MBE Property Flashcards
OWNERSHIP OF LAND > Joint Tenancy
(PITT)
Joint Tenancy — Each party owns HALF with RIGHT OF SURVIVORSHIP (ROS)
Right of Survivorship — The moment one tenant dies, the surviving tenant acquires the decedent’s share of the property automatically.
- Survivorship always prevails at death: The decedent tenant’s share cannot be devised via will (effective at death), nor can it be passed their heirs by inheritance, SURVIVORSHIP prevails here and it goes to the other joint tenant through ROS.
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How do you create a joint tenancy?
- Grantor must make a clear expression of intent; PLUS
- Must be survivorship language, e.g., “as joint tenants with a right of survivorship.”
Four Unities [PITT] — to create/maintain JT. If any fail > tenancy in common (baseline)
- Possession - Every joint tenant has an equal right to possess the whole of the property.
- Interest - Joint tenants must have an equal shares of the same type of interest.
- Time - Joint tenants must receive their interests at the same time.
- Title - Joint tenants must receive their interests in the same instrument of title.
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SEVERANCE — JT terminated and becomes TIC
Inter Vivos Transfer destroys Survivorship
- 2 Joint tenants — Transfer during life will destroy/sever the right of survivorship and convert the estate into a tenancy in common (no survivorship)
- 3+ Joint Tenants — Conveyance by only one of 3 or more joint tenants only destroys the conveyor’s interest and does not destroy the joint tenancy + ROS to the remaining joint tenants.
- Mortgages (TITLE theory) — A joint tenant grants a mortgage interest in the joint tenancy to a creditor. Basically, they are transferring title to the bank as collateral in exchange for a loan. Transfer = severance.
OWNERSHIP OF LAND > Tenancy in Common
Tenancy in Common (Default concurrent interest)—A concurrent estate with no right of survivorship. Each owner has a distinct, undivided interest in the property.
- Tenants in common can receive their interests at different times and from different conveyances.
- Distinct, undivided interest – Tenants in common can also hold unequal shares of the land, while still enjoying full use of all of the premises.
No Binding Authority over other Co-Tenants
- When a tenant in common wants to create an easement or resolve a boundary dispute, that action will not affect the legal rights of any other tenants in common who do not sign the grant or ageement.
- Even when one tenant in common has sole occupancy of the premises, they cannot bind other tenants in common who do not sign the agreement.
NO RIGHT OF SURVIVORSHIP: Each co-tenant’s interest is freely alienable by inter vivos and testamentary transfer, is inheritable, and is subject to claims of the tenant’s creditors.
- Grantees becomes TIC with other tenants.
OWNERSHIP OF LAND >
Tenancy by the Entirety
Tenancy by the Entirety—limited to married couples and includes the Right of Survivorship
- One spouse may not unilaterally convey (and thus, sever and destroy survivorship) without other spouses consent.
- Married couple does not have to own land as TBE (i.e, vacation home)
Four Unities plus Marriage M + PITT — to create/maintain TBE. If not married but have the rest of the unities at time of creation > JT
- Possession - Every joint tenant has an equal right to possess the whole of the property.
- Interest - Joint tenants must have equal shares of the same type of interest.
- Time - Joint tenants must receive their interests at the same time.
- Title - Joint tenants must receive their interests in the same instrument of title.
- Marriage - Must be Married at the time the interest is created
RIGHTS AND OBLIGATIONS OF CONCURRENT OWNERS
A. Possession and Use
Possesion
- Each co-tenant has right to possess all of the property, regardless of that co-tenant’s share and regardless of the type of co-tenancy.
- Unless there’s an agreement to the contrary
Ouster
- If one tenant wrongfully excludes another co-tenant from possession of the whole or any part of the whole of the premises, there is an OUSTER.
- Remedies: Injunction to gain access; or damages for their share of the fair rental value of the property for the time they were wrongfully deprived of possession.
B. Third Party Rents and Operating Expenses
Rents and Profits
- Not required to pay rent to the other cotenants
- Receive pro rata shares of rent from third parties
- Receive proportionate shares of net profits from removal of natural resources
Operating Expenses - (Necessary charges, such as taxes or mortgage payments)
- Divided based on ownership interests of each co-tenant
- A co-tenant can collect contribution from the other co-tenants in possesion for payments in excess of her share of the operating expenses.
- A co-tenant in sole possession can contribution but is limited to the amount that exceeds the property’s rental value
Repairs
- There is no right to reimbursement from co-tenants for necessary repairs.
- However, the co-tenant who makes the repairs can get credit in a partition action.
Improvements
- There is no right to reimbursement from co-tenants
- However, the co-tenant who makes the imporvements can get credit in a partition action.
C. Partition
Remedy of Partition – A joint tenant or tenant in common has a unilateral right to judicial partition, either in kind (physical division of the tract into parcels) or by sale and division of the proceeds (Based on ownership interests as modified by permitted recoupments for improvements, repairs, taxes, and the like).
- Partition IN KIND is generally preferred, but
- Partition BY SALE is permitted when a practical and equitable physical division of the property CANNOT be made.
D. Fiduciary Duties
Cotenants owe each other a fiduciary duty when they
- (1) jointly purchase property in reliance on each other or
- (2) acquire their interests at the same time from a common source.
This duty arises when the property is sold at a foreclosure sale and purchased by a cotenant.
- In such a situation, the other co-tenants are allowed to reacquire their interests by paying their share of the purchase price.
REAL ESTATE CONTRACT (Key Elements)
In general, real estate purchases involve a period of several months between the time the contract is signed and the closing date.
Real Estate Contract
- Does NOT transfer legal title (Deed) - that happens the on closing date via Deed
- As holder of Legal title, the seller still has a right to possess the property.
KEY ELEMENTS:
1) MUST be IN SIGNED WRITING — Subject to the Statute of Frauds
Exceptions:
- Part performance – partial payment, possesion, improvements (NEED 2)
- Detrimental reliance (or estoppel) – reasonably relied on the K
2) MUST Include ESSENTIAL TERMS — Parties, Description, Price, Terms, etc. - e.g. money, financing.
3) Execution transfers EQUITABLE TITLE via equitable conversion — risk of loss on shifts to the buyer
- Buyer is responsible for any damage to the property that happens during that period.
- Uniform Vendor and Purchaser Risk Act (minority), the risk of loss remains with the seller
- Action against seller: 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. Because the equitable title is now with the Buyer
4) MARKETABLE TITLE IMPLIED in K — (Unless parties specifically contract for quitclaim deed)
- However, A seller is not actually required to provide marketable title until that closing date arrives. (Via Deed)
Marketable Title: Title that is free from an unreasonable risk of litigation. Clear Ownership. The standard is that of a reasonable buyer (Would a reasonable buyer have concern about the health of this title). Title must be free of defects such as:
- Title acquired by adverse possesion that hasn’t been quieted
- Private encumbrances (e.g., mortgages, liens, restrictive covenant, easements)
- Violation of a zoning ordinance (not building codes)
Remedy: A defect in title must be cured or fixed before closing date. If the seller cannot deliver marketable title, the buyer’s remedy is recission of the contract.
legal title refers to the actual ownership of the land. Additionally, a person who has legal title to land has the right to transfer ownership of the property to another party. What this means is that they have the right to sell the property.
