part performance, it must be CERTAIN AND DEFINITE in all ESSENTIAL particulars
even if a party performs actions towards a contractual end, if there is no actual oral contract in place, the court cannot enforce anything
Hickey v green - woman reneges on oral agreement to sell land
Facts: hickey and green had a discussion about buying a lot and orally agreed to a sale of 15k
Hickey wrote a check of 500; but hickey had left the payee line of the deposit check blank because of uncertainty about which green family member to pay it to
Green held the check, didn’t fill in the name and did not cash or endorse it
Relying of the arrangements with green, hickey advertised their house for sale and sold it so they could move onto the lot
However, green told hickey she no longer intended to sell her property to him but had decided to sell to another person
Hickey told green that he had already sold his house and offered her money for the lot but she refused and they went to court seeking specific performance
Issue: could the court enforce the oral agreement that should have been in writing via equitable estoppel?
Holding: yes
Reasoning
The hickeys relied on greens oral promise, moved rapidly to make their sale without any obtaining any memo of the terms of what appears to have been intended to be a quick cash sale of the lot
The hickeys were bound in their contract to sell their house because the check written to them satisfied the SOF and they cashed it,unlike the one they wrote to green where the payee line was blank and green did not cash it
in the hickey case, why did the check hickey write to green not pass SOF, but the one written to green by the buyer of his house did?
the one hickey wrote failed because he left the payee line blank, while the other check written to him for payment of his hold house was all the way filled out
if there is a problem with the title, what kind of fact pattern is it?
marketable title fact pattern
if there is a problem with the physical structure, what kind of fact pattern is it?
duty to disclose fact pattern
what do all land sale ks have, eitehr expliclty or implidedly?
covenant of marketable title aka covenant of merchantable title
what does the covenant of marketable title do
it obligates the seller to convey title that is reasonably free from doubt that there is better title to the property; Does Not have to be good/perfect but it must @ least be marketable – unless otherwise contracted for
is good/perfect title the same as marketable title?
no! that is a higher standard that is not required unless contracted for
what does the presence of substantial defect in title allow a buyer to do?
it allows them to terminate the contract for sale under the covenant of marketable title in the sales contract
can the covenant of marketable title be waived?
yes! the parties can contract to make the promise of title more or less stringent than marketable title
Ex: a buyer may require the seller to convey perfect title, a seller may promise only insurable title, which means a state of title that a title company would insure, or a seller may even disclaim any promise regarding the state of the title
what are three circumstances that defects would BREACH the covenant of marketable title
- A problem in the chain of title - a missing link in the history of title transfers
2.Undisclosed encumbrances - an undisclosed easement, covenant, or mortgage - Violation of zoning ordinances - noncompliance with local laws dictating building specifications or land use
which substantial defect in title is this?
Ex: the seller enters a k with the buyer for the sale of land. The seller can trace her title only back five years to the previous owner but not before then. A search at the county record office reveals that some other third party holds tilted to the property –
A problem in the chain of title - a missing link in the history of title transfers
so the seller is in violation of the covenant of marketable tile because she cant trace her title to the land back to the root of the title
which substantial defect in title is this?
Jon has granted his neighbor an easement to cross his property. Jon then enters into a k to sell his property to fran WITHOUT DISCLOSING THE EASEMENT. This
Undisclosed encumbrances - an undisclosed easement, covenant, or mortgage
This BREACHES the covenant of marketable title, and fran can rescind the contract.
which substantial defect in title is this?
P entered a K to sell his gas station with D. soon after, p discover that the gas station violated the zoning ordinance because the area was zoned RESIDENTIAL rather than commercial.
