LL & T / Land Sale Ks / Conveyances / Deeds & Recording

Question 1

In a real property transaction, the baseline choice of law rule to be applied is based upon which of the following?

Answer 1

The state where the property is located.

Question 2

Under the federal Fail Housing Act, can a landlord restrict accommodations to families with young children?

Answer 2

NO.

Question 3

Is sexual orientation a protected class under the federal Fair Housing Act?

Answer 3

NO.

Question 4

If, on April 15, a landlord gives a tenant with a month-to-month lease notice of termination of the lease, what day is last day of the tenancy?

Answer 4

May 31.

Question 5

What tenancy is a writing required to create the tenancy?

Answer 5

Tenancy for a term of more than one year

Question 6

In a residential lease, does a tenant have a basic duty to make repairs to the property?

Answer 6

NO.

Question 7

By accepting rent from a holdover tenant, the landlord is continuing the relationship as a __________.

Answer 7

periodic tenancy

Question 8

Only the _________ tenant is responsible to the landlord for the payment of rent when the original tenant has _________ the premises to the current tenant.

Answer 8

original, sublet

Question 9

Does a transferee landlord need the tenant’s permission to change the terms of the existing lease?

Answer 9

YES.

The transferee landlord cannot change the terms of the existing lease without the tenant’s permission.

Question 10

The two main exceptions to the application of the Statute of Frauds to a land sale contract are __________ and __________.

Answer 10

detrimental reliance, part performance

Question 11

Can government owned land be adversely possessed?

Answer 11

NO.

Government-owned land cannot be adversely possessed.

Question 12

What is required for an adverse possessor to tack use by another adverse possessor?

Answer 12

An adverse possessor cannot tack use by another adverse possessor unless they are in privity.

Question 13

In most jurisdictions, is the adverse possessor’s state of mind regarding the hostility requirement considered?

Answer 13

NO.

The adverse possessor’s state of mind is not considered.

Question 14

To effect a valid transfer of property, the deed must be __________ and ____________.

Answer 14

delivered, accepted

Question 15

Is a legal description of the property required for a deed to be valid?

Answer 15

NO.

A legal description of the property is NOT a requirement for a valid deed.

Question 16

Race statutes use language like “____________.”

Notice statutes use language like “____________.”

Answer 16

“first to record,”

“in good faith”

Question 17

Is an interest created by operation of law subject to the recording acts?

Answer 17

NO.

Question 18

“No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice who shall first record” is an example of language that would be seen in which of the following types of statute?

Answer 18

Race-notice statute

Question 19

The _________ holds legal title to the trust property. The ___________ holds equitable title to the property held in trust.

Answer 19

Trustee, Beneficiary

Question 20

If a testator’s will provides for a gift of property, but the testator sells that property before she dies, the devise is invalidated by which of the following?

Answer 20

Doctrine of ademption

Question 21

Right of First Refusal

Answer 21

A right of first refusal is a partial restraint on alienation that, if reasonable, is valid and enforceable by an injunction.

This right is generally reasonable if the holder of the right can purchase the property under the same terms offered to another party.

Question 22

Restraint on alienation

Answer 22

A restraint on alienation is a provision that restricts the transferability of real property.

An unreasonable restraint is disfavored because public policy encourages the free transfer of property interests; therefore, direct (or absolute) restraints on alienation are void.

However, a partial restraint—one that is for a limited time and a reasonable purpose—is generally valid.

Question 23

A landlord and tenant have a legal relationship based on both:

Answer 23

• privity of contract – their shared interest in the lease agreement and
• privity of estate – their successive right to possess the property (i.e., the tenant’s current right of possession is immediately followed by the landlord’s future right of possession).

Question 24

Assignment of Lease: LLs & Ts

Answer 24

Unless the lease states otherwise, either party can freely transfer his/her interest under the lease. Assignment is a complete transfer of a tenant’s interest to a third party (assignee) for the remainder of the tenant’s lease term (as seen here), so:

• the original tenant retains privity of contract and remains liable for all covenants in the lease (e.g., rent) and
• the assignee gains privity of estate and becomes liable to the landlord for the rent and any other covenants in the lease that run with the lease.

Question 25

Is a LL required to give a tenant at sufferance notice to vacate the premises before taking steps to recover possession of the property?

Answer 25

Absent an applicable statute, the landlord is not required to give the tenant at sufferance notice to vacate the premises before taking steps to recover possession of the property.

A tenancy at sufferance (i.e., holdover tenancy) continues until the tenant vacates the premises, is evicted, or is bound to a new tenancy.

Question 26

Acquiring title by adverse possession

Answer 26

Mnemonic: ECHO

• Exclusive – physical presence on land not shared with owner
• Continuous – presence is continuous & uninterrupted for statutory period
• Hostile – possession is without owner’s consent
• Open, notorious & actual – possession is apparent or visible to reasonable owner

Question 27

Shelter Rule

Answer 27

Under the Shelter Rule, a person who receives a property interest from a BFP is entitled to the same protection under the recording act as the BFP. This is true even if that person would not otherwise be protected by the recording act because the person acquired title to the property by gift, intestate succession, or devise.

