Part Five: Real Estate Flashcards
What is the basic trajectory of a real estate transaction?
- Sales Contract (Statute of Frauds applies)
- Executory Period (financing, inspection, title search)
- Closing (Statute of Frauds applies)
What happens during the executory period of a real estate transaction?
- Secure financing (mortgage loan)
- Perform an inspection (property condition, seller must disclose latent material defects)
- Conduct a title search (ensure clear, marketable title)
What is a mortgage in a real estate transaction?
Loan from lender (mortgagee) to borrower (mortgagor), secured by property interest that allows foreclosure if unpaid.
Mortgage = common method for buyer to secure financing.
Johnson v. Davis — Seller’s disclosure rule?
Seller must disclose material latent defects about the property that are not readily observable and not known to the buyer (moving away from caveat emptor).
Same as the haunted house case but about a leaky roof which is in fact a latent material defect
Why does a buyer conduct a title search during the executory period?
To ensure the seller can deliver clear and marketable title — free from undisclosed encumbrances or competing claims.
What are the recording acts?
They are exceptions to the common law “first in time prevails” rule for title disputes between prior and subsequent purchasers
What are the 3 types of recording act statutes?
- Race: First purchaser for value to record wins.
- Notice: Subsequent purchaser for value without notice wins.
- Race-Notice: Subsequent purchaser for value without notice who records first wins.
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What is a material latent defect?
A hidden problem with the property that materially affects value or safety and would not be discovered by reasonable inspection.
It also would not have been considered in price
→ Seller must disclose under Johnson v. Davis.
What is the purpose of the Recording Acts?
Fairness: protects innocent bona fide purchasers
Utility: Incentivizes prompt recording of deeds/documents
Prior owner could have protected themselves by recording immediately
Subsequent purchaser did all that was asked of them and relied on the title search
If B meets recording act rules it is only fair title stays with B and if A seeks relief from O then it is only money damages
What are the 3 phases of a real estate transaction?
- Sales Contract (Statute of Frauds applies)
- Executory Period (Inspection, Title Search, Securing Financing)
- Closing (Deed delivery — Statute of Frauds applies)
What does the buyer do during the executory period?
Inspection (physical defects)
Title Search (title defects)
Secure Financing (usually via mortgage)
What rule comes from Johnson v. Davis?
Seller must disclose material latent defects — things not readily observable and not known to buyer.
What rule comes from Stambovsky v. Ackley (“Haunted House Case”)?
Seller must disclose stigmatizing conditions (like haunting) if:
1. They publicly promoted it; AND
2. It materially affects value and is not discoverable by inspection.
How do you determine if a defect is “material”?
Objective: Would a reasonable buyer care?
Subjective: If seller knew buyer had special needs & didn’t disclose.
What is marketable title?
Title reasonably free from risk of litigation or undisclosed encumbrances.
Rule from Lohmeyer v. Bower?
Violation of zoning ordinance or restrictive covenant = unmarketable title if it creates risk of litigation.
Why do recording acts exist?
Protect bona fide purchasers (BFPs) & encourage recording deeds to create stable title & protect innocent buyers.
What are the 3 types of recording acts?
Race: First to record wins.
Notice: B wins if no notice of A’s claim.
Race-Notice: B wins if no notice AND records first.
What types of notice matter under recording acts?
Actual notice (knew of prior claim)
Record notice (public record shows claim)
Inquiry notice (facts would lead reasonable person to investigate)
What is the shelter rule?
A grantee who takes from a BFP gets the same BFP protection — even if they personally had notice.
What are the 3 main types of deeds?
- General Warranty: All 6 covenants, most protective.
- Special Warranty: Protects against grantor’s own acts only.
- Quitclaim: No covenants — ‘as-is.’
What are the 6 covenants of title?
Present (breached at conveyance):
1. Seisin
2. Right to Convey
3. Against Encumbrances
Future (breached after conveyance):
4. General Warranty
5. Quiet Enjoyment
6. Further Assurances
Rule from Brown v. Lober?
Breach of quiet enjoyment requires actual or constructive eviction — knowledge of defect alone is not enough.
What is the difference between a loan and a mortgage?
Loan = contract right to repayment.
Mortgage = property right allowing foreclosure on land if unpaid.