Alternatively, equitable title is generally associated with a person’s financial interest in the property. Because of this, a person may have equitable title to a property that they have invested in, while another person actually holds legal title to that same property.
Real Estate Contract (continued)
Delays
- Generally, time is NOT of the essence. Failure to close on a set date may be a breach leading to damages, but its NOT grounds for recission of the K. (specific performance still available if able to perform within a reasonable time after)
- However, if the contract or parties notify that time IS of the essence… Failure to close on a set date is grounds for recission, you can walk away.
Duty to Disclose Known, Physical, and Material Defects To the Buyer (residential)
- Concerned with LATENT (hidden) defects known to the Seller
- Material defect must substantially affect the value of the home, health and safety of its occupants, or the desirability of the home;
- General disclaimers (e.g., “as is”) will not satisfy the seller’s duty to disclose known defects.
- Exception: Commercial Property follows “caveat emptor” - commercial buyers are more sophisiticated. No duty to disclose property defects unless otherwise provided
Merger
- obligations contained in the contract are merged into the deed.
- If there was something important in the contract that is not in the deed, the cause of action is lost because the deed controls after closing.
Implied Warranty of Fitness or Suitability – NEW CONSTRUCTION
- Applies to defects in NEW construction
- In most jurisdictions, both the initial homeowner-purchaser and subsequent purchasers may recover damages.
- suit for breach of this warranty must be brought within a reasonable time after discovery of the defect
Seller’s Remedies on Buyer’s Breach
- Damages: Measure is the difference between the K price and market vale at time of breach.
- Liquidated damages: (no more than 10% of the purchase price). Retain buyer’s deposit (up to amount of seller’s actual damages)
- Consequential & Incidental damages: (contemplated or reasonably foreseeable)
- Recission & Restitution: Rescind (ie, cancel) agreement & recover possession of property (to resell) Rental value & physical damages are recoverable. Buyer not liable for purchase price when K is rescinded
- Specific Performance: Injunction ordering buyer to pay. May be unavailable if money damages provide adequate compensation & property is not unique
Buyer’s Remedies on Seller’s Breach
- Rescission & restitution: Seek return of paid deposits & other restitution
- Specific performance: Seek injunction ordering seller to transfer title with abatement of purchase price
- Damages: Loss of bargain (market value at time of breach − contract price) Liquidated damages (no more than 10% of the purchase price), and Incidental & consequential damages (contemplated or reasonably foreseeable)
DEEDS (Key Elements)
Deed A deed is a document that transfers ownership of real property from the owner (grantor) to another (grantee)
Execution conveys LEGAL TITLE (Ownership)
MERGER of Real Estate K
- Any obligations contained in the contract can only be enforced if they are incorporated into the Deed, Real Estate K is gone.
- If there is a breach now, you sue under the Deed itself, not the Real Estate K, it doesn’t exist anymore.
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KEY ELEMENTS
1) IDENTIFIES the GRANTOR and GRANTEE
- A deed that does not identify the grantee is ineffective until the grantee’s name is added or determined.
- A deed to a nonexistent grantee is void as to the nonexistent grantee.
2) WORDS OF TRANSFER
- Convey, Transfer, Grant, Sell
- NOT lease, rent, license, etc.
- Deed must include words of a present intent to transfer.
- Be on the lookout for situations where delivery is contingent, incomplete, or seemingly revocable
3) SUFFICIENT DESCRIPTION of the PROPERTY interest being transferred (legal description not required)
- Street address, meets and bounds, based on physical attributes, or reasonable person could locate.
- extrinsic evidence can be admitted to clarify an ambiguous description
4) GRANTOR’S signature
- The signature can be made by the grantor’s agent if they agent have authority/permission
- (Equal Dignities Rule: If the agent is required to sign (e.g.,execute a deed), then the agency relationship must be created in writing)
- if the signature is forged, the deed is void, even if purchasor is a BFP
- Does not need to be witnessed or notarized
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Deed – a document that transfers ownership of real property from the owner (grantor) to another (grantee) once it has been:
- DELIVERED – evidenced by the grantor’s intent to presently convey ownership to the grantee and
- ACCEPTED – presumed when the transfer benefits the grantee.
1) Delivery —Grantor’s PRESENT INTENT to TRANSFER a property interest – future interest too (e.g., springing executory interst) (Physical delivery NOT required)
- Delivery is presumed if the grantor hands the deed to the grantee.
- This presumption can be rebutted by evidence that the grantor did not intend to presently transfer ownership
- Evidence that the grantor gave the deed to the grantee subject to an WRITTEN condition on the deed ADMISSIBLE to rebut Delivery/Intent
- BUT evidence that the grantor gave the deed to the grantee subject to an oral condition is INADMISSIBLE, so that condition cannot be enforced.
Presumption of Intent
- physical delivery of deed (above)
- grantee’s possession of property/deed
- recording
- unconditional delivery to agent
2) ACCEPTANCE —PRESUMED so long as the transfer is beneficial to the grantee
- Must be immediate rejection if they don’t want the Deed
legal title refers to the actual ownership of the land. Additionally, a person who has legal title to land has the right to transfer ownership of the property to another party. What this means is that they have the right to sell the property.
Alternatively, equitable title is generally associated with a person’s financial interest in the property. Because of this, a person may have equitable title to a property that they have invested in, while another person actually holds legal title to that same property.
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Brokers
can be involved in land sale contracts so long as they do not practice law.
- What can they do? Prepare a contract of sale.
- What can’t they do? draft a legal document like a deed or mortgage.
DEEDS > 3 Types of Deeds >
General Warranty Deed
General Warranty Deed Provides the greatest amount of title protection
- Grantor warrants title against ALL Title defects (forever), even if the grantor did not cause the title defects. (nothing to do with physical condition of the property)
- If there is a problem with the title (below) = breach of warranty
6 WARRANTIES of the QUALITY OF TITLE
1) I am the legal owner of the land
2) I have the legal right to sell the land
3) No one can stop me from selling the land
4) If someone has an interest in the land, I will defend it
5) I will fix it, and
6) I will cover expenses
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Six implied covenants in the General warranty deed
PRESENT COVENANTS
1) Covenant of SEISEN
- Warrants that the deed describes the land in question;
2) Covenant of the RIGHT TO CONVEY
- Warrants that the grantor (i.e., the seller) has the right to convey the property;
3) Covenant against ENCUMBRANCES
- Warrants that there are no undisclosed (not listed on the deed) encumbrances on the property that could limit its value.
FUTURE COVENANTS
4) Covenant of QUIET ENJOYMENT
- Grantor promises that the grantee’s possession will not be disturbed by a third-party’s lawful claim for title;
5) Covenant of WARRANTY
- Grantor promises to defend against future lawful claims of title by a third party and to compensate the grantee for any loss sustained by the claim of superior title.
- Not breached until a third party interferes with possession or brings a valid claim they are able to succeed on
6) Covenant of FURTHER ASSURANCES
- Grantor promises to fix future title problems.