In a race-notice jurisdiction, a purchaser who lacks notice of an earlier property interest (BFP) and records first will prevail. And under the Shelter Rule, a person who receives a property interest from a BFP is entitled to the same protection under the recording act as the BFP.

Question 28

Estoppel by Deed

Answer 28

Under the “estoppel by deed” doctrine, a grantor who conveys an interest in land by warranty deed before actually owning it is estopped from later denying the effectiveness of that deed.

When the grantor acquires ownership of the land, the after-acquired title is transferred automatically to the prior grantee.

Question 29

Equitable Servitude

Answer 29

An equitable servitude is a promise to do or not do something on land that is enforceable at equity by injunction.

An express equitable servitude is enforceable if it meets the following requirements:

1) Writing – servitude is in a writing that satisfies the statute of frauds (here, the deed from the man to the developer)
2) Intent to run – promising parties intended for the servitude to bind their successors in interest (here, the deed says “heirs and assigns”)
3) Touch and concern – servitude relates to the use, enjoyment, or occupation of the dominant and servient estates (here, the servitude restricts land use to single-family residences)
4) Notice – person to be bound had actual, record, or inquiry notice of the servitude (here, the woman and subsequent purchasers have notice from the developer’s properly-recorded deed).

Question 30

Implied Covenant of Marketable Title

Answer 30

Unless otherwise stated, an implied covenant of marketable title is part of a land-sale contract, regardless of the type of deed created.

Under this covenant, the seller promises to deliver title that is reasonably free from doubt and under no threat of litigation, such that a reasonable person would accept and pay for it.

However, under the merger doctrine, any obligations contained in the land-sale contract merge into the deed and are extinguished at closing.* As a result, these obligations are enforceable only if they are contained in the deed.

*As a result, a violation of a land-sale contract must be raised before or upon closing.

Question 31

Doctrine of Merger

Answer 31

Under the doctrine of merger, the seller’s duties in a contract for the sale of real property—including the duty to deliver marketable title—merge into the deed at closing.

As a result, these duties are enforceable thereafter only if they are contained in the deed.

*However, obligations that are collateral to and independent of the conveyance (e.g., the seller’s obligation to remove his/her personal property prior to closing) are usually not subject to the doctrine of merger.

Question 32

Doctrine of Equitable Conversion

Answer 32

Unless the land-sale contract states otherwise, the doctrine of equitable conversion places the risk of loss on the buyer once the contract is formed and can be specifically enforced.

A majority of jurisdictions apply the doctrine of equitable conversion when a land-sale contract is silent regarding the risk of loss (as seen here).

• Under this doctrine, the risk of loss is placed on the party with equitable title at the time the property was destroyed unless the other party is at fault for the loss.
• The seller retains legal title to real property during the pendency of the sales contract (i.e., during the executory period), but the buyer receives equitable title once the contract is formed and can be specifically enforced.*

*Under the Uniform Vendor and Purchaser Risk Act (adopted by a minority of jurisdictions), the seller retains the risk of loss unless and until the buyer takes possession or title is transferred.

Question 33

Equitable Conversion under land-sale K

Answer 33

Question 34

Common situations that excuse T’s duty to pay rent (visua)

Answer 34

Question 35

When the government condemns a leased property, when is the T’s duty to pay rent excused?

Answer 35

A tenant’s duty to pay rent is excused when the government condemns (ie, takes ownership through eminent domain) the entire leased property for the remainder of the lease term.

But when the government condemns only a portion of the property (or all the property for less than the remainder of the lease), the landlord–tenant relationship is unaffected and the tenant remains liable for rent.

However, the tenant is entitled to compensation from the government for the condemned portion of the property (or the time he/she was not in possession).

Question 36

Fair Housing Act (visual)

Applicability & Exceptions

Answer 36

Question 37

Type of Tenancies - Leases on Land (visual)

Answer 37

Question 38

Does a Tenancy for Years terminate automatically upon expiration of the term without notice from either party?

Answer 38

YES

Question 39

What are 4 ways a tenancy by the entirety can be severed?

Answer 39

1) Death of one co-tenant
2) Mutual agreement of the parties in writing
3) Issuance of a divorce decree
4) Execution by a joint creditor (e.g., foreclosure)

Question 40

Priority of subsequent property interests

Answer 40

Recording act

1) Race
* Interest holder who records first will prevail
2) Notice
* Subsequent bona fide purchaser (BFP) without notice of earlier interest will prevail
3) Race-notice
* Subsequent BFP who lacks notice of earlier interest & records first will prevail

Common law

1) First in time
* Earlier interest holder will prevail over subsequent interest holders

Question 41

Is a grantee’s status as a donee relevant in a suit b/w an earlier interest and the donee?

Is it relevant in a suit b/w the donee and a subsequent purchaser for value?

