MBE questions Flashcards
1
Q
The most recent feed in the chain of title to a tract of land, a man conveyed the land as follows:
“To niece and her heirs and assigns in fee simple until my niece’s daughter marries, and then to my niece’s daughter and heirs and assigns in fee simple.”
There is no applicable statute and the common law RAP has not been modified in the jurisdiction.
Which of the following is the most accurate statement concerning title to the land?
A) Niece has a life estate and daughter has a contingent remainder
B) Niece has a fee simple and daughter has no interest, because after the grant of a fee simple there can be no gift ever
C) Niece has a fee simple and the daughter has no interest, because she might not marry within 21 years after the date of the deed
D) The niece has a fee simple subject to executory interest and the daughter has an executory interest
A
D) The niece has a fee simple subject to executory interest and the daughter has an executory interest
Note that the verbiage for C is incorrect, even if it failed under RAP.
2
Q
Woman dies with a will. In it, she devised a farm she owned to her husband for life, with remainder to her niece. Her will did not specify the duties of the husband and the niece with regard to maintenance and expenses related to the farm. The husband took sole possession of the farm, did not farm the land, and did not rent the land to a third person (despite it would have been $$$$ to do so).
For two years after the woman died, the county assessor sent tax bills to the niece, but the niece did not pay the bills, because she and the husband could not agree on who should pay them. Finally, the niece paid the taxes to avoid a tax foreclosure sale. The niece then sued the husband for reimbursement.
Is the niece likely to prevail?
A) No because remaindermen are solely responsible for property taxes
B) No because the county assessor sent the bills to the niece
C) No because the woman’s will was silent on responsibility for payment of property taxes
D) Yes because the niece paid an obligation that was the sole responsibility of the husband
A
D) Yes because the niece paid an obligation that was the sole responsibility of the husband
Current possessory interest = taxes
3
Q
Husband and wife acquired land as common law as joint tenants with ROS. One year later, without wife’s knowledge, husband executed a will devising the land to his best friend. Husband subsequently died.
Is the wife now sole owner of the land?
A) No because a joint tenant has the unilateral right to end a joint tenancy without consent of the other joint tenant
B) No, because the wife’s interest in the husband’s undivided 50% ownership in the land adeemed
C) Yes, because of the doctrine of after-acquired title, or estoppel by deed
D) Yes, because the devise to the friend did not sever joint tenancy
A
D) Yes, because the devise to the friend did not sever joint tenancy
Cannot devise JT with ROS in a will. BFF has nothing, wife has all the land.
4
Q
For many years, Alison owned Lot A, a parcel of land bordered on the west by a public road. Barbara owned Lot B, which located immediately to the least of Lot A. Barbara had an easement to cross Lot A to enter the public road adjoining lot A. Lot B is surrounded by swampland on the north, south, and east. Thus, the only route of ingress to and egress from lot B over dry land passed through Lot A.
12 years ago, B decided to move out of state. A purchased the lot from B and proceeded to use both lots as a common tract. 10 years later, A sold Lot B to C.
Does C have an easement over Lot A?
A) Yes, she has an easement in gross
B) Yes, because her only access to Lot B is across Lot A
C) No because the easement was extinguished when A purchased Lot B
D) No because she had not used the property long enough to gain an easement by prescription
A
B) Yes, because her only access to Lot B is across Lot A
Easement pertinent: Part of land, necessity – stays with transfer of land
5
Q
The mother of a son and a daughter was dying. The daughter visited her mother in a hospice facility and said, “You know that i have always been a good child and my brother has always been the bad child. Even so, you have left your property in the will to us 50/50. But it would be really nice if you would sell me the family home for $100,000.”
“I don’t know,” said the mother. “It’s worth a lot more than that – at least $250,000.” “That is true,” said the daughter. “But I have always been good and visited you, and my brother has never visited you, so that ought to be worth something. And besides, if you won’t sell me the house for that price, maybe I won’t visit you anymore, either.”
“Oh, I wouldn’t want that,” said the mother. and she signed a contract selling the house to her daughter for $100K. Shortly thereafter, the mother died. When the son found out that the house had been sold and was not part of the mother’s estate, he sued to have the contract avoided on behalf of the mother.
On what grounds would the contract most likely be avoided?
A) Duress
B) Inadequate Consideration
C) Mistake
D) Undue Influence
A
D) Undue Influence
Requires:
1) confidential relationship;
2) influence; and
3) overcome will
6
Q
A woman borrowed $800K from a bank and gave the bank a note for that amount secured by a mortgage on her farm. Several years later, at a time when the woman still owed the bank $750K on the mortgage loan, she sold the farm to a man or $900K. The man paid the woman $150K in case and specifically assumed the mortgage note. The bank received notice of this transaction and elected not to exercise the optional due-on-sale clause in the mortgage. Without informing the man, the bank later released the woman from any further personal liability on the note. After he had owned the farm for a number of years, the man defaulted on the loan. The bank properly accelerated the loan and the farm eventually sold at a foreclosure sale for $500K. Because there was still $600K owed on the note, the bank sued the man for the $100K deficiency.
Is the man liable to the bank for the deficiency?
A) No because the woman would still be primarily liable for payment but the bank had released her from personal liability.
B) No because the bank’s release of the woman from personal liability also released the man
C) Yes because the bank’s release of the woman constituted a clogging of the equity of redemption
D) Yes because the man’s personal liability on the note was not affected by the bank’s release of the woman
A
D) Yes because the man’s personal liability on the note was not affected by the bank’s release of the woman
7
Q
O conveyed Redacre “to my best friend Nelson, and upon Nelson’s death to my daughter, Dora.” Nelson took up possession of Redacre and lived there for two years. He then conveyed “my interest in Redacre” to his longtime, and much younger mistress, Magnolia. Although Dora was fond of her father’s friend, Nelson, she could not abide Magnolia, and the thought of Magnolia taking over Redacre made Dora sick. Dora tried to get Magnolia to leave Redacre but Magnolia told Dora, “Redacre is mine until I die and you’d better get used to the idea.” Since Magnolia took up residence on Redacre, she has been sent two county property tax bills, which she has refused to pay. The county is now threatening to bring an action to force a judicial sale of Redacre to cover the tax deficiency. Dora files an appropriate suit asking the court to evict Magnolia from Redacre and to compel her to pay the taxes for her period of occupancy.
The court will rule that
A) Magnolia has a life estate in Redacre for the period of her own life and Magnolia must pay the taxes on the property.
B) Magnolia has a life estate in Redacre for the period of Nelson’s life and Magnolia must pay the taxes on the property.
C) Magnolia has a life estate in Redacre for the period of Nelson’s life, but Magnolia does not have to pay the taxes on the property because taxes are the responsibility of the remainder grantee.
D) Dora owns Redacre because Nelson could not convey his interest to Magnolia
A
B) Magnolia has a life estate in Redacre for the period of Nelson’s life and Magnolia must pay the taxes on the property.
Nelson - life estate (on his own life) –> Magnolia - life estate (Nelson’s life
Dora – remainder in FSA
Taxes and waste:
Permissive = not paying taxes, current possessor must pay taxes unless the grant specifies otherwise
8
Q
Jet inherited Shaleacre, a parcel of land, from Luz. Bick owned Rockacre, a much larger piece of property, which was adjacent to Shaleacre. Bick began to drill for oil on Rockacre, but all of Bick’s exploratory wells were nonproductive “dry holes”. Bick was certain that there was oil in the area and he importuned Jet to grant him a lease to drill on Shaleacre. Jet turned down Bick’s offer. After Jet’s refusal, Bick drilled an exploratory well on Rockacre. However, Bick drilled the well on a slanted angle, so that he was actually drilling under Shaleacre, even though his rig was located on Rockacre. Bick struck oil, but shortly thereafter, Jet discovered the oil was coming from underneath Shaleacre.
Does Jet have an action for damages against Bick?
A) Yes because Bick has invaded Jet’s subterranean rights
B) Yes, but only if Bick’s drilling interferes with Jet’s use and enjoyment of Shaleacre
C) No, because oil is a free-flowing liquid and may be captured wherever it flows
D) No because Bick’s action does not interfere with Jet’s right to drill for oil on Shaleacre
A
A) Yes because Bick has invaded Jet’s subterranean rights
9
Q
An owner conveyed one of his properties to “my son for life, remainder to my daughter.” The son lived on the property without paying any rent, although the property could have been rented for $4,000 a month. The property was assessed annual property taxes of $10,000. The son did not pay the taxes on the property. Not wanting to have a lien on the property or otherwise have it foreclosed upon, the daughter paid the annual property taxes. The fair market value of the life estate was 10 percent of the fair market value of the property held in fee simple absolute.
How much can the daughter recover from the son for the tax payments?
A) $10,000, because life tenants are responsible for paying annual taxes assessed on the property in their entirety.
B) $10,000, because the taxes did not exceed the reasonable rental value of the property.
$1,000, the amount of taxes owed based on the proportion of the fair market value of the life estate to the fair market value of the property held in fee simple absolute.
Nothing, because the property taxes are the responsibility of the holder of the remainder interest.
A
B) $10,000, because the taxes did not exceed the reasonable rental value of the property.
When the life tenant occupies the land, the financial benefit is measured by its fair rental value.
10
Q
An attorney was a sole practitioner specializing in family law. Her niece was a recent law school graduate, and her nephew was an attorney. The attorney decided to retire and conveyed the historic building that housed her law practice “to my niece, but if she fails to pass the bar exam within a year of her law school graduation, to my nephew.”
Which of the following is an accurate description of the property interests created?
A) The niece has a fee simple subject to condition subsequent, the nephew has a right of reentry, and the attorney has no interest.
B) The niece has a fee simple subject to an executory interest, the nephew has an executory interest, and the attorney has no interest.
C) The niece has a fee simple determinable, and the attorney and the nephew each have a possibility of reverter.
D) The niece has a fee simple subject to condition subsequent, the attorney has a right of reentry, and the nephew has an executory interest.
A
B) The niece has a fee simple subject to an executory interest, the nephew has an executory interest, and the attorney has no interest.
FSSCD + EI = Upon the occurrence of the specified event or condition, title automatically passes to a third party who holds a future, executory interest.
Attorney/aunt has nothing left
11
Q
Pursuant to a written lease, the owner of a warehouse leased the premises to a manufacturer for a term of one year at a total rent of $60,000. The lease called for the rent to be paid in monthly installments of $5,000 at the beginning of each month. The lease contained no provisions regarding termination or extension. The manufacturer promptly made the required rental payment each month. At the end of the lease term, the owner did not provide notice to the manufacturer of the termination of the lease. The manufacturer tendered a rental payment of $5,000 for the following month to the owner, which the owner refused to accept.
In the absence of an applicable statute, how much advance notice must the owner give the manufacturer before seeking to evict the manufacturer?
A) None, because the manufacturer is a tenant at sufferance.
B) a reasonable time, because the manufacturer is a tenant at will.
C) A month, because the manufacturer, by tendering a rental payment, has created a periodic tenancy.
D) Six months, because the manufacturer, by tendering a rental payment, has created a tenancy for years.
A
A) None, because the manufacturer is a tenant at sufferance.
Tenancy in Years = terminates automatically after the stated period ends.
A tenant who remains on the premises after the lease expires without the landlord’s permission is considered a tenant at sufferance.
Absent an applicable statute, the landlord is not required to give the tenant at sufferance notice to vacate the premises before taking steps to recover possession of the property.
12
Q
An adult college student entered into a written, one-year lease of a condominium unit owned by a professor who was taking a one-year sabbatical in France. The lease, which began on September 1, called for a yearly rent of $12,000 to be paid in monthly installments of $1,000. The student lived in the unit for four months and paid $1,000 in rent to the professor each of those months. The student moved out of the unit on December 31 and stopped paying rent thereafter. Before moving out, the student transferred all of his rights under the lease for the remaining eight months to an employee of the college. Nothing in the lease prohibited the student from making this transfer.
The employee moved into the unit on January 1. She lived there for five months and, each month, mailed $1,000 to the professor. She otherwise had no contact with the professor. At the end of May, the employee moved out and made no further rental payments. Despite making a good-faith effort, the professor was unable to rent the unit for the remaining three months of the lease. Under the terms of the lease, the student is liable to the professor for any unpaid rent. However, upon his return in September, the professor sued the employee for $3,000 in unpaid rent.
Is the employee liable to the professor for the unpaid rent?
A) No, because the employee did not enter into a lease agreement with the professor.
B) No, because the student remained liable for the rent under the terms of the lease.
C) Yes, because the employee was the person who vacated the condominium unit.
D) Yes, because the employee was in privity of estate with the professor.
A
D) Yes, because the employee was in privity of estate with the professor.
Assignment = transfer of a tenant’s entire interest to a third party (assignee) for the remainder of the lease term.
The tenant (through privity of contract) and the assignee (through privity of estate) are jointly and severally liable for the landlord’s entire harm arising from a breach of the lease.
13
Q
An accountant owned a small farmhouse and land that he planned to pass on to his two children, a son and a daughter. The accountant was contacted by a longtime family friend who said that she had retired and was looking for a place to live. In order to help the friend, the accountant made an inter vivos conveyance of the farmhouse and land “to the friend for her life, and then to my heirs; but if none of my heirs survive the friend, then to my lawyer.” Two years later, the accountant died, leaving the son and the daughter as his only heirs. Recently, the daughter died, but the friend is still living.
The jurisdiction does not apply the Rule in Shelley’s Case or the doctrine of worthier title.
Which of the following best describes the son’s current property interest in the land?
A) A contingent remainder.
B) A vested remainder subject to complete divestment.
C) A vested remainder subject to open.
D) No interest in the land.
A
B) A vested remainder subject to complete divestment.
A vested remainder is subject to complete divestment if the occurrence of a subsequent condition will eliminate the remainder interest (e.g., “then to my heirs; but if none survive my friend, then to my lawyer”).
14
Q
A widower owned a house in fee simple absolute. His daughter is his only child. The daughter also has one child, the widower’s grandson. The grandson and his wife had just had their first child when the widower executed a will in which the house was devised to his daughter for her life and the remainder to his grandson’s children. The widower left the rest of his estate to a charity.
After the widower’s death, his grandson had a second child and the widower’s daughter died shortly thereafter. A year later, the grandson had a third child. The widower’s grandson recently died, survived by all three of his children.
The jurisdiction follows the common-law Rule Against Perpetuities as well as the Rule of Convenience.
Who now owns the house?
A) The first child.
B) The first child and the second child.
C) The first child, the second child, and the third child.
D) The charity named in the will.
A
B) The first child and the second child.
Rule of Convenience closes class membership once any member of the class is entitled to immediate possession of a share in the class gift
Here, that occurred when the widower’s daughter died and the remainder interest in the grandson’s children became a present interest. Only the first child and the second child were born* before the class closed upon the daughter’s death, so only they own the house
15
Q
The sole, unmarried owner of a residence died. She had validly devised the residence to her long-term companion with whom she had lived for over 20 years. The residence was devised to the companion “for life or until she vacates the premises, and then to my nephew.”
Several years after the owner’s death, the nephew transferred by quitclaim deed “any interest I have” in the residence to a creditor in satisfaction of a debt that the nephew had incurred. The deceased owner’s companion continues to live in the residence.
Which of the following most accurately describes the creditor’s interest in the residence?
A) The creditor has a vested remainder in the residence.
B) The creditor has an executory interest in the residence.
C) The creditor has both a vested remainder and an executory interest in the residence.
D) The creditor has a mere expectancy with regard to the residence until the companion dies or vacates the premises.
A
C) The creditor has both a vested remainder and an executory interest in the residence.
Here, the owner devised her residence to the companion “for life or until she vacates the premises, and then to my nephew.” This means that the companion received a defeasible life estate and the nephew received two future interests in the residence—a vested remainder and an executory interest.
The nephew then transferred his interests to a creditor by quitclaim deed, so the creditor has both a vested remainder and an executory interest in the residence
16
Q
A landlord, the owner of the only shopping center in a small town, and a tenant, a new small-business owner, entered into a lease for a commercial shopping space in the shopping center. The tenant was unsure that the community would support her new business, so she wanted to limit the term of the lease to a maximum of two years. The landlord, however, insisted on an at-will tenancy for a minimum of 10 years, and he included the following clause in the lease: “Pursuant to this Lease, Landlord is given the express right to terminate the leasehold with Tenant by giving 30 days’ notice.” The lease omitted language giving the tenant a similar termination right. Due to the lack of commercial space available to rent in the area, the tenant agreed.
Six months into the lease, the tenant terminated the lease in writing with 30 days’ notice, explaining that, although sales at the shopping space technically covered all of the tenant’s expenses, she had found lower rent in a nearby town, which she believed would be a more successful market.
The landlord has sued the tenant for breach of the lease.
Will the landlord likely prevail in the breach-of-lease action?
A) No, because termination rights in at-will tenancies cannot be limited.
B) No, because the lease’s unconscionability gave the tenant the right to terminate the lease.
C) Yes, because the lease contract reserved the right of termination only for the landlord.
D) Yes, because the tenant’s reasons for terminating the lease were in bad faith.
A
B) No, because the lease’s unconscionability gave the tenant the right to terminate the lease.
If only one party is expressly given the right to terminate the leasehold, the lease may be deemed unconscionable and both parties will have the ability to terminate it.
Here, the landlord owned the only commercial shopping center in town, so he had superior bargaining power over the tenant. And the landlord insisted on an at-will tenancy for a minimum of 10 years that gave him the sole right to terminate the lease. Given these circumstances, the court will likely deem the lease unconscionable and find that both parties had the right to terminate it
17
Q
The owner of a used-car lot put the property up for sale. A car dealer was looking for another car lot upon which to sell his cars, and he made a generous offer to the owner. The owner and the dealer promptly executed a valid land-sales contract for the used-car lot. The contract contained all of the essential terms.
Prior to the closing date, the owner’s estranged son discovered that his father had contracted with the dealer to sell the car lot. The son immediately contacted the dealer and truthfully informed him that the owner only had a life-estate interest in the car lot and that he, the son, had a future interest in the property in fee simple. The son also said that he would not agree to the sale unless his father paid him $25,000. The owner promised the dealer that his son would agree to the sale because the owner would pay the son $25,000 in the future. On the closing date, the dealer refused to close.
The owner has filed an appropriate action against the dealer for specific performance.
Will the owner be likely to prevail?
A) No, because the owner may not keep his promise.
B) No, because the title was unmarketable.
C) Yes, because the owner conveyed marketable title.
D) Yes, because the owner had a life estate in the car lot.
A
B) No, because the title was unmarketable.
Title need not be perfect to be marketable, but it must be free from an unreasonable risk of litigation such that a reasonable person would accept and pay for it.
Title can be rendered unmarketable by a future interest if the holder of that interest does not agree to the transfer. If the seller cannot convey marketable title by the time of closing, then the buyer can refuse to close.
Because the owner had not paid the son and the son had not consented to the sale at the time of closing, the owner could not convey marketable title to the dealer. Therefore, the dealer could refuse to close.
18
Q
In exchange for $1,000, the owner of a ranch granted a potential buyer a 90-day option to purchase the ranch for $10 million. The next day, the owner was stricken with an illness that has left her unable to manage her own affairs. As a consequence, a guardian for the owner’s property was appointed. Prior to the end of the option period, the potential buyer proposed to the guardian that he would purchase the ranch immediately for $9.5 million. The guardian rejected this offer. On the 90th day, the potential buyer mailed his intent to exercise the option, which the guardian received the following day. The guardian has refused to sell the ranch to the potential buyer.
In an action brought by the potential buyer to compel the guardian to sell the ranch, if the court rules for the guardian, what is the likely reason?
A) The option terminated at the time that the owner became incapacitated.
B) The option was revoked by the potential buyer’s counteroffer.
C) The potential buyer failed to record the option.
D) The potential buyer failed to timely exercise the option.
A
D) The potential buyer failed to timely exercise the option.
Mailbox rule does not apply to option contracts. Instead, the grantor must receive the option holder’s decision to exercise the option within the time period specified in the contract.
Although the potential buyer mailed his decision to exercise this option on the 90th day, the guardian did not receive it until the following day—after the 90-day option period had terminated.
19
Q
A farmer had two children, a daughter and a son. The farmer was diagnosed with a terminal illness by his doctor. Upon arriving home immediately after receiving the news, the farmer wrote the following: “I, [farmer], now transfer my farm at [address] to [the son].” The farmer, who owned the farm in fee simple absolute, then signed and dated the document. The farmer took the document to his neighbor, told her that the document belonged to his son, and asked her to give it to his son when the farmer died. The neighbor complied with the farmer’s directions.
Shortly after the farmer’s death, a will was found among his personal papers. The farmer had executed the will in compliance with all of the required formalities after his wife’s death 11 years prior to his own. This will devised the farm to the farmer’s daughter. The son and the daughter, who were the farmer’s only heirs, learned of the document and the will, and each claimed ownership of the farm outright.
The farmer’s personal representative admitted the will to probate then filed an appropriate action to determine ownership of the farm.
Who is entitled to ownership of the farm?
A) The daughter, because the document was neither delivered to nor accepted by the son prior to the owner’s death.
B) The daughter, because the will was executed before the document.
C) The son, because the document took effect before the will.
D) The son, because the document was executed after the will.
A
C) The son, because the document took effect before the will.
Here, the farmer’s deed expressed his present intent to “now transfer my farm” because it was delivered to the neighbor (independent third party) with no right to take it back. The son is presumed to have accepted this beneficial gift, so the transfer was effective when the deed was delivered to the neighbor.
