Long Questions

Question 1

A landlord rented an art studio to an artist. Under the terms of the signed, written, two-year lease, the artist agreed to pay the landlord $1,000 per month and to assume responsibility for all necessary repairs. After the first year of the lease, the artist assigned the balance of his lease to a sculptor. The landlord approved the sculptor as a tenant and accepted two rent payments from her, and then the landlord sold the building to an investor. The sculptor had made two payments to the investor when an electrical fire broke out in the studio, injuring the sculptor. The fire was caused by faulty wiring. The landlord was aware that there was a dangerous wiring problem when he leased the property to the artist. But when the landlord discovered how costly repairs would be, he decided it would be more profitable to sell the property than to repair it. The problem was not easily discoverable by anyone other than an expert electrician, and the landlord did not tell the artist, the sculptor, or the investor about the problem. The sculptor sues to recover damages for her injuries.

From whom can the sculptor recover?

1. Investor (he breached the warranty of habitability)
2. Landlord (he failed to disclose)
3. Artist (the artist is considered the sculptor’s landlord.)
4. No one (the covenant of repair runs with the land)

Answer 1

The landlord is liable for the sculptor’s injuries because he failed to disclose a latent defect. If, at the time the lease is entered into, the landlord knows of a dangerous condition that the tenant could not discover upon reasonable inspection, the landlord has a duty to disclose the dangerous condition. Failure to disclose the information about the condition results in liability for any injury resulting from the condition. Because the landlord knew of the dangerous electrical problem at the time he leased the premises to the artist and did not disclose it to either the artist or the sculptor, he is liable for any injuries resulting from that condition. (1) is wrong for two reasons: (i) the implied warranty of habitability does not apply to commercial leases; and (ii) even if this were a residential lease, it is doubtful that the investor would be liable for a condition of which she had no knowledge or notice. (3) is wrong because it describes the relationship between the artist and the sculptor as though there had been a sublease, when the facts clearly state that the artist assigned the balance of the lease to the sculptor. If a tenant sublets the premises (i.e., the tenant retains part of the remaining term), the tenant is the landlord of the sublessee. The sublessee cannot sue or be sued by the landlord. However, if there has been an assignment (i.e., the tenant makes a complete transfer of the entire term remaining), the assignee is substituted for the original tenant and can sue or be sued by the landlord. The original tenant’s relationship to the assignee is at most that of a surety. Here, because the artist transferred the balance of his lease to the sculptor, there was an assignment and thus the artist cannot be considered the sculptor’s landlord. (4) is wrong because, as stated above, the sculptor can recover from the landlord. The statement that the covenant to repair runs with the land and binds the sculptor is true, but the landlord’s failure to disclose a dangerous preexisting condition renders the landlord liable for the sculptor’s injuries despite the covenant; i.e., the sculptor’s covenant does not relieve the landlord of his tort liability.

Question 2

A landlord leased an apartment to a tenant for five years. The lease provided that the landlord will: (i) keep the apartment building at a comfortable temperature 24 hours per day, and (ii) have the carpets cleaned once a year. Two years later, the landlord began turning off the air conditioning at 10 p.m. The tenant’s apartment became hot and stuffy, and she demanded that the landlord honor the covenant. The landlord refused. The following month, the pipes burst in the tenant’s only bathroom, rendering it unusable. The resultant flooding soiled some of the carpeting, which had not been cleaned in the past 12 months. The tenant reported the problems to the landlord, who did not return the tenant’s phone calls.

Which of the following are valid reasons for the tenant to terminate the lease?

1. Only that the landlord did not keep the apartment building at a comfortable temperature 24 hours per day.
2. Only that the landlord did not fix the bathroom pipes.
3. That the landlord did not keep the apartment building at a comfortable temperature 24 hours per day and did not fix the bathroom pipes.
4. That the landlord did not keep the apartment building at a comfortable temperature 24 hours per day, did not have the carpets cleaned, and did not fix the bathroom pipes.

Answer 2

The tenant will be successful in terminating the lease because the landlord breached the implied warranty of habitability by failing to fix the bathroom pipes. The general rule at common law was that the landlord was not liable to the tenant for damages caused by the landlord’s failure to maintain the premises during the period of the leasehold. Today, however, a majority of jurisdictions, usually by statute, provide for an implied warranty of habitability for residential tenancies. In the absence of a local housing code, the standard applied is whether the conditions are reasonably suitable for human residence. If the landlord breaches the implied warranty, the tenant may: (i) terminate the lease, (ii) make repairs and offset their cost against future rent, (iii) abate rent, or (iv) seek damages. Here, a court is likely to consider the lack of a functioning bathroom as making the premises unsuitable for human residence, allowing the tenant to terminate the lease. (1) is therefore incorrect. (3) would be a stronger answer if the tenant had vacated the premises within a reasonable time. The doctrine of constructive eviction provides that where a landlord does an act or fails to perform some service that he has a legal duty to provide, and thereby makes the property uninhabitable, the tenant may terminate the lease and seek damages. However, a tenant cannot claim a constructive eviction unless: (i) the injurious acts were caused by the landlord, (ii) the premises are uninhabitable, and (iii) the tenant vacates the premises within a reasonable time. Here, the landlord’s failing to keep the apartment building at a comfortable temperature 24 hours per day meets conditions (i) and perhaps (ii), but the tenant remains in possession. Therefore, the tenant cannot claim constructive eviction and (3) is incorrect. (4) is incorrect for the same reason.

Question 3

A man had rented a woman’s home from her for seven years. When the time came to sign a new lease, the woman decided that because the man had always been a quiet tenant, she would continue to charge him only $350 per month rent instead of the $500 to $550 she could probably get otherwise. The new lease was for a period of five years, and by its terms, the man was specifically prohibited from assigning the lease without the woman’s specific written consent. About a year later, the man got married and moved into his new wife’s home. Instead of giving up his lease, the man sublet the property to a friend for $500 a month. The man did not get the woman’s permission to sublease the property.