Answer 41

A grantee’s status as a donee is relevant in a suit between an earlier interest and the donee…

It is of no consequence in a suit between the donee and a subsequent purchaser for value. The manner in which the earlier interest was acquired is irrelevant.

Question 42

LL Remedies for T Breach

Answer 42

If tenant breaches his leasehold duties, landlord’s options depend on whether tenant retains possession (i.e., remains on premises)

Tenant retains possession — landlord may:

1) File for notice of eviction, or
2) Continue the lease and sue for rent due

Tenant abandons premises — landlord may:

1) Surrender — treat the abandonment as tenant’s surrender and accept it, releasing the tenant from the lease,
2) Ignore (minority rule) — hold tenant liable for unpaid rent, or
3) Re-let (majority rule) — lease premises to new tenants and hold the breaching tenant liable for any losses

No self-help — landlord may not engage in self-help upon tenant’s breach (e.g., forcibly removing tenant or tenant’s belongings, changing locks, etc.)

Security deposit — required at beginning of most leases to secure landlord against damages and/or abandonment

• Landlord must return deposit to tenant once lease terminates
  
  • Landlord may subtract damages she has suffered

Retaliatory eviction — landlord is prohibited from retaliatory eviction if a tenant lawfully reports housing code violations

Question 43

LL Duties & Warranties

Answer 43

Landlords have the following implied duties to tenant:

1) Duty to deliver possession

• Majority — actual possession
  
  • Landlord must deliver physical possession to tenant
• Minority — legal possession (i.e., right to possess)
  
  • New tenant is responsible for any holdovers on property
• Tenant’s remedy for breach = money damages
• 2) Implied covenant of quiet enjoyment*
• 3) Implied warranty of habitability*
• 4) Tort liability*

Question 44

What is the liability of a T who sublets her interest to a 3rd party (sublessee) for less than the remainder of the lease term?

Answer 44

A tenant who sublets—ie, transfers his/her interest to a third party (sublessee) for less than the remainder of the lease term—is individually liable for the landlord’s entire harm arising from a breach of the lease by the sublessee.

However, the sublessee has no liability to the landlord.

Question 45

When will a lease be considered unconscionable with regards to termination rights?

Answer 45

A tenancy at will is a leasehold estate that has no specific term and continues so long as the landlord and the tenant desire. If only one party is expressly given the right to terminate the leasehold, the lease may be deemed unconscionable and both parties will have the ability to terminate it.

Question 46

Ownership of Emblements

Wild, uncultivated crops (i.e., fructus naturales)

Answer 46

Wild, uncultivated crops (i.e., fructus naturales):

• Are considered part of the real property on which they grow, and they pass automatically with the land. The prior owner has no right to reenter the land to remove the crops.

Planted, Cultivated Crops (i.e., fructus industriales):

• Crops that are purposely planted and cultivated (i.e., fructus industriales) are considered the landowner’s personal property and, similarly, are generally conveyed with the land.

Question 47

Can a grantor deliver a deed to the grantee through an independent 3rd party?

What if the third party’s transfer to the grantee is conditioned on the grantor’s death?

Answer 47

YES.

A grantor can deliver the deed to the grantee through an independent third party.

But if the third party’s transfer to the grantee is conditioned on the grantor’s death, then the grantor’s delivery of the deed to the third party must evidence the intent to make a present gift to be effective.

• This typically occurs when the grantor relinquishes the right to take back the deed by placing it beyond the grantor’s control.

Question 48

For a transfer by deed to be effective, the deed must be:

Answer 48

A deed is a legal instrument that transfers ownership of real property from the owner (grantor) to another (grantee). But for a transfer by deed to be effective, the deed must be:

1) delivered by the grantor – demonstrates the grantor’s present intent to convey ownership to the grantee

AND

2) accepted by the grantee – presumed if the transfer is beneficial to the grantee.

Delivery is presumed when the deed has been recorded in the county land records since the recording creates a rebuttable presumption that the deed is intended to be presently operative.

Physically handing over a deed is not required and does not conclusively prove a grantor’s present intent to convey property

Question 49

Defects rendering title unmarketable

Answer 49

Defects rendering title unmarketable

• Future interest if future-interest holder has not agreed to transfer title
• Private encumbrance (eg, mortgage, covenant, option, easement)
• Significant physical defect (eg, incurable encroachment)
• Title acquired by adverse possession & not quieted by judicial decree
• Zoning-ordinance violation

All land-sales contracts have an implied warranty that the seller will convey marketable title to the buyer upon closing unless otherwise stated.

Title need not be perfect to be marketable, but it must be free from an unreasonable risk of litigation such that a reasonable person would accept and pay for it.

Therefore, title can be rendered unmarketable by a future interest if the holder of that interest does not agree to the transfer.

If the seller cannot convey marketable title by the time of closing, then the buyer can refuse to close.

Question 50

What is required for a deed to effectively transfer ownership of the property?