This means that the deed took effect before the farmer’s will became effective upon his death
20
Q
A mother owned a vacation cabin, but as she no longer visited it, she decided to convey the cabin to her daughter. The mother executed a valid, written deed, and she promptly and properly recorded it. The mother did not tell her daughter that she intended to give the cabin to the daughter because the mother wanted to surprise the daughter with this gift at an upcoming family reunion.
Prior to the reunion, the daughter died suddenly. In her will, the daughter left her entire estate to her best friend. The mother, not wanting the cabin to go to someone who was not a family member, brought an action to set aside the conveyance to the best friend.
Who will be likely to prevail in this action?
A) The best friend, because the mother recorded the deed conveying the cabin to her daughter.
B) The best friend, because the mother’s intent was evidenced by a valid deed in writing.
C) The mother, because she did not deliver the deed to her daughter.
D) The mother, because the daughter did not accept the mother’s gift.
A
A) The best friend, because the mother recorded the deed conveying the cabin to her daughter.
Delivery is presumed when the deed has been recorded in the county land records since the recording creates a rebuttable presumption that the deed is intended to be presently operative.
Here, the deed to the cabin is presumed to have been delivered to the daughter when the mother recorded it. And the daughter is presumed to have accepted this beneficial gift when it was recorded, even though she died before knowing of it. And since the cabin was a part of the daughter’s estate when she died, it was devised to the best friend.
21
Q
A man purchased undeveloped land with a bank loan secured by a mortgage on the property. The man recorded the deed, and the bank promptly recorded the mortgage. A year later, the man decided to sell the property to a wealthy widower. The widower purchased the property, recorded his interest, and assumed the mortgage. Several years later, the widower gave the property to his daughter. The widower did not tell his daughter about the mortgage but instead continued to make the mortgage payments. The deed, which contained no mention of the mortgage, was promptly recorded by the daughter.
When the widower died, he devised all of his real property to his daughter. He left the remainder of his estate to his son. Following the widower’s death, no one made payments on the bank loan, causing it to fall into default.
May the bank foreclose on the property?
A) No, because of the exoneration-of-liens doctrine.
B) No, because the daughter’s deed made no mention of the mortgage.
C) Yes, because the bank recorded its mortgage.
D) Yes, because the daughter received the property as a gift.
A
C) Yes, because the bank recorded its mortgage.
A donee who receives property from a grantor protected by a recording act will receive the same protection as the grantor under the recording act IF 1) grantor was purchaser for value, 2) recorded first, 3) acquired property without notice of prior interest
Here, the bank recorded its mortgage before the widower acquired the property, so the widower is not protected by a recording act and cannot “shelter” the daughter. Since no recording act applies, the common-law “first in time, first in right” rule will determine the priority of the daughter and the bank’s interests.
22
Q
A widow executed a will in which she left her house to her son and the remainder of her estate to her daughter. The house was subject to a purchase-money mortgage at the time of the widow’s death, the unpaid portion of which was nearly equal to the value of the residuary estate. The son now demands that the personal representative of the estate use the residuary estate to pay off the mortgage. The will contains a general provision for the payment of all the testator’s debts, but not a specific provision authorizing the payment of the outstanding balance of the mortgage.
The jurisdiction follows the common law.
Should the personal representative accede to the son’s demand?
A) No, because the doctrine of satisfaction does not apply to a specific devise.
B) No, because the mortgage is a purchase-money mortgage.
C) Yes, because the son has a right to the exoneration of the mortgage.
D) Yes, because the will contains a general provision for the payment of the testator’s debts.
A
C) Yes, because the son has a right to the exoneration of the mortgage.
Under the common-law exoneration-of-liens doctrine, the recipient of a specific devise of real property can use the remaining assets in the testator’s estate to pay off any encumbrances on that property.
As a result, the personal representative should accede to the son’s demand to use the estate’s remaining assets to pay off the mortgage on the house.
*Most states have abolished this doctrine, and payment of an encumbrance on devised real property is required only if the will so specifies.
23
Q
A widower who owned a vacation cabin in the mountains executed a will under which the cabin was devised to his niece. The will contained a residuary clause that devised the testator’s remaining estate to his son. Subsequent to executing the will, the widower sold the cabin and invested the proceeds in an oceanside condominium.
After the widower died, the personal representative of his estate determined that the niece was entitled to the condominium. The son has challenged this determination in court.
Which of the following legal concepts provides the strongest support for the son’s position that the condominium should pass under the terms of the will to him?
A) Ademption
B) Exoneration
C) Intestate succession
D) Lapse
A
A) Ademption
Ademption by extinction causes a devise of a specific asset to fail if a testator does not own it at the time of death. Proceeds from the sale of the asset, or property purchased with those proceeds, then become part of the general estate.
Here, the widower specifically devised the cabin to his niece. That devise will fail under ademption by extinction because the widower later sold the cabin and used the proceeds to purchase a condominium. The condominium will then be deemed part of the general estate, which the widower devised to his son under the residuary clause. Therefore, ademption provides the strongest support for the son’s position that the condominium should pass to him.
24
Q
After inheriting a substantial amount of money, a man purchased a large estate in the mountains adjacent to a ski resort, intending to operate the estate as a seasonal rental property used exclusively to generate rental income. The man purchased the estate with cash. Unable to properly manage his wealth, he was impoverished a few months later.
The man procured a mortgage on the estate from a credit union, and the mortgage was properly executed and recorded. In light of a struggling economy, credit union executives were confident that the man would default on the loan and wanted to ensure that the estate was properly maintained in anticipation of a subsequent sale. The credit union therefore sought to obtain a court order confirming its right to possession of the estate in order to make repairs and prevent further deterioration of the property.
Can the credit union take possession of the estate?
A) No, in a lien-theory state, unless the mortgage included an acceleration clause.
B) No, in a title-theory state, absent default by the mortgagor.
C) Yes, in a lien-theory state, because the mortgagee is considered the owner of the land during the term of the mortgage.
D) Yes, in a title-theory state, until the mortgage has been fully satisfied.
A
D) Yes, in a title-theory state, until the mortgage has been fully satisfied.
In a title-theory state, the lender has legal title to mortgaged land and can take possession of the land at any time even if the mortgagor is not in default.
*In practice, the terms of the mortgage typically prohibit the lender from taking possession of the property (even in a title-theory state) unless a default occurs.
25
In anticipation of the Fourth of July holiday, a fireworks dealer borrowed money from a lender to finance the purchase of fireworks to sell at a roadside stand. Later the same day, the dealer transferred ownership of real estate to the lender. The deed, which contained no mention of the loan, was promptly recorded by the lender.
When the dealer paid off the loan, he demanded that the lender return the property, contending that the parties had an oral agreement that the lender would return the property when the loan was paid off. The lender instead sold the property to an unrelated third party who had no knowledge of the loan. The dealer files an action against the lender seeking the return of the property.
Which of the following is the most likely reason for the dealer's action to fail?
A) The parol evidence rule prohibits the introduction of evidence regarding the agreement.
B) The statute of frauds prohibits the oral transfer of property rights.
C) The property has been sold to a good faith purchaser.
D) The lender recorded the deed.
C) The property has been sold to a good faith purchaser.
An absolute deed transferring unrestricted title to property with the intent to secure a debt is usually enforceable as an equitable mortgage unless competing equities (e.g., good-faith purchaser) take precedence.
26
A buyer entered into a contract to purchase a house from its owner. The contract called for the buyer to make equal monthly installment payments over 10 years. During that time, the owner was to retain title to the house and the buyer was granted the right to occupy the premises. Once the buyer made all of the required payments, the owner was to transfer ownership of the house to the buyer. The contract contained an acceleration clause under which all future installment payments were to become due in the event the buyer failed to timely make a required installment payment. Additionally, the contract included a forfeiture clause, which stated that time was of the essence and permitted the owner to terminate upon the buyer's failure to timely make a required installment payment, regain possession of the house, and retain any payments already made by the buyer.
After making timely payments for seven years, the buyer failed to make three monthly payments. In accordance with his rights under the contract, the owner filed a summary ejectment action to evict the buyer from the house. The buyer appeared at the summary ejectment proceeding, and she tendered the missed payments.
The applicable jurisdiction treats an installment land contract as a mortgage, follows the lien theory of mortgages, and does not recognize a mortgagee's right of strict foreclosure.
Should the court award possession of the house to the owner?
A) No, because the buyer tendered the missed payments.
B) No, because there has not been a foreclosure sale.
C) Yes, because the buyer failed to timely make required installment payments.
D) Yes, because the owner did not utilize self-help but acted through the judicial system.
B) No, because there has not been a foreclosure sale.
In a jurisdiction that 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.
27
A limited partnership purchased land with a loan from a bank. Neither the individual partners nor the limited partnership was personally obligated to repay the loan. As security for the loan, the limited partnership granted the bank a mortgage on the land. Subsequently, the limited partnership sold the land to a buyer. The buyer did not enter into an agreement with respect to the limited partnership's loan. After the sale, the limited partnership defaulted on the loan.
The applicable jurisdiction follows the lien theory of mortgages.
Can the bank foreclose on the land owned by the buyer?
A) No, because no one was personally obligated to repay the loan.
B) No, because the buyer did not agree to assume the limited partnership's loan.
C) Yes, because the applicable jurisdiction follows the lien theory of mortgages.
D) Yes, because the buyer took the land subject to the mortgage.
D) Yes, because the buyer took the land subject to the mortgage.
A mortgagor can freely transfer mortgaged land to a grantee but remains personally liable for the debt thereafter. The grantee takes the land subject to the mortgage obligation without personal liability for the debt unless the grantee expressly agrees to assume the mortgage.
28
An investor purchased undeveloped land with the aid of a loan from a bank. The loan, which was evidenced by a note, was secured by a mortgage on the property. The note contained a "due on sale" clause. Subsequently, the investor sold the land to a developer. The bank agreed to waive the "due on sale" clause if the developer assumed the mortgage, which the developer did.
The following year, the developer failed to make timely payments on the note, resulting in a default. The developer filed for bankruptcy, and his personal liability for the note was completely discharged.
The bank has brought an action against the investor based on the default of the note.
Is the bank likely to prevail?
A) No, because the bank waived the "due on sale" clause.
B) No, because the developer assumed the mortgage.
C) Yes, because the developer is no longer liable on the note.
D) Yes, because the investor is liable on the note.
D) Yes, because the investor is liable on the note.
Allows a lender to demand full payment of any remaining mortgage debt if the debtor transfers the mortgaged property without the lender's written consent. If this clause is waived, the debtor remains liable on the note—even after transferring the mortgaged property—until the debtor is released by the lender.
Here, the bank waived the "due on sale" clause when the investor sold the mortgaged land to the developer. This means that the remaining loan debt did not need to be paid in full at that time, but it did not release the investor from liability on the note. Instead, the investor became secondarily liable when the developer assumed the mortgage
29
A businessman mortgaged his residence as security for a bank loan, the proceeds of which were used in his business. The bank duly recorded the mortgage. Subsequently, the businessman obtained a second loan for his business, this time from a private investor. The businessman again pledged his residence as security for this second loan. The promissory note executed by the businessman provided that the sole remedy for the private investor upon default of the loan obligation was foreclosure on the mortgage.
Several years later, the businessman failed to make timely payments to the private investor and defaulted on that loan.
Can the private investor foreclose on the mortgage of the residence?
A) No, because a mortgage is unenforceable if the borrower is not personally liable on the loan for which the mortgage serves as security.
B) No, because the businessman has not defaulted on the senior bank loan.
C) Yes, because the mortgage secured repayment of the loan and the loan was in default.
D) Yes, because the private investor's mortgage, as the more recent mortgage, has priority over the bank's mortgage on the residence.
C) Yes, because the mortgage secured repayment of the loan and the loan was in default.
A foreclosure on mortgaged property terminates interests in that property that are junior to the foreclosed interest but does not affect any senior interests.
Here, the businessman mortgaged his residence to the bank and then to the private investor. Since the bank's mortgage was first in time, it is senior to the private investor's mortgage. But this does not preclude the private investor from foreclosing on his junior mortgage.
The private investor's mortgage secured repayment of his loan to the businessman and the loan was in default, so the private investor can foreclose on the mortgaged residence. However, the bank's senior mortgage will remain attached to the property.
30
A developer obtained a loan from a bank to construct an apartment building. The loan was evidenced by a note and secured by a mortgage on the apartment building. After making the required installment payments on the note to the bank for several years, the developer defaulted on the loan. The bank elected not to foreclose on the mortgage. Instead, the bank sued the developer personally for the unpaid balance of the note because the note contained an acceleration clause that made the entire unpaid balance due upon default. The court rendered a judgment in the bank's favor.
The bank promptly and properly filed the judgment creating a lien, pursuant to the applicable state law, on any real property then owned or acquired by the developer over the next 10 years. Later, the developer secured a loan from a private investor to purchase a small strip mall. This loan was also evidenced by a note and secured by a mortgage on the mall. Once again, after making the required installment payments on the note to the private investor for several years, the developer defaulted on this note.
The private investor filed an action to foreclose on the mortgage she held on the strip mall. The bank was made a party to this action and sought to enforce its judgment lien against the mall. The court recognized the rights of both the private investor and the bank in the mall, and ordered the sale of the mall. The proceeds from the sale, after the costs associated with the sale were paid, were more than sufficient to satisfy the developer's outstanding obligation to the private investor or the judgment obtained by the bank, but not both.
Who has a priority right to the net sale proceeds?
A) The bank, because a judgment lien has priority over a mortgage.
B) The bank, because its judgment lien arose before the mortgage on the mall.
C) The private investor, because she initiated the foreclosure on the mall.
D) The private investor, because the funds from her loan were used to purchase the mall.
D) The private investor, because the funds from her loan were used to purchase the mall.
A purchase-money mortgage (PMM) has super priority over all other liens that arose prior to the PMM—regardless of whether the PMM or those liens are recorded.
Here, the private investor has a PMM because she loaned the developer the funds to purchase the strip mall. And though the bank's judgment lien arose before the private investor's mortgage on the mall, this does not defeat the PMM's super priority
31
A restaurant owner purchased kitchen equipment from a supplier and gave the supplier an unsecured, nonnegotiable promissory note. Prior to the date on which payment of the note was required, the owner asked the supplier for an extension of time to pay the note. The supplier demanded in exchange that the owner execute a deed of trust with respect to the restaurant and the land on which it is situated to serve as security for payment of the note. When the owner refused this demand, the supplier threatened to falsely report health code violations by the owner to the local health department. Acting under duress, the owner executed the deed of trust, which the supplier promptly recorded.
Shortly thereafter, the owner sold the restaurant to the restaurant's chef. The chef assumed the obligation to pay the promissory note. The cash amount paid by the chef to the owner was less than the fair market value of the restaurant because the cash payment reflected the assumed obligation.
The note is now in default and the trustee has instituted foreclosure proceedings on the deed of trust.
Can the chef assert the owner's defense of duress against the trustee?
A) No, because the cash amount paid by the chef reflected the assumption of the owner's obligation on the note.
B) No, because the supplier recorded the deed of trust prior to the sale of the restaurant to the chef.
C) Yes, because duress is a defense to the enforcement of a mortgage.
D) Yes, because the chef, by assuming the owner's obligation, is entitled to assert the owner's defenses.
A) No, because the cash amount paid by the chef reflected the assumption of the owner's obligation on the note.
A buyer who assumes a mortgage is primarily liable for the debt. And if the assumption of the mortgage was part of the purchase price, then the buyer may not raise defenses that the debtor could have raised against enforcement of the mortgage obligation.
32
A man owned a tract of land that he divided into two parcels, each of which was adjacent to a stone retaining wall. The man sold both parcels. In the deeds that conveyed the parcels, the purchasers each agreed that "the owners, their heirs, and their assigns will maintain a retaining wall made of stone between the properties." They further agreed that they "will share equally any expenses associated with the retaining wall." The deeds were properly recorded.
Subsequently, each of the parcels was sold several times, and none of the owners properly maintained the retaining wall. Fifteen years ago, the owners of the two parcels made the joint decision to dismantle the wall. Two years ago, one of the parcels was sold, and the new owner decided to rebuild the retaining wall. The new owner asked the other owner to pay half of the expenses to rebuild the wall, and the other owner refused. The new owner paid to erect the retaining wall and then brought suit against the other owner to collect half the expenses.
Can the new owner successfully bring suit against the other owner for half of the expenses?
A) No, because the covenant was effectively terminated by a change in circumstances.
B) No, because the previous owners decided to dismantle the retaining wall.
C) Yes, because the covenant ran with the land.
D) Yes, because the deed created an equitable servitude.
A) No, because the covenant was effectively terminated by a change in circumstances.
A covenant is terminated by abandonment when an affirmative act—something more than neglect or nonuse—shows a clear intent to relinquish the covenant.
33
A rancher subdivided a portion of his ranch that had recently been annexed by the city into 30 two-acre lots. At the time the ranch was annexed, the city's building code prohibited a single-family residence of more than two stories. The rancher filed a subdivision plan that restricted the use of each lot to one single-family residence but placed no other restrictions on the lots. The rancher then sold one lot to a speculator. The speculator's deed restricted the lot to residential use only, but it did not restrict the residence to two stories.
Immediately thereafter, the housing market in the area plummeted, and the rancher was unable to sell any of the remaining lots for almost three years. The city, acting in response to consumer demand, modified its building code to permit three-story single-family residences. During the next two-year period, the rancher sold 28 of the remaining 29 lots. Since the rancher did not want any of the residences built on the lots to be as high as his own three-story residence located on the ranch, he included a two-story height restriction in all 28 deeds. None of the owners of those 28 lots violated the two-story height restriction. The rancher notified the speculator of the two-story height restriction by letter, but the speculator did not respond. Subsequently, the speculator sold his lot to a couple. The couple's deed contained the single-family residence restriction but made no mention of the two-story height limitation.
The rancher, upon learning of the couple's plans to construct a three-story family residence, has filed suit on his own behalf and on behalf of the owners of the 28 lots seeking an injunction to prevent the couple from building a three-story family residence.
For whom is the court likely to rule?
A) The couple, because the city building code has priority over a private restrictive covenant.
B) The couple, because the two-story height restriction was not contained in their deed, the speculator's deed, or the subdivision plan.
C) The rancher, because he made the speculator aware of the height restriction before the speculator sold his lot to the couple.
D) The rancher, because the common scheme of the two-story height restriction was readily apparent to the couple.
An equitable servitude can be implied from a common scheme IF:
(1) the owner intended to create a common scheme;
(2) the intended servitude was restrictive; and
(3) persons to be bound had notice of the servitude.
But it cannot be enforced against lots sold before the common scheme arose.
Since the rancher's scheme was created after the lot was sold to the speculator, neither the speculator nor the couple is subject to the implied equitable servitude.
34
A man and a woman were neighbors whose small yards were separated only by a hedgerow consisting of small shrubs. After a discussion about building a one-foot-thick stone wall to separate the two properties, the neighbors agreed that the man would pay for the materials and construction of the wall, as the woman did not have the funds to do so. In return, they agreed that the wall would be built on the woman's property so as not to reduce the square footage of the man's yard.
Years later, the woman sold her property in a valid transaction with a buyer. At the time of the sale, the woman told the buyer that the man had paid for and built the wall and that she had agreed to keep it there. However, there was no mention of the wall in the sales contract or the deed. After the buyer moved in, she spoke to the man about her desire to tear down the wall to open up the space and stated that she would pay for the destruction of the wall. The man objected to tearing down the wall.
May the man prevent the buyer from tearing down the wall?
A) No, because the buyer validly purchased the land from the woman.
B) No, because the wall constituted an easement in gross.
C) Yes, because he has a separate security interest in the materials used to build the wall.
D) Yes, because the wall constituted an easement by implication.
A) No, because the buyer validly purchased the land from the woman.
A fixture is a chattel that is
(1) attached to real property in such a manner that it is treated as part of the realty and
(2) used for some larger component or function of the land (e.g., a wall separating adjoining properties)
fixture automatically transfers with the land unless the conveying instrument (e.g., deed) provides otherwise.
Here, the wall became part of the woman's land, which was then sold to the buyer. Since the wall is a fixture, it was included in the valid sale to the buyer. Therefore, the man cannot prevent the buyer from tearing down the wall.
35
A widow held a life estate in a house and several acres of land in a semi-rural area. She lived in the house and harvested berries from the numerous wild berry bushes on her property each June. The widow personally consumed the berries or gave them away to family and friends, but she did not sell them to third parties.
One day at the end of May, just as the berries were ripening enough to be harvested, the widow died. In her will, the widow left her personal property to her children, but the land reverted to a distant relative who was the remainderman. The widow's children sought to enter the land to harvest the berries, but the remainderman objected, claiming that he had sole right to the berries.
Do the widow's children have the right to return and harvest the berries?
A) No, because the berries grew wild.
B) No, because the widow did not sell the berries to third parties.
C) Yes, because the berries were the widow's personal property.
D) Yes, because the widow would have been able to harvest them had she survived.
A) No, because the berries grew wild.
Wild, uncultivated crops (i.e., fructus naturales) are considered part of the real property on which they grow, and they pass automatically with the land. The prior owner has no right to reenter the land to remove the crops.
36
A private company managed a publicly funded experimental project for the conversion of garbage into energy through biological means. Despite locating the project in a sparsely populated area on land purchased from a real-estate investment trust, the company has received complaints from those living near the project about the repugnant smells emanating from the site.
One neighbor who rents a farmhouse for use as his personal residence on an annual basis from an individual farmer can no longer reside on the property due to the smell. He has filed suit against the company, seeking damages.
Of the following doctrines, which provides the neighbor with the best chance for recovery?
A) Constructive eviction.
B) Private nuisance.
C) Public nuisance.
D) Waste.
B) Private nuisance.