If the woman brings an action to either eject the friend from the premises or to recover damages from the man for subletting the premises without her consent, what is the most likely result?

1. The woman will be able to recover damages and to eject the new tenant.
2. The woman will be able to eject the new tenant only, because she has suffered no money damages.
3. The woman will not be able to eject the new tenant because, although the man did not have the right to sublet, he had the power, but she will be entitled to recover the full rent paid by the new tenant because it would be unfair to let the man profit from his wrongful act.
4. The woman will have no cause of action for either ejectment or damages.

Answer 3

The woman will most likely have no cause of action for either ejectment or damages. There are two ways for a tenant to transfer the right to possession under a lease: assignment (transferring the entire period of time remaining under the lease) and sublease (transferring only a portion of the time remaining under the lease). Restraints on alienation are traditionally strictly construed. Thus, a covenant prohibiting assignment does not prohibit subleasing and vice versa. Hence, this prohibition against assignment would not be read to include a prohibition against subleasing. Therefore, the woman would have no cause of action against the man

Question 4

A landowner owned a large parcel of land in a rural area. He built his home on the northern half of the property, and developed a large orchard of fruit trees on the southern portion. A county road ran in front of the northern portion. To service his orchard, the landowner built a driveway directly from the county road across the northern portion of the property to the orchard. To provide electricity to his house, the landowner ran an overhead power line across the orchard property to hook up to the only available electric power pole located on the far southern side of the property.

Subsequently, the landowner conveyed the northern parcel to his brother and the southern parcel to his daughter, who said that she did not mind having the power line on the property. Recently, the brother has begun parking his car on the driveway, thus blocking the daughter’s access to the southern parcel. Finding no recorded document granting an easement for the power line, the daughter has decided to remove it.

If the brother is successful in preventing the daughter from removing the power line, what is the likely reason?

1. The daughter knew that the power line ran across the land when she accepted the deed from the landowner.
2. The brother’s alternative access to power is much less convenient and would cost 100 times as much.
3. The daughter told the landowner that she did not mind having the power line on the property.
4. The daughter is acting in retaliation against the brother for blocking the driveway, and not in any good faith belief that she has the right to remove the power line.

Answer 4

The brother’s alternative access to power is much less convenient and would cost 100 times as much.

If the brother is successful in preventing the daughter from removing the power lines, it will be because the brother’s alternative access to power is much less convenient and would cost 100 times as much as the current arrangement. This helps to prove that there was an easement implied by operation of law (“quasi-easement”). An easement may be implied if, prior to the time the tract is divided, a use exists on the “servient part” that is reasonably necessary for the enjoyment of the “dominant part,” and a court determines that the parties intended the use to continue after division of the property. To give rise to an easement, a use must be apparent and continuous at the time the tract is divided. In this case, the landowner used the servient part of his property (the southern parcel) to run an overhead power line to the dominant part of his property (the northern parcel). Overhead wires are clearly visible and would be readily discoverable on reasonable inspection. The lines are, therefore, apparent. The use must also be reasonably necessary. Whether a use is reasonably necessary depends on many factors, including the cost and difficulty of the alternatives. This use was reasonably necessary to the enjoyment of the dominant parcel because electricity is important to the enjoyment of the property, and the cost (100 times as much) and difficulty of the alternatives are excessive. Thus, the fact that the use of the southern parcel is reasonably necessary would bolster the brother’s case.

Question 5

A landowner and her neighbor owned adjoining parcels of land. The landowner’s property was situated to the west of the neighbor’s property. A highway ran along the east of the neighbor’s property. Twelve years ago, the landowner asked the neighbor if it would be all right for the landowner to use an eight-foot strip along the northern part of the neighbor’s land to access the highway. The only other way for the landowner to get to the highway was to use a one-lane unpaved road that meandered through the woods for two miles. The neighbor agreed, and the landowner used the strip of land regularly to access the highway. The statutory period for adverse possession in this jurisdiction is 10 years.

What is the landowner’s interest in the neighbor’s eight-foot strip of land?

1. An easement appurtenant.
2. An easement by necessity.
3. An easement by prescription.
4. Not an easement.

Answer 5

Not an easement.

The landowner’s interest in the neighbor’s eight-foot strip of land is not an easement. In effect, the landowner only has a “license” (i.e., a revocable privilege) to use the land. The answer is best reached by the process of elimination. Because an easement is an interest in land, the Statute of Frauds applies. Here, the agreement between the landowner and the neighbor was not in writing; thus, the Statute of Frauds requirements for the creation of an express easement were not met.

3. is incorrect because the landowner’s use of the land was permissive. To acquire a prescriptive easement, the use must be open and notorious, adverse, and continuous and uninterrupted for the statutory period. Although the landowner used the strip for the requisite 10-year period, she does not meet the adverse requirement necessary to obtain a prescriptive easement.

Question 6

A developer subdivided a 25-acre tract of land into 100 quarter-acre lots. On each lot she built a two-unit townhouse. The deeds to each of the purchasers contained a covenant that “the grantee, his heirs and assigns” would use the property only for single-family use. All deeds were promptly and properly recorded. Subsequently, the zoning laws were amended to allow multifamily use within the subdivision. Six months later, a social worker offered to purchase an original owner’s unit that was for sale. The social worker informed the owner that she planned to operate a halfway house out of the unit, an activity in conformity with the applicable zoning regulations. Therefore, the owner did not include the single-family restriction in the deed to the social worker.

If a neighbor, who purchased his lot from the developer, seeks to enjoin the operation of the halfway house, will he succeed?

1. No, because the deed from the owner to the social worker did not refer to the covenant.
2. No, because the social worker relied on the zoning regulations when purchasing the unit.
3. Yes, because the social worker had notice of the restrictive covenant.
4. Yes, but only if the neighbor can establish a common scheme for development.