Violation of zoning ordinances - noncompliance with local laws dictating building specifications or land use
P can terminate the K as a breach of the covenant of marketable title
is title gained by AP marketable?
it can be; an adverse possessor must be able to show, by clear and convincing evidence , that he has gained title ‘that his title by adverse possession is not subject to any reasonable doubt’
what does perfect title require (given that it was contracted for?)
it requires not just marketabilty, but also that every link in the chain of title a seller presents the buyer at closing be of record
Lohmeyer v bower - contract made for sale of home that violates zoning ordinances;
Facts: p contracted to purchase property, but after execution of the agreement, it came to his attention that the house on the real estate had been placed there in VIOLATION of a zoning ordinance
The house on the lot was only one story high but the regulations required that all houses be two stories, it was situated too close to the border of a neighboring lot
He wanted to be released from the agreement,and said had he had known of the violation he would have never bought the property
Issue: is zoning violating a breach of marketable title
Holding: the VIOLATION of the zoning ordinance make such title doubtful and unmerchantable
Reasoning
A marketable title to real estate is one which is free from reasonable doubt, and a title is doubtful and unmarketable if it exposes the party holding it to the hazard of litigation
It is the presently existing violation of one of these restrictions that constitutes such encumbrance in and of itself , not the mere presence of the zoning ordinance
what is the common law approach to duty to disclose
caveat emptor
Buyer beware; the seller has no duty to disclose
minority of jurisdictions still follow this
what are the three exceptions to the common law approach of duty to disclose (buyer beware; seller has no duty to disclose)
- Seller must disclose if he has made an AFFIRMATIVE MISREPRESENTATION
- The seller must disclose if he has a FIDUCIARY RELATIONSHIP (or some sort of relationship of trust) with the buyer
- The seller must disclose if he has taken AFFIRMATIVE STEPS TO CONCEAL THE CONDITION
what happens if the seller disclosed the defects prior to the buyer entering the k
the buyer cant rescind because of the defects
what does it mean that the duty to disclose continues after passing the deed?
it means that if the seller fails to disclsoe and they are obligated to do so, the buyer can sell on the sale contract, NOT THE DEED
Jablonski v Rapalje, the bat case (common law approach) - P claims homeowners concealed bat infestation in attic
Facts: the p commenced the action to recover damages resulting from his purchase of a house with an attic that was infested with a bat colony
Issue: did the sellers actively conceal the bat colony, thus making it an exception to the buyer beware rule and giving them a duty to disclose
Holding: the P established the existence of triable issues of fact as to whether the Ds and real estate agents took actions to actively conceal the bat infestation, and thwart the ps ability to discover it
Dissent made the argument that there was inquiry notice and that the P should have asked more questions; and also argued that it was not a latent defect; also argued that p failed to practice due diligence
if there is a duty to disclose, when should it be made?
before the parties enter into the contract, usually around the period that inspections are taking place
what is the modern trend for duty to disclose?
The modern trend imposes on the seller a duty to disclose MATERIAL, LATENT, DEFECTS
Hill v Jones (modern trend) the termite case : homebuyers discover past undisclosed termite damage
The buyers entered into an agreement after several visits to the house
The buyers noticed a small ripple in the wood floor on thesteps, p asked if the ripple could be termite damage but d said it was water damage
No further discussion took place between the parties on the subject
P was not satisfied with the answer but decided to wait for the termite inspection report
The termite report said there were no visible evidence of infestation
But after moving in, buyers found a pamphlet left in one of the drawers about termites and learned from a neighbor that the house had termites in the past and they called an exterminator who confirmed the existence of termite damage
In the initial termite inspection, they didn’t notice any termite damage because boxes were stacked in front of it
ISSUE: does a seller have a duty to disclose to the buyer the existence of termite damage in a residential dwelling known to the seller, but not to the buyer, which materially affects the value of the property?
Holding: yes ; termite damage in this case may or may not be material and the court concludes that buyers should be allowed to present their case to the jury
where a seller of real property knows of facts that materially affect the value of the property and are not readily observable and known to the buyer, the seller has a duty to disclose these facts to the buyer
A fact is material if it is one which a reasonable person would find important in determining his choice of action in a particular transaction
The existence of termite damage and past termite infestation has been considered by other courts to be sufficiently material to warrant disclosure
what counts as a defect that would make a seller have to disclose under the modern trend
physcial problems that are material to the sale and located on the site of the property are always considered defects,
with nonphysial problems, abset a specfic statute adressing this concern, courts vary in their treatment of offiste or nonphyscial problems
does an Onsite physical - ex a broken furnace count as a defect?
yes, always yes
does an Onsite physiological? (like murders on the property) count as a defect?
sometimes, it depends
does an Offsite physical – like a landfill a mile away count as a defect?
much harder to count as a defect but there are exceptions
does an Offsite psychological – criminal history in the neighborhood –count as a defect?
extremely difficult to say its a defect
what is a mandatory disclosure statement?