Private nuisance = a defendant's interference with the plaintiff's use and enjoyment of his/her property is both substantial (offensive, annoying, or intolerable to normal person in community) and unreasonable (severity of plaintiff's harm outweighs utility of defendant's conduct).
Here, the smell is likely offensive to a normal person in the community because the company has received complaints from others living near the project (substantial interference). And since the smell is so severe that it has prevented the neighbor from living in the farmhouse, it is at least arguable that the harm outweighs the utility of the defendant's conduct (unreasonable interference).
Note: To prevail on a public nuisance claim, an individual plaintiff must show that he/she suffered a different kind of harm than the rest of the community (not seen here).
37
A painter and a dentist own adjacent parcels of land. A one-story building was located on each of the parcels. The dentist's office was on her parcel. The painter lives in the rear portion of the building on his parcel and runs a morning painting class in the front room. Last year, the dentist decided to demolish her office and build a three-story office building, planning to rent out the additional office space.
After obtaining all of the necessary governmental approvals and verifying that the zoning code will allow the construction, the dentist demolished her old office and began construction of the three-story building. As construction progressed, the painter realized that the new structure would cast a dark shadow over his property. Because his painting class relied primarily on natural light, the painter predicted that the structure would significantly reduce his profits by deterring student attendance.
The painter brought an action against the dentist to enjoin the construction and to demand damages for his predicted loss of business. The painter presented uncontroverted evidence that another painting studio had suffered an extreme drop in profits when deprived of natural light.
How should the court rule on the painter's action?
A) Award the painter monetary damages.
B) Grant the injunction requested by the painter.
C) Hold in favor of the dentist, because the construction complied with the zoning code and the dentist obtained all necessary approvals.
D) Hold in favor of the dentist, because the painter does not have a legal right to natural light.
Absent a negative easement or statute, a landowner has no legal right to prevent neighbors from blocking his/her land from access to natural light.
landowners can only restrict another's blockage of light if they are protected by statute or enter into an agreement with the neighboring landowner to create a negative easement
38
The owner of a commercial building leased the premises at fair rental value to a civic organization for a 25-year term. The lease contained a reasonable right-of-first-refusal provision granting the organization a right to purchase the building if the owner found a buyer who was ready, willing, and able to purchase the building at a price agreed to by the owner and the buyer. Fifteen years into the lease, the owner was approached by a friend who was ready, willing, and able to purchase the building. Because of the friendship, the owner agreed to a purchase price that was below the market price. The owner notified the civic organization of the proposed sale, and the organization invoked its right of first refusal. However, the owner refused to sell the building to the organization for less than its fair market value. The applicable jurisdiction has retained the common law with respect to the Rule Against Perpetuities.
May the civic organization compel the owner to sell the building to the organization at the price agreed upon by the owner and the friend?
A) No, because the organization's right of first refusal violates the Rule Against Perpetuities.
B) No, because the organization's right of first refusal constitutes an encumbrance on marketable title.
C) Yes, because the right of first refusal was reasonable.
D) Yes, because the right of first refusal was a valid covenant running with the land
Correct Answer: Yes, because the right of first refusal was reasonable.
A right of first refusal is a partial restraint on alienation that, if reasonable, is valid and enforceable by an injunction. This right is generally reasonable if the holder of the right can purchase the property under the same terms offered to another party.
39
Anticipating the death of his mother and needing money, the only child of a terminally ill widow represented himself as owner of the widow's residence to a couple. The couple paid the son $200,000 for the residence. Although the couple did not immediately move into the residence, they promptly recorded the warranty deed they received from the son in the land records for the county in which the residence was located. The couple was unaware of the mother's ownership of the residence, which was also reflected in those same land records.
One week after the land sale, the mother died. Upon her death, the residence passed by the terms of the mother's will to her son. The son, claiming ownership of the residence, has moved into it. The son has offered to return the $200,000 to the couple and pay for any expenses they have incurred with regard to this matter.
The recording act of the applicable jurisdiction reads: "No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice unless the same be recorded according to law."
Of the following, which provides the best argument for the couple that they hold title to the residence?
A) The son's rights to the residence have been lost through ademption.
B) The couple's ownership of the residence is protected by the recording act.
C) The son's ownership of the residence vests automatically in the couple under the Shelter Rule.
D) The residence belongs to the couple by application of the "estoppel by deed" doctrine.
Correct Answer: The residence belongs to the couple by application of the "estoppel by deed" doctrine.
Estoppel by Deed: grantor who conveys an interest in land by warranty deed before actually owning it is estopped from later denying the effectiveness of that deed. When the grantor acquires ownership of the land, the after-acquired title is transferred automatically to the prior grantee.
Here, the son conveyed the widow's residence to the couple by warranty deed before he received it. When he acquired title to the residence under the widow's will one week later, his after-acquired title transferred automatically to the couple. And since this doctrine bars the son from denying the effectiveness of his deed to the couple, it provides the best argument for why the couple holds title to the residence.
40
A man owned a 25-acre tract of land. He conveyed 20 of the 25 acres to a developer by warranty deed and continues to live on the 5-acre portion he retained. The deed to the 20-acre tract was promptly recorded and contained the following provision: "It is a condition of this deed that all owners, and their heirs and assigns, of any portion of the 20-acre tract shall use the land for single-family residences only." The applicable zoning ordinance allows for single and multi-family homes in this area. The developer fully developed the tract into a residential subdivision consisting of 20 lots with a single-family home on each lot. The lots were subsequently sold and the deed to each lot referenced the quoted provision.
A woman who owned one of the lots on the perimeter of the subdivision has decided to build an addition to her house, which would contain an apartment she intends to rent to students of a nearby college. An individual who lives in an adjacent residential neighborhood opposes the woman's addition because he does not want rowdy college students nearby.
Can the individual prevent the woman from building the apartment?
A) No, because the zoning ordinance allows for multi-family homes as well as single-family homes.
B) No, because the individual does not have the right to enforce the restriction.
C) Yes, because the original parties intended for the rights and duties to run with the land.
D) Yes, because the restriction is valid under the common-law Rule Against Perpetuities.
B) No, because the individual does not have the right to enforce the restriction.
Covenant = $ damages
Equitable Servitude: Injunction
The express equitable servitude in the deed between the man and the developer (original parties) restricting the use of the 20-acre tract is enforceable. However, it can only be enforced by the original parties or their successors in interest. Since the individual's property is adjacent to the subdivision—not part of the 20-acre tract—he is not a successor in interest.
41
A year ago, a man and a woman inherited adjacent parcels of land upon the death of a relative. Parcel One, the man's parcel, was landlocked. The woman granted the man an easement in writing over her parcel, Parcel Two, so that he could build a road to access the sole public road that ran beside Parcel Two. The easement was not recorded.
Six months ago, the man, having never set foot on Parcel One, sold it to the woman. Shortly thereafter, the woman sold Parcel One to a buyer who knew about the easement the woman had granted the man even though no access road across Parcel Two had been built. After selling Parcel One, the woman gave Parcel Two to her daughter.
The buyer of Parcel One now seeks to construct a road across Parcel Two to access the public road, but the daughter has refused to allow the buyer to do so.
Does the buyer have a right to construct a road across Parcel Two to reach the public road?
A) No, because the man's easement was not recorded.
B) No, because the man's easement was extinguished upon the woman's acquisition of Parcel One.
C) Yes, because the buyer possesses an easement by necessity.
D) Yes, because the buyer had knowledge of the man's easement before purchasing Parcel One.
C) Yes, because the buyer possesses an easement by necessity.
Here, Parcel One is virtually useless without an easement over Parcel Two because Parcel One is landlocked and has no access to a public road (necessity). The woman acquired ownership of both parcels (common ownership), and Parcel One was still landlocked when she sold it to the buyer (severance). As a result, the buyer has an easement by necessity over Parcel Two and can construct a road across it to reach the public road.*
*The easement will continue until the necessity ends—e.g., when an alternative means of access becomes available.
42
The owner of a house in a suburban neighborhood converted a driveway from rock to asphalt. The owner's neighbor did not have a driveway but instead parked on the street that ran in front of both of their homes. When asked by the neighbor, the owner told the neighbor that she could also use the driveway to access her house. For 11 years, the neighbor used the driveway on occasion when engaged in tasks such as bringing furniture and appliances into her house, or on days when it was raining heavily. Throughout these years, only the owner maintained the driveway.
Recently, the owner sold his house to a couple. The owner informed the couple about the neighbor's use of the driveway when they first looked at the house, but neither the contract of sale nor the deed made reference to it. When the neighbor used the driveway on the first rainy day after the couple moved in, the couple told her that she could no longer use the driveway.
The neighbor sued the couple, seeking a judgment that she has a right to use the driveway. In the applicable jurisdiction, the term for the creation of a prescriptive easement is 10 years.
Who is likely to succeed?
A) The couple, because a license, as a property interest, must be in writing.
B) The couple, because the neighbor's license to use the driveway has been revoked.
C) The neighbor, because her use of the driveway created a prescriptive easement.
D) The neighbor, because the couple had notice of her driveway use before buying the house.
B) The couple, because the neighbor's license to use the driveway has been revoked.
A license is freely revocable—by the licensor, upon the death of either party, or upon conveyance of the licensed property—unless the licensee detrimentally relied on it or the license is coupled with an interest.
Here, the owner (licensor) created a license when he told the neighbor (licensee) that she could use his driveway to access her house. The license was revocable because it was not coupled with another interest and there is no indication that the neighbor expended money on the driveway or otherwise relied on the license to her detriment. And since the license was automatically revoked when the owner sold his house (the licensed property) to the couple, the couple is likely to succeed.
43
A speculator and the original owner of a condominium unit entered into a contract for the sale of the unit. The contract, which contained no reference to the marketability of the title, called for the owner to transfer the unit to the speculator by quitclaim deed, which the owner did on the date called for in the contract.
A year later, the speculator entered into a contract to sell the unit to a third party at a price significantly higher than the price paid by the speculator for the unit. The contract specifically required the speculator to provide the third party with title to the unit free from all defects. Upon investigation, the third party discovered that the unit was subject to a restrictive covenant that rendered the title to the unit unmarketable and that the restrictive covenant had existed at the time that the speculator had purchased the unit. The third party refused to complete the transaction.
The speculator subsequently sued the original owner of the condominium unit for breach of contract.
For whom is the court likely to rule?
A) The speculator, because a covenant of marketable title was implied in the contract.
B) The speculator, because of the warranty against encumbrances.
C) The original owner, because the condominium unit was transferred by a quitclaim deed.
D) The original owner, because of the merger doctrine.
D) The original owner, because of the merger doctrine.
doctrine of merger = the seller's duties in a contract for the sale of real property—including the duty to deliver marketable title—merge into the deed at closing. As a result, these duties are enforceable thereafter only if they are contained in the deed.
Here, the covenant of marketable title was implied in the land-sale contract between the speculator and the original owner. But this covenant was extinguished when it merged into the deed upon closing,
44
A woman who owned a vacant cottage contracted to sell it to a man. The contract was silent as to the risk of loss and contained no contingencies. The parties agreed that closing would occur the following month at which time the man would take possession of the cottage. The woman maintained casualty insurance on the cottage, but the man did not obtain such insurance. On the evening before the closing was to take place, a fire caused by lightning destroyed the cottage. The jurisdiction has not adopted the Uniform Vendor and Purchaser Risk Act.
May the man rescind the contract for the sale of the cottage?
A) No, because of the doctrine of equitable conversion.
B) No, because the man failed to obtain casualty insurance on the cottage.
C) Yes, because the woman has casualty insurance on the cottage and can more easily bear the loss.
D) Yes, because the man was not in possession of the cottage when it was destroyed.
A) No, because of the doctrine of equitable conversion.
doctrine of equitable conversion places the risk of loss on the buyer once the contract is formed and can be specifically enforced.
When, as here, no conditions/contingencies appear in the contract—e.g., a condition that the buyer secure financing before closing—the contract is specifically enforceable as soon as it is formed. And since the woman (seller) was not at fault for the fire, the man (buyer) had equitable title at the time the cottage was destroyed by the fire.
45
A corporate officer purchased land with the aid of a loan at a favorable interest rate from the corporation. The officer granted the corporation a mortgage as security for the loan, and the corporation promptly recorded the mortgage instrument. The officer also signed a note promising to repay the loan over a period of 10 years. The note contained a due-on-sale clause that required, at the corporation's option, payment of the full outstanding amount of the loan if the officer sold the land without first obtaining the corporation's written consent.
After making timely payments on the loan for three years, the officer sold the land to a buyer who was unrelated to the officer without obtaining the corporation's consent. The deed given by the officer acknowledged that the land was being transferred subject to the mortgage. After payment of the purchase price to the officer, the buyer promptly recorded his deed.
Subsequently, neither the officer nor the buyer made any payments on the loan to the corporation. The corporation, in order to avoid lengthy foreclosure procedures, has sued the buyer for the full outstanding amount of the loan obligation.
Is the buyer liable for the full outstanding amount of the loan?
A) No, because the corporation has not foreclosed on its mortgage.
B) No, because the buyer purchased the land subject to the mortgage.
C) Yes, because the corporation promptly recorded its mortgage.
D) Yes, because of the due-on-sale clause in the note.
B) No, because the buyer purchased the land subject to the mortgage.
A grantee who takes real property subject to a mortgage does not agree to pay and is not personally liable for the debt. As a result, only the debtor is liable for any failure to make payments on the mortgage loan.
46
A married couple bought a house to use as a residence. Their bank loan was secured by a mortgage on the house. The following year, the couple granted a second mortgage to a savings and loan association in exchange for a loan. The proceeds from this loan were used in the couple's business. Several years later, the couple defaulted on both loans. The couple offered their interest in the house to the bank by deed in lieu of foreclosure and the bank accepted; the bank did not reserve the right to foreclose.
What effect does this transaction have on the savings and loan association's mortgage?
A) As an interest with priority over the bank's mortgage, the savings and loan association's mortgage is unaffected.
B) As a junior interest to the bank's mortgage, the savings and loan association's mortgage is completely eliminated.
C) The savings and loan association cannot foreclose on its mortgage, but must look to the personal liability of the couple, now that the bank owns the house.
D) The house remains subject to the savings and loan association's mortgage.
D) The house remains subject to the savings and loan association's mortgage.
47
A man owned a building. He executed a deed conveying the building to a local church "for the purpose of using the building to further religious education." Six years later, the man died, leaving his niece as his sole heir. The man's duly probated will left his entire estate to a friend. Eighteen months later, the local church, having never made use of the building, conveyed all of its interest in the building to an investor for valuable consideration.
The investor has filed an action to quiet title against the friend and the niece. The investor has also joined a state official who argues that a valid charitable trust was created and that the attorney general of the state should be permitted to enforce the charitable trust.
In whom should the court find proper title is vested?
A) The friend.
B) The investor.
C) The niece.
D) The state official.
B) The investor
Defeasible fees are limited by specific durational or conditional language (e.g., "so long as," "but if"). Language that limits only the purpose of the transfer creates a fee simple absolute.
Here, the man's deed to the local church did not include conditional or durational language. Instead, he conveyed the building "for the purpose of using the building to further religious education." This conveyance created an FSA—not a defeasible fee. As a result, the church had absolute ownership of the building, and the man had no interest in the building to devise to the friend
48
A fitness company entered into a 10-year lease with the landlord of a gym facility. The lease required the fitness company to maintain the gym equipment in proper, working condition and to upgrade or replace any of the equipment as required by the safety guidelines for gymnasiums issued by a national organization of gymnasiums. In addition, the lease specified that all of the fitness company's clients must sign a valid waiver releasing the current landlord from liability for any injury arising from their improper use of the gym equipment.
One year into the lease, the landlord transferred the remaining term of the fitness company's lease to a large fitness conglomerate. The transfer occurred without the fitness company's consent. The fitness company paid rent to the conglomerate, but the company stopped making its clients sign the liability waiver because the conglomerate did not require any of its gym members to sign one.
The conglomerate has brought an action against the fitness company to enforce this covenant in the lease.
Who will likely prevail?
A) The conglomerate, because the fitness company had required its clients to sign the waiver in the past.
B) The conglomerate, because the liability-waiver requirement touches and concerns the land.
C) The fitness company, because the conglomerate does not require liability waivers from its gym members.
D) The fitness company, because it did not consent to the assignment of the lease to the conglomerate.
B) The conglomerate, because the liability-waiver requirement touches and concerns the land.
A lease covenant can be enforced by an assignee-landlord if the covenant runs with the land—i.e., the original parties intended to bind their successors, the covenant touches and concerns the land, and there is privity of estate.
Even if the intent to bind successors in interest is not explicitly stated in the lease, it is generally presumed when the covenant touches and concerns the land.
Here, one year into the fitness company's lease, the landlord assigned the remaining lease term to the conglomerate (privity of estate). A covenant in the lease requires a liability waiver, which relates to the use of the gym facility (touch and concern), so the covenant is presumed to bind a successor in interest (the conglomerate). Therefore, the covenant runs with the land and can be enforced by the conglomerate.
*When a lease covenant does not run with the land, the original landlord retains the right to enforce it.
49
An owner entered into a contract to sell her house to a buyer. The contract's only provision concerning the closing date provided that the closing would occur on July 1. On July 1, the buyer informed the owner that he was unable to close at that time because of an unavoidable overseas obligation required by his job. The buyer stated that he would be able to close on July 8. The owner, having recently found another buyer willing to pay more for the house, has filed an action to rescind the contract.
Is the owner likely to succeed in her action to rescind the contract?
A) No, because strict adherence to the closing date set in the contract is not required.
B) No, because the buyer has not breached the contract.
C) Yes, because the buyer has breached the contract.
D) Yes, because the owner was ready to perform her duties under the contract by the closing date.
A) No, because strict adherence to the closing date set in the contract is not required.
When time is not of the essence in a real estate contract, failure to perform on the specified closing date constitutes a breach, but the contract cannot be rescinded if the breaching party can perform within a reasonable time thereafter.
50
A man decided to sell his house after receiving a new job in a neighboring state. Before putting the house on the market, the man told his friend that he was selling the house and that she could buy it at a lower price than he would seek from other potential buyers. Excited at the prospect of home ownership and the lower price, the friend immediately agreed to purchase and entered into a contract with the man for the sale of the house without inquiring as to any issues with the house. The man did not mention anything to the friend as he was unaware of any issues.
Pursuant to the contract, the man delivered a general warranty deed to the friend at closing. The friend then moved into the house and decided that she would hire a contractor to perform some slight renovations to the upstairs guest bathroom. As soon as the contractor broke through the wall, he discovered black mold throughout the interior of the bathroom and along the pipes. The friend brought suit against the man for damages.
Pursuant to a statute, a seller has a duty of disclosure in all home-sale transactions in the jurisdiction.
For whom is the court likely to rule?
A) The friend, because the black mold constituted a material physical defect in the house.
B) The friend, because the covenants contained in the general warranty deed were breached.
C) The man, because he was not aware of the black mold.
D) The man, because the friend did not ask about the condition of the house.
C) The man, because he was not aware of the black mold.
Here, the friend's contractor discovered black mold throughout the interior of the upstairs guest bathroom. This physical defect was material because the presence of black mold substantially affects the value of the residence and impacts the friend's health. But since the man was unaware of any issues with the house, he did not breach the duty to disclose such defects.
51
A purse maker sought to market her line of "smart" purses that were compatible with a new handheld device. As part of her plans, the purse maker sought to purchase a brick-and-mortar store from which to sell her purses. The purse maker found a suitable store and entered into a contract with the owner of the store. The contract was in writing, signed by both parties, and stated the essential terms, including a closing date in 30 days. Due to the purse maker's plan to sell her purses in advance of the release of the new handheld device, the contract stated that the closing date could not be delayed.
One week before the closing date, the purse maker discovered that the store was in violation of a zoning ordinance that mandated an updated version of the current fire sprinkler system. The owner promised that he would promptly update the fire sprinkler system and that, although it would not be finished by the closing date, it would be done in time for the grand opening of the store. In addition, the owner promised to provide a warranty deed upon closing to shield the purse maker from any potential liability stemming from the outdated fire sprinkler system. On the day of closing, the purse maker refused to close the land-sale deal.
In an action by the owner for specific performance against the purse maker, who will likely prevail?
A) The owner, because the fire sprinkler system would be updated in accordance with the zoning ordinance before the store's grand opening.
B) The owner, because the warranty deed would protect the purse maker from liability for the zoning-ordinance violation.
C) The purse maker, because the owner did not provide marketable title to her on the closing date as stated in the land-sale contract.
D) The purse maker, because the warranty deed would not protect her from liability for the zoning-ordinance violation.
C) The purse maker, because the owner did not provide marketable title to her on the closing date as stated in the land-sale contract.
A seller must deliver marketable title on the closing date when time is of the essence, If time is of the essence and the seller cannot deliver marketable title on the date of closing, then the seller is in breach and the buyer can rescind the contract.
This is true even if the seller can correct the issue within a reasonable time after closing.
52
A buyer and seller entered into a contract for the sale of a business, including the building in which the business was conducted and the land on which the building was situated. In the contract, the seller agreed to convey marketable title subject to any restrictions of record, such as easements and covenants, and all applicable zoning laws and ordinances. Before closing, the buyer learned that the operation of the business violated the zoning laws but nevertheless was confident that it could obtain a variance for the operation of the business at that location. When it came time to close the sale, the seller refused to transfer title to the building and land to the buyer.
If the buyer sues for specific performance of the contract, will the buyer be likely to prevail?
A) No, because the contract specifically provides that the property is being sold subject to the zoning ordinances.
B) No, because the covenant of marketable title has been violated.