Answer 50

A deed transfers ownership of real property once it is delivered (presumed when it has been recorded) and accepted (presumed when the transfer benefits the grantee).

Once these requirements are met, the grantee owns the property and the transfer cannot be canceled (i.e., transfer is irrevocable)—even if the land record office later returns the deed to the grantor.

Question 51

Is time for performance an essential term of a contract for the sale of land?

Answer 51

NO.

Contracts for the sale of land are enforceable only if they comply with the statute of frauds. This statute requires that these contracts be in writing, be signed by the party against whom enforcement is sought, and contain all essential terms.

Essential terms often include:

• the identity of the parties
• words of intent to buy or sell
• a description of the property AND
• the sales price.

However, time for performance is not an essential term. Instead, courts will infer that performance within a reasonable time was intended.

Question 52

When does the buyer receive equitable title to the property?

Answer 52

Unless otherwise provided, the doctrine of equitable conversion places the risk of loss on the party with equitable title to the property.

The buyer acquires equitable title once a real estate contract is formed and can be specifically enforced.

Question 53

Right of First Refusal

Answer 53

A right of first refusal (ROFR) is a preemptive right that gives its holder the opportunity to acquire property from a seller before it is transferred to a third party.

Such a provision is valid if it complies with the statute of frauds—i.e., is in a writing that is signed by the party to be charged and contains all essential terms—and its terms are reasonable.

Reasonableness is determined by balancing the utility of the purpose served by this restraint against the likely harm that would result from enforcing it.

Question 54

When will a closing date be strictly enforced?

Answer 54

A real estate contract is executed when the seller promises to deliver marketable title and the buyer promises to pay the purchase price. However, courts presume that these promises need not be performed until closing or a reasonable time thereafter—unless the parties set a strict closing deadline.

The closing date will be strictly enforced when:

• the contract specifically states that “time is of the essence”
• circumstances indicate that it was the parties’ intention to strictly adhere to the closing date OR
• one party gives the other party notice that time is of the essence within a reasonable time prior to closing.

If time is not of the essence, then strict adherence to the set closing date is not required in equity.

Therefore, a party’s failure to perform on the closing date is not grounds to rescind the contract so long as the party can perform within a reasonable time thereafter.

However, a party who fails to perform on the closing date nevertheless breaches the contract and is liable at law for incidental losses (e.g., taxes, interest).

Question 55

In most jurisdictions, are judgment creditors considered purchasers for value?

Answer 55

NO.

In most jurisdictions, judgment creditors are not purchasers for value since the attachment of a judgment lien to a debtor’s property is merely security for a preexisting debt—i.e., no new value has been paid.

Question 56

Seller’s duty to disclose all material defects

What makes a defect material?

Answer 56

In a majority of jurisdictions (including this one), the seller of a residence has a duty to disclose all material physical defects that are known to the seller and cannot be reasonably discovered by the buyer.

A defect is material if it:

• substantially affects the value of the residence
• impacts the health or safety of a resident or
• affects the desirability of the residence to the buyer.

If the seller fails to make such disclosures, then the buyer may rescind the sale or seek damages.

Question 57

Under the doctrine of equitable conversion, can a judgment obtained against a seller after the execution of a land-sale contract be enforceable against the real property—even if the claim arose before the contract was executed?

Answer 57

Due to the doctrine of equitable conversion, a judgment obtained against a seller after the execution of a land-sale contract is not enforceable against the real property—even if the claim arose before the contract was executed.

Question 58

To be a valid deed—i.e., a legal instrument used to convey an interest in real property from the owner (grantor) to another (grantee)—a document must:

Answer 58

1) be in writing and signed by the grantor
2) identify the grantor and the grantee
3) describe the property being transferred AND
4) contain words of transfer (eg, “deed over,” “transfer,” “give”).

Question 59

Uniform Vendor and Purchaser Risk Act

Answer 59

Under this act, the risk of loss falls upon the owner because the buyer did not have possession of the warehouse at the time of the destruction of the warehouse.

Question 60

Does a fraudulent deed effectively convey title when a bona fide purchaser relies on it?

Answer 60

NO. Deed is void.

Fraudulent documents are ineffective to convey title, even if bona fide purchasers rely upon them.

Question 61

What are the rights of a tenant upon condemnation?

Answer 61

The right of a tenant upon condemnation depends upon whether the condemnation is partial or complete.

If the condemnation is partial, meaning only a portion of the leased property is taken, the tenant must continue to pay rent.

Question 62

When is the seller required to deliver marketable title?

Answer 62

An implied covenant of marketable title is part of a land sales contract unless the parties agree otherwise.

However, the seller is not required to deliver marketable title until the closing.

Question 63

Doctrine of Equitable Conversion

Uworld question re Navy Sailor and mom who buyers house and sailor dies a week before recording deed but after the seller and mom entered into a K

Answer 63

Under the doctrine of equitable conversion, a purchaser receives equitable title to property when he/she enters an enforceable sales contract (eg, by paying the sale price).

