property Flashcards
first rule of property law
we can’t completely prevent other people from “alienating” property.
this just means that we can’t stop people from transferring land altogether.
If our contract says “to the Goat Gang so long as they never attempt to sell the land” … this will not be allowed.
what happens if someone TRIES to pull an absolute restraint on alienation?
The law just CUTS OUT that part and you get full rights to the property in fee simple absolute
are racist contracts resisting the sale of land to people of certain races, religious groups, or ethnic groups enforceable?
fuck no
what is fee simple absolute?
Ever heard of a bundle of sticks in 1L property law?
This is all the fucking sticks thrown together at once.
The fee simple absolute is full ownership of the land.
the duration? infinite
You can sell it, transfer it, put it in a will, and pass it down to your heirs without a will.
In the property game we call this DDA.
It is devisable, descendible and alienable.
You fully own this fucking thing forever, and it is the highest level of property ownership. And nobody has a future interest in it.
how is a fee simple absolute created?
“to goat”
“to goat and his heirs”
weaker fee simple - defeasible fees
Defeasible fee’s are fee simple estates that can be terminated upon the happening of a stated event.
To create these we need durational language i.e. “so long as”, “during”, “until”
Durational language, not language of hope. Your hope or desire or dreams for this pathetic piece of property will not turn it into a defeasible fee.
These are ALL FEE SIMPLE ABSOLUTES EXAMPLES:
“I give this property to Goat, with the hope that he becomes a kitty”
or
“I give this property to the Law School, for the purpose of constructing a bar exam tutoring center.”
or
“To Nancy Riverfoot, with the expectation that she uses this property as a podiatry surgical center.”
So absolute restraints: i.e. “you can never sell”, and fake ass durational language which is actually language of HOPE will revert your little property transfer to not what you WANTED…. but to a fee simple absolute.
how do we properly make our first defeasible fee?
fee simple determinable
the legendary fee simple determinable
ex: “to A so long as”
“to A during”
“to A until”
“to A while”
So we need clear durational language and a condition. If the condition is met, it’s reverting back to Daddy Grantor.
to Mr. Meow so long as he uses the land to play with kitties
This is a fee simple determinable.
Now we have a fee simple interest with a potential restriction (not playing with the kitties) that could terminate Mr. Meow’s interest.
to Mr. Meow so long as he uses the land to play with kitties.. but what happens if Mr. Meow stops playing with the kitties on his land?
So the property automatically reverts back to the owner if the condition is not met.
He would never be able to play with those kittens again… and the fee simple had sadly become determined once and for all.
The grantor got the barn back.
possibility of reverter
there is a possibility that the land will revert some day back to the original owner.
can a fee simple determinable be transferred?
Yes!
Mr. Meow can sell the land to whoever he wants, but the new owner will still be subject to the condition that the kitties must be played with.
the rule against perpetuities does not apply to…
automatic reverter
if the transfer happens automatically and immediately, rules against perpetuities does not apply.
summary of rule against perpetuities
we hate the idea that a motherfucker who has been dead for 600 years would put creepy uncertain conditions into a property conveyance that might not happen
contingent conditions - UNCERTAIN event that could occur BEYOND the 21 year timeline.
If a property interest says “hm… Mr. Meow will have the land. If, at any time in the future, willowy tree grows to over 100 feet… then Mr. Puppy will get the land.”
Problem: How will we know if this tree ever reaches over 100 feet?
Now we have this creepy sex maniac skeleton conductor directing an UNCERTAIN condition from the grave.
RAP only ever carried about interests vesting. But there was one thing you didn’t know: some interests were always vested. And possibilities of reverter was one of them.
rule against perpetuities reverter
reverter is an AUTOMATIC VEST from the time it was SEWN into the CONTRACT. it is like a BUTTON in the vest.
RAP only gives a shit about UNCERTAIN CONDITIONS that MAY OR MAY NOT VEST.
THIS REVERSIONARY INTEREST WAS VESTED THE MOMENT IT WAS PUT INTO THE CONTRACT
IT WAS VESTED FROM DAY ONE. Do you see how nothing more needs to happen in the real world for its power to have effect? It has INHERENT PERSONAL vesting power.
I KNOW in my heart, that the reversion has power. It is not uncertain. We DON’T need the wheelbarrow to get out the skeleton guy because we have a VESTED interest subject to ZERO UNCERTAINTY
how to tackle rule against perpetuity problems
just look at EVERYONE who was there when the contract was originally made.
Step 1: Kill everyone who was there originally for the contract. These are your so-called “life in beings”… but kill them IN YOUR MIND… don’t touch a hair on their head in reality.
Step 2: Look at the barren landscape of dead bodies and think “is it possible that in 22 years this land may still be waiting uncertainly… like a willowy tree waiting to grow?”
Example: We can have things like “a right of first refusal” for the grantor’s lifetime. When the grantor dies i.e. when we kill him off in our minds, we will know whether the future interest will vest or not.
But a right of first refusal with NO duration violates RAP… because we don’t know if it will vest once everyone who was there originally dies.
We can’t have a great, great, great grandchild possibly exercise a right of first refusal on property (a right of first refusal is just a contractual right to give someone the opportunity to enter into a business deal with you before anyone else… kind of like a “first dibs” situation)
rule against perpetuities - “wait and see” and “second look” doctrines
where the courts just actually waits until everyone dies and sees what happens to the land -> whether it vests or not within 90 years -> so they don’t have to guess. (probably because they don’t understand RAP).
fee simple subject to condition subsequent versus fee simple determinable
THESE ARE THE SAME EXACT THING AS FEE SIMPLE DETERMINABLES.
The ONLY difference is that if the condition is not fulfilled, it does not AUTOMATICALLY go back to the grantor… the grantor has a CHOICE whether they want to take the land back or not.
If Mr. Meow stops playing with the kitties on the land in a fee simple subject to condition subsequent… the grantor has a CHOICE to take the land back or not. If the grantor wants to, they can just LET Mr. Meow keep his interest in the land even though he violated the condition.
If Mr. Meow stops playing with the kitties on the land in a fee simple determinable… he loses the land IMMEDIATELY.
fee simple subject to condition subsequent
durational language + carve out the right to reenter
Example: “To depressed Bar Exam taker, but if depressed Bar Exam taker ever drinks two Celsius drinks in one day on the premises… the grantor reserves the right to re-enter.”
So now the bar exam taker has a fee simple subject to condition subsequent
The grantor has an optional right of re-entry.
But remember… the estate is not automatically terminated when the Bar Exam Taker invariably drinks 14 Celsius drinks on February 15th… the Grantor has to actually re-enter the property and re-take (using legal process obviously, not a shotgun)
executory interests
An executory interest is just a future interest in someone other than the grantor that is not a reversion or right of re-entry.
springing executory interest
goes from the grantor to the grantee upon a specific condition happening
if the condition is violated .. forfeiture of the land happens automatically.
“to my beautiful goats, but only if they pass the bar.”
so it springs directly from the grantor (me) to the third party (my goats)
shifting executory interests
Instead of springing to the grantee, we cut off the grantee’s interest in favor of another grantee.
grantee –> grantee
to goat bar prepians, but if they ever use barbri, to my cat Walter.
SHIFT from one grantor to another.
The Bar exam likes to try and trick you into thinking executory interests DISAPPEAR when people die…. THEY DON’T.
are executory interests subject to RAP?
yes - because these things might not vest.
“to goat when Saiga becomes fully extinct….”
Well how the fuck are we going to know if that will vest within 21 years?
Literally me and you could die, and Saiga’s could live on for millions of years (and they will, based on my recent work in Kazakhstan).
You get it. Don’t be afraid of RAP -> love it.
“Shit happens instantly” -> No RAP issue.
“Shit could happen in 17 million years” -> We got a RAP issue.
life estate
Their creation must be measured in terms of ACTUAL LIVES, not just years
A life tenant has the exclusive right to use and enjoy the property before their death… but they cannot pass it to their heirs.
A life tenant can sell the property… but there’s kind of a problem with this… the actual conveyance can’t exceed the life of the original tenant. So if you sold it to Bob and you died… Bob would lose it lmao. In practice, almost no one actually buys these shitty life estates.
When a life tenant dies, the property reverts to the original grantor or their successors, or it shifts to another grantee named in the deed or will.
This grantee has a future interest that we call a remainder.
life estate pur autre vie
that simply means a life estate measured by SOMEONE else’s life other than the person who is getting the land i.e. “to Goat for the life of Rainbow Brown.”
Anyway these life estates are DDA -> devisable, descendible, and alienable
determinable life estate
To Goat for life, so long as he doesn’t eat dippin’ dots on the property.
remainders
When a life tenant dies, the property reverts to the original grantor or their successors, or it shifts to another grantee named in the deed or will.