C) Yes, because the buyer is confident that it can obtain a variance for the operation of the business at that location.
D) Yes, because the seller refused to transfer title to the buyer.
D) Yes, because the seller refused to transfer title to the buyer.
If a seller cannot convey marketable title, the buyer can rescind the land-sale contract. But if the buyer accepts the land with the defect and the seller refuses to perform, then the buyer can (1) rescind the contract and seek restitution, (2) seek specific performance with an abatement of the purchase price, or (3) sue for damages.
Note: Specific performance is only available when money damages are inadequate. Since land is considered unique and money damages cannot compensate for the loss of unique property, this remedy is generally available to buyers of land
53
A couple entered into a contract to purchase a house from the owner. The couple did not record the contract of sale. Prior to the execution of the contract, the owner had incurred a debt to a creditor. Subsequent to the execution of the contract, the creditor obtained a judgment against the owner. Unaware of the contract of sale, the creditor recorded her judgment in the land records for the county in which the house was located, thereby giving the creditor a lien against property owned by the owner in the county. After the owner deeded the house to the couple and they recorded the deed, the creditor sought to execute the lien and levy on the house. The couple filed an action to enjoin the creditor from executing the lien.
The applicable recording act reads: "No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice unless the same be recorded according to law."
Who will likely prevail?
A) The couple, because the doctrine of equitable conversion protected their interest in the house from the judgment creditor.
B) The couple, because they were protected by the recording act as purchasers for value of the house.
C) The creditor, because she had reduced her claim to judgment.
D) The creditor, because she recorded her judgment prior to the couple's recording of their deed and without notice of their purchase of the house.
A) The couple, because the doctrine of equitable conversion protected their interest in the house from the judgment creditor.
Doctrine of equitable estoppel: judgment obtained against a seller after execution of a land sale K is not enforceable against the real property -- even if the claim arose before k was executed
Note: The creditor did record her judgment without notice of the couple's sales contract or deed. However, the recording act does not protect a judgment creditor who is not deemed to be a purchaser for value (as seen here).
54
By statute, a jurisdiction provides: "Any judgment properly filed shall, for 10 years from filing, be a lien on the real property then owned or subsequently acquired by any person against whom the judgment is rendered." In addition, the recording act of the jurisdiction reads, in its entirety, as follows: "No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice unless the same be recorded according to law." This act has been interpreted as not providing any grace period for recording a conveyance or mortgage.
An owner conveyed land by a warranty deed to his adult child. The child recorded the deed a week later. Three days after the conveyance to the child and without knowledge of it, a creditor of the owner properly filed a judgment against the owner. The creditor then filed suit against the owner and his child to foreclose on the judgment lien against the land.
If the court rules against the creditor, which of the following is the most likely reason?
A) The child's weeklong delay in recording the deed was not unreasonable.
B) The creditor is not a purchaser for value.
C) The owner's warranty of title to his child protects the land from the creditor's claim.
D) The warranty deed has priority over any valid judgment lien on the land.
B) The creditor is not a purchaser for value.
Judgment creditors are not purchasers for value since the attachment of a judgment lien to a debtor's property is merely security for a preexisting debt—not payment of value.
Here, the creditor created a lien against real property "then owned or subsequently acquired" by the owner when the creditor filed its judgment against the owner. At that time, the creditor lacked actual, constructive, and inquiry notice of the owner's conveyance to the child. Therefore, the creditor would be protected by the recording act if it is considered a purchaser for value.
55
The owner of a restaurant decided to pursue a different line of work, so he conveyed the restaurant to an up-and-coming chef. The owner executed a valid, written deed to the chef, who did not record the deed. The chef was talented, but he did not understand how to run a business, so his restaurant failed within a few months. A culinary school, in search of a new location to hold its cooking classes, purchased the restaurant from the chef. The chef executed a valid, written deed to the culinary school, and the culinary school promptly recorded the deed.
After the sale, but before the culinary school had a chance to occupy the restaurant space, the original owner noticed that the restaurant was vacant. The owner then sold the space to a fast-food chain, and the fast-food chain promptly recorded the deed. The owner did not tell the fast-food chain of his earlier conveyance of the restaurant to the chef, and the fast-food chain otherwise lacked actual knowledge of this conveyance.
Subsequently, the chef recorded the deed from the owner conveying the restaurant to him. When the fast-food chain attempted to take possession of the restaurant, it discovered that the culinary school had moved into the restaurant.
The fast-food chain has filed an appropriate action to quiet title against the owner, the chef, and the culinary school. The jurisdiction in which the restaurant is located applies a race-notice recording statute.
Who will likely prevail?
A) The chef.
B) The culinary school.
C) The fast-food chain.
D) The owner.
C) The fast-food chain.
A recorded deed that falls outside the chain of title is a "wild deed" that fails to give constructive notice to subsequent purchasers.
Here, the culinary school's deed is a "wild deed" because the chef's deed from the owner was recorded after the fast-food chain purchased the restaurant
The fast-food chain will prevail over the chef's and the culinary school's earlier interests if it is a BFP and the first to record. The fast-food chain purchased the restaurant with no actual knowledge of the prior interests and no inquiry notice because the restaurant was unoccupied. Therefore, the fast-food chain is a BFP if it also lacked constructive notice of the earlier interests.
56
A buyer entered into a written contract to purchase real property from its owner. The buyer asked that the owner convey the property to the buyer and her brother as tenants in common. The owner noted that the buyer's brother would need to attend the closing to sign the necessary paperwork. Because the brother lived in another state and could not attend the closing, the buyer brought her roommate to the closing instead. The roommate pretended to be the buyer's brother and signed all the necessary paperwork with the brother's name. The buyer paid the full purchase price, and the deed granting the buyer and her brother half interests as cotenants was recorded on the same day.
Unbeknownst to any of the parties, the evening before the closing, the buyer's brother had died in a car accident. The brother's valid probated will devised all of his property to his wife. The brother's wife has brought an action against the buyer, who has taken sole possession of the property, and the original owner to quiet legal title to an undivided one-half interest in the property.
Who should the court find has legal title to the real property, and in what proportions?
A) The original owner.
B) The buyer.
C) One-half in the buyer and one-half in the original owner.
D) One-half in the buyer and one-half in the brother's wife.
C) One-half in the buyer and one-half in the original owner.
A deed purporting to transfer real property to a nonexistent cotenant is void as to the nonexistent cotenant and creates a tenancy in common between the grantor and the other cotenant(s) named in the deed.
Since the brother was nonexistent at the time of the conveyance (he died the evening before), the owner retained the brother's one-half interest. However, the deed is still valid as to the buyer.
57
A business owner borrowed money from a financial institution in order to expand his business. The business owner executed a nonnegotiable promissory note to evidence his personal liability to repay the financial institution. In addition, the business owner granted the financial institution a mortgage on his condominium that was evidenced by a written document as security for the loan. By a separate written document, the financial institution assigned its interest in the note to a third party. This document made no mention of the mortgage.
What is the effect of this transaction on ownership of the mortgage?
A) The financial institution owns the mortgage, because a transfer of the note without the mortgage is void.
B) The financial institution owns the mortgage, because there was no mention of the mortgage in the document assigning the note to the third party.
C) The mortgage is discharged by the independent transfer of the note.
D) The third party owns the mortgage, because the mortgage follows the note.
D) The third party owns the mortgage, because the mortgage follows the note.
A negotiable promissory note can be transferred by endorsing and delivering the note to another, but a nonnegotiable promissory note requires that a separate document of assignment be executed to transfer ownership. Once properly assigned, the mortgage automatically transfers with the note.
58
A homebuyer financed the purchase of her home with a loan from a bank, granting the bank a mortgage on the home to secure her loan obligation. The bank promptly recorded its mortgage interest. A few years later, the homebuyer borrowed money from a finance company to pay for a child's tuition expenses. The finance company took a mortgage on the home, which it promptly recorded.
The homebuyer maintained payments to the finance company, but she defaulted on her bank loan. The bank initiated foreclosure proceedings against the homebuyer. The finance company did not receive notice of these proceedings. The home was sold at a judicial foreclosure sale to an investor who intended to rent out the home.
Has the finance company's mortgage on the home been eliminated?
A) No, because the finance company did not receive notice of the foreclosure sale.
B) No, because the finance company's loan was not in default at the time of the foreclosure sale.
C) Yes, because the finance company's mortgage was a junior mortgage.
D) Yes, because the home has been sold at a judicial foreclosure sale.
A) No, because the finance company did not receive notice of the foreclosure sale.
For a judicially supervised foreclosure sale, the foreclosing mortgagee must give notice to the holders of any junior interests in the property to eliminate those interests.
Here, the bank's mortgage was first in time, so its mortgage is senior to the finance company's junior mortgage. As a result, the bank was required to give the finance company notice of the bank's judicial foreclosure sale. Since the bank failed to do so, the foreclosure sale did not eliminate the finance company's mortgage.
59
A homeowner bought a home with the proceeds of a loan from a thrift institution. The loan was secured by a mortgage on the home. Under the terms of the loan, the full amount of the outstanding loan obligation was to become due and payable if the home was sold or otherwise transferred without the prior permission of the thrift institution. The thrift institution recorded its mortgage.
Subsequently, the homeowner established a living trust and transferred ownership of her home to the living trust. The homeowner recorded this ownership transfer. Upon learning of the transfer, the thrift institution demanded that the homeowner pay the outstanding amount due on the loan immediately. When the homeowner refused, the thrift institution brought a foreclosure action to collect the full amount of the outstanding loan obligation.
Is the thrift institution likely to succeed?
A) No, because ownership of the home was transferred to the homeowner's living trust.
B) No, because the transfer of ownership of the home to the living trust was recorded.
C) Yes, because the thrift institution recorded its mortgage.
D) Yes, because the thrift institution's mortgage is a purchase-money mortgage.
A) No, because ownership of the home was transferred to the homeowner's living trust.
A due-on-sale clause permits the mortgagee to demand payment in full of the remaining mortgage debt if the mortgaged property is transferred without the mortgagee's consent. However, the transfer of residential property to the mortgagor's living trust is exempt from this clause.
60
A bank made a loan to a homeowner to enable the homeowner to buy his primary residence. The homeowner executed a promissory note to the bank. As security for payment of the note, the homeowner granted the bank a mortgage in the residence. The mortgage loan document contained the following acceleration clause: "Upon a transfer of the property without the permission of the lender, the full amount of the outstanding loan obligation becomes due and payable."
One year later, the homeowner married. Shortly thereafter, the homeowner retitled ownership of the residence in his and his wife's names as tenants by the entirety. Five years later, the homeowner and his wife divorced. The divorce decree mandated that the homeowner transfer his ownership interest in the residence to his ex-wife. The homeowner complied with the court's decree. In neither case did the homeowner notify the bank of the transfer.
Do these changes in ownership give the bank valid grounds to enforce the acceleration clause?
A) No, neither ownership change allows the bank to enforce the acceleration clause.
B) Only the retitling of the residence in the names of both spouses allows the bank to enforce the acceleration clause.
C) Only the transfer of the homeowner's ownership interest pursuant to the divorce decree allows the bank to enforce the acceleration clause.
D) Yes, both ownership changes allow the bank to enforce the acceleration clause.
A) No, neither ownership change allows the bank to enforce the acceleration clause.
Due on sale provision: not enforceable against a conveyance of residential property to the debtor's spouse or ex-spouse upon divorce.
61
A limited partnership purchased a parcel of land that it intended to develop for commercial purposes. The limited partnership borrowed half the purchase price from a bank and paid the remainder from its own funds. The loan from the bank was secured by a mortgage on the land. The loan document stated that the bank agreed to look solely to the real property for satisfaction of the loan.
The limited partnership made several payments on this nonrecourse loan and then, shifting its focus to the development of another parcel of land, defaulted on the loan despite having the ability to make the required payments on the loan.
Can the bank foreclose on its mortgage?
A) No, because a mortgage is unenforceable unless there is personal liability on the obligation for which the mortgage serves as security.
B) No, because, despite the language in the loan document, the bank is required to first sue the limited partnership as the limited partnership has the ability to make the required loan payments.
C) Yes, because the loan proceeds were used to purchase the parcel of land.
D) Yes, because the mortgage secured repayment of the loan and the loan was in default.
D) Yes, because the mortgage secured repayment of the loan and the loan was in default.
A mortgage is an interest in real property that secures the repayment of a debt or other obligation. This allows the mortgagee to foreclose on that property upon default to satisfy the outstanding debt.
Here, the bank received a mortgage on the parcel of land to secure the limited partnership's repayment of the loan. Since the limited partnership defaulted on the loan, the bank has the right to foreclose on its mortgage.
62
The owner of a retail store sold the store to two of her employees. The two employees, the manager and the bookkeeper, took ownership of the store as tenants in common with equal ownership interests. At the time of the sale, there was an existing mortgage on the store that the former owner had granted to a bank in exchange for a loan. The manager and the bookkeeper did not assume the obligation to repay the loan.
Six months later, the former owner became insolvent and the loan went into default. Responding to the bank's threat to foreclose on the mortgage, the manager paid off the loan.
Can the manager enforce the mortgage against the bookkeeper's interest in the store?
A) No, because the bookkeeper did not assume the obligation to repay the mortgage loan.
B) No, because the mortgage was extinguished by the manager's payment of the loan for which the mortgage served as security.
C) Yes, because the manager could not recover from the former owner due to her insolvency.
D) Yes, but only to the extent of one-half of the payment made by the manager.
D) Yes, but only to the extent of one-half of the payment made by the manager.
Subrogation: Third party (subrogee) who pay's another's mortgage loan in full becomes the owner of the loan and the mortgage. They may seek reimbursement from the debtor to enforce the mortgage
The manage and bookkeeper did not assume the mortgage (they took subject to it) and they are not liable for the mortgage debt.
But as cotenants, the manager and the bookkeeper still owe each other a duty to pay their proportionate share of necessary expenses. Here, a necessary expense arose when the bank threated to foreclose on the mortgage and the manager paid the owner's debt in full to prevent the foreclosure.
63
A small company specializing in providing meditation retreats purchased a tract of land fronting a river in a rural residential area. As the residential area grew around the company's tract of land, the tract became cut off from the nearby public road. Hoping to avoid the expense of building a bridge across the river in order to access the next closest roadway, the company approached an owner of one residential plot separating the company's tract from the public road to request an easement. The owner, without requiring consideration, granted the company an easement by deed to a strip of land 30 feet wide across his property. The deed did not place any express limitations on the easement's use. The company built a narrow dirt road across the easement to accommodate the limited number of vehicles attending its occasional meditation retreats.
A year later, the company began to offer outdoor yoga classes each night. This new service was wildly popular, resulting in increased daily traffic across the easement. On busy evenings, visitors also parked on the dirt road for the duration of their class. After a month of enduring the additional traffic, the owner erected a concrete barrier to prevent any use of the easement to access the company's tract. The company objected, and the owner brought an action to terminate the easement across his property.
Should the court allow the owner to terminate the easement on these facts?
A) No, because the easement is not terminated by the company's expanded use of the dirt road.
B) No, because the owner, by blocking the dirt road, can no longer seek equitable relief.
C) Yes, because the company's current use of the dirt road greatly exceeds its initial use of the road.
D) Yes, because the granting of the easement was not supported by consideration and is thus freely revocable.
A) No, because the easement is not terminated by the company's expanded use of the dirt road.
An easement holder may increase the manner, frequency, or intensity of an easement's use so long as that increase does not unreasonably damage or interfere with the use or enjoyment of the servient estate.
Here, the company reasonably expanded the use of its land by offering yoga classes, which caused an increase in traffic across the easement. However, the increased use was not excessive because there is no evidence that it unreasonably damaged or interfered with the owner's servient estate
64
Eighty years ago, a woman conveyed land to her son for life, then to her son's widow for her life, then to her son's children. At the time of the conveyance, her son was only five years old. The woman died a few weeks later, devising her entire estate to a charity.
Thirty years later, the son married. The son and his wife had a child the following year, but his wife died shortly thereafter. The child died at the age of 25, leaving her entire estate by will to a church.
A year after his child died, the son married a woman who was 50 years old. The couple had no children. The son died the same year that they married. He was survived by his widow, to whom he willed his entire estate.
In a jurisdiction applying the common-law Rule Against Perpetuities, who has a properly vested interest in the land?
A) The charity named in the woman's will in fee simple, because the son's widow was not a life in being at the time of conveyance.
B) The church named in the will of the son's child in fee simple, because the child had a vested remainder interest that passed by the child's will to the church.
C) The widow for life, with the remainder to the church named in the will of the son's child.
D) The widow in fee simple, because she had a life estate in the land and was devised her husband's entire estate.
C) The widow for life, with the remainder to the church named in the will of the son's child.
Under the Rule Against Perpetuities, a contingent future interest must vest or fail within 21 years after the end of a relevant life in being when the interest was created.
Here, the woman conveyed land to her son for life, then to his widow for her life, and the remainder to his children. The son was only five years old at the time of the conveyance, so his widow and children were unknown or unborn persons. As a result, the widow and children held contingent future interests that are subject to RAP. However, the identity of the son's widow and children would be immediately identifiable upon the death of the son—the relevant life in being when the interests were created—so their interests do not violate RAP.
Accordingly, the widow's life estate in the land became a present possessory interest upon the son's death. And the remainder interest in the children became a vested interest in the son's only child upon the son's death. Because that child devised her interest in the land to a church, the church now owns that remainder interest.
65
A tenant leased a set of 10 commercial storefronts spanning two city blocks. The lease was for a term of five years and complied with all relevant statutes. The lease was silent as to the effect of condemnation by the city.
Three years into the lease, the city properly took one of the city blocks for public use pursuant to eminent domain and compensated the landlord accordingly. The city demolished five storefronts and began developing a public park. Upon this condemnation, the tenant stopped paying rent for all 10 storefronts. In an appropriate action, the landlord sued the tenant for the unpaid rent on all 10 storefronts.
Is the landlord likely to succeed?
A) No, because the landlord breached the implied covenant of quiet enjoyment.
B) No, because the lease terminated upon condemnation of some of the leased property.
C) Yes, but only for half the amount, because the tenant is entitled to compensation.
D) Yes, for the full amount, because the obligation under the lease is still in effect.
C) Yes, but only for half the amount, because the tenant is entitled to compensation.
partial condemnation = a tenant must continue to pay rent but is entitled to compensation for the portion of the leased property that was taken.
complete condemnation = the tenant is discharged from his/her rent obligation and is entitled to compensation for the taking.
66
The owner of a home mortgaged the property to secure a preexisting obligation to a bank. The bank immediately recorded the mortgage. The owner subsequently entered into a valid written contract with a buyer to sell her home to the buyer. The contract provided for the transfer of marketable title but did not refer to the mortgage. Two weeks later, the buyer lost his job and decided he could not afford to purchase the property.
In investigating his options for avoiding liability under the contract, the buyer discovered the existence of the mortgage. Following this discovery, he told the owner that the title was encumbered and that he would not close. The owner responded by offering to fully pay off the mortgage at the closing by using the proceeds of the closing. Despite this offer, the buyer refused to go forward. The owner then brought an action against the buyer for specific performance.
If the court rules in favor of the owner in this action, which of the following is the most likely reason?
A) The bank's mortgage does not have priority because it is not a purchase-money mortgage.
B) The buyer decided not to close because he lost his job, not due to the presence of the mortgage.
C) The owner is not required to provide marketable title under the doctrine of equitable conversion.
D) The owner's offer to fully pay off the mortgage at the closing would render title marketable.
D) The owner's offer to fully pay off the mortgage at the closing would render title marketable.
Under a land-sales contract, the seller can use the proceeds from the sale to eliminate a mortgage obligation on the property. If the proceeds exceed the amount of the outstanding mortgage, then the title defect will be extinguished and the seller can deliver marketable title to the buyer upon closing.
67
A buyer and a seller entered into a valid, written contract for the sale of farmland. Prior to closing, the buyer discovered that the seller had acquired the farmland through adverse possession but that a court had not yet ruled on the seller's quiet title action. The buyer contacted the seller about the issue, and the seller assured him that a court decision was expected before the date set for closing under the contract. Afraid that the buyer would back out of the deal, the seller contacted a second buyer about purchasing the farmland. The seller subsequently obtained a judicial decree that recognized his ownership of the farmland, but on the date of the closing with the first buyer, the seller refused to honor the land-sales contract because the second buyer had offered a higher purchase price.
Which principle would permit the first buyer to obtain the seller's performance of the contract?
A) After-acquired title.
B) Detrimental reliance.
C) Part performance.
D) Specific performance.
D) Specific performance.
When a seller refuses to perform a land-sales contract, the buyer can seek specific performance of the seller's contractual obligation (i.e., transfer marketable title). That is because money damages cannot compensate for the loss of real property.
68
The owner of a warehouse entered into a very basic contract to transfer title and possession of the warehouse to a buyer. The contract did not mandate the type of deed that the owner was required to convey to the buyer at closing and did not require the owner to transfer his title to the warehouse free of all defects. Additionally, the contract did not require either party to insure the building against casualty losses.
After the contract was executed, the owner allowed his casualty insurance on the warehouse to lapse even though he retained possession of the warehouse during the executory period. Several days prior to closing, the warehouse was destroyed by a tornado. As a consequence, the buyer refused to pay the purchase price specified in the contract to the owner. The owner then filed suit against the buyer to compel the buyer to honor her contractual obligation to pay the purchase price to the owner.
Which of the following is likely to be the most important issue in awarding judgment to a party?
A) The presumption under the applicable law as to the type of deed the owner is required to convey.
B) Whether the applicable jurisdiction has adopted the Uniform Vendor and Purchaser Risk Act.