- Guarantees that the grantor will do whatever is necessary to perfect title should it turn out to be defective
You have nothing to worry about
defects
- Title acquired by adverse possesion that hasn’t been quieted
- Private encumbrances (e.g., mortgages, liens, restrictive covenant, easements)
- Violation of a zoning ordinance (not building codes)
DEEDS > 3 Types of Deeds >
Special Warranty Deed
Special Warranty Deed — Conveys clean title. Promises all is ok while current owner lived there.
1) Grantor has not conveyed the same estate or interest to anyone other than the grantee;
AND
2) Estate is free from encumbrances made by grantor.
DEEDS > 3 Types of Deeds >
Quitclaim Deed
Quitclaim Deed Conveys only what title seller has. NO PROMISES AS TO QUALITY OF OWNERSHIP/TITLE.
- Conveys title of Property, but
- Quality of Ownership; who knows?
- if there are problems, you can not sue me
- buyer beware!!!
Title Insurance Policies
A title insurance policy ensures that a good record of title of the property exists as of the policy’s day, and agrees to defend the record title, if litigated.
- the insurance can be taken out by either the owner of the property or the mortgage lender. An owners policy protects only the person who owns a policy and does not run with the land to subsequent purchasers.
- In contrast, a lenders policy follows any assignment of the mortgage loan.
Options and Rights of First Refusal
Options - In an option contract, one party acquires the right to purchase property, typically during a specific time period, in exchange for consideration.
a. Protection against revocation and termination by death/incapacity
- option does not terminate upon the death or incapacity of the grantor of the option, unlike the termination of an offer upon the death of the offeror.
b. Counteroffer without rejection
- The holder of an option can make a counteroffer to the grantor of the option without losing the right to exercise the option. (not a conteroffer - rejection)
c. Acceptance - Mailbox Rule Doesn’t Apply
- The mailbox rule, which treats an acceptance as valid when mailed, does not apply. The holder’s decision to exercise the option must be received by the grantor of the option within any time period specified in the contract.
Right of First Refusal - Preemptive right that gives its holder the opportunity to acquire property prior to its transfer to another, and it is valid unless it is unreasonable.
- The right may be limited in various ways, such as the time period during which the right exists, the transactions to which it applies, and its transferability to another person.
RAP (edit this according to outline)
- A right of first refusal is subject to RAP unless the right is granted in a lease to a current leasehold tenant.
- In the majority of jurisdictions that have adopted the Uniform Statutory Rule Against Perpetuities, RAP does not apply to a right of first refusal when the property right is created in a commercial transaction
Restraints on Alienation of Property
A direct restraint on alienation is a restriction on transferring property and may be void as against public policy.
Disabling restraint
- Prohibition on transfer of property interest by its owner
- ALWAYS void
Forfeiture restraint
- Restraint where owner forfeits property interest if owner attempts to transfer it
- Restraint on future interest or life estate can be valid
- a partial restraint—one that is for a limited time and a reasonable purpose—is generally valid.
Promissory restraint
- Promise by property-interest holder not to transfer property interest (right of first refusal)
- Can be valid
- a partial restraint—one that is for a limited time and a reasonable purpose—is generally valid.
CONSIDER DELETING THIS CARD
MORTGAGES
MORTGAGE: A security device given by a borrower to a lender to secure payment of a loan
- Mortgagor: The borrower
- Mortgagee: The lender
- borrower effectively giving lender an interest in the home
Big Picture
- Lender lends money with interest (how they make their money) to someone who wants to purchase a home. To make sure they make their money, an interest is taken in the home as security.
- When the loan is paid, everybody benefits; If payments are not made, the lender will foreclose on its interest and force a sale of the home to satisfy the debt.
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Mortgage Components (Loan using property as collateral):
1) Promissory Note = Borrower’s promise to pay back $ borrowed plus interest
2) Mortgage Document = Instrument that provides security for the note with an interest in the property
- If you do not pay back $, they can take the property. Property goes up for sale, and they keep the proceeds to satisfy the outstanding debt.
No Mortgage Document –
- General Rule: If there was no mortgage executed to to secure the debt, can’t claim the secured land.
- Exception: An equitable vendor’s lien is implied by law when a seller agrees to finance a buyer and transfers title to a buyer and any portion of the purchase price remains unpaid.
MORTGAGES > Purchase Money Mortgage
Money borrowed to buy the house, ALWAYS HAS PRIORITY!!!!!
- if you see a hypo where there are competing debts/loans, THIS mortgage always gets priority, paid first.
- A seller-financed purchase money mortgage generally takes precedence over a third-party (bank) purchase money mortgage.
MORTGAGES > Future Advance Mortgage
A later loan
A line of credit used for home equity, construction, business, and commercial loans
(often referred to as a “second mortgage”)
MORTGAGES > Lien Theory vs. Title Theory
Based on Jurisdiction. Most (including FL) are Lien Theory states
(Lien/Title) Theory - is what the bank gains when a mortgage is taken out.
Majority of States are Lien Theory.
Minority (+ Florida) are Title theory
1) Lien Theory — Bank gains a LIEN on property, RESIDENT keeps LEGAL TITLE (can sell)
- RULE: Does NOT sever Joint Tenancy
2) Title Theory — BANK gains LEGAL TITLE, resident has an equitable interest (can’t sell), when resident pays off the mortgage, then they receive title (can sell).
- RULE: SEVERS JOINT TENANCY
- Taking out a mortgage conveys LEGAL TITLE to the bank. Conveyance of ownership interest in a JT severs it and becomes a TIC (no more survivorship).
title grants rights to the owner to exercise various types of rights on the property such as selling rights, easement rights, development rights, possession rights, exclusive use, etc.
Mortgage Transfers by Mortgagor/Borrower
1) LIABILITY OF BORROWER –
BORROWER REMAINS PERSONALLY LIABLE after the transfer to new owner (by deed [sale], by will, or by intestate succession) UNLESS:
- Lender releases borrower; or
- Lender modifies the subsequent transferee’s obligation.
i) Due-on-sale clauses – Lender has the option to demand immediate full payment upon transfer (acceleration clause). Unenforceable with certain transfers of residential real property:
- Devise, descent, or transfer to joint tenant upon death
- Transfer to spouse or child
- Transfer to ex-spouse in divorce
- Transfer to borrower’s living trust
- Creation of subordinate lien without occupancy rights
- Granting leasehold interest of less than 3 years without option to purchase
ii) Due-on-encumbrance clauses
- An acceleration clause (full payment) when the mortgagor obtains a second mortgage or otherwise encumbers the property.
2) LIABILITY OF SUBSEQUENT TRANSFEREE
“Assumes” the mortgage
- If the subsequent transferee assumes the mortgage, the mortgage and its terms are transferred from the original mortgagor to the subsequent transferee and the subsequent transferee becomes personally liable on the note. However, if subsequent transferee fails to pay, the bank can still go after the original owner unless they executed a NOVATION with the bank.
Takes “Subject to” the mortgage (presumtion)
- Transferee is not personally liable upon default.
- If the deed is silent or ambiguous as to liability, the subsequent transferee is considered
to have taken title subject to the mortgage.