Answer 6

Yes, because the social worker had notice of the restrictive covenant.

The neighbor will succeed in enjoining the operation of the halfway house because the social worker had notice of the restrictive covenant (Burden requirements to run WITHVN). A covenant runs with the land to a subsequent purchaser with notice of the covenant if it touches and concerns the land and is intended to run. Notice may be actual or constructive. Here, the social worker was on record notice of the covenant because the original owner’s deed was recorded. Restricting land to single-family use touches and concerns the land, and it is evident that the developer and the original owners, including the neighbor, intended it to run with the land by use of the language “grantee, his heirs and assigns.” The social worker thus will be bound even though her deed did not refer to the covenant. Thus,

(2) is incorrect because compliance with zoning regulations does not excuse noncompliance with an enforceable covenant; both must be complied with.
(4) is incorrect because the neighbor can prevail without needing to show a servitude implied from a common scheme, which comes into play when a developer subdivides land into several parcels and some of the deeds contain negative covenants and some do not. Here, the covenant relating to single-family use was in all of the original deeds and, as discussed above, it runs with the land. A covenant that runs with the land may be enforced as an equitable servitude if the assignees of the burdened land have notice of the covenant; the usual remedy is an injunction. Here, the social worker had record notice of the covenant and it runs with the land, so the neighbor can enforce the covenant as an equitable servitude without resort to implying a reciprocal negative servitude.

Question 7

A landowner and her neighbor owned adjoining tracts of land. No public road abutted the neighbor’s land, so the landowner granted the neighbor an express easement over the north 25 feet of the landowner’s land. However, the following month the county extended the public road to the neighbor’s land, and he ceased using the easement for ingress and egress.

Twenty years later, the neighbor conveyed the easement to his friend, who owned the land adjoining the other side of the landowner. The following year, the neighbor conveyed his land to the landowner. None of the parties has used the easement since the public road was extended. The jurisdiction has a 15-year statute of limitations for acquiring property interests by adverse possession.

At what point was the easement extinguished?

1. When the neighbor attempted to convey the easement to the friend without conveying the dominant tenement itself.
2. Fifteen years after the neighbor ceased using the easement.
3. When the neighbor conveyed his land to the landowner.
4. The easement was not extinguished.

Answer 7

The easement was extinguished when the neighbor conveyed his land to the landowner.

An easement is extinguished when the easement is conveyed to the owner of the servient tenement. For an easement to exist, the ownership of the easement and the servient tenement must be in different persons. (By definition, an easement is the right to use the land of another for a special purpose.) If ownership of the two property interests comes together in one person, the easement is extinguished. Thus, (D) is wrong. (A) is wrong because, although an attempt to convey an easement appurtenant apart from the dominant tenement is ineffective, it does not extinguish the easement. The easement continues despite the attempted conveyance and will pass with the ownership of the dominant tenement. (B) is wrong because mere nonuse does not extinguish an easement. An easement may be extinguished by abandonment, but to constitute abandonment sufficient to extinguish an easement, the easement holder must demonstrate by physical action an intent to permanently abandon the easement. Nonuse of the easement is not enough to show the intent never to make use of the easement again.

Question 8

A landowner possessed a 40-acre tract of land. He had inherited 30 acres and had possessed the other 10 acres for longer than the statutory period necessary to acquire title by adverse possession from a rancher. The landowner entered into a land sale contract promising to convey the 40 acres to a developer. The contract provided that the landowner would convey marketable title. The developer paid the landowner the purchase price and accepted a deed from him. The developer promptly recorded the deed. The rancher, having learned of the sale, brought a successful action against the developer to quiet title. The developer realized for the first time that there were no covenants for title in his deed. The developer brings an action against the landowner.

What is the most likely outcome of the suit?

1. The developer will win, because the landowner breached the terms of the contract.
2. The developer will win, because the landowner misrepresented the size of the tract.
3. The landowner will win, because the terms of the deed control his liability.
4. The landowner will win, because the developer was negligent in not checking the covenants of title at the time of closing.

Answer 8

The landowner will win because the terms of the deed, not of the contract, control his liability.

There is an implied covenant in every land sale contract that at closing the seller will provide the buyer with a title that is “marketable.” Marketable title is title reasonably free from doubt, i.e., title that a reasonably prudent buyer would be willing to accept. It need not be a “perfect” title, but the title must be free from questions that might present an unreasonable risk of litigation. Generally, this means an unencumbered fee simple with good record title. Generally, a title acquired by adverse possession is not considered marketable because the purchaser might be later forced to defend in court the facts that gave rise to the adverse possession against the record owner. Here, the marketability requirement did not have to be implied, it was an express term of the contract. Under the doctrine of merger, the contract merges into the deed, and the terms of the contract are meaningless. Even though the contract specified a “good and marketable title,” it is the deed that controls, and the deed contained no covenants of title. A deed does not incorporate the title terms of a contract. Thus, (A) is wrong. (B) is wrong; it is not supported by the facts. (D) is wrong because the developer’s negligence is irrelevant.

Question 9

A farmer conveyed a 60-acre parcel of land to a rancher. A private gravel road ran through the center of the parcel. The southern half consisted of arable land, which the farmer, and later the rancher, used for farming. The northern half was undeveloped woodland. The rancher never used the northern half for timbering or for anything else. On very rare occasions, the rancher would take a walk in the woods, but outside of those occasions she never set foot on the northern half.

Fifteen years after the farmer conveyed the parcel to the rancher, a landowner appeared, claiming ownership of the northern half of the parcel. Unbeknownst to either the farmer or the rancher, the landowner’s name had been forged on the deed purporting to convey the parcel to the farmer, and the landowner was, in fact, the true owner of the property at that time. The state in which the parcel is located has a 10-year statutory adverse possession period. The landowner admits that the rancher now has title to the southern half of the parcel by adverse possession.