Equitable title is a real property interest that gives the purchaser the right to obtain full ownership of the property upon closing (eg, when the seller delivers the deed).

Example:

Although the buyer left his entire estate to the church, the cottage would only be part of that estate if the buyer had an interest in the cottage when he died. He did not have legal title upon death since the seller had not yet delivered the deed. But under the doctrine of equitable conversion, the buyer did have equitable title—ie, the right to obtain full ownership of the property (ie, legal and equitable title) upon closing. That is because an enforceable sales contract was formed when the buyer’s mother exercised the option to buy the cottage on his behalf.

Since equitable title is a real property interest, it passed to the church under the buyer’s will. The church then obtained legal title to, and full ownership of, the cottage upon closing—when the seller delivered the deed to the mother

Question 64

To deliver a deed through a valid death escrow, the grantor must:

Answer 64

A deed effectively transfers ownership of a landowner’s (grantor’s) real property to another (grantee) when it is delivered to, and accepted by, the grantee.

To deliver a deed through a valid death escrow, the grantor must:

1) give the deed to an escrow agent (eg, attorney) with instructions to transfer it to the grantee upon the grantor’s death and
2) relinquish the right to take back the deed (ie, by placing the deed beyond his/her control).

Question 65

Implied Warranty of Fitness

Answer 65

1) Only for new homes
a. warrants use of adequate materials and workmanship
b. includes latent construction defects

Question 66

Duty to Disclose (all homes)

Answer 66

In a majority of jurisdictions, a seller of a residence has a duty to disclose all known material physical defects to the buyer.

1) The defect must not be readily observable or known to the buyer.
2) To be material, the defect must substantially:
a. affect the value of the residence
b. impact the health or safety of a resident, OR
c. affect the desirability of the residence to the buyer.
3) When a seller fails to make such disclosures, the buyer may rescind the sale or seek damages.
* Some states limit this duty to commercial sellers (e.g., builders); other states impose this duty on all sellers.

Even in a jurisdiction that does not require an affrimative disclosure by the seller, a buyer can sue the seller for misrepresentation or fraudulent concealment.

General disclaimers (e.g., “property is sold as is”) that, in some states, are suffcient to disclaim this duty are not sufficient to preclude the seller’s liability for misrepresentation or fraudulent concealment.

Question 67

Merger

Answer 67

Under the common law doctrine of merger, obligations contained in the contract of sale, such as the seller’s duty to deliver marketable title, or a description of the size or location of the property, are merged into the deed and cannot thereafter be enforced unless the deed contains the obligation.

However, this doctrine generally is not applicable to obligations that are collateral to and independent of the conveyance itself, such as the obligation of the buyer to perform some act on the property after acquisition or the obligation of the seller to remove the seller’s personal property.

In addition, the merger doctrine does not prevent a buyer from bringing a fraud claim against the seller for fraudulent assertions in the land sale contract, even after closing.

Note that the term “merger” is used in other real property contexts, such as the merger of property interests (e.g., acquisition of both the land that is subject to and the land that is benefited by a restrictive covenant). Such a merger results in the extinguishment of the property right (e.g., the restrictive covenant).

Question 68

Remedies for breach of land sale K

Answer 68

1. Damages:
   a) Both the buyer and the seller can recover expectation damages based on the difference between the contract price and the market value on the date of performance.
   b) In some jurisdictions (about half), if the seller’s breach resulted from an inability to deliver marketable title, but the seller acted in good faith, then the buyer’s damages are limited to the buyer’s out-of-pocket expenses.
   c) In addition, a buyer or seller can recover incidental damages, such as expenses associated with a title search or survey of the property.

1A. Buyer’s deposit as liquidated damages

a) A real property contract usually requires the buyer to make a deposit of a portion of the purchase price (sometimes referred to as “earnest money”).
b) In addition, the contract typically contains a liquidated damages clause that provides for the seller to retain the buyer’s deposit in the event that the buyer breaches the contract and refuses to purchase the property.
c) In general, for a liquidated damages clause to be enforceable, the amount of liquidated damages must be reasonable.
i) Traditionally, many courts have found a deposit of no more than 10% of the purchase price to be reasonable as a liquidated damages amount.
ii) However, courts may consider factors such as the sophistication of the buyer and the nature of the transaction (commercial versus residential) in determining the reasonableness of the seller’s retention of the buyer’s deposit.
iii) In addition, a court may refuse to enforce a liquidated damages clause when the seller suffers no actual loss. When the contract is silent as to dispensation of the deposit in the event of a default by the buyer, courts consider the same factors, and usually allow the seller to retain the deposit when reasonable.

2. Specific Performance

a) The buyer is entitled to specific performance for a seller’s breach of a contract to sell a real property interest because the buyer’s remedy at law is considered inadequate due to the unique nature of land.
b) Under the theory of mutuality of remedies, the seller is also permitted to seek specific performance and force the buyer to purchase a real property interest, although some courts have rejected this theory because the seller typically receives money rather than real property.
c) When the buyer seeks specific performance with respect to property for which there is a title defect (e.g., an encumbrance), the buyer may also obtain an abatement in the purchase price to compensate the buyer for the defect.