C) Whether the applicable jurisdiction implies a covenant by the owner to convey marketable title.
D) Whether the buyer, as holder of the equitable interest in the warehouse, had an insurable interest in the warehouse.
B) Whether the applicable jurisdiction has adopted the Uniform Vendor and Purchaser Risk Act.
Uniform Vendor and Purchaser Risk Act = the risk of loss remains with the seller until the buyer takes possession of or receives legal title to the property.
69
A landowner owned a three-acre plot of land in a remote location. His plot abutted a two-acre wooded property that contained an artesian spring owned by an out-of-state investor who had never developed or visited the land. Hoping to make a substantial profit by making his property sound more appealing, the landowner altered the existing deed for his three-acre plot so that the deed indicated that his parcel was five acres in size and included the wooded property with the artesian spring.
A buyer offered to pay $50,000 for the five-acre parcel and expressed that $10,000 per acre was quite reasonable. The landowner accepted and signed the altered warranty deed, conveying the five acres to the buyer. The landowner mailed the deed to the buyer, and the buyer subsequently took possession of the land. However, the buyer did not record the deed. A year later, the buyer learned that the out-of-state investor held title to the two acres of property that contained the artesian spring.
Is the buyer entitled to ownership of the five-acre parcel?
A) No, because the buyer did not record the deed.
B) No, because the landowner altered the deed and that deed is therefore void.
C) Yes, because the buyer was a bona fide purchaser and relied on the altered deed.
D) Yes, because the deed warranted that the landowner owned and could convey the five-acre parcel.
B) No, because the landowner altered the deed and that deed is therefore void.
A deed is void and unenforceable, even by a bona fide purchaser, if (1) the grantor's signature is forged, (2) the deed itself is forged, or (3) the grantor is deceived about nature of the executed document.
70
The owner of an undeveloped lot needed money. The fair market value of the lot was $150,000. The owner approached an investor about borrowing $75,000. The investor agreed on the condition that the owner convey the lot to the investor outright by warranty deed. In exchange, the investor would lend the owner the $75,000, allow the owner to remain in possession of the lot, and orally agree to reconvey the lot to the owner once the loan was paid in full. The owner reluctantly agreed and conveyed the lot to the investor as agreed. The investor then paid the owner $75,000 and promptly and properly recorded the deed. A year later, the owner defaulted on the loan with a remaining balance of $50,000.
Which of the following best states the parties' rights in the lot?
A) The investor may evict the owner from the property following the owner's default.
B) The investor may foreclose on the lot because the transaction is treated as an equitable mortgage.
C) The investor may recover the remaining balance of $50,000 but cannot foreclose on the lot.
D) The investor owns the lot because his oral promise to reconvey the lot is unenforceable under the statute of frauds.
B) The investor may foreclose on the lot because the transaction is treated as an equitable mortgage.
An equitable mortgage is created when an absolute deed—i.e., a deed that is free of encumbrances and transfers unrestricted title to property—is given with the intent to secure a debt.
Here, the owner conveyed his lot to the investor outright by warranty deed with the intent to secure a $75,000 loan from the investor. The investor had agreed to reconvey the lot to the owner once the loan was paid in full.
71
A homebuyer borrowed money from a lender to finance her purchase of a residence. The homebuyer executed a promissory note, payable to the lender, in the amount of the loan plus interest and gave the lender a mortgage on the residence as security for repayment of the loan. Subsequently, the homebuyer sold the residence to a friend. As part of the sales agreement between the homebuyer and her friend, the friend assumed liability for payment of the note. Later, when the value of the home exceeded the outstanding obligation on the note, the lender released its mortgage interest in the home. Shortly thereafter, the loan fell into default.
Can the lender successfully maintain an action against the original homebuyer for repayment of the loan?
A) No, because the friend assumed personal liability for payment of the note.
B) No, because the lender released its mortgage interest in the home.
C) Yes, because the homebuyer executed a promissory note that was payable to the lender.
D) Yes, because, upon repayment of the loan, the original homebuyer is subrogated to the lender's rights against the friend with respect to the note.
B) No, because the lender released its mortgage interest in the home.
A debtor remains personally liable for the mortgage debt even after the mortgaged property is transferred to another. BUT the debtor will be relieved of personal liability if the lender releases or impairs the mortgaged property
Here, the homebuyer (debtor) sold the mortgaged residence to her friend, who assumed the mortgage. However, the homebuyer remained personally liable for the mortgage debt until the lender released its mortgage interest in the residence. And because the lender's release relieved the homebuyer of personal liability for the mortgage debt, the lender cannot successfully maintain an action against the homebuyer for repayment of the loan.
72
A shopkeeper purchased the building that houses her shop, incurring an obligation to the owner of the building equal to the fair market value of the building plus interest. The obligation is evidenced by a promissory note and secured by a mortgage on the building. Several years later, the shopkeeper sold her business and the building to a third party, who assumed liability for the obligation. At the request of the third party and without the knowledge of the shopkeeper, the original owner of the building agreed to release the mortgage.
Subsequently, the third party defaulted on the obligation. The current fair market value of the building exceeds the amount of the unpaid obligation. The original owner of the building sued the shopkeeper for the amount of the unpaid obligation.
Can the original owner recover this amount from the shopkeeper?
A) No, because the release of the mortgage discharged the shopkeeper's personal liability.
B) No, because the third party assumed liability for the obligation.
C) Yes, because the obligation was incurred in conjunction with a purchase-money mortgage.
D) Yes, because the shopkeeper remains personally liable for the unpaid obligation.
A) No, because the release of the mortgage discharged the shopkeeper's personal liability.
A borrower (mortgagor) remains personally liable for a mortgage loan after transferring the mortgaged property to another. However, the borrower's liability will be discharged if the mortgage is released.
The shopkeeper's personal liability was discharged when the original owner agreed to release the mortgage because, by releasing the mortgage, the original owner eliminated the shopkeeper's ability to be subrogated (i.e., substituted) to the owner's mortgage interest and thereby recoup the amount paid on the debt from the third party.
73
The owner of a sporting goods store purchased football equipment from a supplier and gave the supplier an unsecured, nonnegotiable promissory note. Prior to the date on which payment of the note was required, the owner asked the supplier for an extension of time to pay the note. The supplier demanded in exchange that the owner execute a mortgage with respect to the store itself to serve as security for payment of the note. When the owner refused, the supplier threatened to reveal to the police that the owner was running an illegal bookmaking operation in the back of the store. Acting under duress, the owner executed the mortgage, which the supplier promptly recorded.
Shortly thereafter, the owner transferred ownership of the store to his daughter as a gift. The daughter assumed the obligation to pay the promissory note.
The note is now in default and the supplier has instituted foreclosure proceedings on the mortgage.
Can the daughter assert the owner's defense of duress against the supplier?
A) No, because the daughter received ownership of the store as a gift.
B) No, because the supplier recorded its mortgage prior to the transfer of the store to the daughter.
C) Yes, because, as a donee, the daughter is entitled to the same rights with respect to the store as those enjoyed by the owner.
D) Yes, because the daughter is related to the owner.
C) Yes, because, as a donee, the daughter is entitled to the same rights with respect to the store as those enjoyed by the owner.
When mortgaged property is transferred to a donee, the donee may assert the donor-mortgagor's defenses against the mortgagee-lender. But a purchaser who assumes an existing mortgage obligation as part of the purchase price may not do so.
74
A buyer purchased land from a seller for $50,000. A savings bank held an existing mortgage on the property to secure a prior loan made by the bank to the seller. At the time of the purchase, the buyer assumed this mortgage, which had an outstanding balance of $30,000. The buyer also executed another mortgage on the property in favor of the seller as security for the $20,000 note given by the buyer to the seller for the remainder of the purchase price. Subsequently, the buyer failed to make payments on the bank's mortgage.
The bank initiated foreclosure proceedings against the property, but the buyer redeemed the bank's mortgage prior to the foreclosure sale. The buyer then defaulted on his obligation to the seller, and the seller initiated a foreclosure action on her mortgage. The buyer has challenged the validity of this action.
For whom should the court rule?
A) The buyer, because the buyer's prior redemption terminated the seller's junior mortgage.
B) The buyer, because the seller had not first sought a judgment against the buyer personally.
C) The seller, because her mortgage was not eliminated by the buyer's redemption of the bank's junior mortgage.
D) The seller, because the loan secured by her mortgage was in default.
D) The seller, because the loan secured by her mortgage was in default.
A mortgagee (lender) may foreclose on a mortgage when the obligation to which the mortgage relates is in default—e.g., when the mortgagor (debtor) fails to make timely loan payments.
75
Nine years ago, a retired jockey deeded a large parcel of land to a charitable organization. The warranty deed stated, in part, that the property was transferred to the organization “provided that the organization uses the property as a facility for teaching children about thoroughbred horses, otherwise [jockey] may immediately retake the land.” Three years ago, the charitable organization turned the facility into an organic farm. The retired jockey, who had become very interested in organic farming, learned of the plans to make the change but did not object. Recently, the organization entered into negotiations to sell the property to a large farming corporation.
May the retired jockey stop the sale?
A) No, because the retired jockey waived any right to terminate the organization’s interest.
B) No, because the retired jockey’s reversionary interest violates the Rule Against Perpetuities.
C) Yes, because the retired jockey is the fee simple owner of the property.
D) Yes, because the retired jockey may terminate the charitable organization’s interest in the property.
D) Yes, because the retired jockey may terminate the charitable organization’s interest in the property.
The deed, through the use of the phrase “provided that,” created a fee simple subject to a condition subsequent, and the landowner retained a right of entry. Upon violation of the condition that the property be used as a facility for horses, the retired jockey had the right to terminate the charitable organization’s interest. He can now exercise this right, regain ownership of the property, and prevent the sale of the property
76
A philanthropist conveyed a residence that he owned to a local charity for use as a homeless shelter. The deed stated that the parcel was transferred “in fee simple so long as the residence is used as a homeless shelter.” After using the residence as a homeless shelter for twenty-two years, the charity recently closed the shelter and put the building up for sale. The philanthropist sought to prevent the sale of the residence. The jurisdiction has retained the common-law Rule Against Perpetuities and imposes a 20-year period for adverse possession.
May the philanthropist stop the sale of the residence?
A) Yes, because the doctrine of cy pres does not apply.
B) Yes, because the philanthropist is the owner of the residence.
C) No, because the charity owns the residence by adverse possession.
D) No, because the philanthropist’s reversionary interest violates the Rule Against Perpetuities.
B) Yes, because the philanthropist is the owner of the residence.
"So long as" = FSD/POR (automatic)
Upon the termination of the condition that the residence be used as a homeless shelter, the ownership of the residence automatically reverted to the philanthropist. As the rightful owner of the residence, the philanthropist can prevent its sale by the charity.
77
The owner of commercially zoned property in a major city entered into a 75-year lease with a developer. The developer demolished the existing structure on the property and constructed a multi-story office building. Under the terms of the lease, the developer retained the right to purchase the property at the end of the lease term for a nominal sum. Ten years later, the owner sold all of its rights in the property to a buyer. The buyer then filed an action seeking a declaratory judgment that the developer’s right to purchase the property was void.
The jurisdiction continues to adhere to the common law Rule Against Perpetuities.
How should the court rule?
A) For the developer, because the option was created as part of a commercial transaction.
B) For the developer, because the developer is the current lessee.
C) For the buyer, because an option to purchase is a future property interest.
D) For the buyer, because the lease term was for more than 21 years.
B) For the developer, because the developer is the current lessee.
Although RAP applies to options to purchase real property, it does not apply to an option to purchase the property that is held by a current leasehold tenant. In this case, *****because the developer is the current lessee**** of the property, the rule does not apply.
78
Three brothers inherited, as joint tenants with the right of survivorship, a building in which their parents had operated a hardware store. Only the oldest brother continued to operate the hardware store on the premises, but he did not restrict his brothers’ access to the building. The middle brother sold his interest in the building to the oldest brother. The youngest brother died, leaving everything to his daughter in his will.
Who owns the building?
A) The oldest brother in fee simple.
B) The oldest brother and the youngest brother’s daughter as joint tenants.
C) The oldest brother and the youngest brother’s daughter as equal tenants in common.
D) The oldest brother and the youngest brother’s daughter as tenants in common, with the oldest brother owning a 2/3 interest and the youngest brother’s daughter owning a 1/3 interest.
A) The oldest brother in fee simple.
When the middle brother sold his interest to the oldest brother = 2/3 and 1/3 as JT/ROS
When youngest brother died = ROS gives brother FSA
79
The owner in fee simple of an undeveloped lot in the city promised to leave the property to her nephew upon her death. The nephew, shortly before his aunt’s death, purported to convey the lot by a general warranty deed to his son as a gift. This transfer was not recorded. Despite the aunt’s promise, the lot passed to a charity upon her death pursuant to provisions in her will. The following month, the son sold the lot to a developer but was shortly thereafter killed in an accident. When the charity’s attorneys learned of the developer’s plan to construct a building on the lot, they sued to block the construction by alleging the charity owned the lot. Which of the following breach of warranty actions can the developer successfully pursue against the nephew as a consequence of the charity’s suit?
A) Breach of the warranty against encumbrances.
B) Breach of the warranty of quiet enjoyment.
C) Breach of the warranty of the right to convey.
D) Breach of the warranty of seisin.
B) Breach of the warranty of quiet enjoyment.
Warranty of quiet enjoyment = future covenant that is breached only upon interference with possession. It runs to successive grantees, such as the developer, as well as to the original grantee.
Note: warranty against encumbrances is a present covenant that is breached by the existence of an encumbrance, such as an easement, at the time of conveyance of the property by the grantor.
The charity’s lawful ownership of the lot does not constitute an encumbrance, and in most states, a subsequent grantee (here, the developer) cannot sue the original grantor (here, the nephew) for breach of a present covenant.
80
A person owned an apartment complex in fee simple. In satisfaction of a preexisting debt, the owner mortgaged the complex to a bank. In doing so, the owner signed a promissory note secured by the properly executed and recorded mortgage. The promissory note did not contain a “due on sale” clause. The original owner thereafter conveyed the complex to a second owner by a deed that was silent as to the buyer’s liability to the mortgagee. The second owner immediately regretted the purchase, and before the next mortgage payment was due, the second owner conveyed the complex to a third owner “subject to the existing mortgage.” A copy of the promissory note and the mortgage that secured it was shown to each grantee. The third owner made five timely payments on the mortgage. After that, no further payments were made by any of the parties. The bank brought an appropriate foreclosure action, and although the complex was sold at fair market value, a deficiency remained. Assume that this jurisdiction will allow a deficiency action if foreclosure sale proceeds are insufficient to satisfy a mortgage obligation.
Against whom is the bank entitled to collect a deficiency judgment?
A) None of the owners
B) The original owner only
C) The original and second owners only
D) The second and third owners only
B) The original owner only
If the transferee-buyer assumes a mortgage, the t-b and original mortgagor buyer are personally liable to the lender
If a transferee buyer takes title "subject to" an existing mortgage, the transferee buyer is not personally liable upon default nor for deficiency payments
If a deed is silent or ambiguous as to the transferee-buyer's liability, then the transferee-buyer is considered to have taken the property subject to the mortgage obligation
Here, the second and third owners did not assume the mortgage obligation, but instead took the property subject to the mortgage.
81
An investor purchased a three-story residence that had been subdivided into three apartments, one on each floor, with the aid of a loan for $500,000. The investor granted the lender a deed of trust with respect to the residence. The deed of trust authorized the trustee to hold a non-judicial foreclosure sale. The note given by the investor did not contain an acceleration clause. Several years later, due to an inability to rent two of the apartments, the investor, unable to make three consecutive monthly payments on the loan, defaulted on the loan. Each monthly payment was $3,000, which represented $2,500 in repayment of the principal, and $500 in interest. At the time of the default, the investor had repaid $100,000 of the original loan. At the lender’s direction, the trustee sold the property.
Apart from any expenses or fees, what is the maximum amount to which the lender is entitled from the sale proceeds?
A) $500,000
B) $400,000
C) $9,000
D) $7,500
C) $9,000
Foreclosure upon default = the mortgagee is only entitled to collect the amount of the obligation that is currently due and owing ****unless the mortgage contains an acceleration clause***
Since the note, which constitutes the investor’s obligation to repay the loan, does not contain an acceleration clause, the investor is currently only liable for the three missed monthly payments, or $9,000.
82
A homeowner purchased her home with the proceeds from a loan made by a bank. As security for the loan, the bank took a mortgage in the home and recorded its mortgage interest. While the homeowner was away on an extended vacation, a con artist, pretending to be the homeowner, purported to sell the home subject to the mortgage to a third party. Before learning of the con artist’s fraud, the third party paid off the bank loan. The homeowner, informed of the third party’s action, rejected the third party’s demand that she make payments due under the terms of the loan to him. The third party then filed an action against the homeowner, seeking to enforce the mortgage.
How is the court likely to rule?
A) For the third party, in order to prevent the homeowner from being unjustly enriched.
B) For the third party, under the principle of subordination.
C) For the homeowner, because the fraud upon the third party was not perpetrated by the homeowner.
D) For the homeowner, because the third party did not pay off the bank’s loan with the intent of benefiting her.
A) For the third party, in order to prevent the homeowner from being unjustly enriched.
Subrogation = A person who pays off another's mortgage obligation becomes the owner of the obligation but also the mortgage - necessary to prevent unjust enrichment
Here, the homeowner would receive a windfall in that her home would no longer be subject to a mortgage and she would no longer be obligated to make payments on the loan if the third party were not subrogated to the bank’s rights with regard to the loan and the mortgage.
Note: although the homeowner is not liable to the third party for the fraud perpetrated by the con artist, allowing her to avoid liability for making loan payments and absolving her home of its mortgage would result in the unjust enrichment of the homeowner.
83
A bank provided a loan to the purchaser of a parcel of undeveloped land. As security for the loan, the purchaser granted the bank a mortgage with respect to the parcel of land. Subsequently, the purchaser subdivided the land into three lots. The purchaser sold two of the three lots, each to a different buyer at a different time. Each buyer obtained a loan to finance the purchase from a different bank, neither of which was the bank that provided the original loan to the purchaser. Each buyer gave his lender a mortgage on his lot. The purchaser later defaulted on his bank loan. The bank filed an action to foreclose on all three parcels of land. The buyers of the two lots each filed an appropriate motion to protect their interests to the maximum extent possible.
Which of the following best describes the likely outcome of the bank’s attempt to proceed against the three lots?
A) The bank may proceed against any of the three lots in any order that it chooses.
B) The bank must proceed first against the lot retained by the purchaser and then against the lots in the order in which the mortgages on them were created.
C) The bank must proceed first against the lot retained by the purchaser and then against the lots in the inverse order in which the mortgages on them were created.
D) The bank must proceed against all of the lots in a manner that recovers an equal amount from each.
C) The bank must proceed first against the lot retained by the purchaser and then against the lots in the inverse order in which the mortgages on them were created.
Marshaling of assets = Holder of security interest must first proceed against the property upon which there are not any junior security interests, then against the property on which the junior interest was more recently created, before proceeding against property upon which the junior interest was more remotely created
84
A corporation purchased a building with the proceeds from a bank loan and granted the bank a mortgage on the building as security for the loan. Several years later, the corporation granted a second mortgage on the building to a private lender in exchange for a much smaller loan. Currently, the corporation is in compliance with its obligations with respect to the bank loan, but has defaulted on the smaller private loan. The private lender intends to initiate a foreclosure action against the corporation.
Must the private lender join the bank as a necessary party to this action?
A) Yes, because the bank’s mortgage is the senior mortgage.
B) Yes, because the bank’s mortgage is a purchase-money mortgage.
C) No, because the bank’s mortgage is not affected by the private lender’s foreclosure action.
D) No, because the private lender’s loan is less than the bank’s loan.
C) No, because the bank’s mortgage is not affected by the private lender’s foreclosure action.
The bank’s mortgage interest in the building has priority over the private lender’s mortgage because it was first in time and because it was a purchase-money mortgage. As the senior mortgage, it is not affected by the foreclosure of the private lender’s junior mortgage. Consequently, the private lender need not join the bank as a necessary party to the private lender’s foreclosure action.
Note: no special requirement that requires the joinder of the holder of a purchase-money mortgage when a junior mortgage is foreclosed.
85
The owner of land improved with a residence enjoyed an express, duly recorded easement appurtenant to use a neighbor’s driveway. This driveway was part of a larger driveway that looped from the street to the owner’s residence and back to the street via the driveway on the neighbor’s property. The owner sold the property. The purchaser, in his first face-to-face conversation with his new neighbor after moving in, stated that he had no intention of using the portion of the driveway that ran through his neighbor’s property. Acting in reliance on the purchaser’s words, the neighbor shortly thereafter entered into a contract to have a wall constructed across the driveway at the point it entered onto her property and before it joined the portion of driveway that she continued to use for access to her own residence. When the contractor began to build the wall, the purchaser, having doubts about foregoing use of the private driveway, demanded that the neighbor stop building the wall and return the driveway to its former condition.
Of the following, which is the neighbor’s best defense to the purchaser’s demand?
A) Abandonment
B) Estoppel
C) Prescriptive easement
D) Release
B) Estoppel
Easement holder may be estoppped from asserting an easement if owner of servient estate changes position to his detriment in reliance on statements or conduct of the easement holder that the easement is abandoned.