This grantee has a future interest that we call a remainder.
can remainders and executory interests be transferred to other people?
yes
When in doubt on the test just say to yourself “is this a future interest? Yea, it’s probably able to be given to someone else”
life tenants and waste
Imagine I have a future interest remainder in the life estate.
I am going to get this stupid ass life estate after you die.
But guess what? You don’t give a fuck. You are a life tenant. You don’t give a fuck what happens to this property after you die.
You have no economic incentive to plant flowers on my land. You’re like “bitch, I’m about to be DEAD. I can’t even sell this fucking thing. I don’t care what happens to it after I die. I don’t care about a REMAINDERMANS’ economic INTEREST.”
Anyway, so the life tenant has a duty not to commit waste… which just simply means they have a duty not to do any crazy shit that will harm the future interest holders
There are three kinds of waste which allow the future interest holder to sue for damages or injunctions
three kinds of waste - voluntary waste
also known as affirmative waste
The life tenant can’t engage in conduct that lowers the economic value of the property.
Yea I’m talking about removing buildings. Yea I’m talking about selling timber. Anything that destroys or damages the property.
You can make reasonable repairs and knock down a few tree’s if they are in danger of falling on the house, but you can’t just start consuming natural resources like you’re some type of fucking tree salesman.
Random Goat Note: Life tenants can annex chattel that THEY put in after they die (usually, by way of their personal representative). This makes sense. I mean, if I put in some glorious antique bird bath stone statute or some shit… and I want to pass it down to my grandchildren after I die… my personal representative can remove it so long as it doesn’t fuck up the whole property.
three kinds of waste - permissive waste
Permissive waste happens when the life tenant has FAILED to act in some way, and this has fucked up the economic value of the property.
What is the most common type of permissive waste you ask?
Failing to make repairs to buildings by being a lazy fuck.
But it’s not always failure to repair… failure to pay real estate taxes will also be considered permissive waste because it causes a risk that title to the property could be lost in a tax foreclosure sale.
The life tenant must pay the mortgage interest (the remainderman has to pay the mortgage principal).
The life tenant also has to pay the property taxes and special assessments… at least up until the fair rental value of the premises.
a future interest holder who is nice and spends money to satisfy the life tenant’s obligations …
will be entitled to reimbursement.
life tenant / remainderman financial responsibilities
Let’s say Goat gets a house where the fair market rental value is $1,000.
He is also responsible for paying taxes, insurance, and maintenance costs… which total $800.
Goat can keep the excess of $200.
If the expenses were $1,200… the remainderman would have to pay the extra $200 over the fair market rental value.
three kinds of waste - ameliorative waste
Most courts hold that a life tenant CAN engage in acts which IMPROVE the fair market value of the property, so this is fine in 2024. It’s called ameliorative waste. It used to be banned, but now we like it.
cotenancy
all about sharing.
To put it simply, a cotenancy exists when multiple people have the right to use, possess, and enjoy a property together.
This is like me at my mom’s house.
We both use the property together and enjoy it.
three types of co-tenancies: tenancy in common, joint tenancy, tenancy by entirety.
tenancy in common
When we have multiple grantee’s, the law assumes it’s a tenancy-in-common unless you show them otherwise.
It is… the default tenancy if nothing more is specified in the instrument.
So what do these little tenants have in common?
Every tenant-in-common can use and possess the entire property
But my Goats… relax for a second.Just because they each have equal rights to use it… doesn’t mean that one tenant can’t still have a greater fractional share in the property than another tenant. You could have a fucking 4% share and just be lounging on the couch all day smoking a bong.
The “smallness” of your share only becomes relevant when the property is partitioned or the rents or profits are divided.
They can also sell it all.
Tenants in common can transfer their interest with some stupid thing called a deed of conveyance.
They can even sell part of it
Ever heard of a lease? They can do this. They can mortgage their side of the property. They can grant a licensee access to it.
Any transfer by one co-tenant really affects the other co-tenants in the sense that they have a new motherfucking roommate now.
outster
an ouster is when you kick someone out who is entitled to be in possession of the property
Remember my Goats, an ouster is different from an eviction.
An eviction is when we kick someone out who is not entitled to be in possession of the property.
An ouster is when we kick someone out who is entitled to be in the property (like if we kick out one of our little co-tenant buddies).
The ousted co-tenant can then sue your ass for money or for an injunction.
ex. someone will change the locks
Remember, ouster is not just being in exclusive possession while your roommate is in China. Ouster requires ACTS OF HOSTILITY
what happens when a tenant in common dies
it goes to the dead persons heirs
there is no right of survivorship with the other tenants…. bc that is JOINT TENANCY
joint tenancy
Just like with tenants-in-common, joint tenants both have an undivided interest in the whole property.
So Goat, what’s the big difference?
The big difference is this: there is a right of survivorship with joint tenants.
If one joint tenant dies, their share passes to the OTHER joint tenant.
DDA = alienable, but they are not descendible or devisable in a will because the moment you die it passes to the other person.
joint tenants.. John giving his shit to his son
The bar exam is obsessed with being like “yea John and Carol had a joint tenancy… but John gave his share to his son in his will.”
No he didn’t.
The moment John gets shot down in space by an alien ship, it goes IMMEDIATELY to Carol.
And that, my friends… is the right of survivorship in motion.
DDA
devisable, descendible and alienable.
how do we create a joint tenancy? T-TIP
- same TIME
- same TITLE
- IDENTICAL INTERESTS
- same POSSESSORY rights
any disturbance in these four will sever the joint tenancy
So acquiring it at the same time with the same title is simple. We both need to get our interest by the same document (a deed or will) -> someone dies and gives it to us, or sells it to us at the same time.
Unity of interest means we all obtain the same fractional share of the property.
And unity of possession means that each tenant has the same undivided right to possess the property.
So it’s kind of easy to get the four unities when we are in the bar exam’s favorite situation: someone gets a joint tenancy through a will. Because then we have the same title given at the same time, it’s great!
say you’re sitting there with a fee simple absolute, and you say to yourself, “i want a joint tenancy with my friends Tinman and Lion, but we will NEVER get title at the same time.” (bc you already have title)
We need a straw man to accomplish this. So you’d give your fee simple to the straw purchaser, then he’d sell it back with the joint tenancy T-TIP UNITIES to TinMan, Lion and Dorothy with RIGHT OF SURVIVORSHIP… at the same damn time.
how do we break up a joint tenancy? seek professional mentoring.
Sale
Partition
Mortgage
how does a sale destory a joint tenancy?
If you SELL your portion of the joint tenancy during your life time… this will BREAK THE UNITIES
THE NEW BUYER DIDN’T GET THAT SHIT AT THE SAME TIME AS YOUR FELLOW JOINT TENANT
UNITIES = DESTROYED
THE NEW BUYER IS NOW A TENANT IN COMMON
Here’s the craziest part.
And they love this in the MEE’s. One joint tenant can secretly do this transfer and break the joint tenancy… without even telling the other joint tenant.
Joint tenants have no FIDUCIARY duty to one another. They can sneaky sale behind each others backs and just dissolve the joint tenancy no problem.
what happens when there are three or more joint tenants and one conveys their interest to a third party?
we are left with one tenant in common and two joint tenants.
what happens when co-tenants get into a little fight? How does partition destroy joint tenancy?
Well, they can terminate the cotenancy relationship by using a partition (either tenants-in-common or joint tenants may do this… but not tenants by the entirety which we will learn about in a minute)
you gotta be in possession to partition sorry people with reversion or remainder who want to partition with me.
there are two types of partition - partition in kind and partition by sale.
destroying joint tenancy - partition in kind
court has preference for partition in kind if the property can be fairly and equitably divided up.
Basically, the cotenants have a little friction between them and the court just says “hey we’re physically dividing up this property based on your percentage ownership of it. You got 25%? Okay you get the shed. You got 75%? Take the master bedroom and this area over here.”
They chop up the parcel. Everyone becomes neighboring landowners. Simple.
if there is a question mentioning zoning issues, the answer will be partition by sale.
destroying joint tenancy - partition by sale
Next up we have a partition by sale. This is when the court just says “okay fuck everyone involved in this. I’m selling this property and each cotenant is taking a share of the net sales proceeds according to their percentage ownership interest.”
Property sells for $100k. Jimmy had 20% ownership. He gets $20,000.
if there is a question mentioning zoning issues, the answer will be partition by sale
can you and your cotenants agree to limit the rights of partition?
no - it is similar to a restraint on alienation which you CAN NOT do.
how a mortgage can not sever a joint tenancy
when states treat a mortgage as a lien
a joint tenant’s execution of a mortgage on his or her interest will NOT break the joint tenancy and render everyone as tenants in common.