Question 69

Equitable Conversion

Answer 69

Under the doctrine of equitable conversion, although the seller retains legal title to real property during the pendency of the sales contract, equitable title passes to the buyer upon entering the contract.

The seller effectively holds the property in trust for the buyer, and he has a duty to keep up the property.

However, as the holder of legal title, the seller has the right to possess the property.

Equitable conversion does not apply if the contract is not specifically enforceable.

Question 70

Equitable Conversion

Action Against Seller

Answer 70

When an action is maintained against the seller for a claim that arose prior to the execution of the contract, a judgment obtained against the seller after the execution of the contract is not enforceable against the real property.

Under the doctrine of equitable conversion, the seller’s interest is converted by the contract into an interest in the proceeds from the sale; it is no longer an interest in the real property itself.

Question 71

Equitable Conversion

Risk of Loss

Answer 71

Most states, under the doctrine of equitable conversion, place the risk of loss during the time between the execution of the contract and the closing on the buyer, regardless of whether the buyer takes possession of the property.

An exception is recognized when the loss is attributable to the seller’s intentional or negligent actions.

• The Uniform Vendor and Purchaser Risk Act (adopted by a minority of jurisdictions) keeps the risk of loss with the seller, unless and until the buyer takes possession, or title is transferred.
• For the Act to apply, a material part of the property must be destroyed.

Question 72

Equitable Conversion

Insurance

Answer 72

Unless the contract requires otherwise, the seller does not have a duty to carry casualty insurance.

• Because the buyer has an equitable interest in the property, the buyer may obtain such insurance.
• When the risk of loss is on the buyer and the seller has casualty insurance, the seller is generally required to give the buyer credit against the purchase price in the amount of the insurance proceeds when a casualty occurs.

Question 73

Equitable Conversion

Effect of the Buyer’s or Seller’s Death

Answer 73

When one of the contracting parties dies prior to the performance date of the contract:

1) the seller’s interest may be treated as personal property and
2) the buyer’s interest may be treated as a real property interest for the purposes of distributing the property pursuant to either’s will.

A. Seller’s death

• When the seller-decedent has devised his real property interests, the proceeds from the sale of the property under contract are treated as personal property that passes to the devisee of the seller-decedent’s personal property.
• The devise of the real property itself is treated as having been adeemed.
• In jurisdictions that have adopted an anti-ademption statute, the devisee of the seller-decedent’s real property is entitled to the sale proceeds.

B. Buyer’s death

• The person entitled to the buyer-decedent’s real property, such as the devisee of the buyer-decedent’s real property pursuant to the buyer- decedent’s will, can compel the transfer of the property to herself.

Question 74

Transfer of Deed to 3rd Party - Independent Agent - Gift

Answer 74

1. If the grantor purportedly gives property to a grantee through a third party and places a condition on the transfer of the deed by the third party to the grantee, whether delivery has taken place depends on the grantor’s language.
   * If the grantor retains an absolute right to recover the deed, then no valid delivery exists because transfer of title was not clearly intended.

Example 1: A executes a deed that transfers real property to B. The deed itself contains no conditions. A gives the deed to C to hold and says, “Give this deed to B on his 21st birthday, unless I ask for the deed back before then.”

• Because A retained an absolute right to recover the deed, A did not have the intent to make a present transfer.
  2. If the grantor does not retain a right to retrieve the deed, then the key is whether the grantor intends to make a present gift of a property interest.
• If so, the grantor cannot later void the gift. Instead, the conditional transfer is treated as creating a future property interest in the grantee.

Example 2: A executes a deed that transfers real property to B. The deed itself contains no conditions. A gives the deed to an independent third party, C, and says, “I want B to have this property when she has her first child. Please give the deed to her then.” Since A gave C the deed with the intent of presently creating an executory interest in B, B currently has an executory interest in the real property.

3. When the third party’s transfer of the deed to the grantee is conditioned on the death of the grantor, the grantor’s transfer of the deed to the third party must evidence the intent to make a present gift.
   * When the grantor’s intent is that the gift itself be effective only upon the grantor’s death, the transfer can be ineffective due to a failure to comply with the requirements for a testamentary transfer (i.e., the Statute of Wills).

Example 3: A executes a deed that transfers real property to B. The deed itself contains no conditions. A gives the deed to an independent third party, C, saying, “I want B to have this property upon my death. Please give the deed to her then.” Because A gave C the deed with the intent of presently creating a remainder interest in B, the transfer is effective.

Example 4: A executes a deed that transfers real property to B. The deed itself contains no conditions. A gives the deed to an independent third party, C, saying, “I want B to have this property if she outlives me. Please give the deed to her then.” Because A gave C the deed with the intent of making a testamentary transfer (i.e., requiring that B survive A in order to take the property), the transfer is ineffective unless the requirements for a testamentary transfer were satisfied.

