Pg 48

Question 1

If a future interest holder is unborn or unascertained, can that be a defect that makes title and marketable?

Answer 1

Yes

Question 2

When would a code violation be considered to be a defect that would make title unmarketable?

Answer 2

If a reasonable buyer would not accept title with the violation

Question 3

When would a hidden defect make title unmarketable?

Answer 3

If a reasonable buyer would not accept title with the hidden defect

Question 4

When would an encumbrance make title unmarketable?

Answer 4

Anytime someone else has a right in land, that makes title unmarketable unless the buyer contracted to accept it or the encumbrance is minor

Question 5

What are examples of encumbrances that would make title unmarketable?

Answer 5

Leases, covenants, mineral reservations, easements, party wall agreement, marital rights, liens, unpaid mortgages, etc.

Question 6

What would be an example when title would be unmarketable but an encumbrance doesn’t affect title?

Answer 6

If land has no public access. Title would be unmarketable until an easement or a public way is created

Question 7

Is it proper for a seller to discharge an encumbrance from the sale proceeds and thus not have title be unmarketable?

Answer 7

Yes. The land would be subject to a mortgage or lien, but if the seller discharges it from the proceeds of the sale as long as the price is enough to cover it and precautions are taken, then closing makes title marketable. The same is true for removal of cloud on title

Question 8

If it is very unlikely that the seller will be able to cure defects in title before closing, is it possible for the buyer to rescind?

Answer 8

Yes, but only if it is very unlikely because the seller doesn’t need marketable title until closing

Question 9

Does a buyer have a duty to examine the title of property he is buying?

Answer 9

No, but he should

Question 10

If the buyer of property discovers a defect that would make title unmarketable, what must he do?

Answer 10

Notify the seller and allow a reasonable time to cure. If the seller doesn’t cure, the buyer can avoid the contract. The time to cure may extend past the closing date, even if time is of the essence

Question 11

How are “Time of the essence“ clauses in land sale contracts treated?

Answer 11

They are strictly enforced. So if you were hospitalized on the date of tender, you still breached

Question 12

How does merger relate to marketability of title?

Answer 12

At the time the buyer accepts the deed, any title claims that can be brought have to be under the deed’s title covenants. This means that the contract title covenants merge into the deed and they cannot be the basis of legal action anymore.

The land sale contract merges into the deed, so after closing, the buyer cannot sue on the contract anymore, he can only sue on the deed if there’s a problem with the land.

– modernly: this is limited to title provisions of the contract and does not apply to fraud or mistake cases. It can be rejected if the parties show contrary intent
– uniform line transactions act: totally rejects merger unless the parties agreed to it in the contract

Question 13

What is the remedy for unmarketable title?

Answer 13

– Notice and time to cure

– if there is no cure: rescission, damages, specific performance with abatement on price, quiet title suit

Question 14

How do title insurance policies usually work?

Answer 14

The insurance company ensures that the person has marketable title, so if an issue comes up later, the insured can get recovery on the policy

Question 15

If there is no wording in the land sale contract about time being of the essence, what is presumed?

Answer 15

It is presumed to not be of the essence

Question 16

When does warranty of fitness or quality apply?

Answer 16

Only to new construction

Question 17

What are different remedies that a buyer can get for defects on property?

Answer 17

– Warranty of fitness or quality: for new construction only
– negligence suit against the builder as long as there was privity
– misrepresentation/fraud

Question 18

If there is an existing building on the property, does the seller have a duty to disclose defects or facts that would affect its value?

Answer 18

– Original rule of caveat emptor: buyer beware, so no duty on the seller to disclose defects
– modernly: many buyers can bring suit against sellers for not revealing defective conditions

Question 19

Is the seller allowed to conceal defects or things that would affect the value of property?

Answer 19

The seller has a duty to disclose when he knows facts that materially affect the value or desirability of property which are not known or accessible to a diligent buyer. Ie: gruesome murders happened in the house which make the value 10K less, there is a duty to disclose

Question 20

If a seller makes an affirmative misrepresentation about the property that is relied on by the buyer, what happens?

Answer 20

The seller is liable for fraud

Question 21

If there is a special relationship of trust between the buyer and seller (fiduciary), what duty does the seller have?

Answer 21

The duty of candour and complete disclosure. This can come from the buyer asking a question that requires a candid and full response

Question 22

Is passive failure to disclose defects on property actionable?

Answer 22

Not usually, but there is a growing trend that holds sellers liable for not disclosing material defects that are readily discernable from the buyer’s inspection of the property

Question 23

Can a seller be liable to remote buyers even if there’s no privity for non-disclosure of defects?

Answer 23

Yes if he had reason to expect the nondisclosure would affect later buyers

Question 24

If the buyer became aware of defects in the property from inspection or other sources before buying, or the defects were obvious, does the seller have liability?

Answer 24

No

Question 25

What does it mean if property is stigmatized or psychologically impacted?

Answer 25

It was the site of something like a murder scene or has some psychological impact with no discernable defects, so it is considered undesirable because of its history or reputation, or its history negatively impacted the value.

Question 26

Must a seller disclose to the buyer stigmatized property or psychologically impacted property such as a murder scene?

Answer 26

Many states do not require disclosure of this, but others do

Question 27

Is it possible for a seller to disclaim a duty to disclose defects of property?

Answer 27

Yes, but only if it is done clearly and specifically. It must be explicitly bargained for and specifically identify the type of defect that the seller is not liable for. Just having an “as is“ clause is not enough

Question 28

What are the considerations for a builder’s liability for the sale of a new house?

Answer 28

– The gravity of the harm inflicted by a nondisclosure
– fairness of imposing a duty of disclosure on the buyer as an alternative to compelling disclosure
– impact on the stability of contracts if rescission is allowed
– if the property is residential and bought by an unsophisticated buyer
– defect created personally by the seller
– seller gave reassurance to the buyer about the quality of the property