Defenses Original Mortgagor Had
- When mortgaged property is transferred to a subsequent owner, the subsequent owner may raise defenses that the original mortgagor could have raised against enforcement of the mortgage obligation
- But If the assumption of the mortgage was part of the (discounted) purchase price, they may not riase those defenses the original mortgagor had.
Mortgage Transfers by Mortgagee/Lender
A mortgage is a document that gives the mortgagee (eg, bank) an interest in real property as security for an obligation owed by the mortgagor (ie, borrower). The obligation is typically memorialized in a promissory note.
The mortgagee is generally free to transfer the promissory note and/or the mortgage securing that note unless:
- the mortgage or note expressly states otherwise
- the transfer is forbidden by statute or public policy or
- the transfer will increase the duties, burdens, or risks on the mortgagor.
RULE: The recipient of the transferred note/mortgage (ie, transferee) then acquires the right of foreclosure. However, the transferee can lose this right to a bona fide purchaser—ie, one who pays value for the property interest withoutnotice of another’s prior interest in the property.
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transfering the note but not the mortgage – mortgage follows the note
- A negotiable promissory note can be assigned by simply endorsing and delivering the note to the assignee.
- A nonnegotiable promissory note requires a separate assignment document to transfer ownership.
transfering the mortgage but not the note.
- Rule: The transfer is either (i) void, or (ii) the note follows the mortgage (Jurisdictions are split as to effect of transfer)
MORTGAGES > Assumable Mortgage
The SUBSEQUENT OWNER expressly agrees to ASSUME the mortgage, in which case the outstanding mortgage and its terms are transferred to the SUBSEQUENT OWNER.
Rule: SUBSEQUENT OWNER becomes personally liable on the note.
- However, if SUBSEQUENT OWNER fails to pay, the bank can still go after the ORIGINAL owner unless they executed a NOVATION with the bank
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Defenses Original Mortgagor Had (Unless discounted price)
- When mortgaged property is transferred to a subsequent owner, the subsequent owner may raise defenses that the original mortgagor could have raised against enforcement of the mortgage obligation
- But If the assumption of the mortgage was part of the (discounted) purchase price, they may not riase those defenses the original mortgagor had.
Many homebuyers typically take out a mortgage from a lending institution to finance the purchase of a home or property.
If the homeowner decides to sell their home later, they may be able to transfer their mortgage to the homebuyer. In this case, the original mortgage taken out is assumable.
By assuming the previous owner’s remaining debt, the buyer can avoid rigorous process of obtaining their own mortgage
MORTGAGES > Subject to
A mortgagor can freely transfer mortgaged land to a grantee but remains personally liable for the debt thereafter. Presumption is this unless the grantee expressly agrees to assume the mortgage.
Rule: Original Owner remains LIABLE on the note.
- New owner takes the property but has no financial responsibility to the mortgage balance whatsoever, all respobsibility remains with the original owner.
- BUT, Bank can (has the right to) foreclose on the property while the new owners are living there if payments are not made by the origianl owner
Alternatives to Mortgages—Equitable Mortgages
1) Deed of Trust – Operates like a mortgage but uses a trustee to hold title for the benefit of the lender (i.e., the beneficiary of the trust receiving the payments)
2) Installment Land Contract – The seller finances the purchase and retains title until the buyer makes the final payment on an installment plan.
Traditional rule: If the buyer breaches (i.e., misses a payment), the seller keeps the installment payments made and the property. (too harsh)
Modern approaches: States are trying to assist defaulting buyers. Treats an installment land contract like a mortgage, a buyer in default may redeem the property by tendering to the owner the full balance due under the contract prior to foreclosure.:
- Allow the seller to retain ownership, but require some restitution to buyer for what’s already been paid.
- Treat installment contracts as a mortgage, requiring the seller to foreclose to gain title to the property and the buyer has an equitable right of redemption and other protections;
- Offer the buyer the equitable right of redemption i.e., the buyer can keep the property by paying the full balance of the installment contract at any time prior to the foreclosure sale
3) Absolute Deed – The mortgagor (borrower) transfers the deed to the property instead of conveying a security interest in exchange for the loan.
- Borrower must prove a mortgage-like agreement (i.e., intent to secure the debt) by clear-and-convincing evidence (i.e., that there was an obligation created prior to or contemporaneously with the transfer);
- Parol evidence is admissible to make this showing;
- SOF does not bar oral evidence about the agreement.
- If proven, a court treats the transfer as an equitable mortgage, unless competing equities (e.g., good-faith purchaser) take precedence.
4) Conditional Sale and Repurchase – The owner sells property to the lender who leases the property back to the owner in exchange for a loan.
- The lender gives the owner the option to repurchase after the loan is paid off.
FORECLOSURE
WHAT IS FORECLOSURE – A foreclosure is a forced sale of an asset to pay off a debt. the proceeds of the sale are used to pay off the debt. The mortgagee must give notice before foreclosing.
1) Power of sale (private sale): Sale held by the mortgagee/lender
2) Judicial sale Sale under the supervision of a court
- the mortgagee must give notice to the holders of any junior interest in the property
Proceeds of the foreclosure sale are used in this order:
- Pay expenses of the sale, attorneys fees, and court costs,
- Pay the principal and accrued interest on the loan that was foreclosed,
- Pay off any junior liens or other junior interests in the order of their priority,
- any remaining proceeds are distributed to the mortgagor
Deficiency Judgment
- A mortgagor is responsible for remaining balance if the sale produces less than the mortgagor owes.
- Lender can get a deficiency judgment for remaining balance
When Can the Mortgagee/Lender Take Possession?
- Lien theory - Only when foreclosure is complete
- Title theory - at any time (they have legal title)
- Intermediate Title theory - point of default
WAYS TO AVOID FORECLOSURE
1) Equitable Redemption - Period of time from Notice of Foreclosure until Sale that residents can pay off full debt and keep property.
- Can NEVER be waived! Public policy
- Courts will intervene to prevent “clogging” (terms that make it harder for a borrower to exercise her equitable redemption)
2) Deed in lieu of foreclosure - Rather than face foreclosure and take a hit to credit, the mortgagor can agree to convey the property to the mortgagee (lender) in exchange for releasing her from any outstanding debt. Deed-in-lieu transactions are generally valid so long as they are fair to the grantor-mortgagor and not simply a means of continuing the original mortgage (ie, equitable or “disguised” mortgage).
- Mortgagee takes the property along with any junior interests attached to the property (survives bc no formal forceclosure).
- The mortgagee generally may reserve the right to pursue a deficiency as measured by the difference between the outstanding mortgage obligation and the fair market value of the property against the mortgagor, but the mortgagor may bring an equitable action to set aside the conveyance if it is not reasonable and fair.
3) Renegotiating debt
- Parties may renegotiate terms of promissory note & mortgage
4) Defenses
- A mortgage is subject to the same defenses as the underlying obligation secured by the mortgage (e.g., mistake, duress, failure of consideration, fraud, or lack of capacity).
- When mortgaged property is transferred to a subsequent owner, the subsequent owner may raise defenses that the original mortgagor could have raised against enforcement of the mortgage obligation (unless the assumption of the mortgage was part of the (discounted) purchase price)
EFFECT OF FORECLOSURE
1) On the Mortgagor - Eliminates their interest in the property
- Exception: Statutory Redemption
- Period of time AFTER Foreclosure Sale until statutory time limit that mortgagor can pay foreclosure sale price to purchasing party to nullify foreclosure and redeem property.