86
Two cousins owned adjoining parcels of land that each had inherited from their bachelor uncle. Each constructed a residence on his parcel and allowed the rest of the land to remain in its natural state as woods, since doing so increased the value of both parcels. The cousins executed a written agreement, each promising the other, on behalf of himself as well as his heirs and assigns, not to cut down the trees on his parcel. The agreement was filed in the local land records office. Ten years later, the younger cousin sold his parcel to a buyer in fee simple. Subsequently, while the older cousin was away, the buyer cut down the trees on her land. On his return, the older cousin filed a lawsuit against the buyer based on his rights under the prior agreement, seeking damages from the buyer based on the diminution in value of his parcel due to her removal of the trees on her parcel.
Can the older cousin successfully prosecute this lawsuit against the buyer?
A) No, because the buyer was not a party to the original agreement.
B) No, because there was no horizontal privity between the two cousins when they entered into the agreement.
C) Yes, because the agreement touched and concerned the parcels of land.
D) Yes, because the buyer had record notice of the agreement when she purchased her parcel of land.
B) No, because there was no horizontal privity between the two cousins when they entered into the agreement.
Horizontal privity = Requires some shared property interest apart from covenant itself (i.e., landlord-tenant or buyer-seller). Merely neighbors is not enough.
87
In the early winter, a couple purchased a waterfront vacation home. Early the next spring, before occupying the home, the couple paid a local contractor $15,000 to install a stone patio and construct an outdoor brick structure for grilling in order to entertain guests outside. Later that spring, they learned that their deed had not been recorded and that, in mid-winter, the original owner had sold the property a second time to a buyer who had notice of the prior sale. The second buyer had promptly recorded his deed. The applicable recording statute provides the following: “No conveyance or mortgage of real property shall be good against subsequent purchasers for value unless the same be first recorded according to law.” When the couple brought an ejectment action against the second buyer, who had moved into the vacation home after the contractor had finished the construction, the court ruled in favor of the second buyer. However, the court awarded the couple $15,000 to reflect the value of the improvements they had made to the property.
Of the following, which best explains the $15,000 award made by the court?
A) The couple, believing they owned the property, had made the improvements in good faith.
B) The court erred in ruling for the second buyer.
C) he doctrine of waste entitled the couple to compensation.
D) The improvements constituted fixtures that belonged to the couple as the initial buyers of the property.
A) The couple, believing they owned the property, had made the improvements in good faith.
Since removal of these improvements would have been impracticable, the court’s award likely constituted a recognition of the increase in value to the property that the second buyer had purchased
Note: doctrine of waste creates a duty of the holder of the current possessory interest in property to the holder of subsequent interest in the property. Here, the dispute involves two buyers of the property with competing claims to ownership of the property
88
A father who owned land in fee simple absolute devised the land as follows: "To my daughter, her heirs and assigns, with the intent that she leave the property undeveloped for at least 25 years after my death." The father left the residue of his estate to his son.
At the father's death, the son is alive, and the daughter has given birth to a child. During probate of the father's will, the son claims that he has a possibility of reverter in the land, while the daughter claims that she owns the land in fee simple absolute.
The jurisdiction continues to adhere to the common-law Rule Against Perpetuities.
If the court rules in favor of the daughter, what is the most likely reason?
A) The daughter has an heir.
B) The possibility of reverter expired upon the father's death.
C) The son's interest could not have become possessory within 21 years after the father's death.
D) There can be no future interest after the grant of a fee simple absolute.
D) There can be no future interest after the grant of a fee simple absolute.
Language that merely limits the purpose of a transfer of property (e.g., "for the purpose of") or expresses an intent for how the property should be used (e.g., "with the intent that") creates a fee simple absolute—not a defeasible fee.
89
Three siblings, two brothers and a sister, inherited land as equal tenants in common from their mother. The property was subject to a mortgage that contained an acceleration clause, which provided that the entire outstanding balance of the mortgage loan was due upon default. None of the siblings made the mortgage payments as they became due, and the mortgage fell into default.
The mortgagee foreclosed on the mortgage. At the foreclosure sale, the sister purchased the land, paying 45% of the land's fair market value.
Can either of her two brothers reclaim his interest in the land?
A) No, because cotenants do not owe each other fiduciary duties.
B) No, because their interests were eliminated through the foreclosure sale.
C) Yes, if he pays his sister one-third of the amount she paid to acquire the land.
D) Yes, if he pays his sister one-third of the fair market value of the land.
C) Yes, if he pays his sister one-third of the amount she paid to acquire the land.
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, allowing the other cotenants to reacquire their interests by paying their share of the purchase price.
Note: The buyer at a foreclosure sale takes free of the mortgagor (e.g., debtor) or the mortgagor's successors in interest (here, the three siblings). But the sister, as a cotenant with a fiduciary duty to the other tenants, can be compelled to give her former cotenants the opportunity to reacquire their interests by paying their share of the acquisition costs.
90
A wife brought a divorce action against her husband in State A, where they were both domiciled. As part of the divorce decree, the court ordered the husband to transfer to his wife title to land held in his name only. The land was located in State B. After the husband conveyed the land to his wife, the husband deeded the land to a friend in exchange for a payment equal to the fair market value of the land. The friend was domiciled in State B and aware of the husband's prior conveyance of the land. The friend recorded his deed in State B, before the wife recorded her deed.
State A has a race-notice recording statute, while State B has a race recording statute.
In an action to quiet title brought by the friend against the wife in a State B court, who is likely to prevail?
A) The friend, because he was domiciled in State B.
B) The friend, because the law of State B applies in determining ownership of the land.
C) The wife, because her ownership of the land arises from the divorce decree of a State A court.
D) The wife, because the friend had knowledge of the husband's conveyance of the land to her.
B) The friend, because the law of State B applies in determining ownership of the land.
Here, the land at issue is located in State B, so the law of State B (law of the situs) likely governs this matter. State B has a race recording statute, under which a purchaser who records first will prevail—regardless of the purchaser's knowledge of any prior conflicting interests. Since the friend purchased the property for value and recorded his deed first, he will likely prevail over the wife.*
91
Two brothers owned real property as joint tenants with the right of survivorship. The older brother obtained a loan from a credit union to start a business. He signed a note for the amount of the loan plus interest and received the loan proceeds. Both brothers executed a mortgage on the jointly owned property as security for the loan. The older brother operated the business without his younger brother's aid and retained all of the proceeds from the business. Approximately a year later, the older brother defaulted on the loan. The bank initiated foreclosure proceedings against the property. The applicable jurisdiction recognizes the lien theory with respect to the effect of a mortgage on a joint tenancy.
Can the bank enforce the mortgage against the younger brother's interest in the real property?
A) Yes, because the applicable jurisdiction follows the lien theory.
B) Yes, because the younger brother also executed the mortgage.
C) No, because the real property was held in joint tenancy with the right of survivorship.
D) No, because the younger brother did not receive an economic benefit from the loan.
B) Yes, because the younger brother also executed the mortgage.
When all of the joint tenants execute a mortgage, the mortgagee may enforce the mortgage against all joint interests upon default.
92
A manufacturer entered into a 30-year lease with the owner of a building zoned for commercial use. The lease contained a term that gave the manufacturer the right of first refusal if the owner ever decided to sell the building. Ten years later, the owner entered into a contract to sell the building to a third party. The owner has refused to honor the manufacturer's right of first refusal, contending that it violates the Rule Against Perpetuities. The jurisdiction recognizes the common-law Rule Against Perpetuities and its application to rights of first refusal.
Which of the following is the manufacturer's best argument that the Rule Against Perpetuities does not apply to the manufacturer's right of first refusal?
A) The right of first refusal was granted in conjunction with a lease.
B) The right of first refusal was granted as part of a commercial transaction.
C) There is no life in being against which the right of first refusal is measured.
D) The manufacturer exercised the right of first refusal before the expiration of the 21-year period.
A) The right of first refusal was granted in conjunction with a lease.
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. But there is no such exception in this jurisdiction, which recognizes common-law RAP.
93
An unscrupulous landowner sold undeveloped land to two different buyers and then disappeared with the proceeds. Each buyer paid fair market value for the land and neither buyer was aware of the landowner's transaction with the other buyer. Subsequently, the first buyer, upon learning of the second conveyance, recorded her deed. The second buyer did not record his deed.
The applicable recording act reads: "A conveyance of any interest in land shall not be valid against any subsequent purchaser for value, without notice thereof, unless the conveyance is recorded."
In an action brought by the first buyer against the second buyer, who is entitled to ownership of the land?
A) The first buyer, pursuant to the "first in time, first in right" rule, because the recording act does not apply since the second buyer did not record his deed.
B) The first buyer, pursuant to the recording act, because she alone recorded her deed.
C) The second buyer, pursuant to the recording act, because he paid fair market value for the land without notice of the first conveyance.
D) The second buyer, pursuant to the recording act, because the first buyer knew of the second conveyance prior to recording her deed.
C) The second buyer, pursuant to the recording act, because he paid fair market value for the land without notice of the first conveyance.
Under a notice statute, a purchaser for value need only have purchased without notice (actual, constructive, or inquiry) of the prior interest to prevail over that prior interest.
Here, the second buyer was a purchaser for value who, at the time of the sale, had no notice of the landowner's prior sale to the first buyer. The second buyer did not have actual knowledge of the prior transaction, the first buyer's deed was not recorded until after the second buyer's transaction, and there is no indication that the second buyer had inquiry notice.
Note: The first buyer is not automatically protected by having recorded her deed under a notice statute—even though she was the only party to record. To be protected, the first buyer needed to record her deed before the second transaction to give the second buyer constructive notice of the prior sale.
94
A homeowner financed the purchase of his residence with a $200,000 loan from a bank. The loan, which was to be repaid over twenty years, was secured by a mortgage on the residence. The bank promptly recorded the mortgage. The following year, the homeowner borrowed $50,000 from a credit union to start a business. The credit union loan, which had a two-year term, was secured by a mortgage on the residence, which the credit union immediately recorded. The next year, the homeowner obtained a two-year loan from the bank for $25,000 to pay for his daughter's wedding. The homeowner agreed to increase the mortgage on the residence as security for this loan. The bank recorded the modified mortgage.
The homeowner defaulted on all three loans. The bank initiated foreclosure proceedings, to which the credit union was named as a party. The proceeds from the foreclosure sale were sufficient to repay the bank in full for its residential purchase loan and either the credit union's business loan or the bank's wedding loan, but not both.
Who should be paid in full?
A) The bank, because the bank's mortgage was recorded before the credit union's mortgage.
B) The bank, because the bank initiated the foreclosure proceedings.
C) The credit union, because the credit union's mortgage was recorded before the bank modified its mortgage.
D) The credit union, because the bank's modification of its mortgage prejudiced the credit union.
D) The credit union, because the bank's modification of its mortgage prejudiced the credit union.
Modification of a senior mortgage generally does not forfeit that mortgage's priority over a junior mortgage. But if the modification materially prejudices the junior mortgage, then the senior mortgagee subordinates its interest as to the modification—but the original mortgage remains superior.
95
A landlord leased an apartment to a tenant by written lease for two years ending on the last day of a recent month. The lease provided for $700 in monthly rent. The tenant occupied the apartment and paid the rent for the first 15 months of the lease term, until he moved to another city to take a new job. Without consulting the landlord, the tenant moved a friend into the apartment and signed an informal writing transferring to the friend his “lease rights” for the remaining nine months of the lease. The friend made the next four monthly $700 rent payments to the landlord. For the final five months of the lease term, no rent was paid by anyone, and the friend moved out with three months left of the lease term. The landlord was on an extended trip abroad, and did not learn of the default and the vacancy until the end of the lease term. The landlord has sued the tenant and the friend, jointly and severally, for $3,500 for the last five months’ rent.
What is the likely outcome of the lawsuit?
A) Both tenant and friend are liable for the full $3500, because the tenant is liable on privity of contract and the friend is liable on privity of estate as assignee.
B) The friend is liable for $1,400 on privity of estate, which lasted only until he vacated, and the tenant is liable for $2,100 on privity of contract and estate for the period after the friend vacated.
C)The friend is liable for $3,500 on privity of estate, and the tenant is not liable, because the landlord’s failure to object to the friend’s payment of rent relieved the tenant of liability
D) The tenant is liable for $3,500 on privity of contract, and the friend is not liable, because a sublessee does not have personal liability to the original landlord.
A) Both tenant and friend are liable for the full $3500, because the tenant is liable on privity of contract and the friend is liable on privity of estate as assignee.
Assignment - tenant transfers all or some of the leased premises to another, retaining no interest in assigned premises.
Here, prior to the assignment to friend, the tenant had privity of contract with the landlord because of the lease and privity of estate because she was in possession of the apartment. When the tenant assigned her lease to the friend, the friend was in privity of estate, including the covenant to pay rent. The tenant was not released from privity of contract.
Note: the landlord never released the tenant from her contractual obligation, thus he is in privity of contract with her.
96
A creditor received a valid judgment against a debtor and promptly filed the judgment in the county. Two years later, the debtor purchased land in the county and promptly recorded the warranty deed to the land. Subsequently, the debtor borrowed $30,000 from his aunt, signed a promissory note for that amount, and secured the note with a mortgage on the land. The mortgage was promptly recorded. The aunt failed to make a title search before making the loan. The debtor made no payment to the creditor and defaulted on the mortgage loan from his aunt. A valid judicial foreclosure proceeding was held, in which the creditor, the aunt, and the debtor were named parties. A dispute arose as to which lien had priority. A statute of the jurisdiction provides: “Any judgment properly filed shall, for 10 years from filing, be a lien on the real property then owned or subsequently acquired by any person against whom the judgment is rendered.” A second statute of the jurisdiction provides: “No unrecorded conveyance or mortgage of real property shall be good against subsequent purchasers for value without notice, who shall first record.”
Who has the prior lien?
(A) The aunt, because a judgment lien is subordinate to a mortgage lien.
(B) The aunt, because she is a mortgagee under a purchase-money mortgage.
(C) The creditor, because its judgment was filed first.
(D) The creditor, because the aunt had a duty to make a title search of the property.
Who has the prior lien?
(C) The creditor, because its judgment was filed first.
This is a race-notice jurisdiction, which protects a bona fide purchaser for value without notice who records first. The creditor filed first, giving the aunt constructive notice of the judgment lien. Accordingly, the judgment lien has priority.
Note: The aunt is not a mortgagee under a purchase-money mortgage, because the debtor already owned the property when he borrowed money from the aunt, signed the note, and signed the mortgage. Furthermore, a mortgage lien does not have automatic priority over a judgment lien.
97
An investor purchased a tract of commercial land, financing a large part of the purchase price with a loan from a business partner that was secured by a mortgage. The investor made the installment payments on the mortgage regularly for several years. Then the investor persuaded a neighbor to buy the land, subject to the mortgage to his partner. They expressly agreed that the neighbor would not assume and agree to pay the investor’s debt to the partner. The investor’s mortgage to the partner contained a due-on-sale clause stating, “If Mortgagor transfers his or her interest without the written consent of Mortgagee first obtained, then at Mortgagee’s option the entire principal balance of the debt secured by this Mortgage shall become immediately due and payable.” However, without seeking his partner’s consent, the investor conveyed the land to the neighbor, the deed stating that it was “subject to a mortgage to [the partner]” and giving details and recording data related to the mortgage. The neighbor took possession of the land and made several mortgage payments, which the partner accepted. Now, however, neither the neighbor nor the investor has made the last three mortgage payments. The partner has sued the neighbor for the amount of the delinquent payments.
In this action, for whom should the court render judgment?
(A) The neighbor, because she did not assume and agree to pay the investor’s mortgage debt.
(B) The neighbor, because she is not in privity of estate with the partner.
(C) The partner, because the investor’s deed to the neighbor violated the due-on-sale clause.
(D) The partner, because the neighbor is in privity of estate with the partner.
(A) The neighbor, because she did not assume and agree to pay the investor’s mortgage debt.
A grantee who does not assume the mortgage, but rather takes subject to the mortgage, is not personally liable for the debt. In this case, there was no express assumption. In fact, the parties agreed that the neighbor was not assuming the mortgage debt. The debt is to be satisfied out of the land first, with the investor liable for any deficiency.
98
A businessman owned a hotel, subject to a mortgage securing a debt he owed to a bank. The businessman later acquired a nearby parking garage, financing a part of the purchase price with a loan from a financing company, secured by a mortgage on the parking garage. Two years thereafter, the businessman defaulted on the loan owed to the bank, which caused the full amount of that loan to become immediately due and payable. The bank decided not to foreclose the mortgage on the hotel at that time, but instead properly sued for the full amount of the defaulted loan. The bank obtained and properly filed a judgment for that amount. A statute of the jurisdiction provides: “Any judgment properly filed shall, for 10 years from filing, be a lien on the real property then owned or subsequently acquired by any person against whom the judgment is rendered.” There is no other applicable statute, except the statute providing for judicial foreclosure of mortgages, which places no restrictions on deficiency judgments. Shortly thereafter, the bank brought an appropriate action for judicial foreclosure of its mortgage on the hotel and of its judgment lien on the parking garage. The financing company was joined as a party defendant, and appropriately sued for foreclosure of its mortgage on the parking garage, which was also in default. All procedures were properly followed, and the confirmed foreclosure sales resulted in the following: The net proceeds of the sale of the hotel to a third party were $200,000 less than the bank’s mortgage balance. The net proceeds of the sale of the parking garage to a fourth party were $200,000 more than the financing company’s mortgage balance.
How should the $200,000 surplus arising from the sale of the parking garage be distributed?
(A) It should be paid to the bank.
(B) It should be paid to the businessman.
(C) It should be paid to the financing company.
(D) It should be split equally between the bank and the financing company.
(A) It should be paid to the bank.
The foreclosure sale of the bank’s mortgage on the hotel was insufficient to pay the businessman’s debt to the bank. The bank had received a judgment against the businessman for the entire amount of the defaulted loan. This judgment was properly filed, and the judgment lien applied to all property owned by the businessman during the 10-year time period, including the parking garage. (The bank may have decided on this course of action because it deemed the businessman’s equity in the garage significant and the timing bad for a hotel foreclosure.) After the financing company was paid in full from the funds generated by the foreclosure sale of its mortgage on the parking garage, the additional funds generated by that sale would be paid to the bank not as a deficiency judgment, but because of the unsatisfied amount of the prior money judgment.
99
A landowner lawfully subdivided his land into 10 large lots. The recorded subdivision plan imposed no restrictions on any of the 10 lots. Within two months after recording the plan, the landowner conveyed Lot 1 to a buyer, by a deed that contained no restrictions on the lot’s use. There was then a lull in sales. Two years later, the real estate market in the state had generally improved, and during the next six months, the landowner sold and conveyed eight of the remaining nine lots. In each of the eight deeds of conveyance, the landowner included the following language: “It is a term and condition of this conveyance, which shall be a covenant running with the land for the benefit of each of the 10 lots [with an appropriate reference to the recorded subdivision plan], that for 15 years from the date of recording of the plan, no use shall be made of the premises herein conveyed except for single-family residential purposes.” The buyer of Lot 1 had actual knowledge of what the landowner had done. The landowner included the quoted language in part because the municipality had amended its zoning ordinance a year earlier to permit professional offices in any residential zone. Shortly after the landowner’s most recent sale, when he owned only one unsold lot, the buyer of Lot 1 constructed a one-story house on Lot 1 and then conveyed Lot 1 to a doctor. The deed to the doctor contained no reference to any restriction on the use of Lot 1. The doctor applied for an appropriate certificate of occupancy to enable her to use a part of the house on Lot 1 as a medical office. The landowner, on behalf of himself as the owner of the unsold lot, and on behalf of the other lot owners, sued to enjoin the doctor from carrying out her plans and to impose the quoted restriction on Lot 1.
Who is likely to prevail?
(A) The doctor, because Lot 1 was conveyed without the restrictive covenant in the deed to the first buyer and the subsequent deed to the doctor.
(B) The doctor, because zoning ordinances override private restrictive covenants as a matter of public policy.
(C) The landowner, because the doctor, as a successor in interest to the first buyer, is estopped from denying that Lot 1 remains subject to the zoning ordinance as it existed when the landowner conveyed Lot 1 to the first buyer.
(D) The landowner, because with the first buyer’s knowledge of the facts, Lot 1 became incorporated into a common scheme.
A) The doctor, because Lot 1 was conveyed without the restrictive covenant in the deed to the first buyer and the subsequent deed to the doctor.
To be binding, a restrictive covenant must be placed on property at the time it is conveyed. Here, neither the deed to the first buyer nor the deed to the doctor contained the restrictive covenant. The burden cannot be attached to Lot 1 at a later time by someone who has no interest in Lot 1. Therefore, the doctor may proceed with her plan to use part of the property as a medical office.
To be binding, a restrictive covenant must be placed on property at the time it is conveyed. Here, neither the deed to the first buyer nor the deed to the doctor contained the restrictive covenant. The burden cannot be attached to Lot 1 at a later time by someone who has no interest in Lot 1. Therefore, the doctor may proceed with her plan to use part of the property as a medical office.
100
A buyer validly contracted in writing to buy improved land from a seller. The contract had no contingencies and was silent as to risk of loss if there was damage to, or destruction of, property improvements between contract and closing, and as to any duty to carry insurance. As soon as the parties signed the contract, the seller (who had already moved out) canceled her insurance covering the land. The buyer did not know this and did not obtain insurance. A few days later, three weeks before the agreed closing date, the building on the land was struck by lightning and burned to the ground. There is no applicable statute. In an appropriate action, the buyer asserted the right to cancel the contract and to recover his earnest money. The seller said that because the risk of fire loss had passed to the buyer before the fire, the buyer must perform.
If the seller prevails, what will be the most likely explanation?
(A) Once the parties signed the contract, only the buyer had an insurable interest and so could have protected against this loss
(B) The buyer’s constructive possession arising from the contract gave him the affirmative duty of protecting against loss by fire
(C) The seller’s cancellation of her casualty insurance caused the risk of loss to transfer to the buyer.