One more small points about joint tenancies: if a single tenant goes rogue and takes out a mortgage or a lien in a joint tenancy in a lien theory state, only THAT tenant’s interest is subject to the mortgage (it will be a mortgage or lien on their 1/2 interest). So when they die and the other joint tenant gets the property, the lien or mortgage will be extinguished
how a mortgage can sever a joint tenancy
In states that consider a mortgage a transfer of title, it breaks the stupid ass four unities
some states consider a mortgage like you just walked into the bank and HANDED them the title to your house. So it fucks up our unity of time and possession.
can a joint tenants interest be devised by a will?
fuck. no.
it goes to the other joint tenant that is alive.
tenancy by the entirety
Which is simply a joint tenancy by a husband and wife with a right of survivorship.
The main difference between this and a joint tenancy is that it’s a lot harder to fuck up.
An individual spouse can’t do a sneaky transfer like they could do in a joint tenancy.
The spouses must act TOGETHER as lovers and friends to sell, lease, or mortgage the property in order to sever a tenancy by the entirety.
severing tenancy by the entirety
Severance of the tenancy by the entirety usually requires either
(1) the consent of both spouses or
(2) the ending of the marriage by divorce (god forbid),
(3) death, or
(4) execution on the property by a JOINT creditor…. NOT JUST ONE CREDITOR
IN THE TENANCY BY ENTIRETY, IT IS ALL ABOUT LOVE… SO EVERYTHING HAS TO BE DONE TOGETHER, WITH LOVE.
good guy tenant in common pays a mortgage for the other tenant to avoid foreclosure
good guy tenant can recover for this contributable action.
leases / leasehold estates / non-freehold estates
we don’t have title to property.
we have a present possessory interset, but the landlord has a future interest.
four leasehold estates - the difference being the duration of each of the four
1. tenancy by years
2. periodic tenancy
3. tenancy at will
4. tenancy at sufferance
leasehold estate - tenancy by the years
The basic idea here is that we have possession for a fixed period of time THEN IT TERMINATES.
Doesn’t have to be years. Could be four months. Could be 47 weeks. Could be 157 years. Could even be one day.
“Goat leases to Rainbow Brown from April 20th to April 21st” … tenancy by the years. Easy.
If a tenancy has an UNCERTAIN duration… it is NOT a tenancy for years.
If it’s for greater than one year it has to be in writing.
You know the drill, we talked about this bullshit in contracts (SoF gang hit me up)
creation: written lease
termination: surrender of leaseholder
leasehold estates - periodic tenancy
A periodic tenancy is for a fixed period of time which then repeats unless a party TERMINATES the lease by giving notice (usually WRITTEN notice)
creation: expressly or implication
termination: proper notice.
Expressly: “To Goat from year to year or month to month or week to week”
They can select any period. Obviously, they usually don’t select weekly as the period.
Implicitly
1. Nobody says SHIT about the time rent is to be paid, but you just start PAYING it month to month for example. Congratulations, you now have an implied periodic month-to-month tenancy
- If we have a TERM OF YEARS (THIS WAS THE FIRST ONE) and it VIOLATES the statute of frauds… congratulations, we now have a periodic tenancy.
- HOLDOVER (crackhead) TENANT + NICEGUYLANDLORD(TM) -> if a tenant stays in their rental unit beyond the stated lease date… they become a HOLDOVER TENANT. If a landlord allows them to stay on, the new rent is measured by the WAY THEY ARE NOW DOING IT.
HOLDOVER TENANT WRONGFULLY THERE -> LANDLORD KEEPS ACCEPTING THE RENT EVERY MONTH -> IT IS NOW A MONTH-TO-MONTH TENANCY
Everyone… if the words “Implied periodic tenancy” shows up in the answer choices just fucking pick it, you know these people have a boner for implied periodic tenancies. Look at how often I’ve been mentioning it.
leasehold estates - periodic tenancy - termination
Periodic tenancies are automatically renewed until there is notice of termination.
But these notices are kind of tricky…
Notice must be given at LEAST one period in advance or you have to continue paying. It’s like when they make you cancel your gym membership but you end up paying two more months somehow.
So let’s say Goat leases GoatAcre to Judy Gunderson on January 1st, 2024 in a periodic month-to-month tenancy. On Febuary 15th, 2024, Judy sends a written notice of termination saying “Thanks Goat, but I have to go take the bar for the first time. My last rent payment will be February 28th then I’m going abroad!”
When is Judy bound to pay rent until?
Judy is paying until March 31st. She didn’t give me a months notice… she tried to give me 15 days notice only. So until she hits her 30 days, she’s not getting out of this.
leasehold estates - tenancy at will
So the tenancy at will lasts as long as the landlord and tenant WILL that it lasts.
It has NO fixed duration.
Either party can terminate the lease at any time by giving notice to the other party. Wtf. But this is actually real.
creation: express terms
termination: by landlord or tenant at any time
The notice to terminate a tenancy at will is effective IMMEDIATELY upon receipt unless it states a future termination date.
You can create it by saying something like “To Goat for as long as the landlord desires”
But REMEMBER my beautiful Goats, unless the parties SPECIFICALLY AGREE TO THIS WEIRDASS ARRANGEMENT, the payment of regular rent will give rise to an implied periodic tenancy.
tenancy at sufferance
This isn’t exactly like a SEPARATE category… but it kind of is. It happens when a tenant has A LEASE OF ANY ONE OF OUR PREVIOUS THREE CATEGORIES… and he just stays after the expiration of it.
creation: by crackhead jimmy when he decides to stay over past his allowed possesion time
termination: creation of a periodic tenancy or eviction
Causing the landlord to suffer = tenancy at sufferance.
So anyway - these are created when the tenant has wrongfully stayed and the landlord does not consent to it.
Usually, the tenant will revert to one of the three other categories very quickly depending on what happens. This is like a HOLDING pattern where the law is saying “what the fuck… this motherfucker is doing something weird.”
So after a holdover we get either (1) tenant leaves, (2) eviction, (3) parties negotiate a NEW tenancy (one of the first three types), or (4) landlord holds the tenant to a NEW lease term even though the tenant may object. There is also (5) where the landlord kills the tenant.
lease
a contract that governs the relationship between a landlord and tenant during the TERM of the lease.
one party’s performance is excused if another party fucks something up which is a material breach of the lease contract.
Basically, the tenant doesn’t have to pay if the landlord does some crazy shit like constructively evict them. However, there usually needs to be proper notice and proper time to cure given to the landlord to fix any of their fuck-ups first.
tenant duties
1. duty to avoid tortiously injuring 3rd parties the tenant invites
keeping the premises in reasonably good repair
2. duty to repair
tenant must simply maintain the premises nad make ordinary repairs - can’t commit waste.
3. duty to pay rent
if the tenant stops paying rent, the landlord can either
1. evict through the court system or
2. continue the relationship as a tenancy at sufference and suing for the rent due.
landlord cannot engage in self help by locking out the tenant, shooting the tenant, throwing the tenants stuff out, or turning off the utilities.
what happens if tenant stops paying rent and abandons the property?
daddy landlord has three options SIR.
1. Surrend to daddy landlord now
when the tenant demonstrates by their words or actions that they don’t give a fuck about the lease.. it is called a surrender. daddy landlord can treat this as a surrender and accept it. if the unexpired term is OVER a year, must be in writing. tenant no longer on the hook for cash money.
2. ignore your tenant slave
you can also ignore your tenant’s abandonment and hold them responsible for the unpaid rent as if they were still there.
3. re-let
you can get a new tenant slave by re-letting the premises ON BEHALF of the wrongdoer tenants. this one is kind of funny. you’re like “i’m HELPING you mitigate after betraying me.” then you hold the tenant liable for the deficiency.
the majority rule is the landlord must make a reasonably good faith effort to re-let the premsies.
landlord duty - modern view
you have to put the tenant in ACTUAL physical possession of the premise.
if crackhead jimmy the holdover tenant is still around… the new tenant is getting damages.
landlord duty - minor rule
the landlord has no duty to deliver ACTUAL possession when the lease begins, and is NOT in default and therefore owes no money when crackhead Jimmy is wrongfully occupying the property.
All they have to do is hand over the KEYS to the CRIB and give legal possession, not TRUE PHYSICAL POSSESSION.
implied covenant of quiet enjoyment
This is between a tenant and their landlord.
And the covenant just means that a tenant has the right to quiet use and enjoyment of their premises without interference from the landlord
Most lease agreements have this covenant in the lease contract but when it is not explicitly stated it is almost always implied (for ALL types of leases, both residential and commercial)
There are two… count them two ways a landlord can violate this covenant of quiet enjoyment:
two ways a landlord can violate the covenant of quiet enjoyment
- Obviously…breach by actual wrongful eviction will violate your covenant of quiet enjoyment
2. Breach by constructive eviction
sING
Substantial
Interference - landlords actions or failure to act is ongoing.