Many state legislators have enacted laws requiring sellers of residential real estate to provide buyers with a specific disclosure statement in connection with the sale of property
what is another exception to the doctrine of caveat emptor(hint has to do with new construction)
happens when the seller is a new home builder; Courts have found that the sale gives rise to an implied warranty of fitness for the intended use of the realty
The implied warranty of fitness relieves the buyer of his or her obligations under caveat emptor
This implied warranty is sometimes referred to as the doctrine of caveat venditor, or in other words, SELLER BEWARE
what is the logic behind caveat venditor (ie seller beware)
Courts tend to hold builders to a stricter standard - they are more experienced and repeat players
Rutledge (new construction): septic tank overflows in newly built house
Facts
D (who held themselves out to the public as experienced and competent builders) sold to P a new house which had been constructed by them
After P and his family had lived in the house for about 8 months the septic tank overflowed on five separate occasions
Ps alleged that the overflow from the septic tank was due to either defective design or installation of the sewage disposal system
Issue: whether ds, as the builder-vendor of a NEW DWELLING, may be held liable to the purchaser on the basis of implied warranty for loss or damage caused by a defective condition of the building
Holding: in the sale of a new house by the builder-vendor there is an implied warranty that the house was built in a REASONABLY workmanlike manner and is reasonably suitable for habitation
Buyer and seller not on equal footing
The builder is in the perfect place to make all inspections as opposed to buyer
Better position to know the truth and take remedial measures
what is a mortgage
represents a debt instrument through which the borrower secures the funds by putting up his real property as collateral for the loan, and he agrees to pay back the loan by a set schedule of payments over time
what are the two types of mortgages
Purchase money mortgage
Future advance mortgage
what is a Purchase money mortgage
the seller is the one financing the purchase for the house; a mortgage given to the seller of real property to secure repayment of the unpaid portion of the purchase price
the buyer provides the real estate collateral at the time that he purchase the real estate and the seller conveys it to him
This is the most common
In order to get a loan for the remaining balance, he must use the very property that he is buying as collateral for that loan
what is a future advance mortgage?
where some of the loan is not disbursed until sometime after the mortgage has been secured
what is the accelleration clause when talking about mortgages
The acceleration clause provides the mortgagee (bank) the right to require the mortgagor (borrower) to IMMEDIATELY repay the entire principal balance if a term of the mortgage is not met
who is the mortgagee
the lender of funds, often a bank
who is the mortgagor
the borrwer of funds for purchasing the property
what does it mean that a buyer assumes a mortgage of the seller?
the buyer takes on personal liability to pay off the existing mortgage debt; the seller remains personally libale on the loan
the buyer assumes the seller’s mortgage; seller personally liable, so is the buyer
what does it mean that buyer takes the property subject to an existing mortgage
the buyer IS NOT personally liable on the mortgage loan, and the seller remains personally liable
the buyer takes title of the property
If the seller stops making payments the seller is liable, not the buyer
how can mortgagees (the lender) prevent an assumption of the mortgage?
by adding a due on sale clause, whcich enaables the lender to require payment o the entire loan balance at the time the mortgagor transgers tittle to the property
does the due on sale clause unreasonably restrain alienation (ie the transfer of land)?
No! See Martin!
Martin v peoples mutual (mortgage assumption): is a due on sale clause a restriction on alienation?
Facts
The home involved in the litigation was bought by the previous owners, and it was financed from the D(a loan association) and in the mortgage lang there was a due on sale clause
The previous owners listed their home for sale, and the martins contracted to buy the house
Martins, despite the due on sale clause, assume the sellers mortgage
D sent the previous owners an acceleration letter, requesting payment of the mortgage balance
The martins brought the suit seeking to prevent D from using the due on sale provision to accelerate payment of the loan
Issue: does the state common law prohibit D(the lender of funds) from invoking the due on sale clause of its mortgage?