Question 75

Transfer of Deed to 3rd Party - Independent Agent - Contract

Answer 75

When a contract for the sale of real property calls for the seller to give the deed to an independent third party (i.e., an escrow agent) and conditions the release of the deed to the buyer on the happening of an event, typically payment of the purchase price, the escrow agent is obligated to transfer the deed to the buyer if and when the condition occurs.

Question 76

Transfer of Deed to 3rd Party - Independent Agent - Contract

Retrieval by the Grantor

Answer 76

When there is a written contract, the grantor cannot require the escrow agent to return the deed prior to the failure of the condition to occur.

When the contract is oral, the grantor can reclaim the deed from the escrow agent because the Statute of Frauds requires a writing for a land sales contract to be enforceable.

Question 77

Transfer of Deed to 3rd Party - Independent Agent - Contract

Escrow Agent

Answer 77

When the escrow agent delivers the deed to the buyer prior to the performance of the condition, title to the property remains with the seller.

• This is true even when the buyer then transfers the property to a third party, even a person who purchases the property in good faith (i.e., a bona fide purchaser).

An exception exists when the seller permits the buyer to possess the property.

Question 78

Transfer of Deed to 3rd Party - Independent Agent - Contract

Time of Transfer

Answer 78

In general, title to the property remains in the seller until the condition is satisfied.

• Once the condition is satisfied, title automatically vests in the buyer.
• The date of transfer can relate back to the date that the grantor deposited the deed in escrow when, before the condition is satisfied:
  1) the grantor dies,
  2) the grantor becomes incapacitated or marries, or
  3) the grantee dies.

Question 79

Transfer of Deed - Acceptance

Answer 79

Acceptance is required for a transfer to be complete, and the grantee is generally presumed to have accepted any beneficial conveyance.

Acceptance relates back to the time the deed was transferred, unless a bona fide purchaser or creditor of the grantor would be negatively affected by doing so.

If the grantee rejects the deed, no title passes and the grantor holds the title.

**If the grantee accepts the deed and then changes his mind even a moment later, his return, destruction, or cancellation of the deed is ineffective to transfer ownership of the property back to the grantor.**

• A new, valid deed must be executed in order for the grantee to convey the property back to the original grantor.

Question 80

Equal-dignitites Rule

Answer 80

While the creation of an agency relationship does not generally require a writing, under the equal-dignities rule, when the act performed by an agent on behalf of the principal is required to be in writing by law, the agent’s authority must also be in writing.

• Consequently, when an agent signs a deed (or a real property instrument that is subject to the Statute of Frauds, such as a contract for the sale of real property), the agent’s authority must also be in writing.

Exceptions:

• An officer of an entity such as a corporation who has the authority to act on behalf of the entity by virtue of the officer’s status may sign a deed without specific authorization of the corporation to do.
• In addition, a person whose only act is signing a specific deed at the grantor’s request (i.e., an amanuensis) may do so without written authorization.

Estoppel of a principal

• A principal-grantor may be estopped from asserting the lack of writing as a defense when the principal has made a manifestation of an agent’s authority that induces detrimental reliance by a third party.

Question 81

Execution by an Agent

Signature on the Deed

Answer 81

1. Signature on the deed

• A deed is valid if an agent with authority signs only the principal’s name.
• A deed is not valid at law if an agent with authority signs only her own name, but the deed may be enforced in equity as between the parties and subsequent purchasers with notice of the existence of the agency.

Question 82

Transfer of Deed

Grantor’s lack of capacity and other defenses

Answer 82

A grantor who conveys a real property interest is subject to the same capacity requirements as a person who enters into a contract.

In addition, a deed may be subject to reformation or rescission on the same grounds as a contract (e.g., fraud, undue influence, duress) (see MBE Contracts outline I.E.1.–5.).

Question 83

Transfer of Deed

Conveyance of jointly owned property

Answer 83

Generally, a co-tenant in a joint tenancy or a tenancy in common can convey only his interest in jointly owned property.

A deed executed by a co- tenant that purports to be a conveyance of the entire jointly owned property has the effect of conveying only that co-tenant’s interest.

A purported conveyance of a physical portion of jointly owned property is void.

Question 84

Recording Acts

Notice

Answer 84

A purchaser need only purchase without notice of the prior interest to prevail under a notice statute.

• Notice statutes tend to protect subsequent purchasers against interest holders who could have but failed to record documents describing their interests.

EXAM NOTE: Notice statutes are commonly tested on the MBE and usually contain words such as “in good faith” or “without notice.”

Example of a notice statute: “No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice unless the same be recorded according to law.”

EXAM NOTE: R**emember that a purchaser need not record in order to prevail over a prior interest in a notice jurisdiction, but he must record to prevail against a subsequent purchaser.