Notice - tenant must give notice of problem and landlord fails to fix in reasonable time.
Goodbye - tenant must vacate in reasonable time after landlord fails to correct issue.
Examples of constructive eviction:
Failure to make necessary repairs. If the landlord doesn’t fix the roof and every time it drizzles the whole apartment gets flooded for example.
Harassment of tenant. Making threats. Entering the premise without permission.
Interference with essential services like water, electricity, the laundry room, parking spaces.
landlord duty not to permit a nusiance
The landlord is ALSO not liable for the acts of other TENANTS… except that the landlord has a duty not to permit a NUISANCE (loud noises from other tenants, illegal gambling operation, etc.)
landlord duty to control common areas
like the clubhouse, pool, etc.
implied warranty of habitability
remember my Goats, this applies ONLY to residential properties, NOT to commercial property leases
This warranty essentially says that the MINIMAL living requirements must be met in all residential leases: plumbing, running water, heat in the winter, etc.) … this standard is set by a local housing code or by a judge just looking at the facts and being like “what the fuck is going on here?”
This is non-waivable. So the tenant can never be like “I agree to live in a sewer raccoon habitat.”
if the implied warranty of habitability is breached, the tenant has four remedies
M - R3
- move out and then terminate the lease
- repair and reduce rent
- reduce or withhold until judge figures it out
- remain in possesion then sue
actual eviction
The landlord just kicks your ass out onto the street and you don’t have to pay rent anymore.
partial eviction
This is when you are physically excluded from a large portion of the premise. You don’t have to pay rent in this case either, even if you still occupy the other portions.
retaliatory eviction
If a tenant asserts their rights and says they want a habitable, non raccoons-nest to live in… the landlord is BARRED from penalizing them by either:
- Ending their lease
- Raising their rent
- Harassing them
- Or just generally fucking with them
In F24 they will probably have a problem where a tenant reports a landlord for a violation of the housing code then the landlord evicts the person.
The presumption in the law is that an eviction is RETALIATORY if it happens within 6 months of a tenant bringing a claim for a non-habitable lease or a withholding of rent by the tenant for a LEGIT reason (not a fence stealing reason)
The burden of proof is on the landlord to show that the eviction was not retaliatory - NOT the tenant.
assignments and subleases
absent a prohibition in the lease, a tenant can transfer their interest in WHOLE (assignment) or in part (sublease)
landlord prohibiting leases and assignments
- if a landlord says you can’t assign, you can still sublease / if a landlord says you can’t sublease, you can still assign
- once a landlord consents to one transfer by a tenant, he waives the right to object to future transfers by that tenant.
things to consider when the landlord wants to sue during an assignment or sublease
- Privity of contract (you can sue someone because they signed a contract with you)
AND
- Privity of estate (who gets the land kicked back to them once nobody pays)
privity of contract and estate between landlord and tenant 2
The landlord can sue the ASSIGNEE (TENANT 2) under privity of estate. They have an estate in common…. I mean… the landlord owns the property… and Tenant #2 has a right to live in it.
So they both have an interest in the estate. If tenant #2 stops paying rent, the property will ultimately REVERT back to Landlord since Tenant 1 signed off his whole interest in it.
Privity of Estate is like WHO GETS THE LAND KICKED BACK TO THEM once nobody pays rent?!
Landlord and Tenant 2 never signed shit, so there’s no priority of contract. Tenant 2 didn’t agree to take over Tenant 1’s contract with Landlord either.
there is no privity of contract unless tenant 2 assumes the contract of tenant 1.
privity of contract and estate between landlord and tenant 1
they don’t have privity of estate, but they have privity of contract
So they signed a contract, but Tenant 1 no longer has ANY interest in the land (he assigned it all to Tenant 2) and he will NOT get the land kicked back to him if Tenant 2 doesn’t pay (privity of estate)
YOU EITHER GET A KICK BACK OF THE LAND (ESTATE)
OR YOU SIGN A CONTRACT (CONTRACT)
THOSE ARE YOUR TWO OPTIONS.
privity of estate
DO BOTH OF YOU IDIOTS OWN THE LAND AND IS ONE OF YOU GETTING IT BACK FROM THE OTHER IF YOU DON’T PAY RENT?
privity of contract
DID YOU TWO IDIOTS SIGN A CONTRACT AT SOME POINT?
subleases
we have a new landlord in town, the OG tenant.
you have privity of estate and privity of contract with tenant 1
THE ORIGINAL LANDLORD CANNOT SUE THE SUBLESEE (TENANT 2 WHO GOT THE PLACE SUBLEASED TO THEM)
federal fair housing act
NO DISCRIMINATORY ADVERTISING
So the basic idea is that we can have NO discrimination when we are selling or renting a dwelling on the basis of:
Religion;
Race;
Ethnicity;
Gender;
National origin; OR
Disability
You can’t refuse to rent to a blind person or person in a wheelchair.
You can’t refuse to rent to people with service animals even if there is a “no pets” policy.
Disabled tenants can even modify their living space (at their own expense) -> EVEN if the lease bans it
excpetions to fair housing act
- owner occupied building that have 4 or less units
- A person SELLING or LEASING a SINGLE FAMILY home if
they do not own more than 3 homes
they do not use a broker AND
they do not advertise in a manner that discriminates. - Senior citizen community homes can discriminate against kids
- Religious organizations or private clubs can discriminate on who lives there as well
a real covenant
written promise to do or not do something with land
remedy for breaking a covenant?
money
affirmative covenant
which just means they are a promise to DO something related to the land (i.e. paint an adjoining wall… or maintain a common fence)
negative covenants
simply means they are a promise to REFRAIN from doing something related to the land (i.e. don’t build an ice cream shop, don’t block my view, don’t have a tiger petting zoo on your land)
5 requirements to see whether covenants run with the land and binds future homeowners or not
1. writing
2. intent - original party must have intended the covenant to run.
3. touch and concern - covenent must have to do with the land, not the individual.
4. privity
5. notice - it would be unfair to impose a burden on someoen who bought land if tehy had no way of knowing about the covenenat.
burden / benefit on land
A burden on land is just a restriction placed on the land in favor of another parcel of land. In my earlier example, Rainbow Browns land was burdened by the covenant (he couldn’t graze goats, and this is a restriction in favor of Goat’s land)
Goats land, on the other hand, was benefitted by the covenant (it gave his land an advantage, in this case it was not having to be next to or hear stupid-ass goats on the neighboring land)
whether a real covenant transfers in three situations
- the benefitted party transfers their land
- the burdened party transfers their land
- when both the benefitted and burdened party transfers their land
You have to understand covenants transfer FULLY or not -> to see if it transfers when the benefitted party sells their land we have to analyze whether the BENEFIT runs with the land.
how will we know if a covenant is still in full force?
analyze whether BOTH the benefit and the burden transfer to see if the WHOLE covenant will hold up.
how do we analyze whether a burden runs to a successive landowner? (do this before benefit test)
WITH-N
1. writing - original promist must be in writing
2. intent
3. touch and concern the land - convenant has to do with some shit related to the land
4. privity - vertical applies both when we analyze whether a benefit and burden runs, horizontal privity only when analyzing whether the burden runs.
5. notice actual, record, inquiry
vertical privity (burden and benefit analysis)
applies both to analyzing benefit and burden running
vertical privity literally just means you gave the person you sold the parcel to the full estate
what is not vertical privity - giving someone a lease, giving someone a life estate, adverse possession
horizontal privity (burden analysis)
It either exists or doesn’t exist the MOMENT the covenant is entered into.
Horizontal privity is some DAY ONE shit… you either got Privitized from the moment you became a young covenant, or you didn’t.
Horizontal privity is all about the relationship between the ORIGINAL parties… and to have horizontal privity the original parties must be in succession of estate.
happens either:
1)instantaneously when a land tranfer includes a covenant - the covenant is in the deed itself.
2) when we have a promise related to a simulataneous interest of two landowners (like for easements) and make a little promise related to that simulataneous interest.
ex. imagine if I have an easement on your land -> a little path with a fence… and we create a covenant which states “You will repair and maintain the easement and fix up the common fence on the easement.”
Boom… we have a promise related to a simultaneous interest in the land
think about whether we have a speciifc legal interst in the property together when the covenant is formed. In the first instance, I’m selling you the property and we make the covenant. We both have an interest in the property when the covenant is formed. In the second instance, we have an easement across the property when the covenant is formed. So we both have an interest in the property when the covenant is formed.
notice (burden analysis)
How are you going to try and impose a burden on a party buying land that didn’t even know about it when they bought it?
bonafide purchasers
People that pay value for land without
(i) actual notice of the covenant,
straight up told.