Holding: due on sale clauses are valid and enforceable ; and it didnt come under the restatments def of restraint on alienation
The questioned clause in no manner precludes the owner-mortgager from conveying his property
market rationale: If the due on sale clauses are unenforceable, these mortgages carrying an under market interest rate would not be prepaid and, of course, there would be no device for the D to recover its money when the house was sold
This could be balanced only by charting new borrowers a higher rate of interest than they would otherwise be required to pay
via the martin case, and the restatment, what is a restraint on alienation?
an attempt by an otherwise effective conveyence or k to cause a later conveyce
a. to be void OR
B. to impose contractural lianlty on the one who makes the later conveyance when such liabilty results from an agreement no to convey OR
c. to terminate or subject to termination all or part of the property interest conveyed
what is mortgage forclosure
if the borrower defaults on the loan, the lender can seek to force the sale of the mortgaged property in order to pay off the loan.
what is a judicial foreclsoure
When the court issues a ruling in the lender’s favor, the property is subject to auction by the sheriff
Once the property is sold, the mortgagor is foreclosed from paying off the loan balance
what is the right of redemption
The borrower has a right to repay the balance that he owes prior to the point of the foreclosure sale
what is the only way a lender can terminate the borowers right of redemption
the foreclosure sale
what is the doctrine against clogging the equity of redemption
prevents a borower from binding himself in a k with that he will not assert his right of redemption
where do the proceeds of the foreclosure sale go to
it goes to satisfy the outstanding balance on the loan
where does the rest of the proceeds in a forclosure sale go after the remaining balance on the loan has been paid
The surplus go to any other lien holders on the property
If, after satisfying the other lien holders, there is still a surplus, the mortgagor (borrower) is entitled to that surplus – called the mortgagor’s equity
what happens if the proceeds of the foreclosure sale dont satisfy the debt?
the lender may seek a deficiency judgment
what is a deficiency judgment
A money judgment that allows the lender to procure the outstanding balance from the other assets of the borrower
what is a statoury right of redmeption
aka redemptiom after foreclosure; allows a mortgagor (borrower) to redeem the mortgage after the foreclosure sale
if a property owner takes out more than one morgage on the property, and they defalut on all the morgages, how are the proceeds distributed between the two mortgagees?
the law gives priorty to the mortgagee who was first in time; the size of the loan does not matter; onlu after the firest mortage debt has been satisfied in full from the proceeds of the foreclosure sale is the second mortgageee paid anything at all
how is a property owner able to take out more than one mortgage?
if an owner owes less o a loan than the property is worth, then the owner has equity in the home, and that equity can be mortgaged to secure another loan
what are the three theories that mortags fall under
title theory , lein theory, and intermediate theory
what is lien theory?
MAJ OF JURISDCTIONS FOLLOW THIS
the mortgage represents a lien on the property; ie recognizes the mortgage as a security interest
So if the mortgagor defaults on the mortgage, the mortgagee can foreclose on the property, ultimately forcing the sale of the property to pay off the loan
what is title theory
MINORTY OF JURSIDICTIONS FOLLOW THIS
the mortgage represents a transfer of legal title to the mortgagee
The mortgagee retains the legal title until the mortgagor repays the loan
what is intermediate theory?
combines title and lien; The mortgage represents a lien on the property, but, if the mortgagor defaults, title theory applies, and the mortgagee can possess the property prior to the foreclosure
Premier Bank v JD homes (judicial foreclosure): man falls behind on installment land contract payments
facts: JD holmes takes out a mortgage from premier bank, and JD commits the tort of nusiance
raintree, an adjacet landowner sues JD, and raintree prevails (which means that they now had a lein on JD)
JD has a judgment agasint them of like 11k
at same time, premier bank files a foreclosure action against JD
tc found that premier had a first and prior lien over the sales proceeds of the foreclsoure sale
issue: who had priorty to the foreclsoure sale proceeds
premier bank because the morgate taken out from them was before the money jdugment from the raintree incident
is the mortgagee who forcloses liable for judgments or leins against the mortgagor and his property? (ie the argument rain tree makes that the bank is liable for the nusicance because the nucisamce occured on the property that the bank holds a mortgage on)
no! see premier bank! if this were to happen it would counter to the fact that the mortgage was just a lien mortgage, ie just givmimg them an interest in the property if foreclsoure occurs; and a lean does not give you CONTROL over the property
if a mortage loan was taken out on an earlier date (via a bank) than that of a money judmgent agaisnt the same actor who took the loan out, who gets priory?