(D) Upon execution of the contract, the buyer became the equitable owner of the land under the doctrine of equitable conversion
D) Upon execution of the contract, the buyer became the equitable owner of the land under the doctrine of equitable conversion
Note: In a contract for the sale of land, absent a provision establishing a duty, neither the seller nor the buyer has a duty to carry insurance on the property. Accordingly, this answer cannot accurately describe the basis for a court to find for the seller. Although jurisdictions differ on which party has the risk of loss, a finding for the seller in this case means that the jurisdiction hearing the case places the risk of loss on the equitable owner of the property, the buyer, under the doctrine of equitable conversion.
101
A landowner orally gave his neighbor permission to share the use of a private road on the landowner’s land so that the neighbor could have more convenient access to the neighbor’s land. Only the landowner maintained the road. After the neighbor had used the road on a daily basis for three years, the landowner conveyed his land to a grantee, who immediately notified the neighbor that the neighbor was not to use the road. The neighbor sued the grantee, seeking a declaration that the neighbor had a right to continue to use the road.
Who is likely to prevail?
(A) The grantee, because an oral license is invalid.
(B) The grantee, because the neighbor had a license that the grantee could terminate at any time.
(C) The neighbor, because the grantee is estopped from terminating the neighbor’s use of the road.
(D) The neighbor, because the neighbor’s use of the road was open and notorious when the grantee purchased the land.
(B) The grantee, because the neighbor had a license that the grantee could terminate at any time.
A license is permission to use the land of another. It is revocable and is not subject to the statute of frauds. In this case, because the neighbor had the landowner’s permission to use the road and did not expend any money, property, or labor pursuant to the agreement, the neighbor had a license that was effectively revoked by the grantee.
Note: For estoppel to apply, the neighbor must have expended money, property, or labor pursuant to the agreement. In this case, the landowner alone maintained the road. The neighbor’s use of the land by permission, without expense, was a license that was effectively revoked by the grantee.
102
A man borrowed money from a bank and executed a promissory note for the amount secured by a mortgage on an office building that he owned. Several years later, the man sold the building. As specified in the contract of sale, the deed to the buyer provided that the buyer agreed “to assume the existing mortgage debt” on the building.
Subsequently, the buyer defaulted on the mortgage loan to the bank, and appropriate foreclosure proceedings were initiated. The foreclosure sale resulted in a deficiency.
There is no applicable statute.
Is the buyer liable for the deficiency?
(A) No, because even if the buyer assumed the mortgage, the man is solely responsible for any deficiency.
(B) No, because the buyer did not sign a promissory note to the bank and therefore has no personal liability.
(C) Yes, because the buyer assumed the mortgage and therefore became personally liable for the mortgage loan and any deficiency.
(D) Yes, because the transfer of the mortgage debt to the buyer resulted in a novation of the original mortgage and loan and rendered the buyer solely responsible for any deficiency.
C) Yes, because the buyer assumed the mortgage and therefore became personally liable for the mortgage loan and any deficiency.
With a mortgage assumption, a buyer who assumes a mortgage debt becomes primarily liable for that debt. In this case, the man, absent a release by the bank, also is liable, although he is only secondarily liable. This situation can be contrasted with one in which the buyer might have purchased “subject to the mortgage,” in which case only the man would be liable for any deficiency.
Note: An assumption of a mortgage makes a buyer primarily liable for any deficiency.
103
A man died testate. The man’s estate consisted of a residence as well as significant personal property. By his duly probated will, the man devised the residence to a friend, who was specifically identified in the will. The residue of the estate was given to a stated charity.
The man’s friend, although alive at the time the man executed the will, had predeceased the man. The friend’s wife and their child, who has a disability, both survived the man.
The value of the residence has increased significantly because of recent zoning changes. There is credible extrinsic evidence that the man wanted his friend to own the residence after the man’s death so that the friend and his wife could care for their child there.
There is no applicable statute.
If both the charity and the child claim the residence, to whom should the estate distribute the residence?
(A) The charity, because the devise to the friend adeemed.
(B) The charity, because the devise to the friend lapsed.
(C) The child, because extrinsic evidence exists that the man’s intent was to benefit the child.
(D) The child, because no conditions of survivorship were noted in the will.
(B) The charity, because the devise to the friend lapsed.
A deceased person cannot take and hold title to property. If a named beneficiary predeceases the testator and there is no provision in the will for what happens to the gift in that case, the gift to that beneficiary lapses. In this case, the gift to the friend lapsed. The gift of the residence was a specific gift, and the lapse of this specific gift passes the residence through the residuary clause of the will. The charity is the residuary taker.
Note: There is no applicable anti-lapse statute and no gift-over provision
104
A niece inherited vacant land from her uncle. She lived in a distant state and decided to sell the land to a colleague who was interested in purchasing the land as an investment. They orally agreed upon a price, and, at the colleague’s insistence, the niece agreed to provide him with a warranty deed without any exceptions. The price was paid, the warranty deed was delivered, and the deed was promptly recorded. Neither the niece nor the colleague had, at that point, ever seen the land.
After recording the deed, the colleague visited the land for the first time and discovered that it had no access to any public right-of-way and that none of the surrounding lands had ever been held in common ownership with any previous owner of the land.
The colleague sued the niece for damages. For whom will the court find?
(A) The colleague, because lack of access makes title unmarketable.
(B) The colleague, because the covenants of warranty and quiet enjoyment in the deed were breached.
(C) The niece, because no title covenants were breached.
(D) The niece, because the agreement to sell was oral.
(C) The niece, because no title covenants were breached.
Lack of access may render title unmarketable under a contract of sale; however, the time to challenge marketable title is prior to the acceptance of the deed.
Note: The covenants of warranty and quiet enjoyment are breached when the grantee has been evicted from possession of the land by another with a superior title. The colleague has not been evicted by anyone with a superior title. The colleague merely lacks access to a public right-of-way. Lack of access may render a title unmarketable under a contract of sale; however, the time to challenge marketable title is prior to acceptance of the deed.
105
Twenty-five years ago, a man who owned a 45-acre tract of land conveyed 40 of the 45 acres to a developer by warranty deed. The man retained the rear five-acre portion of the land and continues to live there in a large farmhouse.
The deed to the 40-acre tract was promptly recorded. It contained the following language:
“It is a term and condition of this deed, which shall be a covenant running with the land and binding on all owners, their heirs and assigns, that no use shall be made of the 40-acre tract of land except for residential purposes.”
Subsequently, the developer fully developed the 40-acre tract into a residential subdivision consisting of 40 lots with a single-family residence on each lot.
Although there have been multiple transfers of ownership of each of the 40 lots within the subdivision, none of them included a reference to the quoted provision in the deed from the man to the developer, nor did any deed to a subdivision lot create any new covenants restricting use.
Last year, a major new medical center was constructed adjacent to the subdivision. A doctor who owns a house in the subdivision wishes to relocate her medical office to her house. For the first time, the doctor learned of the restrictive covenant in the deed from the man to the developer. The applicable zoning ordinance permits the doctor’s intended use. The man, as owner of the five-acre tract, however, objects to the doctor’s proposed use of her property.
There are no governing statutes other than the zoning code. The common law Rule Against Perpetuities is unmodified in the jurisdiction.
May the doctor convert her house in the subdivision into a medical office?
(A) No, because the owners of lots in the subdivision own property benefitted by the original residential covenant and have the sole right to enforce it.
(B) No, because the man owns property benefitted by the original restrictive covenant and has a right to enforce it.
(C) Yes, because the original restrictive covenant violates the Rule Against Perpetuities.
(D) Yes, because the zoning ordinance allows the doctor’s proposed use and preempts the restrictive covenant.
(B) No, because the man owns property benefitted by the original restrictive covenant and has a right to enforce it.
The restrictive covenant created 25 years ago placed a burden (that the land must be kept residential) on the 40-acre tract of land and gave the right to enforce the covenant to the man who retained ownership of the benefitted five-acre tract of land. The man may enforce the covenant because he owns land benefitted by it.
Note: The other owners in the subdivision may be able to enforce the covenant; however, the man, as the owner of the originally benefitted five-acre tract of land, also may enforce it.
106
Five years ago, an investor who owned a vacant lot in a residential area borrowed $25,000 from a friend and gave the friend a note for $25,000 due in five years, secured by a mortgage on the lot. The friend neglected to record the mortgage. The fair market value of the lot was then $25,000.
Three years ago, the investor discovered that the friend had not recorded his mortgage and in consideration of $50,000 conveyed the lot to a buyer. The fair market value of the lot was then $50,000. The buyer knew nothing of the friend’s mortgage. One month thereafter, the friend discovered the sale to the buyer, recorded his $25,000 mortgage, and notified the buyer that he held a $25,000 mortgage on the lot.
Two years ago, the buyer needed funds. Although she told her bank of the mortgage claimed by the investor’s friend, the bank loaned her $15,000, and she gave the bank a note for $15,000 due in two years secured by a mortgage on the lot. The bank promptly recorded the mortgage. At that time, the fair market value of the lot was $75,000.
The recording act of the jurisdiction provides: “No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice unless the same be recorded according to law.”
Both notes are now due, and both the investor and the buyer have refused to pay. The lot is now worth only $50,000. What are the rights of the investor’s friend and the bank in the lot?
(A) Both mortgages are enforceable liens, and the friend’s has priority because it was first recorded.
(B) Both mortgages are enforceable liens, but the bank’s has priority because the buyer was an innocent purchaser for value.
(C) Only the friend’s mortgage is an enforceable lien, because the bank had actual and constructive notice of the investor’s fraud.
(D) Only the bank’s mortgage is an enforceable lien, because the buyer was an innocent purchaser for value.
(D) Only the bank’s mortgage is an enforceable lien, because the buyer was an innocent purchaser for value.
The friend does not have an enforceable lien. The friend did have a lien on the lot when the investor granted the friend a mortgage. The friend, however, did not record the mortgage. The investor then sold the lot to the buyer.
The buyer had no actual notice of the mortgage to the friend. The buyer had no notice based on possession because the lot was vacant. The buyer had no constructive notice of the mortgage because the mortgage to the friend had not been recorded when the buyer received title. The lot is located in a notice jurisdiction. Thus, the buyer took the lot free of any prior unrecorded interests. The buyer was an innocent purchaser for value at the time the buyer received title. Later notice to the buyer and the later recording of the friend’s mortgage are irrelevant.
Note: The friend did have a lien on the lot when the investor granted the friend a mortgage. The friend, however, did not record the mortgage. The investor then sold the lot to the buyer. The buyer had no actual notice of the mortgage to the friend. The buyer had no notice based on possession because the lot was vacant. The buyer had no constructive notice of the mortgage because the mortgage to the friend had not been recorded when the buyer received title.
107
A grantor owned two tracts of land, one of 15 acres and another of 5 acres. The two tracts were a mile apart.
Fifteen years ago, the grantor conveyed the smaller tract to a grantee. The grantor retained the larger tract. The deed to the grantee contained, in addition to proper legal descriptions of both properties and identifications of the parties, the following language:
“I, the grantor, bind myself and my heirs and assigns that in the event that the larger tract that I now retain is ever offered for sale, I will notify the grantee and his heirs and assigns in writing, and the grantee and his heirs and assigns shall have the right to purchase the larger tract for its fair market value as determined by a board consisting of three qualified expert independent real estate appraisers.”
With appropriate references to the other property and the parties, there followed a reciprocal provision that conferred upon the grantor and her heirs and assigns a similar right to purchase the smaller tract, purportedly binding the grantee and his heirs and assigns.
Ten years ago, a corporation acquired the larger tract from the grantor. At that time, the grantee had no interest in acquiring the larger tract and by an appropriate written document released any interest he or his heirs or assigns might have had in the larger tract.
Last year, the grantee died. The smaller tract passed by the grantee’s will to his daughter. She has decided to sell the smaller tract. However, because she believes that the corporation has been a very poor steward of the larger tract, she refuses to sell the smaller tract to the corporation even though she has offered it for sale in the local real estate market.
The corporation has brought an appropriate action for specific performance of the right of first refusal after taking all of the necessary preliminary steps in its effort to exercise its right to purchase the smaller tract.
The daughter has asserted all possible defenses.
The common law Rule Against Perpetuities is unmodified in the jurisdiction, and there are no applicable statutes. If the court rules for the daughter, what will be the likely reason?
(A) The provision setting out the right to purchase violates the Rule Against Perpetuities.
(B) The grantee’s release 10 years ago operates as a waiver regarding any right to purchase that the corporation might have.
(C) The two tracts of land were not adjacent parcels of real estate, and thus the right to purchase is in gross and is therefore unenforceable.
(D) Noncompliance with a right to purchase gives rise to a claim for money damages, but not for specific performance.
(A) The provision setting out the right to purchase violates the Rule Against Perpetuities.
A right of first refusal is a conditional option. It provides that if the owner ever decides to sell the property, the person or entity holding the right of first refusal has the right to purchase the property on specified terms. In this case, the purchase price was to be set by three qualified expert independent real estate appraisers and was thus fair. These rights of first refusal, however, violate the common law Rule Against Perpetuities. The right to purchase is triggered by the decision to sell the land. In this case, that decision might occur more than 21 years after a life in being at the time the right was granted.
108
A farmer who owned 25 contiguous acres of orchards sold two acres of orchards to a couple in fee simple. Because the couple intended to build a residence on the two acres, they obtained an oral promise from the farmer that he and anyone to whom he transferred his land would cease using pesticides on the adjoining 23 acres of orchards. The farmer made the promise in good faith, intending to sell the remainder of his land to a developer who planned to subdivide the land into residential lots. The couple built a residence on their two acres, but soon sold their two acres to another buyer in fee simple. The couple told the buyer of the farmer’s promise, and the buyer relied on this promise in making her decision to purchase the property as her primary residence.
Due to an economic downturn, the developer dropped its plans to acquire the land, and the farmer instead sold the remaining 23 acres of orchards to a neighbor in fee simple. Before the sale, the farmer told the neighbor about his promise to the couple. The neighbor maintained the orchards on his 23 acres for one year without using pesticides, but because the harvest was substantially adversely affected by the lack of pesticides, the neighbor told the buyer that he would again use pesticides on the orchards.
Can the buyer now living on the two acres enjoin the neighbor’s use of pesticides on the orchards as a breach of the farmer’s promise?
A) No, because the farmer’s promise was not in writing.
B) No, because the neighbor was not in privity with the farmer.
C) Yes, because the buyer relied on the farmer’s promise when she purchased the residence.
D) Yes, because the farmer’s promise touched and concerned the land.
A) No, because the farmer’s promise was not in writing
For a promise restricting the use of land to be enforced in equity against a subsequent transferee of the land, the requirements for an equitable servitude must be satisfied.
Writing (SOF)
Intent
Notice
Touch and concern
AND
P (RCs only) Horizontal and Vertical Privity
Note: while a promise must touch and concern the land to be enforceable as an equitable servitude, this is not the only requirement, and even a promise meeting this requirement must also be in writing to be enforced as an equitable servitude.
109
A manufacturer, on its own land, built a factory to produce a product. The factory contained the heavy machinery needed to produce the product. Several years later, the owner of adjoining land excavated a site on its own land in order to place an underground storage tank. The excavation at this location, although done without negligence, caused the part of the manufacturer’s factory that housed the heavy machinery to subside. Both the manufacturer with regard to the factory and the adjacent landowner with regard to the excavation complied with all governmental regulations. The manufacturer has sued the adjacent landowner for damages to its factory attributable to the landowner’s excavation.
For whom is the court likely to rule?
A) The manufacturer, because its factory had been constructed before the adjacent landowner’s excavation.
B) The manufacturer, because the adjacent landowner is strictly liable for damages attributable to the lack of lateral support.
C) The adjacent landowner, because the subsidence occurred without negligence on its part.
D) The adjacent landowner, because the excavation took place solely on its own land.
C) The adjacent landowner, because the subsidence occurred without negligence on its part.
A landowner has a right to lateral support from adjoining land.
+ When adjoining land is in its natural state (i.e., undeveloped), a landowner who excavates on his own land is strictly liable for any damage to the adjoining land caused by the excavation.
+ If the adjoining land has been improved (i.e., is not in its natural state), the excavating landowner is strictly liable for any damage caused by the excavation only if the land would have collapsed in its natural state (regardless of the improvement).
+ If the improvement contributed to the collapse, then the adjoining landowner may recover only if the excavating landowner was negligent.
Here, the manufacturer’s land was not in its natural state; the manufacturer had constructed a factory on the land. Moreover, the only part of the factory that suffered damages was the part that had housed the heavy machinery, which indicates that the land would likely not have subsided in its natural state.
Note: liability based on the duty to provide lateral support is not predicated on a landowner’s obligation not to damage existing improvements on adjoining land, but instead on a landowner’s duty not to negligently cause damage to such structures that contribute to the subsidence. When the landowner’s actions are not negligent, the owner of adjacent land cannot recover for the damage caused to such structure
110
On April 15, a librarian purchased a vacation home from a seller for $200,000 cash. She placed the deed in a safety deposit box but did not immediately record it. On April 20, the seller sold the vacation home to an engineer, who had no knowledge of the prior sale, for $250,000 cash. On April 22, the librarian recorded her deed. The engineer, who had placed the deed in a drawer and forgotten about it, did not record the deed until June 1. The recording statute in the jurisdiction states: “No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice unless the same be recorded according to law.”
In a subsequent action, who will prevail?
A) The librarian, because she was first to record the deed.
B) The librarian, because the engineer had constructive notice of her deed when he recorded his deed on June 1.
C) The engineer, because the librarian did not record her deed until after the engineer purchased the vacation home.
D) The engineer, because the paid value of his purchase was greater than that for the librarian.
C) The engineer, because the librarian did not record her deed until after the engineer purchased the vacation home.
Notice Statute: A purchaser need only purchase without notice of the prior interest to prevail.
If a subsequent purchaser purchases a property which a prior grantee failed to record, and the subsequent purchaser had no notice of the prior interest, the subsequent purchaser prevails over the prior interest ***regardless of who recorded the deed first****
Because the engineer did not have actual, inquiry, or constructive notice of the librarian’s interest when he purchased the property, his claim will prevail over the librarian’s, even though he recorded his deed later in time.
111
The owner of a commercial building that was subject to a mortgage that had been properly recorded forged a release from the mortgagee. The owner recorded the release in the proper office. The owner then sold the building at its full fair market value to a buyer, who relied on the recorded release. The buyer promptly and properly recorded the deed in the same office. The mortgagee learned of the owner’s actions after the owner had left the state and could not be located. When the mortgagee contacted the buyer and demanded payment of the outstanding balance on the mortgage, which was in default, the buyer brought suit to quiet title against the mortgagee.
The state recording act provides: “No unrecorded conveyance or mortgage of real property shall be good against subsequent purchasers for value without notice, who shall first record."
For whom should the court rule?
A) The buyer, because the buyer relied on the recorded release.
B) The buyer, because of the recording act.
C) The mortgagee, because the release had been forged by the owner.
D) The mortgagee, because the recording act is a race-notice act.
C) The mortgagee, because the release had been forged by the owner.
A forged instrument, such as a deed or release from a mortgage, is void and has no effect on property rights, even if relied upon by a bona fide purchase
112
The owner of a building leased it to a manufacturer for 10 years. Among the terms of the lease was a provision that prohibited anyone from assigning any rights under the lease without the express written consent of the owner. Three years later, the manufacturer, facing a contraction of its business, entered into an agreement with a retailer to assume the manufacturer’s obligations under the lease for the remaining seven years. The manufacturer did not seek the approval of the owner to this agreement, but the owner was aware of it and accepted the retailer’s payment of the rent. With five years remaining on the lease, the retailer entered into an agreement with a distributor for the distributor to lease the building for two years. The retailer sought the owner’s permission for this transfer. The owner, because of personal animus towards the distributor, has refused to grant his permission. Which of the following is an argument that is most likely to compel the owner to accept the distributor as the tenant of the building?
A) The lease provision does not require the owner’s approval of the agreement between the retailer and the distributor.
B) The owner waived his rights to object under the lease by accepting the retailer as a tenant.
C) A non-assignment provision constitutes an unreasonable restraint on alienation.
D) The owner does not have a commercially reasonable objection to the distributor as a tenant in the building.
A) The lease provision does not require the owner’s approval of the agreement between the retailer and the distributor.
Assignment = complete transfer of the tenant's remaining lease term.
Sublease = Any transfer for less than the entire duration of the lease
Here, the agreement between the retailer and the distributor is a sublease, not an assignment, because it extends for only two years of the remaining five years of the lease. As such, it is not covered by the lease provision that requires the owner's permission before rights under the lease can be assigned.
113
A buyer entered into an installment land contract with a seller, agreeing to purchase a vacant lot owned by the seller. The parties agreed that after the buyer made the last of 120 installment payments, the seller would deliver a warranty deed conveying the lot in fee simple. The contract did not mention any encumbrances on the vacant lot. The buyer took possession of the lot and constructed an office building. The buyer made 119 timely installment payments. Upon making the last payment, the buyer demanded that the seller convey title to the lot in fee simple pursuant to the land sales contract. The seller delivered the deed to the lot at which time the buyer discovered an outstanding, enforceable mortgage on the lot. There was no evidence that the seller ever defaulted on the mortgage. However, the balance of the mortgage obligation remained at half the value of the lot.
Upon learning of the outstanding mortgage, the buyer refused to accept the deed and demanded that the seller either pay the mortgage obligation or return half of the installment payments to compensate for the encumbrance. The seller has refused to comply with either demand.