(ii) record notice of the covenant, or
if the covenant is recorded in the public records, you are on notice, even if you don’t go look it up.
(iii) inquiry notice of the covenant.
when you look at the land and you see that it is burdened by a covenant.
analysis for the benefit to run
WIT - V
- writing
- intent
- touch and concern
- vertical privity only - full assignment of the parcel
how do we terminate covenants?
1. Merger (benefitted and burdened lands join together as ONE)
2. Abandonment or estoppel (if benefited party leads burdened party to believe the covenant was abandoned or no longer needed and the burdened party RELIES on it); OR
3. Eminent domain -> land gets SWIPED by Uncle Sam.
does the rules against perpetuities apply to covenants
no
This is because they bind presently… and RAP only gives a fuck about uncertain binding.
how to identify equitable servitudes
So the first thing you have to do on the bar exam is think to yourself “is this person seeking an INJUNCTION for the violation of this promise?” if so… it is an EQUITABLE SERVITUDE
money = covenant
creation of equitable servitudes
WIT - N
- writing
- intent
- touch and concern the land
- notice
how can equitable servitude be terminated?
Release by a party
Abandonment or estoppel
Merger
The purpose of the servitude no longer existing
or
Condemnation by Uncle Sam
implied equitable servitude
If you see with your OWN eyes that is the pattern… it doesn’t matter if that isn’t in YOUR little deed.
If the developer subdivides land and SOME of the deeds contain negative covenants, while others do not… the negative covenants are then binding on ALL of the plots of land (EVEN THE ONES WHERE THE DEED DIDN’T SAY SHIT ABOUT A NEGATIVE COVENANT!)
Suppose you put negative covenants in 8 of the properties (a covenant saying you can’t paint your house blue for example) but forget to put the covenant in plots 2 and 6….
Sorry owners of plots 2 and 6… you can’t paint your fucking house blue.
You just got IMPLIEDLY EQUITABLY SERVITUDED UPON.
So long as the plot owner without the deed had that AIR (actual, inquiry, or record notice)… they are bound by the negative covenant regarding the land… EVEN IF IT WASN’T IN THEIR DEED!!!!!! IT HAS TO BE IN THE OTHER ORIGINAL SUBDIVISION DEEDS THOUGH
What kind of equitable defenses to enforcement can one raise saying they should NOT be bound by an equitable servitude!?
- The world is changing. The character of the subdivision has changed. The buildings surrounding the sub-division have changed. So you can argue that the servitude should not apply to you anymore.
But the change has to be SO pervasive that the ENTIRE area or subdivision has changed (can’t just be limited change and can’t just be change FULLY outside the subdivision)
-
unclean hands
when the person seeking the enforcement of a covenant is violating a similar restriction on their own land.. “don’t paint your house blue” but THEY are indeed painting thier house blue. - if a benefited party acquiesces or agrees to a violation of a servitude by a burdened party, the benefited party will be said to have abandoned the servitude
lateral support
Lateral Support is an inherent right to not have a crazy neighboring landowner fuck up your soil. It’s not really a servitude… but it’s kind of considered like an invisible servitude that all property owners have. We need to go over it because sometimes they do test this shit.
We have two basic scenarios:
(1) You fuck up my soil by doing some weird excavation on your land,
(2) you fuck up my buildings by doing some weird excavation on your land.
So if your excavation projects fucks up my SOIL and not my buildings (the bar exam calls buildings “improvements of my land” jfl)… you’re strictly liable. You didn’t put up an underground retaining wall. You fucked up my soil. And that was very rude of you. You’re strictly liable for any damage to my land IN ITS NATURAL CONDITION!
no duty to support structures, so if your excavation project fucks up my house i can only come after you through a negligence theory.
common interest groups
correct answer will say “reasonable arbitrary”
Common interest groups are simply property owners associations where a bunch of units get together and agree to subject themselves to certain restrictions.
The basic ones are:
Homeowners associations: an organization that makes and enforces rules for a group of properties and the residents. Everyone subjects themselves to certain restrictions in return for the PROTECTION of knowing other members have the same restrictions.
Condominiums: Apparently none of us knew what condos actually were. So basically every person who owns a condo owns their living unit (but ONLY the interior) while the exterior walls, land, and common areas are owned by ALL unit owners as tenants in common. Wtf?!?!? Property law is actually applicable IRL?!?! (my homie Kyle actually died in a common area of a condo so this is a sensitive subject for me)
Any restrictions within condos are presumptively valid unless they are void for being too arbitrary or void for public policy reasons;
Rules for noise, pets, number of occupants, etc. are ALL allowed
cooperatives / co-ops
Title to the land is held by a corporation and each shareholder (cooperator) has a lease to a designated unit.
The cooperator is a tenant of the corporation and the lease is basically the STOCK of the corporation.
The co-op board then has DISCRETION on who can live there. The co-op is basically like “yea we know this is property but we are just actually selling shares of property, so we can discriminate and kick anyone out who we want to… because it is just a “share.”
easements
So an easement is just a property interest that entitles its holder to the use or enjoyment of another person’s land.
Remember this: an easement CANNOT be unilaterally expanded. If the bar exam has a situation where a path across your land or a driveway or some shit gets originally set… one side can’t just be like “Good morning Goat! I forgot to tell you… while you slept I made the path 50x wider!”
negative easements can only be created..
expressly or by signed parties.
there is no natural resource right to LASS
light
air
support
streamwater
two types of easements
- appurtenent- ( most) An easement appurtenant [to land] is simply when an easement benefits its holder in their physical use or enjoyment of their property.
- gross -
An easement in gross is owned by an individual person. There’s no dominant estate.
The ONLY relevant estate we look at is the SERVIENT estate (the bitch estate). That is where the easement is located and where the owner of the easement exercises their rights.
how do easements transfer?
easements are valuable becauset they are relatively permanent
they are easy to transfer -> they transfer with the sale of the DOMINANT estate.
They pass AUTOMATICALLY when the dominant land is sold. If you benefit from an easement, just sell your land… it will pass to the next owner
And it passes REGARDLESS of whether the easement is mentioned in the new deed
IT PASSES BY IMPLICATION
IT PASSES AUTOMATICALLY
I HAVE A DRIVE WAY THAT RUNS ACROSS YOUR LAND
I SELL MY LAND
THE NEW OWNER STILL HAS USE OF THE DRIVEWAY.
And you can’t do a damn thing about it.
You are my driveway servant who I control and gaslight for the rest of your natural life.
what happens if the servient land is transferred… is the new servient owner bound by the easement stuff?
Yes, they are. Unless they have no NOTICE.
How can they get notice?!
(1) Someone tells them;
(2) The easement is recorded in the public records;
(3) Inquiry notice
Easy we already know these three.
STAY BONA-FIDE MY GOATS OR YOU WILL STAY A SERVANT TO DADDY DOM APPURTENANT EASEMENT
what happens when the exact location of the easement is not set at outset,
the owner of the servient estate has the right to fix it in a reasonable manner. But ONCE they fix it… it cannot be moved without the consent of the dominant owner.
Actually one more final point: The servient estate is not under a duty to repair the easement either… sometimes they test on this. The costs are split between both the dominant and servient owner for repair.
how are easements created?
Prescription
Implication
Necessity
&
Grant - express easement
implied by prior use
Let’s say Goat had a big property with a driveway, and he used it to park his beautiful Koenigsegg in his garage on lot 1.
His property was simply called “lot 1”
No easement needed.
You can’t have an easement on your own land.
Then one day he decides to split the land into two lots.
After long and careful deliberation, he named the second lot “lot 2”
But he still used the driveway on lot 2 to benefit lot 1. He had to drive through the driveway on lot 2 to get to his garage on lot 1. The driveway on lot 2 became the servient land which benefitted the dominant land where his actual garage was (lot 1).
So after he sells lot 2 to a new owner… the new owner says “wtf. You can’t use this driveway on my lot anymore!”
And now my Goats… we must analyze and learn the elements of whether there was an implied from prior use easement
elements of a prior use easement
1: the use of the easement must have existed before the lot was divided in an OBVIOUS AND OPEN WAY (apparent and continuous are the buzzwords here)
2: The court then must determine whether the easement on the servient land is REASONABLY necessary for the enjoyment of the dominant land.
I mean OBVIOUSLY I need to park my Koenigsegg… so this is simply out of the question it would not be necessary for my personal enjoyment.
When they say “reasonably necessary” the court means it is CONVENIENT… it doesn’t have to be like a water pipe for you to survive or some shit haha.
Mnemonic for easements implied by prior use:
A.C.R. -> Apparent. Continuous. Reasonable.
Always. Carry. Raincoats
easement by necessity
Sometimes when a single parcel is divided into two parcels… one parcel becomes a PP - A PRISONER PARCEL
It is completely landlocked.