- Not automatic, by statute only
2) The mortgaged property - eliminates all of the following interests:
- the mortgagor’s interest in the property
- the mortgage interest being foreclosed upon (foreclosing party’s interest)
- any junior interests attached to the property
3) on Foreclosed Property Purchasor
- Takes the property free and clear of any junior mortgage (destroyed) and subject to any senior mortgage; BUT
- May be subject to the mortgagor’s statutory right of redemption, if one exists.
SUBROGATION – Third Party Payor
- A person who pays off another person’s mortgage obligation may become the owner of the obligation and the mortgage to the extent necessary to prevent unjust enrichment.
FORECLOSURE > Priorities - Satisfying Competing Interests
Order
- Purchase Money Mortgage - always has priority
- Senior Interests (recorded)
- Junior Interests (recorded)
- Unrecorded Liens
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Senior interests: Interests acquired before the interest that is being foreclosed. They SURVIVE the foreclosure.
Junior interests: Interests acquired after the interest that is being foreclosed. They DON’T SURVIVE the foreclosure
- if foreclosure by judicial sale, eliminated ONLY IF mortgagee gave them notice
GENERAL RULE
“First-in-time rule” – surviving debts are satisfied CHRONOLOGICALLY
EXCEPTIONS (Priority given)
1) Purchase Money mortgages
- always has priority, even over earlier debts
- A seller-financed purchase money mortgage generally takes precedence over a third-party (bank) purchase money mortgage.
2) Jr. Motgage Satisfying Recording act
- A junior mortgage that satisfies the requirements of the state recording act (ex: notice) may take priority over an unknown, unrecorded senior mortgage.
3) Subordination agreement between mortgagees
- A senior mortgagee can agree to subordinate its interest to a junior interest.
4) Mortgage modifications
- A senior mortgagee who enters into an agreement with the mortgagor/landowner to modify the mortgage by making it more burdensome subordinates its interest, but only as to the modification.
- The original mortgage will otherwise remain superior.
- Likewise, if a senior mortgagee releases a mortgage and, at the same time, replaces it with a new mortgage, the new mortgage retains the same priority as the former mortgage, except to the extent a change is materially prejudicial to a junior mortgage holder.
5) future-advances mortgage
- A future-advances mortgage (i.e., “line of credit”) is a mortgage given by a debtor (mortgagor) in exchange for the right to receive money from the lender (mortgagee) in the future. Priority with regard to proceeds from a foreclosure sale depends on whether the advances are:
- optional – in which case, the future-advances mortgage has priority with respect to amounts loaned before the mortgagee received notice of a subsequent mortgage or
- obligatory – in which case, the future-advances mortgage has priority with respect to amounts loaned before and after the mortgagee received notice of a subsequent mortgage.
6) After-acquired property
- A mortgagor/borrower may grant rights to property that they acquire in the future to a mortgagee/lender.
- The mortgage must clearly state that it applies to after-acquired property.
- Upon foreclosure, an interest in after-acquired property is junior to a purchase-money mortgage.
MORTGAGES > Equitable Redemption
Equitable Redemption — Period of time from Notice of Foreclosure until sale (of the property) that residents can pay off debt and keep property.
- Can NEVER be waived! Public policy
MORTGAGES > Statutory Redemption
Statutory Redemption — Period of time from Sale until whatever the statute provides that residents can pay off debt and still keep property.
- Not automatic, by statute only
ADVERSE POSSESION
(ECHO)
WHO HAS TITLE?
Stay on property so long, and you get TITLE
- Until the person acquires title, the person is a trespasser.
- The adverse possessor acquires the same estate held by the person who has legal possession at the time that the adverse possession began. (If they had a life estate, adverse possesor gets a life estate etc.)
- New title relates back to the date of the person’s entry onto the property. There is no transfer of title from the former owner.
- Property owned by the government cannot be adversely possessed.
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ELEMENTS (ECHO)
1) CONTINUOUS (for the statutory period)
The adverse possessor continuously uses the land for a statutorily prescribed amount of time.
Time begins running when the adverse possesor enters the land and they become the legal owner of the property by operation of law when the statute of limitations runs out of time.
- The “continuous” requirement is not literal. Seasonal or infrequent use may suffice if the use is consistent with the type of property being possessed (e.g., a vacation home, farmland).
- Tacking (privity requirement) - adverse possessor can tack on her predecessor’s time on the property to satisfy the statute of limitations. Must be in privity with the prior adverse possessor. Privity is an exchange of some sort between the adverse possessors.
- Disabilities – The statute of limitations will not run against a true owner who has a disability at the time the adverse possession begins (e.g., infancy, insanity, or imprisonment).
- Interruptions – A true owner can interrupt the adverse possession period by ejecting the adverse possessor. This will stop the adverse possession clock.
2) OPEN & NOTORIOUS
An adverse possessor’s use must be open and notorious.
- Use must be such that it would put a reasonable true owner on notice of the adverse use.
- The use cannot be hidden; the trespasser must use the property as if she was the true owner.
3) HOSTILE
The adverse possessor must possess the land without the owner’s permission. Must objectively demonstrate an intent to claim the land as his own, regardless of his subjective intent.
- Minority rule (subjective): Inquires into the adverse possessor’s state of mind
- Good faith jurisdiction: Hostile if by mistake. they think the land is unowned or that they are the rightful owner.
- Bad Faith jurisdiction: “Aggresive trespass.” They know that land is not theirs.
4) EXCLUSIVE
An adverse possessor cannot share possesion with the true owner.
- If two people possess the property together, they acquire title as tenants in common.
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Scope of Possession
- Adverse possession generally traces the legal boundaries of the property
- Includes subsurface rights, unless those rights already belong to a third party
- Easements can also be acquired by adverse possession (or prescription).
Exception—constructive adverse possession
- Adverse possessor enters under color of title from an invalid instrument (e.g., fraudulent deed) and occupies a portion of the property described in the instrument. The adverse possessor is in actual possession of the occupied land and constructive possession of the remaining land described in the deed.
Common-Law Recording Rule
BASELINE – In the absence of a recording statute, or the common-law rule controls
The baseline for recording problems is the common-law rule.
- It follows the “first in time, first in right” principle
- i.e., under the common-law rule, the first grantee to receive a deed wins
- Other example: Race Notice Jurisd. – 2 subsequent taker, none record, go by this
RECORDING STATUTES >
1) Who is Protected?
2) Who is Not Protected?
3) Types of Notice
4) Types of Recording Statutes
When is it relevant? When 1 owner sells/gifts/mortgages same peice of land to multiple people/entities
1) WHO IS PROTECTED?
- Subsequent Purchasors —not donees.
2) Who is NOT Protected?
- Grantees who acquire title by gift, intestacy ,or devise are NOT protected by recording acts.