In an action to quiet title, who will prevail as to the northern half of the parcel?

1. The landowner, because the rancher did not actually occupy the northern half.
2. The landowner, because one may not obtain color of title through a forged deed.
3. The rancher, because her farming of the southern half was constructive occupation of the entire parcel, including the northern half.
4. The rancher, because the farmer did not know his deed to the parcel was forged, and he acted in good faith when he conveyed to the rancher.

Answer 9

The landowner, because the rancher did not actually occupy the northern half.

The landowner will prevail in an action to quiet title to the northern half of the parcel because the rancher did not actually occupy the northern half. An adverse possessor will gain title only to the land she actually occupies. Actual possession is the kind of use the true owner would make of the parcel and is designed to give the owner notice of the trespass and the extent of the adverse possessor’s claim. The gravel road divides the parcel into two distinct lots, and the rancher’s use of the northern half was not sufficient to put the landowner on notice of her trespass. (2) is wrong for two reasons: (i) The rancher has color of title. Color of title merely means possession of a document purporting to convey title. (ii) Color of title is not usually necessary to gain title by adverse possession. In most jurisdictions, the possessor need not believe she has a right to possession; she can be a trespasser. (3) is wrong because the rancher’s possession and use of the southern half was not sufficient to constitute constructive possession of the northern half. Possession of a portion of a unitary tract is sufficient adverse possession of the whole if there is a reasonable proportion between the part actually possessed and the whole, and if the possessor has color of title. The rancher has color of title, but she only occupied one-half of the parcel. Moreover, the parcel consists of two lots separated by a road, so it is unlikely that it constitutes a unitary tract. In any case, the rancher’s possession of the southern half was not sufficient to put the landowner on notice of possession of the northern half. (4) is wrong because, regardless of whether the farmer acted in good faith, he did not have any title to convey to the rancher. As noted above, color of title is not usually necessary for adverse possession, which is the only theory under which the rancher could have title to the northern half.

Question 10

A man owned a tract of land in fee simple. Fifteen years ago, he built a barn on five acres that he believed were part of his property. One year later, the man discovered that the five acres on which he had built his barn were not part of his property. The five acres actually belonged to the woman who owned the adjoining property. The year following the discovery that the five acres belonged to the woman next door, the woman died, leaving all of her property to her one-year-old daughter. The man has brought a quiet title action against the now 14-year-old daughter. The statutory period for adverse possession in this jurisdiction is 10 years. The man has not paid any additional property taxes to account for the five acres for any of the past fifteen years.

Who will prevail?

1. The daughter, because the man did not pay the property taxes on the five acres.
2. The daughter, because her status as a minor tolls the statute until she reaches her majority.
3. The man, because he honestly believed that the five acres were part of his land.
4. The man, because he was in continuous possession of the five acres for the statutory period.

Answer 10

The man, because he was in continuous possession of the five acres for the statutory period

Because the man was in continuous possession for the statutory period and has met all of the other requirements of adverse possession, he would be declared the owner of the five acres. To establish title by adverse possession, the possessor must show (i) an actual entry giving exclusive possession that is (ii) open and notorious, (iii) adverse (hostile), and (iv) continuous throughout the statutory period. Here, the man possessed the property by building a barn on it, something that is clearly visible to the public, so the possession was actual and open and notorious. The man did not share the barn with anyone, so the possession was exclusive. The man did not have the true owner’s permission to build the barn, so the possession was hostile. And the possession was continuous for more than 10 years. (1) is incorrect because only a minority of states require the adverse possessor to pay property taxes. (2) is incorrect because the disability of the woman’s successor in interest will not keep the statute from running. For a disability, such as status as a minor, to stop the clock, the disability must have been in existence on the day the adverse possession began. Here, the daughter was not yet alive when the adverse possession began. Thus, her status as a minor will not stop the running of the statute. (3) is incorrect because the man’s state of mind is irrelevant under the majority view. Even if he had possessed the land knowing he was trespassing, he could still claim it by adverse possession.

Question 11

Fifty-one years ago, an owner conveyed land to a taker for “so long as the land is used solely for residential purposes; otherwise, the interest in land shall revert to the owner and his heirs.” The taker used the land as her personal residence for 20 years, but 31 years ago, she began operating a children’s day camp on the land. The owner knew of this operation, but he took no action.

Two years ago, the aged taker decided to get out of the camp business. She closed her business and once again began to use the land solely as her personal residence. Also two years ago, the owner died, survived by his son and only heir. Now the son is laying claim to the conveyed land. The jurisdiction in which the land is located has a seven-year adverse possession statute and another statute that bars enforcement of possibilities of reverter 55 years after their creation.

May the son validly claim title to the land?

1. Yes, because less than 55 years have elapsed since the creation of the possibility of reverter.
2. Yes, because the adverse possession period began to run when the taker returned the property to residential status, and the taker has not held for the requisite seven years.
3. No, because the adverse possession period began 31 years ago, and the taker has held the property for more than the requisite seven years.
4. No, because the owner did not assert his possibility of reverter; thus, no cause of action arose in the owner or his heirs.

Answer 11

No, because the adverse possession period began 31 years ago, and the taker has held the property for more than the requisite seven years.

On the happening of the prohibited event (using the land for other than residential purposes), the taker’s fee simple determinable automatically came to an end, and the owner was entitled to present possession. Not having claimed possession within the applicable seven-year period, and with the taker’s possession being open, notorious, continuous, and adverse, any action by the owner or his heirs is now barred by adverse possession. Thus, (A) and (B) are incorrect. (D) is incorrect because a possibility of reverter becomes possessory automatically upon termination of the prior determinable estate. Unlike a right of entry, a grantor does not have to assert a possibility of reverter in order for a cause of action to arise.