the bank because that was the first lien on the property
what does a lien need in order to be considered to have priorty?
collateral! so even if you were the first to loan money to the defaluter, if there was no collateral attached you wouldnt be first
what is the alterternative to a tradtional mortgage/judicial foreclosure?
a deed of trust, in which it enables a buyer to secure funds for purchase of real property and it secures those funds by putting up the property as collateral
the borrower delivers the deed of trust to a third party trustee, instead of direclty to the lender
what is the foreclosure under a deed of trust and what does it look like
non judicial disclosure; Rather than forclosing through the judicial process, a lender foreclsoes through a private party who serves as TRUSTEE of the deed of trust
what is a power of sale clause (think non judicial foreclosure world)
its within the non judicial foreclosure world, and may authorize the mortgagee to sell the property in the event of a default
what is a deed in lieu of foreclosure (nonjudicial foreclosure world) and why might this be preferable for both parties
a mortgagor who has defaulted to avoid a foreclosure by deeding the property to the mortgagee in return for the mortgagee forging the outstanding debt
For the mortgagor, he is forgiven of his debt on the defaulted loan and it hurts his credit less
For the mortgagee he avoids the cost and time associated with foreclosure
what is a short sale (nonjudicial foreclosure world
The mortgagee accepts teh proceeds of the mortgagor’s sale of the property, even though those proceeds fall short of the outstanding balance on the mortgagor’s loan
The mortgagee often forgives the remainder due - known as the deficiency - rather than obtaining a deficiency judgment
in deed of trust (non judical forceclosure) what duty does the trustee have
the trustee must ensure that every aspect of the sale is commercially reasonable
commerically reasonable=looking at market shifts to see if it reflects the sale price
Wansely v first national bank (nonjudicial foreclosure): brothers have land sold by trustee who was connected to the bank
Issue: Will the sale of real estate by a trustee of a deed of trust be upheld and accepted for deficiency judgment purposes if the sale is commercially reasonable in all respects even if trustee has a connection with the bank?
Holding: if the secured creditor is authorized to foreclose by power of sale, after the debtor’s default and upon compliance with the deed of trust or other instrument, the secured creditor may sell any or all of the real estate that is subject to the security interest in its then condition or after any REASONABLE rehabilitation or prep for sale
Every aspect of the sale must be COMMERCIALLY REASONABLE
what option does a buyer with bad credit or no fincial means for a down payment have as opposed to a mortgage
an installment land contract aka a land sale contract
what is an installment land contract aka a land sale contract
Provides for a buyer to purchase real property over time under a contract, while taking possession of the real property
At the end of the specified time period, if the buyer has made all the required payments, the K requires the seller to deed the property over to the buyer
The seller therefore retains title to the property until the buyer has paid the entire purchase price
what is the forfeiture provision in the installment land contracts
Calls for the buyer’s IMMEDIATE forfeiture of the property in the event the buyer misses a required payment to the seller
what is the absolute deed as mortgage aka equitable mort
alternative to a regular mortgage; Where parties intended for a deed to serve as collateral on a loan instead of property
Lewis v premium investment(installment land contract): man falls behind on installment land contract payments
Issue: Did the court of appeals err by declining to apply the forfeiture provision of the installment land contract, instead determining Lewis has an equitable interest in the property which includes a right of redemption upon default?
Holding: It would be inequitable to enforce the forfeiture provision without first allowing the purchaser an opportunity to redeem the installment contract by paying the entire purchase price
Courts of equity can relieve a defaulting purchaser from the strict forfeiture provision in an installment land k and provide the opportunity for redemption when equity so demands
Reasoning
Lewis made 141 of the 182 required payments. A forfeiture of his equitable interest could constitute an unenforceable penalty, as the forfeiture could be far greater than Premium’s damages.