- policy behind recording acts is that we want to protect those who make economic investments by acquiring property, not people who just inherit
3) NOTICE
Actual— when the subsequent grantee has real, personal knowledge of a prior interest;
Constructive (i.e., record notice) — The fact that a deed has been recorded does not always mean that a purchaser will be charged with notice of it, needs to have been recorded in a fashion that a searcher could reasonably find it. (chain of title)
- EXCEPTION: Wild deeds - A recorded deed that falls outside the chain of title is a “wild deed” that fails to give record notice to subsequent purchasers.
- Example, O owns BlackAcre:
- O to A - not recorded
- A to B - B records (wild deed)
- O to C - Even though B recorded, its a wild deed and thus C does not have notice for Blackacre. C can still be a BFP.
Inquiry — when a reasonable investigation would have disclosed the existence of prior claims. (2 scenarios)
- i) Dude on the land: When there is someone else living on or using the land. had they visited the land, they would have discovered.
- ii) Mentioned interest: When there is an interest mentioned in the deed to some other transaction; had the subsequent grantee inquired, he would have discovered the interest.
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1) Race Jurisdiction
2) Notice Jurisdiction
3) Race Notice Jurisdiction
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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
- Even though purchaser might have notice of a prior interest/conveyance, they stand in BFP’s shoes and have same protection.
Estoppel by Deed
- Arises when a grantor conveys land the grantor does not own
- If a grantor subsequently acquires title to the land, the grantor is estopped from trying to repossess on grounds that he didn’t have title when he made the original conveyance.
RECORDING STATUTES > Notice Jurisdiction
Most Common (FL)
RULE: Last BFP with NO NOTICE, wins!
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BFP = 2 Elements “innocent purchasor”
1) Paid value for land
- Release of existing debt
- Substantial amount not grossly inadequate in relation to property interest’s value
No value
- Security for existing debt (eg, judgment lien)
- Nominal payment (eg, $1)
- Recital of consideration in deed
- Gift, devise, or inheritance
2) NO NOTICE of an earlier competing property interest
- Actual Notice
- Constructive (Record) Notice — Exception: Wild Deeds, Deed recorded late
- Inquiry Notice
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Key language
- “In good faith” or “Without notice”
“Notice” Recording Act protects subsequent purchasers for value who lack notice of prior interests in the same property (i.e., bona fide purchasers)
Handout definition: A subsequent purchaser wins if she acquires without notice of a prior, unrecorded conveyance.
RIGHTS IN LAND > Covenants (TWIN-P)
A real COVENANT is an express promise to do (affirmative) or not do (negative/restrictive) something on land
- The remedy for a breach of a real covenant is DAMGES ($)
- Promising parties are bound to the covenant under contract law,
- the covenant will only BIND their SUCCESSORS in interest IF it runs with the land.
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Requirements to Run With the Land – TWIN-P
- (To bind a successor)
1) Touch and concern – covenant relates to the use, enjoyment, or occupation of the benefited and burdened lands (eg, maintaining drainage system on one parcel to benefit the other)
2) Writing – covenant is in a writing that satisfies the statute of frauds (eg, deed)
3) Intent to run – promising parties intended for the covenant to run to their successors in interest (eg, deed says “heirs and assigns”)
4) Notice – person to be BOUND had notice of the covenant
- Person to be BOUND had actual or constructive notice of the covenant
- Inquiry notice only suffices for equitable servitude
- No notice needed to run the benefit
5) Privity (Heavily Tested)
HORIZONTAL PRIVITY – Original promising parties simultaneously transferred the land and created the covenant in the same instrument (e.g., the deed). Also, there must be some shared property interest apart from the covenant itself (LL-Tenant, Buyer-Seller)
VERTICAL PRIVITY – successor of the burdened estate has a promising party’s entire estate or ownership interest (strict) OR successor of the benefited estate has a possessory interest (relaxed)
- Strict Vertical Privity: successor must take the original party’s ENTIRE interest. (FSA > FSA)
- Relaxed Vertical Privity: the successor need only take an interest that is CARVED OUT of the original party’s estate. (FSA > FSD)
To run the Burden (bind)
- Horizontal privity AND Strict Vertical privity
To run the Benefit (ability to enforce)
- Relaxed vertical privity
The remedy for a breach of a real covenant is DAMGES ($)*
- if you dont want $ damages but just want an injunction, look for equitable servitude.
RIGHTS IN LAND > Equitable Servitude (TWIN)
EQUITABLE SERVITUDE
- “I don’t want damages, but I want an INJUNCTION”
- Another way to bind a successor to an original party’s promise.
- Operates like a real covenant but with easier requirements; No privity requirement.
To bind a successor: TWIN
- Touch and concern - Promise inherently relates to the land or the manner it is used, or promise affects both parties in their capacity as owners of the land.
- Writing - Exception (Implied Reciprocal Servitude)
- Intent - Intent to run with Land. Intent for the servitude to bind their successors in interest “heirs and assigns”
- Notice - at least inquiry
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Implied Reciprocal Servitude – It is a kind of equitable servitude that is implied and NEED NOT BE IN WRITING. Usually comes up in planned communities (e.g., condo, subdivision);
- Developer must intend to create a covenant (i.e.,promise) on all plots in the subdivision;
- Promises must be reciprocal (i.e.,benefits and burdens each and every parcel equally);
- Must be restrictive rather than positive (i.e.,it must be a restriction on the owner’s use);
- A successor must be on notice of the restriction (at least INQUIRY notice); and
- Must be a COMMON PLAN OR SCHEME
(if the common scheme arose after some of the lots were already sold, then the previously sold lots will not be incorporated into the common scheme or subject to the implied equitable servitude)
To prove there is a common plan, look for:
- A (recorded) map of the community showing the common scheme;
- Marketing or advertising of the community;
- Oral or written mention that the lots are burdened by common restriction.
Changed Circumstances Doctrine – Look for situations where the restriction no longer makes sense due to drastic changes INSIDE the community area since the restriction was put in place.
- Critical question: Does the property subject to the restriction still retain some benefit from the restriction?
Equitable Defenses
- unclean hands (the plaintiff not acting in good faith) and
- laches (unreasonable delay)
Terminates as an easement does (i.e., merger, release, etc.)
The benefit of enforcing an equitable servitude is held only by the original parties and their successors in interest.
PRESENT POSSESSORY ESTATES > Fee Simple Subject to Condition Subsequent
Fee Simple Subject to Condition Subsequent — a present fee simple that is limited in duration by specific conditional language (e.g., “provided that,” “on condition that,” “but if”). Upon the occurrence of the condition, the GRANTOR (or his successor interest) has the right to enter to terminate this estate. NOT AUTOMATIC.
FUTURE INTERESTS - ONLY GRANTOR (RIGHT OF RE-ENTRY)
- Right of Re-Entry — NOT AUTOMATIC, required to take action
- Grantor can enter and terminate the estate by affirmatively demonstrating an intent to terminate. Until then, grantee’s ownership interest is not terminated.
- The right of re-entry is freely alienable during life, and it is devisable by will, or, alternatively, descendible through intestate succession upon death.