And thus, the easement by necessity was born.
So to get an easement by necessity…
1) first we need common ownership before severance.
2) Then we need, at the time of severance… one of the plots to be landlocked (grantor OR grantee can be landlocked after the severance, doesn’t just have to be the grantee’s parcel)
3) Finally… right of way easement must be strictly necessary. The traditional view back in the day was that there had to have been NO OTHER ACCESS… nowadays the courts are more chill and they just say “without the easement, the land couldn’t be effectively used.”
The scope of these easements are for access -> so for pedestrian walkways and vehicles basically.
No parking, no building, no crazy shit.
easement merger doctrine
And remember my Goats… if the parcels later get united under a single owner, the easement by necessity will be extinguished under the legendary merger doctrine (you can’t have an easement over your own land, so it just disappears)
easement by prescription
These easements are non-consensual.
These are essentially adverse possession easements, but not exactly (we don’t need exclusive possession with prescriptive easements like we do in adverse possession… we just need to show regular use. Simultaneous use of the easement by the true owner won’t destroy our prescriptive easement claim)
We need four elements for a prescriptive easement to be created out of thin air: OCAN
Element 1 (OPEN & NOTORIOUS): It’s good to be seen. To get a prescriptive easement, you need to use the land in an OBVIOUS way where other people can see you. Walk across the land obviously and purposefully wearing bright clothing.
Element 2 (CONTINUOUS): The use doesn’t have to be CONSTANT. You don’t have to be walking across the easement 24 hours a day, but definitely on a regular and uninterrupted basis (like using it once a week or some shit).
Element 3 (ACTUAL): You actually have to walk your ass across the easement and use it. It can’t be symbolic like sending a letter saying you intend to use the easement at some point in the future or you consider it yours and throw magical dust on it. Hitch up your cart pulled by two strong goats and get across that easement.
And finally, Element 4 (NON-PERMISSIVE): If you have the owner’s permission to go across their property… you won’t get a prescriptive easement.
Exclusivity isn’t an element because easements THEMSELVES are not exclusive. THAT IS THE WHOLE POINT OF EASEMENTS. THEY ARE MEANT TO BE SHARED.
how do we terminate easements?
END CRAMP
Estoppel -> when the dominant estate TELLS the servient estate that the easement will no longer be enforced… so the servient estate changes their position in RELIANCE on this promise… the easement will be terminated
Example: If you tell me you will no longer be using the path across my land, so I build a massive Goat Barn… then you try to sue me. Uh… what?! You just made me change position in reliance of your stupid lies.
Necessity -> If the easement by necessity ENDS. Let’s say I WAS landlocked… but they BUILT 50 ROADS AROUND MY PROPERTY THAT DON’T GO ACROSS YOUR LAND.
NO MORE NEED FOR EASEMENT BY NECESSITY
Destruction -> Servient land gets destroyed… yup… no more easement there.
Condemnation (of the servient estate) -> Daddy government takes it away, no more easement.
Release -> Easement holder releases servient owner with an express written agreement.
Abandonment -> Easement holder demonstrates by physical action that they will NEVER use this easement again.
GOAT-NOTE: SIMPLE NON-USE AND SIMPLE WORDS ARE NOT ENOUGH FOR ABANDONMENT OF AN EASEMENT!
Merger -> we discussed this before, but when the owner of the dominant and servient parcels become… one. I like to imagine for this one an enormous demonic rabbit joining together two lands as one with chopsticks. That imagery really helped me on the bar when I took it.
The easement will NOT be merged if you give someone less than the full interest to the land
You have to fully own BOTH properties for it to merge!
Prescription: Just like an easement can be CREATED by prescription, it can be DESTROYED by prescription as well.
licenses
A license is simply a personal privilege to enter into someone’s land for a specific purpose
weakest form of servitude there is
Sometimes you don’t want to give someone a permanent easement… and the license allows you a little more flexibility and control.
We don’t need a writing for a license as they are not subject to the statute of frauds. We only need a writing for land transfers like easements.
AN ORAL EASEMENT CREATES A REVOCABLE LICENSE (bc an easement needs a writing)
how to terminate a license
licenses are freely revocable so they can be terminated at any time.
The license also dies if a licensee dies since it is personal to them, and you can’t transfer a license -> any attempt to transfer it will simply result in a revocation of the license.
what can get in the way of revoking a license?
equity and fairness
1. When the grantor specifically states that it will be irrevocable;
- When the licensee has invested a significant amount of money or resources into the license (if I say you can use my private airport for the SuperBowl for example… and you make all these arrangements to land your Falcon 900X jet there… I can’t just be like “sorry… I need to make space for Taylor Swift’s jet”);
RED-ALERT MBE TRICK SPOTTER: This is a common fact pattern on the MBE. They love to have someone orally be like “yea you can use my land” then the person allowed to use the land gets so excited they build a fucking building on it. Then the license grantor is like “haha well… no… you can’t use it anymore.” NOPE. It has now become the equivalent of an EASEMENT.
- And finally… when the license is coupled with an INTEREST in the land, it can’t be revoked. If I give you timber rights to my land and then couple it with a license saying you can cross my land TO GET THE DAMN TIMBER for example… I can’t just revoke the license randomly.
profit a prende
This is French for “come get the gold”
It is simply the right to take something of value from someone’s land. Deer, gold, gravel, minerals, fish, anything.
how are profits created
Profits are exactly like easements. They can be created expressly by grant or by implication.
Profits share ALL the rules of easements and can be either appurtenant or in gross.
Remember, appurtenant profits will ONLY transfer with the sale of the dominant land. So the problem may say “I grant a profit for the benefit of Parcel B to take deer off my land (Parcel A)”
This deer profit can ONLY be transferred now with the sale of Parcel B.
Under common law you couldn’t transfer profits, but now under the modern law you can transfer them.
fixtures
Fixtures are just formerly personal property (STUFF) that got attached to the real property (LAND) in such a way that they became PART OF THE DAMN LAND.
So basically… fixtures become part of the REAL ESTATE because we glue them on too strong. And now they can’t be removed or treated separately unless the parties agree.
If it’s a CUSTOM designed item that fits into the actual property ITSELF like a built-in bookshelf and shit like that… it will almost certainly be a FIXTURE.
CROPS THAT ARE ANNUALLY CULTIVATED LIKE CORN ARE NOT A FIXTURE, BUT A TREE IS A FIXTURE.
what is not a fixture
shit you can easily remove
appliances
fridges
washing machines
screen doors or windows UNLESS they are specifically made for the dwelling.
crops annually cultivated like corn
actual fixture test
annexation - chattel must be so attached that it can’t be removed without fucking up the actual property or damaging the chattel itself
adaptation- an item which is usable at other properties is not exactly “adapted” to the land in question
intention - If the facts state that the person DID NOT INTEND it to be a fixture… IT’S NOT A DAMN FIXTURE.
tenant installation qualifying as fixtures?
The baseline rule is this: the AGREEMENT controls between the landlord and tenant if the lease agreement states that CERTAIN things are fixtures and certain things are not
IF IT’S IN THE LEASE = THE LEASE CONTROLS
But what happens if we have no mention of fixtures in the lease agreement between the landlord and tenant?
If there is no agreement, we just use our favorite substantial harm test
substantial harm test (fixtures)
when there are no mention of fixtures in the lease agreement between the landlord and tenant.
The tenant can remove chattel so long as the removal does not cause substantial harm to the property
However, if leaving the fixture results in a WINDFALL to the landlord or an unfair deprivation to the tenant… the tenant can still remove it even if it does cause harm to the property.
trade fixtures
Trade fixtures are just items which are brought onto the property that are devoted to a trade purpose (regardless of what it is, how big it is, etc.) … from a greenhouse to a single shelf used to display merchandise.
A COMMERCIAL TENANT can remove trade fixtures installed for the purpose of CARRYING OUT A DAMN BUSINESS OR TRADE ON THE PREMISE
A COMMERCIAL TENANT CAN REMOVE TRADE FIXTURES EVEN IF THE LEASE DIDN’T ALLOW HIM TO.
EVEN IF THE ITEM IS SPECIALLY ADAPTED TO THE PREMISE AND TIGHTLY ATTACHED TO THE PREMISE… A TRADE FIXTURE CAN BE REMOVED SO LONG AS YOU DON’T MATERIALLY INJURE THE PROPERTY
RULES
rule 1: you must remove the trade fixture before the lease terminates
rule 2: commercial tenants must restore the premises to their original condition.
zoning
ruled constitutional as an exercise of police power for the benefit of the community at large, despite negative effects it had on some individual property owners.