Question 85

Recording Acts

Race Statute

Answer 85

A minority of states have race statutes, under which a purchaser who records first prevails, regardless of his knowledge of any prior conflicting interests.

Example of a race statute: “No conveyance or mortgage of real property shall be good against subsequent purchasers for value unless the same be first recorded according to law.”

Question 86

Recording Acts

Race-Notice Statute

Answer 86

A race-notice statute requires a subsequent purchaser to take the interest without notice of a prior conflicting interest and be the first to record.

EXAM NOTE: Look for words in the statute such as “in good faith” in conjunction with phrases such as “first duly recorded,” which are present in a race-notice statute.

Example of a race-notice statute: “No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice who shall first record.”

EXAM NOTE: The recording acts provide that prior conveyances and mortgages that would prevail under the common-law rule may be defeated by certain “subsequent purchasers for value” who meet the requirements of the recording act (e.g., took without notice, recorded first, or both).

In other words, the recording acts operate by protecting the claim of certain subsequent purchasers who would have lost under the common law “first in time, first in right” rule.

Remember that when a recording act does not apply, the common law “first in time, first in right” rule applies.

Question 87

Recording Acts

Donees, heirs, and devisees

Answer 87

Grantees who acquire title of property by gift, intestacy, or devise are not protected by the recording act against prior claims to the same property, even when those claims are not recorded.

Example: A sells Blackacre to B, who forgets to record the deed. In the interim, A gives a deed to his daughter, C, who promptly records her deed.

C will not defeat B’s ownership because C did not pay value for the property.

Question 88

Recording Acts

Judgment Liens

Answer 88

Creditors are protected only against claims that arise after a judgment against the debtor is recorded, unless otherwise indicated by statute.

• Note that a lawsuit may be pending that could affect title to the property.
  
  • In such case, any party to the action may record a lis pendens (a notice of pending action), which serves as notice to third parties of the claims pending in the lawsuit.

Example: B makes a loan to A and A grants B a mortgage interest in Blackacre as security for the loan. C, a creditor of A, not knowing of the deed to B, then records a judgment lien against Blackacre.

• C is not protected against B’s unrecorded interest because it preceded the recording of C’s lien.

Question 89

Recording Acts

Judicial Sale

Answer 89

Most jurisdictions protect a purchaser of property at a judicial sale against all unrecorded interests subject to the recording act.

Example 3: B makes a loan to A and A grants B a mortgage interest in Blackacre as security for the loan. C, a creditor of A, not knowing of the deed to B, then records a judgment lien against Blackacre. C is not protected against B’s unrecorded interest because it preceded the recording of C’s lien.

_*Example*:_ Assume the same facts as those in the example 3, above.

• C obtains an order requiring a sheriff to levy on the lien and Blackacre is sold at a judicial sale.
  
  • D purchases Blackacre at the sale. D takes Blackacre free of B’s mortgage interest.

Question 90

Covenant of Warranty

Can the grantee recover from the grantor if the grantee is successful in defending against a 3rd party’s claim?

Answer 90

The covenant of warranty is a future covenant that guarantees that the grantor will defend against a third party’s lawful (i.e., valid) claim for title.

This covenant, however, does not require the grantor to defend against a third party’s wrongful claim.

• In essence, this covenant does not require the grantor to defend against all title claims brought by a third party against the grantee, but to be responsible for the litigation costs if the third party’s claim is successful.

Question 91

What is the majority view if a survivorship contingency is stated in a conveyance?

Answer 91

If a survivorship contingency is stated in a conveyance, then the majority view is that the contingency applies at the termination of the interest that precedes distribution of the remainder.

Question 92

Fixtures

In general, absent an agreement to the contrary, a tenant may remove a fixture that the tenant has attached to the leased property if…

Answer 92

(i) the leased property can be and is restored to its former condition after the removal, and
(ii) the removal and restoration is made within a reasonable time.

Although a reasonable time for removal generally does not extend beyond the termination of the lease, it may do so when

(i) the termination is not due to a breach by the tenant, and
(ii) the date of termination is not foreseeable by the tenant sufficiently far enough in advance to permit removal before the termination of the lease.

Question 93

Under the Majority rule, does the doctrine of anticipatory repudiation apply to leases of real property?

Answer 93

NO.

In determining the landlord’s damages, the majority rule is that the doctrine of anticipatory repudiation does not apply to leases and the landlord is not entitled to damages with respect to future rents that would have been due under the lease.

In states that do apply the doctrine of anticipatory repudiation to leases, damages are generally measured by the difference between future rent that would be owed under the unexpired term and either

(i) the reasonable rental value of the premises for such term or
(ii) the actual rent collected on a re-letting of the premises for such term.

This means that the landlord could collect, at most, the value by which the future rents would have exceeded a reasonable rental value for the property.

Question 94

RAP

Right of First Refusal Exception to RAP when right is given in conjunction with a lease

Answer 94

The Rule Against Perpetuities does not apply to an option or right of first refusal granted in a lease to a current leasehold tenant.