PRESENT POSSESSORY ESTATES > Fee Simple Subject to Executory Interest
Fee Simple Subject to Executory Interest — A fee simple estate that is limited by specific conditional language (e.g., “provided that,” “on condition that,” “but if”), such that, upon the occurrence of the specified event or condition, title will automatically pass to a THIRD PARTY (i.e., someone other than the grantor - NO right of re rentry)
FUTURE INTEREST - Third Party (Executory Interest)
2 types of executory interests:
- Springing executory interest: Divests the Grantor (Grantor > Executor)
- Shifting executory interest: Divests a prior Grantee (Grantee > Executor)
executor interes (jerks)
remainder interests (patiently waits)
Special Cases >
1) Doctrine of Worthier Title
2) Rule in Shelly’s Case
1) Doctrine of Worthier Title – When a grantor conveys a remainder in the GRANTOR’s heirs
- Creates a presumption of a REVERSION to the grantor in Fee Simple
Example:
Oliver conveys “to Anna for life, then to my heirs.”
- OLIVER retains a REVERSION in FSA
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2) Rule in Shelly’s Case – When a grantor conveys a remainder in the GRANTEE’s heirs
- Uses the doctrine of merger to create a FEE SIMPLE in the grantee
Example
Oliver conveys “to Anna for life, then to Anna’s heirs.”
- What estate does Anna have under the Rule in Shelley’s case? Fee Simple (Absolute)
(cutting out remainders in grantor/grantee’s heirs)
FUTURE INTERESTS > Rule Against Perpetuity
The Rule Against Perpetuities applies only to contingent future interests (eg, purchase options) and voids any such interest that may not vest for more than 21 years after some relevant life in being at the creation of the interest.
- RAP is not about whether an interest vests or fails. It is about whether we can KNOW FOR CERTAIN if it will vest or fail within RAP period. (a life in being plus 21 years). Cannot have uncertainty.
Method—When, What, Who?
1) When: Identifying when the interests are created (RAP Period Begins, and the measuring lives used to show the validity of an interest must be in existence, at that time.)
- Inter vivos transfers: At time of the grant
- Devise (will): At testator’s death, not when the will is drafted
2) What: Determine if interests created are subject to RAP
RAP applies to:
- Contingent remainders
- Executory interests
- Class gifts (Even if Vested Remainders), if not closed by rule of convenience
3) Who: Identify the relevant and, if applicable, validating lives
(When testing, always kill and reproduce. Anyone can die the next day, assume any living person, regardless of age, will reproduce)
Relevant life: Person who affects vesting, mentioned or implied by the grant (e.g., prior life tenant, the parent where a conveyance is made to a child)
Validating life: Person who tells us whether or not the interest vests or fails within the perpetuities period (validating lifetime plus 21 years) Ask yourself: Whens the LAST moment in time we will know whether it vests or fails?
- Must have been alive when the interests were created;
- Can validate her own interest;
- If no validating life, then the interest is void and we strike it from the grant; if there is a validating life, the interest is good.
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RAP VIOLATIONS “An interest is void if there is any possibility, however remote, that the interest may vest more than 21 years after some life in being at the creation of the interest”
- at the creation of the interest. = Conveyance - at time of grant/ Will - At testator’s death
- If a situation can be imagined in which the interest might not vest within the perpetuities period, the interest is void
Test 1: If there is either a Determinable or Subject to condition subsequent, ANY SUBSEQUENT GRANTEE IS VOID!
Test: find Validating Life, Ask if, at the time interests are created, whether we will we have closure/clarity within perpatuities period (reproduce/kill)
- Effect of violation: We strike out the violating interest, as if the interest was never created in the first place.
Reproduce and Kill
- Remember: Property law assumes that anyone who is alive can reproduce, have more children. Living people have the nasty habit of breeding.
- Property law assume anyone can die the next day
Examples
1) Oliver conveys “to Anna for life, then to Anna’s first child who reaches the age of 22.”
- This conveyance violates RAP. (violates if you can tell a story where it can be outside a life + 21 years)
- It is a contingent remainder, and possible for the contingent remainder (in Anna’s first child) to vest more than 21 years after Anna’s life. (You can make a story where Anna has a child immediately and then dies right after)
- Anna’s first child, if not born yet, can’t be a validating life, and even if alive, is not a validating life because the child could die.
2) Oliver conveys, “to Anna so long as the property is used as a farm, then to Ben.”
- Anna has a fee simple subject to an executory interest and Ben has an executory interest.
- This conveyance violates RAP. It is possible that Ben’s executory interest will vest more than 21 years after Anna’s or Ben’s death.
- Even if Anna dies, the property can continue to be used as a farm by her heirs for way more than 21 years.
3) Oliver conveys “to my grandchildren who reach 21.” Oliver has two children, Anna and Ben, and three grandchildren under the age of 21.
- This conveyance violates RAP.
- It is possible that Oliver could have another child—call her C—who gives birth to a grandchild after Oliver, Anna, and Ben have died. This grandchild will not reach age 21 until more than 21 years after the deaths of the measuring lives (C is not a validating life because she was not in existence when the interest was created).
- (assume any living person, regardless of age, will reproduce)
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EXCEPTIONS TO RAP
- Charity to Charity
- Options held by current tenant to purchase a fee interest in the leasehold property
- Options (or right of first refusal) in a commercial transaction
Practical tension:
- Parents want to keep property in the family but do not trust their children
- v.
- courts’ unease about uncertainty
RAP prevents remote vesting. (very far into the future)
- Testing for certainty
- Operates like a statute of limitations for contingent future interests.
Why 21 years?
- Approximately 2 generations—a life plus 21 years;
- Beyond that, we can’t say what will happen.
- Law says “you can tie up your property for 2 generations after that, we need to know whether it will vest or fail”
Waste
WASTE – a life tenant generally must deliver the property to the future interest holder in substantially the same condition that it was in when she took possession, with allowance for normal wear and tear.
1) Permissive waste – when the life tenant “permits” the premises to deteriorate through neglect or a failure to preserve or protect the property.
a) Repairs
- A life tenant has a duty to prevent permissive waste by making reasonable repairs
- Personal obligation of the life tenant only to the extent that the life tenant receives a financial benefit from the property (i.e., the amount of income generated by the property, or, if the life tenant uses the property, its fair rental value
b) Damage caused by natural forces or third parties
- life tenant is NOT responsible for damage caused by natural forces or third parties that the life tenant could not prevent. .
c) Insurance
- life tenant is NOT under an obligation to insure the land for the benefit of the future interest holder.
2) Voluntary waste
- Voluntary (or affirmative) waste occurs when the condition of the property is substantially changed due to the life tenant’s affirmative action.
a) Diminution in value
- Generally, a life tenant’s affirmative action that results in the diminution in value of the property is prohibited by the doctrine of waste.
b) No diminution in value (ameliorative waste)
- In most jurisdictions today, ameliorative waste is permitted when the change results in reasonable use of the property.
- A life tenant has a duty not to change the premises if the future interest holders have a reasonable ground for objection. However, a reasonable ground for objection does not exist if a substantial and permanent change in neighborhood surroundings makes the change necessary to continue reasonable use of the property, and the proposed change is one that an owner of a fee simple estate would typically make.
- In determining the reasonableness of a change, the life tenant’s life expectancy and good faith in making the change are factors to be considered.
LANDLORD — TENANT > Types of Tenancies
1) Tenancy for Years — Measured by any FIXED amount of time. It need not be measured in years. It can be for any length of time.