Zoning is based on one simple theory: different land uses should not be next to each other. Homes should not be right next to offices. Offices should not be right next to factories. Jellyfish aquariums should not be right next to children’s play areas… or should they?
when do courts get hostile over zoning?
spot zoning attempts - when you change the zoning restrictions for just a single piece of land, but not for the surrounding parcels.
Exception: If the spot zoning achieves a beneficial public purpose (like creating jobs for the community), it is OKAY even if it fucks over everyone in the neighborhood
when a zoning challenge arises
the burden of proof is on the challenger to show that no rational basis exists for the zoning
two types of zoning
1. cumulative zoning - In a cumulative zoning plan, any use permitted in a more highly restricted zone (like residential) is permitted in a lower zone (like industrial)
Residential zoning is always the highest and most restrictive zone. Then it goes down the chain as they loosen up the restrictions (down to commercial zones with Starbucks and shit, all the way down to smog emitting Cobalt facilities with child workers)
Less restrictively zoned properties like factories can’t be built in residential zones.
This isn’t cumulative zoning… this is terrorism of a small neighborhood.
2. conditional use permits
Sometimes property owners want to use their land in a way that is not otherwise permitted within the zoning district. They can do this by obtaining a conditional use zoning permit from the municipality.
The zoning board has the power to give this to you... however… there may be a price
The zoning board can impose CONDITIONS (called exactions) on the property owner that are designed to benefit the community, so long as these EXACTIONS are SUBSTANTIALLY RELATED to a specific need or burden that the property owner is creating with their building
The zoning board might require you to build more roads and shit if you are building a mall in a residential zone for example. This will help deal with the congestion it will cause. The key word here is: SUBSTANTIALLY RELATED
variances
special permission which says “you can build your property this way even though it’s not normally allowed”
conditional use permits are about use, variances are about physical aspects of the property.
variances are given to allow property owners to vary from the requirements of a zoning ordinance
TWO PART TEST
(1) undue hardship arising from the unique nature of the land… which means that essentially no effective use of the property can be made if the variance is denied.
regulation = hardship
hardships = more than mere inconvenience and cannot be self-inflicted.
(2) the hardship should be unique when compared to other properties around you
If there is some weird sloping pattern to the land and all houses have to deal with it… you can’t be like “Zoning board… um… my land….. slopes? So I need to break the rules just a lil’ bit”
- front yard setback - the required distance between building and street facing edge
- side setback - the required distance between a building and its lots side property. distance between buildings.
prior non-conforming uses
When zoning first became a “thing”…. there were a lot of people who were like “what the fuck?”
People were like “Did you just zone over my property? Because my property is actually already doing something different than your stupid little zone.”
How do we deal with land that was zoned properly before… but when we re-zoned… it became… non-conforming and fucked up?
Basically, the non-conforming use is grandfathered in. So it’s allowed. But we have a few rules related to it:
- You can’t intensify the use. So let’s say you had a McDonalds and you got zoned residential. Okay, you can keep selling burgers. You can remain non-conforming.
- If your non-conforming building burns down (like this McDonalds for example), you won’t be able to build a new McDonalds.
- The non-conforming use can run with the land even if it is inherited or something by a child when the parents die.
how are modern courts dealing with non-conforming uses today?
AMORTIZATION
Amortization is just a fancy word meaning “gradual reduction”
All we fucking need to know is amortization and substantial hardship to get 4 points.
So basically the majority rule today is that municipalities can reasonably amortize the non-conforming use to force it to stop at some point.
Let’s say there’s a jack-off movie theater and it gets zoned residential. Reasonable amortization for this movie theater to stop would NOT be 30 days.
It’d be something like two years.
It can be up to 20-40 years for buildings, sometimes less than a year for smaller things like billboards.
courts will ask “how much will this fuck the non-conforming user over and how necessary is it that they stop?”
selling homes
when you sell a home there is a contract between the real estate agent and the seller of property.
seller of home = principal
real estate agent = agent
the agent is selling the home for a fee or commission
agency relationship between seller and agent for homes
seller of home = principal
real estate agent = agent
Representations by the agent are almost always binding on the seller, remember this.
Agent: “This house doesn’t have any roof problems”
Seller -> Getting sued when the buyer finds the roof got hit by Hurricane Katrina.
If the agent says something… the seller may as well have said it themselves.
We have three types of brokerage contracts you can have with your agent: exclusive agency agreement, exclusive right to sell agreement, non-exclusive right to sell
brokerage - exclusive agency agreement
no other agents allowed
the seller cannot sell the property through another agent, but they can sell it themselves.
brokerage - exclusive right to sell agreement
sloth mode
the agent is entitled to commission if the property is SOLD, EVEN IF THE AGENT DOESN’T SELL IT THEMSELVES.
THIS IS THE BEST ONE FOR AGENTS.
even if the property owner finds the buyer, the agent still gets paid. agent gets paid if home is sold. period.
brokerage - non-exclusive right to sell
nightmare difficulty setting
agent is entitled to commission only when the agent provides the buyer.
agent has to beat the other agents AND the seller of the home is finding the buyer.
to be valid, stupid agency agreements need four things
- identify the agent
- state their commissions
- describe the property; and
- contain the principal’s (homeowners) signature.
if the agreement is silent as to the deadline to sell the property, the court will imply a reasonable deadline.
if the agreement is silent as to the time the agent has to accomplish the sale, the seller can revoke the agency agreement at ANY time before the agent has actually found a buyer.
these are not subject to the state of frauds
when does the agent actually get the commission?
unless the agreement says otherwise, the agent is entitled to commission if the agent can establish that they found: a ready, willing, and able buyer who agreed to all the material terms of the sale.
that’s what the right answer will say.
ready, willing, and able means that the homeowner must pay the commission even if they REFUSE to do business with a ready, willing and able buyer that the agent finds.
But the buyer actually has to agree to all the terms the seller wants!
So let’s say Rainbow Brown is Goat’s agent. If Rainbow finds Goat a buyer who offers $200 less than Goat’s minimum price listed in the broker agreement… the agent is not entitled to commission if the seller refuses to sell at this lower price.
And it’s not just about the money -> you need to find a buyer who agrees to all the essential terms. This includes things like the closing date. If you find a buyer who is willing to pay the full price but doesn’t agree on the closing date… no commission for you.
agents fiduciary duty
agents have a fiduciary duty to the buyer (a duty of loyalty)
they have to disclose things like whether the prospective purchaser is a family member of theirs for example
they also can’t represent both the buyer and seller without full disclosure of the facts and agreement by everyone involved.
real estate contracts
MUST BE IN WRITING - STATUTE OF FRAUDS
Real estate contracts are a little different than normal contracts. In real estate contracts,there’s usually a long ass time between formation and performance (we call performance “closing”)
The time BETWEEN formation and closing we call “the executory period.”
So the seller conveys title to the buyer by execution of a deed. The buyer gives over the purchase price, usually with the help of mortgage financing by the bank.
requirements of real estate contracts
- Identify the parties (their full names);
- Describe the land (It cannot be a vague description. I need metes. I need bounds. We have to allow the court to identify the land and identify all boundaries of the piece of land)
- A price is necessary OR a way to FIGURE OUT the price is necessary (such as stating that an APPRAISAL will be done at a later time)
- The court will NOT supply a “reasonable price term” for real estate
- The contract also must be signed by the party who is NOT seeking to enforce the agreement (remember how we joked in the earlier modules about someone bringing in a writing to court that they signed themselves to prove their case?) Not allowed.
can contracts for the sale of real estate be rescinded orally?
yes.
the statute of frauds only applies in the original agreement.
ex.
Goat (the buyer) and Nancy Riverfoot (the seller) enter into a written contract for the sale of land in thirty days which satisfies the Statute of Frauds.
Fifteen days after signing the contract, Goat and Nancy orally agree to rescind the contract because they just didn’t feel like going through with it anymore.
Nancy then resold the land to someone else. Goat changed his mind and sued her on the contract, saying he was still entitled to it.
Who wins?!?!
The seller (Nancy) wins! People can orally rescind a real estate contract!
doctrine of part performance
The idea is simple -> if the buyer takes possession of the property AND either:
- Pays all or part of the purchase price;
AND/OR - Makes substantial improvements
…the seller can’t say there was no writing.
time… and whether it is of the essence or not
A time is of the essence clause is simply a phrase in a contract which says “hey, timing is material. If you don’t complete the sale by this time, I’m not paying you shit.”
These clauses are valid, but there must be an EXPLICIT and CLEAR deadline in the actual contract itself.