Question 12

A landowner in fee simple signed a promissory note for $10,000 to a bank, and secured the note by a mortgage of her land to the bank. The mortgage was duly recorded. The landowner then sold the property to an attorney, who assumed and agreed to pay the mortgage to the bank on the land. The attorney did not make payments on the mortgage note to the bank. The bank, following appropriate statutory procedures, foreclosed the mortgage and gave notice to both the landowner and the attorney that it intended to sue for any deficiency. At the foreclosure sale, the property sold for $6,000. The bank now sues both the landowner and the attorney for $5,000, which is the remaining amount of the unpaid principal and interest on the note plus costs of foreclosure.

Against which party will the bank be successful in obtaining a judgment?

Answer 12

Both the landowner and the attorney

The bank will be successful in obtaining a judgment against both the landowner and the attorney, although it may only collect once. When a grantee assumes the mortgage, the grantee expressly promises the grantor-mortgagor that he will pay the mortgage obligation as it becomes due. The mortgagee then becomes a third-party beneficiary of the grantee’s promise to pay and can sue the grantee directly if the grantee fails to pay. After the assumption, the grantor-mortgagor becomes a surety who is secondarily liable to the mortgagee on the note if the grantee fails to pay. The landowner and the attorney are jointly liable, even though the attorney is primarily liable and the landowner is secondarily liable as a surety

The bank is not required to choose between the landowner and the attorney and can obtain a judgment against both, although it may only collect once. Because the attorney assumed the mortgage obligation, the bank can sue the attorney, but it can also sue the landowner in the same action as a surety. The landowner and the attorney are jointly liable, even though the attorney is primarily liable and the landowner is secondarily liable as a surety.

Question 13

To buy a house, an investor secured a $10,000 mortgage from a bank. The bank promptly and properly recorded its mortgage. Subsequently, the investor financed certain improvements to the house with a $2,000 mortgage on the land from a finance company. The finance company promptly and properly recorded its mortgage. Before the investor made a payment on either mortgage, the federal government announced that it would begin storing nuclear waste products in the area. The value of property, including the investor’s house, plummeted. The investor did not pay either the bank or the finance company, and the bank brought a proper action to foreclose, notifying both the investor and the finance company. A buyer bought the house at the foreclosure sale for $6,000, which was its fair market value. There are no special statutes in the jurisdiction regarding deficiency judgments.

What does the investor owe?

1. $5,000 to the bank and $1,000 to the finance company.
2. $4,000 to the bank and $2,000 to the finance company.
3. Nothing to the bank and $2,000 to the finance company.
4. $4,000 to the bank and nothing to the finance company.

Answer 13

$4,000 to the bank and $2,000 to the finance company.

Absent any anti-deficiency statutes, the investor remains personally liable to pay for any shortfall arising from the foreclosure sale. Proceeds from the sale are used to satisfy the loan that was foreclosed first. Hence, all of the proceeds ($6,000) went to the bank. Thus, the investor must pay the balance still due the bank ($4,000) and the entire amount of the finance company’s mortgage ($2,000), which is terminated by the foreclosure of the senior mortgage. (A) is wrong because foreclosure sales are not allotted proportionally between senior and junior interests. (C) is wrong because foreclosure does not extinguish the underlying debt. (D) is wrong because the finance company’s mortgage does not remain on the land after foreclosure of the senior mortgage; hence, the investor is liable for that debt as well.

Question 14

A buyer purchased a parcel of land from a seller for $500,000. The buyer financed the purchase by obtaining a loan from the seller for $300,000 in exchange for a mortgage on the land. The seller promptly and properly recorded his mortgage. Shortly thereafter, the buyer gave a mortgage on the land to a creditor to satisfy a preexisting debt of $100,000 owed to the creditor. The creditor also promptly and properly recorded its mortgage. Within a year, the buyer stopped making payments on both mortgages, and the seller brought an action to foreclose on his mortgage. The creditor was not included as a party to the foreclosure action. The seller purchased the property at a public foreclosure sale in satisfaction of the loan. The creditor subsequently discovered the sale and informed the seller that it was not valid.

Who has title to the land?

1. The seller, because he gave a purchase money mortgage and the creditor’s mortgage was for a preexisting debt.
2. The seller, because the public foreclosure sale extinguished the creditor’s interest.
3. The seller, but he must redeem the creditor’s mortgage to avoid foreclosure.
4. The buyer, because the seller’s foreclosure action was invalid without the inclusion of the creditor as a necessary party.

Answer 14

The seller, but he must redeem the creditor’s mortgage to avoid foreclosure.

The seller has title to the land, but he must redeem the creditor’s mortgage to avoid foreclosure. As a general rule, the priority of a mortgage is determined by the time it was placed on the property. When a mortgage is foreclosed, the purchaser at the sale will take title as it existed when the mortgage was placed on the property. Thus, foreclosure will terminate interests junior to the mortgage being foreclosed but will not affect senior interests. However, if a lien senior to that of a mortgagee is in default, the junior mortgagee has the right to pay it off (i.e., redeem it) to avoid being wiped out by its foreclosure. Thus, those persons with interests subordinate to those of the foreclosing party are necessary parties to the foreclosure action. Failure to include a necessary party results in the preservation of that party’s interest despite foreclosure and sale. Hence, the seller’s failure to include the creditor as a party to the foreclosure action preserved the creditor’s mortgage on the property. To avoid the creditor’s foreclosing (because the buyer was in default of the creditor’s mortgage as well), the seller will need to pay off the creditor’s mortgage. (1) is wrong because it is irrelevant. While a purchase money mortgage (“PMM”), given when the mortgagor buys the property, is considered to have priority over non-PMM mortgages executed at about the same time, even if the other mortgages are recorded first, that rule is not applicable here because the facts indicate that the seller’s PMM was executed and recorded before the creditor’s mortgage came into existence. (2) is wrong because the creditor was not included as a party to the foreclosure action. Thus, as discussed above, its interest is not extinguished by the seller’s foreclosure action.(4) is wrong because the failure to include the creditor in the foreclosure action does not invalidate the action, it just preserves the creditor’s junior mortgage on the property.