Creation – AGREEMENT by the landlord and the tenant
- If the term is longer than one year, must be signed and in writing (to satisfy the Statute of Frauds)
Termination – occurs AUTOMATICALLY upon the expiration of the term. (no notice required, unless lease requires it) Can terminate before term is over if:
- Tenant surrenders the lease
- The tenant or the landlord commits a material breach of the lease (e.g., the tenant fails to pay rent).
2) Periodic Tenancy — Estate that is REPETITIVE and ongoing for a set period of time (month-to-month, year-to-year) Renews automatically at the end of each period until one party gives proper notice of termination
- Presumed when lease has no specified termination date
Creation – Parties must INTEND to create a periodic tenancy. Intent can be:
- express (a signed lease) or
- implied (payment of rent, operation of law [eg, holdover tenant])
Termination – Renews automatically until proper NOTICE is given (written notice before start of last term)
- Proper notice means the terminating party gives written notice before the start of what will be the last term.
- Notice is effective on the last day of the period.
- Larry leased Blackacre to Tara on a month-to-month basis. Tara gives notice of termination on February 15. The termination becomes effective March 31.
3) Tenancy at Will — May be terminated by either landlord or tenant at any time, for any reason. Does not have a specific term and continues so long as the landlord and the tenant desire.
Creation – Can be created by express agreement or by implication
Termination – Can be terminated by either party without notice. (or by death of either party)
- If the agreement gives only the landlord the right to terminate at will, the tenant ALSO gets the right to terminate at will by implication (unconscionable - unequal bargaining power)
- If the agreement gives only the tenant the right to terminate at will, the landlord is NOT given the right to terminate at will
Death of either party – terminates the tenancy at will
- this is not true for the tenancy for years or the periodic tenancy.
Tenancy at Sufferance — Created when a tenant holds over (stays) after the lease has ended
- Landlord is NOT required to give the tenant notice to vacate the premises before taking steps to recover possession of the property
Creation – by ACTIONS of the tenant alone
Termination – 3 ways to terminate
- Tenant voluntarily leaves
- Landlord evicts the tenant
- Landlord re-rent to the tenant
LANDLORD — TENANT > Duties
Landlord:
1) Duty to Mitigate Damages (Residential ONLY) - reasonable efforts to re-rent, LL entitled to the difference between the original rent and the rent received from the replacement tenant.
- If the landlord does not make diligent efforts to mitigate, the tenant is relieved from the obligation to continue paying rent.
- The landlord does not have to accept an unacceptable replacement tenant.
2) Holdover Tenant – can evict holdover tenant or can re-rent, treating the holdover tenant as a periodic tenant.
- The landlord will continue the relationship by accepting rent (amount under the old lease is the amount due)
- Exception: The landlord can impose a higher rent if the landlord had informed thetenant of the increase prior the expiration of the old lease.
3) Implied promise to Deliver physical possesion of property
- on 1st day of lease term. Legal possesion not enough.
4) Express Lease Provisions + Implied Warranties (Quiet Enjoyment + Habitability)
- a) IMPLIED COVENANT OF QUIET ENJOYMENT - (Commercial AND Residential) - Landlord assures the tenant that the premises are wholly and substantially suitable for the tenants intended purpose. Violated when the landlord, or someone connected to the landlord, renders the premises unsuitable for the intended purpose. The landlord must control:
- common areas (lobby, hallway, or laundry room)
- nuisance-like behavior of other tenants
- b) IMPLIED WARRANTY OF HABITABILITY - (Residential ONLY) - The landlord has an obligation to maintain the property such that it is suitable for residential use. We are concerned conditions that threaten the tenant’s health and safety (make repairs, make safe, a/c, mold, health). The landlord’s failure to comply with applicable housing codes constitutes evidence of a breach;
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Tenant:
1) DUTY TO PAY RENT - can be suspended if
(i) premises are destroyed (not by tenant)
(ii) Patrial or complete eviction (partial: portion of the property)
(iii) Landlord materially breaches Lease
- implied promise to deliver possession
- implied warranty (ie, quiet enjoyment, habitability)
- express lease provision
1) Breach of Implied Warrant of Habitability - Tenant’s Remedies
- Refuse to pay rent
- Remedy the defect and offset the cost against rent
- Defend against eviction
2) Breach of Implied Covenant of Quiet Enjoyment (Commercial AND Residential)
Justifiable Abandonment of Property
- “Constructive Eviction” – (Remedy > Withhold Payment; abandon property)
- Premises were unusable for their intended purposes, substantially interferes with the tenant’s use and enjoyment of the leased premises. (i.e., breach of the covenant of quiet enjoyment);
- The tenant notifies the landlord of the problem;
- The landlord does not correct the problem; and
- The tenant vacates the premises after a reasonable amount of time has passed.
Unjustifiable Abandonment of Property – An unjustifiable abandonment is treated as an offer to surrender rights under the lease. If the landlord accepts the offer, the lease is terminated and the tenant is NOT LIABLE for any future rent. The offer can be accepted by:
- express agreement or
- retaking possession of the property coupled with (1) the landlord’s own use of the premises or (2) re-renting the property to a third party.
2) DUTY TO AVOID WASTE - implied in lease
- The tenant has a duty not to commit affirmative (voluntary) waste or permissive (neglectful) waste
- Damaging/reducing the value of the property
Duty to Repair
- In a residential lease, the Landlord is presumed to be responsible for repairs. The tenant must notify the landlord of any needed repairs.
- In a commercial lease, the landlord can place the duty to repair on the tenant.
Increase Value
- A tenant may make changes to the property that increase the property’s value (“ameliorative waste”).
- Landlords usually require permission before a tenant can make the change and can put a provision in the lease prohibiting the tenant from making improvements to the property.
Water Rights
1) Riparian Rights Doctrine of riparian rights holds that land owners who border a waterway own the rights to the waterway. Riparians share the right to reasonable use of the water, such that one riparian is liable to another for interference with the other’s use.
- Water belongs to owners of adjoining land
- Reasonable use that does not unreasonably interfere with downstream use permitted (reasonable-use doctrine)
- Domestic use trumps commercial use
- Water rights cannot be sold or transferred separate from adjoining land
2) Prior Appropriation Doctrine
- Water rights determined by priority of beneficial use (“first in time, first in right”)
- Water rights are unconnected to adjoining land & can be sold or transferred separately
Support Rights
1) Lateral Support Rights – A landowner has a right to lateral support from adjoining land.
- A neighboring excavating landowner cannot excavate so as to cause a cave in (i.e., subsidence) on an adjacent owner’s land.
Applicable standards:
- If the neighbor’s improvements (buildings) contributed to the cave in, the standard to apply to the excavating neighbor is negligence
- If the neighbor’s improvements (buildings) did NOT contribute to the cave in; The standard to apply is strict liability.
2) Subjacent Support – The right to subjacent support (i.e., support from beneath the surface of one’s land) arises when the owner of land grants the right to mine on his land to a third party.
Applicable standards:
- The owner of the mineral rights is strictly liable for any failure to support the land and any buildings on the land at the time the rights were conveyed.
- The owner is liable only for negligence for damage to any improvements built after the conveyance of the rights.