Is the buyer likely to succeed in a suit against the seller?
A) No, because there is no covenant of marketable title in an installment land contract.
B) No, because the buyer can no longer sue under the installment land contract.
C) Yes, because the installment land contract specifically called for delivery of a warranty deed.
D) Yes, because the buyer can obtain specific performance with an abatement of the purchase price.
D) Yes, because the buyer can obtain specific performance with an abatement of the purchase price.
Absent contrary language, every land sales contract contains an implied covenant of marketable title.
Unless otherwise agreed, the seller is not required to deliver marketable title until the closing. In an installment land contract, marketable title is not required to be given until delivery occurs after all installment payments have been made.
An undisclosed private encumbrance (such as a mortgage) renders title unmarketable. If a seller delivers an unmarketable title, a buyer may rescind the contract and recover payments, sue for breach of contract, or bring an action for specific performance with an abatement of the purchase price.
Note: The buyer can still sue under the installment land contract because he properly rejected the delivery of the deed due to the presence of the mortgage, a private encumbrance. Thus, delivery was not completed and the land sales contract, requiring delivery of marketable title, remains in effect
114
A developer who owned a large tract of land paid the owner of 10 acres of meadow land that adjoined the tract for the right to construct and use a road across the meadow land to reach the developer’s tract. Although the developer planned to build 50 homes on his land, due to a downturn in the economy, the developer never began work on the project. The developer did not record the deed from the owner of the meadow land that granted the easement across the owner’s land. The following year, the owner died. He devised the meadow land to his son. Unaware of his father’s deed to the developer, the son built a residence on the meadow land and lived there for six years before recently selling it to a buyer. The developer, having obtained the necessary funds, has resurrected the planned development project. The developer properly recorded the deed from the owner the day before the buyer recorded a special warranty deed that she received from the son. The buyer, learning of the developer’s plan to construct and use a road across the buyer’s newly acquired property, has sued the son for breach of warranty.
The applicable jurisdiction has the following recording statute:
No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice who shall first record.
Will the buyer be successful in her lawsuit against the son?
A) Yes, because the developer has an easement to construct a road across the 10 acres.
B) Yes, because the son has breached the covenant against encumbrances.
C) No, because the buyer’s land is not subject to the developer’s easement.
D) No, because the easement did not arise during the time that the son owned the 10 acres.
D) No, because the easement did not arise during the time that the son owned the 10 acres.
The covenant against encumbrances guarantees that the deed contains no undisclosed encumbrances. A special warranty deed contains this covenant but only warrants against defects arising during the time the grantor has title. Here, the son has not breached this warranty in the special warranty deed that he gave to the buyer because the developer’s easement arose during the owner’s (the son’s father’s) ownership of the 10 acres, not during the time the son owned the property.
Note: Although the developer’s easement does constitute an encumbrance on the buyer’s property, the son has not breached his special warranty against encumbrances because he did not grant the easement to the developer
115
A man owned a large tract of land that had frontage on a public highway. The land had no access to any other road. 15 years ago, the man conveyed the rear half of the land to a woman and, at the same time, conveyed an express easement to the woman that provided access from her land across his retained land to the public highway.
The woman used the easement until she re-conveyed the land back to the man 10 years ago. The deed to the man made no reference to the easement. 5 years ago, the man conveyed the rear half of the land to an investor in a deed that made no reference to any easement to the public highway.
Recently the man told the investor that he could no longer cross the man's land for access to the public highway. A neighbor told the investor that he can use her land to access another public road "for a price." The investor sued the man for the right to cross the man's land to the public highway.
For whom shall the court likely decide?
A) The investor, because an easement will be implied.
B) The investor, because the man is estopped by his grant of an easement to the woman.
C) The man, because the express easement was terminated by the reconveyance
D) The man, because the investor can reasonably acquire another means of access to a public road.
A) The investor, because an easement will be implied.
Man and woman: Express easement (in writing), which terminated when the woman re-conveyed the land back to the man.
Man and investor: Terminated easement was not re-created by re-conveyance. There was no express grant, either. BUT an easement by necessity can be implied IF
1) Severance of common ownership - dominant and servient estates were a single tract of land and the owner retained a tract while conveying the rest to another
2) Strict necessity - absolute necessary for use and enjoyment of the land.
Here, the investor was landlocked, so an easement by necessity can be implied.
116
30 Years ago, a brother owned Lot 1, a lot next to Lot 2, in FSA. He executed and delivered to his sister an instrument in writing entitled, "Deed of Conveyance." In part it read, "Brother does grant to Sister and her heirs and assigns a right-of-way for egress and ingress to Lot 2." The deed was recorded, with the sister holding record title to Lot 2, which adjoined Lot 1.
12 years ago, a cousin succeeded to the brother's title in fee simple in Lot 1. 7 years ago, a friend succeeded to the sister's title in fee simple of Lot 2 by a deed that made no mention of a right-of-way or driveway. At the time the friend took title, there was a driveway across Lot 1 which showed evidence that it had been used regularly to travel between the public highway and Lot 2. Lot 2 did have a frontage on a public side road, but this means of access was seldom used because it was not as convenient to the dwelling situated on Lot 2 as was the highway. The driveway was established by the sister.
The friend regularly used the driveway since acquiring title. The period of time required to acquire rights by prescription in this jurisdiction is 10 years.
6 months ago, the cousin notified the friend that he planned to develop a portion of Lot 1 as a residential subdivision and that the friend should cease use of the driveway. After some negotiations, the cousin offered to permit friend to construct another driveway to connect with the streets of the proposed subdivision. She declined this offer on the ground that travel from Lot 2 to the highway would be more difficult.
The friend brought an appropriate action against the cousin to obtain a definitive adjudication of their respective rights. In such a lawsuit, the cousin relied upon the defense that the location of the easement created by the grant from the brother to the sister was governed by reasonableness and that the cousin's proposed solution was reasonable.
Should the cousin prevail?
A) No, because the location had been established by the acts of the brother and sister
B) No, because the location of the easement had been fixed by prescription
C) Yes, because the reasonableness of the cousin's proposal was established by the friend's refusal to suggest an alt. location
D) Yes because the servient owner is entitled to select the location of a right-of-way if the grant fails.
A) No, because the location had been established by the acts of the brother and sister
Express easement: Location is set by terms. When terms are unclear (i.e., "right of way for egress and ingress to Lot 2), courts look at the parties' intent to determine the easement location. This can be through the parties' conduct.
Here, the sister used the driveway to access Lot 1 without brother's objection, so the parties set the easement location through use.
Relocation: Servient estate owners may relocate an easement **at his own expense** to permit normal use or development of the servient estate. Relocation must be reasonable and CANNOT
+ Violate the easement terms
+ Significantly lessen the easement's utility
+ Increase the burden on the dominant estate owner's use and enjoyment
+ Frustrate the easement's purpose
Here, the offer by the cousin would be at the friend's expense. In addition, the suggested offer would increase the burden on the dominant estate owner's use and enjoyment of the land and decrease the easement's utility, as it would be a driveway that connected with a neighborhood development's streets.
117
A rancher was the owner of a large equestrian facility. The rancher entered into a binding written contract with a company for the sale and purchase of the facility for $500,000. The contract required the rancher to convey marketable record title.
The company decided to protect its interest by promptly and properly recording the contract.
Before the date scheduled for closing, a trainer obtained and properly filed a judgment against the rancher in the amount of $1 million regarding a personal injury lawsuit. A statute in the jurisdiction provides, "Any judgment properly filed shall, for 10 years from filing, be a lien on real property then owned or subsequently acquired by any person against whom the judgment is rendered."
The recording act of the jurisdiction authorizes recording of contracts and also provides, "No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice unless the same be recorded according to law."
At the closing, the company declined to accept the title of the rancher on the ground that the trainer's judgment lien encumbered the title it would receive and render it unmarketable. The rancher brought appropriate action against the company for specific performance of the contract and joined the rancher as a party.
In this action, for whom should the court render judgment
A) The company, because the rancher cannot benefit from the company's action in recording the contract
B) The company, because the statute creating judgment liens takes precedence over the recording act
C) The rancher, because in equity a purchaser takes free of judgment liens
D) The rancher, because the contract had been recorded.
D) The rancher, because the contract had been recorded.
Competing property interests render title unmarketable UNLESS the buyer's interest has priority over those competing interests.
Ex: A buyer with a recorded equitable interest has priority over a subsequent judgment lien.
Here, the company received equitable title --right to receive legal title when the company and rancher entered into a land sales contract. The company recorded that contract BEFORE the trainer obtained a judgment lien.
Thus, the company's property interest has priority over the trainer's interest and the rancher can convey marketable title.
Note: the statute for judgment liens permits a recorded judgment to be a lien on real property owned by the person liable under that judgment. It does not take precedence over the recording act, which determines the priority of the competing property interests, including judgment liens.
118
A man conveyed a large tract of land to a buyer by warranty deed. The buyer recorded the deed four days later. After the conveyance but prior to the recording of the deed, a creditor filed a judgment against the man.
A jurisdictional statute reads, "Any judgment properly filed shall, for ten years from filing, be a lien on the real property then owned or subsequently acquired by any person against whom the judgment is rendered."
The recording act of the jurisdiction provides, "No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice unless the same be recorded according to law."
The recording act has no grace period provision.
The creditor joined both the man and the buyer in an appropriate action to foreclose her judgment lien against the land.
If the creditor is unsuccessful what will be the reason?
A) Any deed is superior to a judgment lien
B) Four days is not an unreasonable delay in recording a deed
C) The creditor is not a purchaser for value
D) The man's warranty of title to the buyer defeats the creditor's claim
D) The rancher, because the contract had been recorded.
Recording acts help prioritize competing interests.
Notice Act: protects ONLY subsequent purchasers of value who lack notice of prior interests in land.
***Judgment creditors are not purchasers for value*** because the attachment of a lien to a debtor's property is merely a security for a preexisting debt (no new value has been paid). As such, judgment are not protected under the notice act and the creditor cannot foreclose.
Note: a warranty deed does not defeat a competing interest in land, like a judgment creditor. A warranty deed allows a grantee to sue the grantor in the event that a competing interest is a grantor's breach of warranty under the deed.
119
A mother made a gift of unimproved real property to her son. The son promptly and properly recorded the deed, but did not inspect the property nor otherwise make use of it by building structures or making other improvements. The son, however, did pay the real estate taxes imposed on the property. Subsequently, the mother, forgetting about her conveyance of the property, sold it at its fair market value. The buyer promptly and properly recorded the deed. The buyer, who was not aware of the son’s ownership of the property, began to construct a house on the property. Upon learning about the buyer’s construction activities, the son, unaware of his mother’s transaction with the buyer, brought an appropriate legal action to halt the buyer’s activities and declare title to the property. Will the buyer be successful in defending against the son’s lawsuit?
A) Yes, because the recording act does not protect a donee of real property.
B) Yes, because the son did not make productive use of the real property.
C) No, because the son recorded his deed before his mother made the subsequent conveyance to the buyer.
D) No, because the son paid the real estate taxes on the property.
C) No, because the son recorded his deed before his mother made the subsequent conveyance to the buyer.
Regardless of the type of recording act that governs, the grantee of real property is protected from a subsequent purchaser’s claims of ownership to the property by recording his deed prior to the subsequent conveyance.
Note: although the recording act does not protect a subsequent grantee who is a donee from an unrecorded deed, it does protect any grantee, including a donee, who records his deed prior to the subsequent conveyance.
120
A testator who was estranged from her immediate family properly executed a will. Under the terms of the will, the testator devised various items of personal property to her daughter. The terms of the will left the remainder of the testator’s estate to an unrelated friend who was living at that time. At the time of the testator’s death, the friend had died intestate, but the friend’s wife and their only child, a son, were alive. The testator was unmarried at the time of her death, survived solely by her only child, a daughter. The applicable jurisdiction has the following two statutes: If a devisee related by blood to the testator in any degree of kinship is dead at the time of execution of the will, fails to survive the testator, or is treated as if the devisee predeceased the testator, the issue of the deceased devisee who survive the testator take in place of the deceased devisee. When a decedent dies without a will or possesses property that is not devised under the terms of the decedent’s will, and the decedent is survived by a spouse and any child, the spouse shall share the decedent’s property equally with the children. If the decedent is not survived by a spouse but is survived by any child, each surviving child shall share equally the decedent’s property. The testator died owning her residence in fee simple absolute.
Who is entitled to her residence?
A) Both the friend’s wife and son, under the intestacy statute.
B) The friend’s son only, under the anti-lapse statute.
C) The testator’s daughter, because the testator’s will did not specifically devise the residence to anyone.
D) The testator’s daughter, under the intestacy statute.
D) The testator’s daughter, under the intestacy statute.
The testator, through the residuary clause of her will, left her residence to her friend. However, this devise lapsed because the friend predeceased the testator. The anti-lapse statute provided does not save this devise because it only applies to a devise to a person who is related by blood to the testator, which the friend is not.
Because the testator’s residence does not pass by the terms of her will, it passes in accord with the intestacy statute. Under this statute, because the testator was not married at the time of her death, her only child, a daughter, is entitled to the testator’s property that does not pass under the terms of her will, which includes the testator’s residence
121
In order to finance the purchase of a property, the buyer received a loan and in return gave the lender a promissory note secured by a mortgage on the property. Subsequently, the buyer divided the property into two parcels, retaining one of the parcels and selling the other to a friend. The friend took the parcel subject to the mortgage. The buyer and the friend agreed that each would be liable for one-half of the outstanding mortgage. One year later the buyer disappeared. Since the buyer was no longer paying one-half of the mortgage obligation, the lender threatened to foreclose on the property. The friend paid off the outstanding balance of the loan. The applicable jurisdiction recognizes the lien theory of mortgages. Can the friend bring a foreclosure action against the buyer’s parcel?
A) Yes, because the friend is subrogated to the lender’s rights in the parcel.
B) Yes, because the friend obtained ownership rights in his own parcel by purchase.
C) No, because the friend does not have an ownership interest in the parcel since the jurisdiction adheres to the lien theory of mortgages.
D) No, because the friend was not under a legal duty to pay the buyer’s portion of the mortgage.
A) Yes, because the friend is subrogated to the lender’s rights in the parcel.
Since the friend paid the buyer’s loan obligation in full in order to protect his own interest, the friend became subrogated to the lender’s rights based not only on the personal obligation of the buyer, but also on the mortgage on the land itself.
Note: the way in which the friend acquired his interest in his own parcel is irrelevant to the issue of subrogation
122
A developer purchased a 60-acre parcel of wooded land and divided the parcel into 20 three-acre lots. The developer advertised the rustic character of the lots and the intent to sell the lots for development as single-family residences. This was in conformity with the zoning restrictions on the land, which required that the land be used for residential purposes and that the size of each lot not be less than two acres. Over a period of several years, the developer sold 15 of the lots. The deed for each of these lots contained the following provision: This deed is subject to the condition that the property may only be used for residential purposes and may not be subdivided but must be sold in its entirety. This condition shall be a covenant running with the land and shall be binding on all owners, their heirs, devisees, successors, and assignees. The deed for each lot was promptly and properly recorded. The developer, facing financial difficulty, sold the remaining five lots to a land speculator. The deeds to these lots did not contain the character and size provision that the developer had inserted into the other deeds, nor did the speculator have actual knowledge of the developer’s advertising related to the character and size of the lots. The land speculator, acting in response to a zoning change that reduced the minimum permissible size of a lot to only one acre, has obtained governmental approval to divide each of the five remaining lots in thirds and is now offering the 15 lots for sale. An owner of one of the three-acre lots has brought suit against the speculator seeking an injunction to prevent him from selling the lots in less than three-acre parcels. Can the speculator successfully defend against this lawsuit?
A) Yes, because the speculator’s deeds did not contain the character and size provision.
B) Yes, because the speculator has obtained governmental approval to subdivide the lots.
C) No, because the lots purchased by the speculator are subject to an implied servitude.
D) No, because the speculator purchased the lots for commercial rather than residential purposes.
C) No, because the lots purchased by the speculator are subject to an implied servitude.
Each of the speculator’s lots is subject to an implied reciprocal servitude. Although normally an equitable servitude must be in writing, the existence of a common scheme is evidenced by the developer’s advertising and the insertion of the character and size provision into the deeds for the other 75% of lots. In addition, although the speculator had neither actual nor record notice of the size restrictions, the speculator had inquiry notice based on the uniformity in size of each of the other lots that had been sold.
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The owner of an office building leased space to a physician in general practice for a term of five years. The physician’s written lease with the owner restricted use of the space to a doctor’s office, but permitted the assignment of the office with the written permission of the owner, which, according to the terms of the lease, could be withheld for any reason. At the end of second year of the lease, the physician decided to move to another building and rented the space to a lawyer for one year. The lawyer’s monthly payments were the same as those called for in the lease between the owner and the physician. The owner’s permission was not sought, but the owner accepted rental payments directly from the lawyer. At the end of the third year of the lease, the physician found a psychiatrist to rent the space for a year. As with the lawyer, the psychiatrist’s monthly payments were to be the same as those called for in the lease between the owner and the physician. When contacted by the physician, the owner at first orally agreed, and then, upon learning the identity of the psychiatrist, refused due to personal animosity towards the psychiatrist. Can the owner be compelled to accept the psychiatrist as a tenant?
A) Yes, because the lease does not restrict the physician from subletting the office space.
B) Yes, because the owner has waived the right to object by accepting the physician’s previous sublet of the office space.
C) No, because the physician did not obtain the owner’s written permission.
D) No, because the owner properly exercised his right to reject the psychiatrist as a tenant.
A) Yes, because the lease does not restrict the physician from subletting the office space.
Although the lease prohibited the *assignment* of the leasehold without the prior written permission of the owner, it did not restrict the physician’s right to ***sublet*** the leasehold.
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A homeowner who sought to sell his home entered into an agreement with a real estate agent to market the home. The agreement specified that the agent was entitled to a commission if the agent procured a buyer who was “ready, willing, and able” to purchase the home in accord with the contract terms. The agent found a buyer who agreed to pay the seller’s asking price for the home and who pre-qualified for a loan to finance the purchase. The buyer and seller entered into a contract of sale. Among the provisions in the contract was a home inspection clause, which permitted the buyer to enter the property and conduct an inspection of the home. After conducting the inspection, during which the buyer learned of the antiquated nature of the electrical system that did not satisfy the electrical code for newly constructed homes, the buyer, in accord with the inspection clause, presented the seller with a request to upgrade the electrical wiring. Because of the cost of such an upgrade, the seller refused. Under the terms of the inspection clause, the inability of the buyer and seller to agree resulted in the voiding of the contract. Is the agent entitled to a commission to be paid by the homeowner?
A) No, because the contract was subject to a condition precedent that was not satisfied.
B) No, because the buyer who demanded the seller upgrade the electrical wiring was responsible for the termination of the contract.
C) Yes, because the buyer entered into a contract to purchase the home.
D) Yes, because the seller, by refusing to upgrade the wiring for economic reasons, was responsible for the termination of the contract.
A) No, because the contract was subject to a condition precedent that was not satisfied.
Buyer’s contractual duty was subject to a condition precedent, a satisfactory resolution of any defects uncovered by the home inspection. Condition was not satisfied = the buyer was not ready and willing to purchase the home
Note: although the seller’s refusal to upgrade the home’s electrical wiring led to the termination of the contract, the seller was within his contractual rights to refuse
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physician entered into a written agreement to purchase land from his aunt. The agreement, which was secured by not only the land itself but also all future improvements, required the physician to make annual installment payments to the aunt. The deed from the aunt to the physician was recorded, but it made no mention of this agreement. The agreement itself was not recorded. The following year, the physician obtained a loan from the local bank to build a house on the land in exchange for a mortgage on the property and any structures built on it. The physician informed the bank about the agreement with his aunt. The bank required the aunt to sign an agreement subordinating her loan to the bank’s loan. The mortgage agreement was recorded, but the agreement between the bank and the aunt was not recorded. After the house was built, a patient successfully sued the physician for malpractice. The judgment was promptly and properly recorded so that it became a lien against the residence of the physician. The patient was unaware of the physician’s financial dealings with his aunt or the bank. The physician failed to make timely payments on the mortgage. In accord with the terms of the mortgage, the bank declared the full mortgage obligation due and properly foreclosed on the property. At the time of the foreclosure sale, which was properly conducted, the physician’s outstanding balance with regard to the agreement with his aunt was $100,000, and with regard to the mortgage was $500,000. The total amount owed with respect to the judgment was $400,000. After expenses, the sale of the mortgaged property netted only $550,000. The applicable jurisdiction has the following two statutes: “Every conveyance not recorded is void as against any subsequent purchaser or mortgagee in good faith and for valuable consideration from the same vendor whose conveyance is first duly recorded.” “Any judgment properly filed shall, for twelve years from filing, be a lien on the real property then owned or subsequently acquired by any person against whom the judgment is rendered.” What is the amount due to the aunt from the sale?
A) $100,000, because the aunt’s interest predated the other interests.
B) $100,000, because the aunt’s interest was a seller-financed purchase money security interest.
C) $50,000, because the aunt’s interest has priority over the patient’s judgment lien, but not the bank’s mortgage.
D) Nothing, because both the patient’s judgment lien and the bank’s mortgage have priority over the aunt’s interest.
C) $50,000, because the aunt’s interest has priority over the patient’s judgment lien, but not the bank’s mortgage.
The jurisdiction has a race-notice recording act, which protects subsequent purchasers from unrecorded installment sale contracts without notice. However, even though the patient obtained the lien without notice of the aunt’s interest in the property, because the patient is the holder of a judgment lien, he is not treated as a purchaser protected by the recording act