Question 15

An owner obtained a loan of $60,000 from a bank in exchange for a promissory note secured by a mortgage on his land, which the bank promptly and properly recorded. A few months later, the owner obtained another loan of $60,000 from a lender, in exchange for a promissory note secured by a mortgage on the land, which the lender promptly and properly recorded. Subsequently, the owner sold the land to a buyer for $150,000 and conveyed a warranty deed. The buyer expressly agreed with the owner to assume both mortgages, with the consent of the bank and the lender. A few years later, the bank loaned the buyer an additional $50,000 in exchange for an increase in the interest rate and principal amount of its mortgage on the land. At that time, the balance on the original loan from the bank was $50,000. Shortly thereafter, the buyer stopped making payments on both mortgages and disappeared. After proper notice to all appropriate parties, the bank instituted a foreclosure action on its mortgage, and purchased the property at the foreclosure sale. At that time the principal balance on the lender’s mortgage loan was $50,000. After fees and expenses, the proceeds from the foreclosure sale totaled $80,000.

Assuming that the jurisdiction permits deficiency judgments, which of the following statements is most accurate?

1. The bank keeps the entire $80,000 and can proceed personally against the owner for its deficiency, while the lender’s mortgage remains on the land.
2. The bank keeps the entire $80,000, the lender’s mortgage on the land is extinguished, and both the bank and the lender can proceed personally against the owner for their deficiencies.
3. The bank keeps $50,000, the lender is entitled to $30,000, and only the lender can proceed personally against the owner for its deficiency.
4. The bank keeps $50,000, the lender is entitled to $30,000, and neither the bank nor the lender can proceed personally against the owner for their deficiencies.

Answer 15

The bank keeps $50,000, the lender is entitled to $30,000, and only the lender can proceed personally against the owner for its deficiency.

The bank’s original mortgage has priority in the proceeds, followed by the lender’s mortgage, and only the lender can proceed against the owner because the bank modified its mortgage after the owner had transferred to the buyer. Generally, the priority of a mortgage is determined by the time it was placed on the property, and the proceeds of a foreclosure sale will be used to pay off the mortgages in the order of their priority. However, if the landowner enters into a modification agreement with the senior mortgagee, raising its interest rate or otherwise making the agreement more burdensome, the junior mortgage will be given priority over the modification. Thus, if the first mortgage debt is larger because of the modification, the second mortgage gains priority over the increase in the debt. Here, the bank and the buyer modified the original mortgage by increasing the principal amount and the interest rate. This modification is not given priority over the lender’s mortgage, and foreclosure proceeds will not be applied against it because the senior lender’s mortgage was not fully satisfied from the proceeds. With regard to the deficiency, the owner is liable to the lender because when a grantee signs an assumption agreement, becoming primarily liable to the lender, the original mortgagor remains secondarily liable on the promissory note as a surety. Here, the buyer assumed the lender’s mortgage and became primarily liable; however, the owner remained secondarily liable as surety and can be required to pay off the rest of the lender’s mortgage loan. On the other hand, the owner will not be liable to pay off the balance of the bank’s loan, because when a mortgagee and an assuming grantee subsequently modify the original obligation, the original mortgagor is completely discharged of liability. The owner had nothing to do with the modification agreed to by the bank and the buyer that increased the amount of the mortgage debt, and will not be even secondarily liable for that amount. (A) and (B) are incorrect because the bank is not entitled to the entire $80,000 in proceeds from the sale and because the owner is not liable to the bank for more than the original loan amount. (D) is incorrect because, as discussed above, the owner is secondarily liable to the lender for the $20,000 deficiency on its mortgage.

Question 16

A landowner validly conveyed a small office building to the Green Party “as long as they use it for operating quarters until the next presidential election.” After the next presidential election, which was in three years, the building would go to a private organization that monitors and prepares comprehensive listings of gas prices throughout the country. A year after the conveyance, the landowner died, validly devising all of her property to her son. Although this jurisdiction is a common law jurisdiction with respect to all real property considerations, the state’s probate laws provide that future interests or estates in real property may be passed by will or descent in the same manner as present or possessory interests. Last week, the Green Party and the gas monitoring organization joined together to sell the office building in fee simple absolute to a developer. The son filed suit to prevent the sale of the property to the developer.

In this action, who should prevail?

1. The Green Party and the gas monitoring organization, because together they own a fee simple absolute in the building.
2. The Green Party and the gas monitoring organization, because the attempted restrictions on the use of the property violate the Rule Against Perpetuities.
3. The Green Party and the gas monitoring organization, because the deed restriction was an unlawful restraint on alienation.
4. The son, because he did not sign the contract of sale.

Answer 16

The son, because he did not sign the contract of sale.5

The son may enjoin the sale because he has an interest in the property. A fee simple determinable is an estate that automatically terminates on the happening of a stated event. The Green Party’s interest in the office building is a fee simple determinable because it lasts as long as the Party is using the building for operating quarters. However, the grant does not provide for the contingency of the Green Party ceasing to use the building as operating quarters before the next presidential election. This gap would be filled by a possibility of reverter retained by the landowner. Because the landowner passed that interest to her son in her will, there can be no contract to sell the property without his signature. Note: Although the gas monitoring organization appears to have an indefeasibly vested remainder (i.e., it is created in an ascertained company, is certain to become possessory, and is not subject to being defeated, divested, or diminished in size), its interest is not capable of taking on the natural termination of the preceding estate and so is characterized as a springing executory interest. (A) is wrong because the son also has an interest in the land. (B) is wrong because the interest in the office building will pass to the gas monitoring organization, if at all, within 21 years. (C) is wrong because the Green Party is not prohibited from transferring any interest; it could pass a defeasible fee.

Question 17

A seller entered into a written contract to sell a tract of land to a buyer. The buyer was to pay $1,500 per month for five years, at which time the seller would deliver a warranty deed. The contract was silent as to the quality of title to be conveyed. After making 12 payments, the buyer discovered that a neighbor had an easement of way over the land, which was not discussed at the time the seller and buyer entered into the contract. The neighbor had not used the easement over the previous year because she had been out of the country. On the basis of the easement, the buyer wishes to cancel the contract.

Which party is more likely to prevail?

1. The seller, because the neighbor’s easement has been extinguished.
2. The seller, because the buyer has no basis on which to rescind the contract.
3. The buyer, because the obligation to convey marketable title is implied.
4. The buyer, because the seller has breached the covenant against encumbrances.

Answer 17

The seller, because the buyer has no basis on which to rescind the contract. The buyer cannot rescind prior to closing on grounds that the seller’s title is unmarketable. Where an installment land contract is used, the seller’s obligation is to furnish marketable title when delivery is to occur, e.g., when the buyer has made his final payment

The seller is more likely to prevail because the buyer has no basis on which to rescind the contract. Absent a provision to the contrary, a contract for the sale of land contains an implied promise by the seller that she will deliver to the buyer a marketable title at the time of closing. This promise imposes on the seller an obligation to deliver a title that is free from reasonable doubt; i.e., free from questions that might present an unreasonable risk of litigation. Title is marketable if a reasonably prudent buyer would accept it in the exercise of ordinary prudence. An easement that reduces the value of the property (e.g., an easement of way for the benefit of a neighbor) generally renders title unmarketable. If the buyer determines, prior to closing, that the seller’s title is unmarketable, he must notify the seller and allow a reasonable time to cure the defect. If the seller is unable to acquire title before closing, so that title remains unmarketable, the buyer can rescind, sue for damages caused by the breach, or obtain specific performance with an abatement of the purchase price. However, the buyer cannot rescind prior to closing on grounds that the seller’s title is unmarketable. Where an installment land contract is used, the seller’s obligation is to furnish marketable title when delivery is to occur, e.g., when the buyer has made his final payment. Thus, a buyer cannot withhold payments or seek other remedies on grounds that the seller’s title is unmarketable prior to the date of promised delivery. Here, there is a valid easement on the property (see below), but the seller has four years in which to cure this defect. Thus, the buyer cannot yet rescind on grounds that title is unmarketable. (A) is incorrect because the neighbor’s easement has not been extinguished. An easement can be extinguished where the owner of the privilege demonstrates by physical action an intention to permanently abandon the easement. Mere nonuse is not sufficient to terminate an easement, unless the nonuse is combined with other evidence of intent to abandon it. Here, the fact that the neighbor did not use the easement for a year because she was out of the country does not establish her intent to abandon the easement. (C) is incorrect because, although the law implies in every land sale contract a covenant that title will be marketable, the seller has until the time of delivery to cure the defect. (D) is incorrect because the deed has not yet been delivered. The covenant against encumbrances is a covenant contained in a general warranty deed which assures that there are neither visible encumbrances (e.g., easements) nor invisible encumbrances (e.g., mortgages) against the title or interest conveyed. This covenant is breached, if at all, at the time of conveyance. Here, the deed has not yet been delivered, and thus this covenant has not yet been breached.

Question 18

A seller entered into a written contract with a vintner on April 4, whereby the seller agreed to convey a vineyard to the vintner for $2 million. The terms of the contract set the closing date as June 1. At the time the seller entered into the agreement with the vintner, the seller had no interest in the vineyard. On April 15, the seller entered into a written agreement with a landowner, whom the seller believed to be the owner of the vineyard. According to the terms of the agreement, the landowner was to convey the vineyard to the seller on or before May 25. Another term of the agreement stated “time is of the essence.”

On May 24, the landowner conveyed his interest in the vineyard to the seller. When the seller went to record the deed, she discovered from records in the recorder’s office that the landowner held clear title to only seven-eighths of the vineyard. It took some time for the seller to remove the cloud from the title and procure ownership in full of the vineyard. She finally did so on August 1, and on that day she tendered a warranty deed to the vineyard to the vintner. The vintner refused to tender $2 million or any other sum to the seller, asserting that the seller had broken her agreement by failing to close on June 1. The seller then sued the vintner for specific performance.

If the vintner prevails, what is the likely reason?

1. Title was unmarketable, because the seller did not own the vineyard at the time she entered into the contract.
2. Title was unmarketable, because the seller only owned seven-eighths of the vineyard on the closing date.
3. Time was not of the essence in the seller-vintner contract.
4. A two-month delay in closing is determined to be unreasonable.

Answer 18

A two-month delay in closing is determined to be unreasonable.

If the vintner prevails, it will be because the court determines that the seller’s two-month delay in closing was unreasonable. Generally, courts assume that time is not “of the essence” in real estate contracts. This means that the closing date stated in the contract is not absolutely binding in equity, and that a party, even though late in tendering her own performance, can still enforce the contract if she tenders within a reasonable time after the date. Here, if the court finds that a two-month delay is unreasonable, the seller will not be able to specifically enforce the contract. (A) is incorrect because contracts for the sale of land do not require the seller to hold title at the time she enters into the contract. She is only required to have marketable title at the date of closing so that she can deliver it to the buyer. Hence, the seller did not breach her contract with the vintner by not having an interest in the vineyard at the time of the contract. (B) is incorrect because the seller has a reasonable time after the date set for closing to tender performance unless the contract or circumstances indicate that time is of the essence. Here, nothing in the contract or the surrounding circumstances indicates that time was of the essence in the seller-vintner contract. Moreover, although title was unmarketable on June 1, the seller was able to clear title to the remaining one-eighth of the vineyard and tender performance to the vintner two months after the closing date. A delay of one month after the closing date has been deemed acceptable by courts where the buyer has been delayed in obtaining financing or the seller has been delayed in obtaining marketable title. Nevertheless the court could find that two months is an unreasonable delay, as in (D); if that were the case, it would not grant the seller specific performance. (C) is incorrect because it supports a finding in favor of the seller, as explained above.

Question 19

A landowner owned a beachfront lot and home in a subdivision occupying several hundred acres near a lake. The recorded subdivision plan grants to each owner in the subdivision an easement to use the private roads therein for personal ingress and egress.

Following seismic activity in the area, the level of the lake dropped substantially, exposing a considerable amount of land between the new shoreline and the old beachfront. It was judicially determined that this “new” land belonged to the county, which put portions of it up for sale. The landowner purchased the land extending from her old property line to the new shoreline, and constructed a boat launching ramp on the new property. She then permitted persons who did not own land in the subdivision to drive through her old property to reach the boat launching ramp on her new property, and thus to utilize the lake, for a small fee. The homeowners’ association brought suit against the landowner, seeking to enjoin her from using or permitting nonresidents of the subdivision from traveling its streets to reach the boat launching ramp.

How should the court rule?

1. For the homeowners, because the scope of the easement granted to the landowner as an owner in the subdivision does not extend to the use that she is making of the new property.
2. For the landowner, because she has an express easement over the streets of the subdivision.
3. For the landowner, because she has an easement by necessity as to the new property over the streets of the subdivision.
4. For the landowner, because she has an implied easement over the streets of the subdivision benefiting the new property since it abuts her old property.

Answer 19

1. For the homeowners, because the scope of the easement granted to the landowner as an owner in the subdivision does not extend to the use that she is making of the new property.

The express easement for the landowner’s old property benefits that property only and cannot be used for the landowner’s expanded access to the new property. An easement is a liberty, privilege, or advantage that one may hold in the lands of another. The holder of an easement has the right to use a tract of land (called the servient tenement) for a special purpose; e.g., laying utility lines, or for ingress and egress. An easement can be created, as in this question, by express grant. If the parties to the original creation of the use specifically state the location of the easement, its dimensions, and the special use or limits to such use, the courts will honor this expression of specific intent. Absent specific limitations, it will be assumed that the parties intend that the easement meet both present and future reasonable needs of the dominant tenement. However, a basic change in the nature of the use is not allowed. The landowner’s easement by express grant merely allows her to use the private roads in the subdivision for her personal ingress and egress to and from her beachfront property. The use of the easement for access to a new boat launching ramp for which a fee is charged goes beyond the specific language of the grant (and arguably beyond the reasonable needs of the dominant tenement). Therefore, the homeowners will be able to prevent use of the subdivision streets to reach the boat launching ramp. (B) is incorrect because even if the landowner’s express easement over the streets of the subdivision is construed to benefit the property that was recently acquired as well as her old property, the scope of the easement will not be expanded beyond the language of the grant. (C) is incorrect because the elements of an easement by necessity are missing. Where the owner of a tract of land sells a part of the tract and by this division deprives one parcel of access to a public road or utility line, a right-of-way by absolute necessity is created by implied grant over the parcel with access to the public road. The landowner has not purchased her new property from the subdivision owners. Thus, she has no implied right-of-way by necessity over the subdivision streets to reach her new property. (D) is incorrect because the elements of an easement by implied grant are missing. Where an owner sells a portion of his property, and prior to the conveyance a use had been made, the existence of the prior use may give rise to an easement by implication, even though no reference is made to a continuation of that use. Here, when the landowner purchased her original property from the original owner of the subdivision, there was no prior use of the subdivision land to reach her new property (because it did not even exist at that time). Consequently, no such use can now be implied simply by virtue of the fact that the landowner’s new property abuts her old property. The new property was purchased from a different owner, and there is no basis for implying a grant to use the land of the subdivision to benefit land purchased from the county.

Question 20

A corporation was in the business of purchasing real property at below-market prices and reselling the properties to investors. The bylaws of the corporation authorized the chief executive officer (“CEO”) and the director of the marketing division to enter into contracts on behalf of the corporation for the purchase or sale of properties. The corporation had recently purchased a large parcel of beachfront property for resale. The CEO secretly opened negotiations with an amusement park to sell the property. However, unknown to the CEO or anyone else in the corporation, the marketing director had already reached an agreement with a hotel for the sale of the property.

On April 23, the marketing director and the hotel signed a written contract providing for sale of the property by the corporation to the hotel for $35 million. On April 25, the board of directors amended its bylaws, effectively depriving the marketing director of authorization to bind the corporation in purchase or sale transactions. This action was immediately publicized and became known to both the marketing director and the hotel. On April 26, the hotel duly recorded its contract. On May 1, the CEO, still unaware of the marketing director-hotel agreement, approved sale of the property to the amusement park for $39 million. The necessary documents of title were prepared and properly recorded by the amusement park on May 5. Two days later, the amusement park learned of the marketing director-hotel agreement. On May 10, the date scheduled for closing of the hotel’s sale agreement, the CEO refused to accept the hotel’s tender of $35 million and refused its demand for a deed to the property.

The hotel subsequently brings action against the corporation and the amusement park for specific performance and to quiet title to the property. For whom will the court likely rule?

Answer 20

Judgment should be for the hotel regardless of whether the jurisdiction has a notice statute or a race-notice statute. Under either type of recording statute, the only persons protected by the statute are bona fide purchasers. To attain this status, the person must take without notice—either actual, constructive, or inquiry—of the prior instrument. Because the marketing director-hotel contract was properly recorded, the amusement park had constructive notice of the hotel’s interest in the property. Thus, the park could not become a bona fide purchaser when it entered into its contract.

Any instrument creating or affecting an interest in land (e.g., deed, mortgage, contract to convey) can be recorded, providing constructive notice to subsequent purchasers. Thus, the hotel’s failure to record a deed does not deprive it of protection of the recording statute.