Goat-Note: If a real estate contract does not contain a time of the essence clause, but you want to make time of the essence later on… you must give the other side reasonable notice and a reasonable time to perform before you considering them in default. “Reasonableness” will depend on the circumstances of each individual case.
is the seller liable for failing to disclose latent defects?
latent: existing in hidden or dormant form
they are LIABLE for this
HOWEVER… the seller (or their agent) are not liable to warn the prospective buyer about conditions that are readily observable by REASONABLE use of their damn senses.
defects need to be hidden to require the seller or their agent to warn
GOAT-NOTE: Language inserted into the real estate contract like “as is” will NOT protect the seller from failing to disclose significant hidden defects.
what happens if a buyer wrongfully breaches?
the seller may keep their downpayment or “earnest money” if it is the reasonable amount
marketable title
A marketable title is one that is free of encumbrances and free of rights or interests by third parties that will fuck up the buyers full ownership of the property.
They seller is essentially promising it is free from lawsuits and the threat of litigation. If an answer choice uses the words “the threat of litigation” in reference to a title, it is likely the right answer.
Basically, the seller promises that no weird shit is going on with the land.
No marketable title? The buyer can refuse to pay at closing or collect damages.
when must we actually provide marketable title?
at the time of closing. not a second before.
oh sorry, it’s not marketable a day before closing? GET OVER IT.
giving marketable title is implied in all real estate contracts.
what happens if there is a lien or mortgage for some money on the house?
the seller can actually use the purchase price they get from the buyer to pay off the lien or mortgage as part of the closing process!!! They can even pay off an installment contract for their house with the purchase money on the day of the closing.
what qualifies as weird shit that could make title unmarketable?
1. encumberances- we need fee simple absolute at closing, no interests held by third parties.
a helpful easement that is clearly visible and beneficial is NOT an encumberance.
2. adverse possession - duh
3. zoning violations - if the property is currently violating a zoning ordinance
does hazardous waste make a title unmarketable?
NO
Finding something like hazardous waste on the property will not make the title unmarketable.
Hazardous waste doesn’t have anything to do with ownership… it is associated with use of the land, not ownership.
adverse possession
cookies often are hidden
if there is a wrongful possessor on your land, you should bring a trespass action against them. If you don’t bring a trespass action against them… you’re an idiot and should lose your land.
1. continuous -
has to be uninterrupted for the amount of time the statute says
seasonal use = fine
one year off = clock starts over
The clock does NOT start running against an owner who is insane, in prison, or under 18 WHEN THE ADVERSE POSSESSOR STARTS THEIR POSSESSION
2. open, visible, and notorious
1. showing that the actual owner knew you were there and didn’t agree with it.; or 2. your conduct is outlandishly fucking obvious and the owner should have known.
IF YOU TELL OTHER PEOPLE THE TRUE OWNER ACTUALLY OWNS THE LAND, YOU CANNOT CLAIM THAT IT IS AP.
3. actual and exclusive possession
to start the clock ticking for adverse possession… you need to ACTUALLY physically trespass, and the owner can’t be possessing the property WITH you
4. hostile
you don’t have the owners permission to be there
constructive adverse possession
It’s just when a psychopath enters a small portion of land in good faith with a fucked up deed which says they own the whole parcel.
The elements are simple:
- You enter the land under color of title(with a deed that appears to give title but doesn’t because it’s defective)
- You enter in good faith thinking your fake title actually gives you full deed to this land;
- You enter a portion of the land (even if it’s just a small part)
- The owner is not there.
what happens when the adverse possession period ends?
the adverse possessor has superior right over the true owner… but they still have to bring a “”””””"”quiet title””””””””” action... to establish that they are the true owner.
If you don’t “quiet the title” the property will not be marketable, as it will be under the threat of litigation.
Adverse possessors can ONLY take the rights the owner themselves had. If you adversely possess a life estate… you get… a life estate measured by the previous owner’s life. Sorry, your little plan didn’t work. Once they die you lose it.
tacking
allows one adverse possessor crackhead to team up with another adverse possessor crackhead and add up their time together to get the property from the hardworking owner.
There needs to be privity between them though, which can be achieved by:
Blood (family members usually but also blood pact where we slash our palms);
Contract;
Deed; OR
Will
The possession still has to be CONTINUOUS though. You can’t abandon it for a year then have Grandma Josephine show up to finish the tack… nope. Clock will restart at 0.
If two or more crackheads adversely possess the land TOGETHER, they acquire the title as tenants-in-common.
how to create a deed
- In writing
- Signed by the person selling the land (the GRANTOR)
- And describe the land (doesn’t have to be perfect)
“All of Goat’s land” = good
“All of Goat’s land in Chicago” = good
Some of Goats land = get the fuck out of here, this is not good.
How do we know what “some” of my land is? I have thousands of properties
how do we transfer a deed
incredibly delicious apples
1. intent
2. delivery
3. acceptance
you need to convey it NOW. not in the future. NOW.
the bar exam sometimes has these funny problems where a lady writes a letter to her son and is like “you get the house after I die. here’s the deed. take it. it’s delivered. i’m going to live in it until i die though.. don’t record it until i die.”
then someone records it and tries to steal the house from the old lady before her death.
Can you imagine how dumb you’d have to be to think that delivery of a deed was as simple as recording a piece of paper? Delivery is all about the grantor’s intent. This old lady did NOT intend to give it up NOW. So no delivery.
Forged deed? Void.
Stolen deed? Void.
Trick someone into signing some documents that they don’t know are a deed? Void.
Grantor lacked capacity? Void.
Any fuckery with the deed = VOID.
Oh… you have a deed with a power of revocation? Where you reserved yourself the right to take back the deed from me at any time? Nope. Void.
That is not proper present intent and that is not the power of Now.
What about a NON-LOYAL escrow agent delivering it for NO reason?!
Oh I gave my deed to an escrow agent and told him to only deliver it if you got married, then he delivers it anyway to you!??!?! No. THIS IS NOT PROPER INTENT
INTENT IS SERIOUS MY GOATS. PAY ATTENTION TO THIS SHIT.
transferring a deed - delivery
Physical delivery of the deed works
* Mail
* Giving it to an agent
* Placing it into the grantee’s hand
* cant deliver a deed to a dead person or a corporation that has not been formed or someone that doesn’t exist
if someone rejects it, then not valid delivery
If the grantee wants to deliver it BACK to the grantor… the grantee has to make a NEW fucking deed… and deliver it THEMSELVES.
if there is an oral condition on delivery but it is not in th deed itself, the condition just gets cut out and it’s good delivery.
Sometimes the bar will have one of these scenarios where the Grantor hands it to someone and says “This deed is now officially yours. But please don’t record it until I die.”
Then the stem will be like “Was that valid delivery?”
Okay look… the whole fucking thing is about intent. We know that. Hand delivery of the deed raises a rebuttable presumption of delivery. But also the words “is now officially yours” tells us a lot about the Grantor’s present intent as well.
You don’t need to record it for it to be a valid delivery is what I’m saying.
So this delivery is GOOD even though it looked like it was a future intent delivery.
Sometimes they get sneaky… just ask yourself “IS THIS A PRESENT INTENT DELIVERY!??!?!?!?!”
transferring a deed - delivery - through an escrow agent
You can deliver a deed to an escrow agent with instructions to DELIVER it to a grantee if certain conditions are met
Once these conditions are met… title passes AUTOMATICALLY to grantee
MBE GOAT TRICK ALERT: Sometimes the MBE will have these stupid things called death escrows. Yea, I really just said that. Four days from the test and I just introduced you to ““death escrows”” JFL.
Basically you can give a deed to your attorney or escrow agent to deliver to someone else upon your death… but you can’t reserve ANY control over it to be valid. So if you say “Give this deed to my son when I die… but return it to me if I ask” = NOT A VALID DEATH ESCROW = NO PROPER DELIVERY. Death escrows have to be placed FULLY outside your control.
estoppel by deed
“after acquired title” doctrine
This one is kind of funny. This is when someone actually executes a deed… but they don’t have the land.
Or they try to give more land than they actually have.
Normally, this is not allowed.
HOWEVER… If they acquire the land later on… it just passes automatically to the person you scammed earlier haha.
Basically, the court doesn’t like you getting out of a sale just because you didn’t technically own it at the time of sale if you get the land shortly after that.
types of deeds
- quitclaim deed
- general warranty deed
- special warranty deed
what is a deed?
most common way to give someone land, they are just instruments which convey an interest in land.
different deeds have different levels of promises.
six possible covenants: three present and three future
Present
1. covenant of seisin
2. covenant of right to convey
3. covenant against encumberances
Future
1. covenant of quiet enjoyment
2. covenant of warranty
3. covenant of further assurances
present covenants
Breaches of present covenants occur, IF AT ALL, when the land is conveyed.
And you can only sue the person who ACTUALLY sold you the land when it comes to present covenants… they don’t “run with the land” so people later on can’t sue on a present covenant that was broken when YOU bought the damn land.
1. covenant of seisin
promise that you’re in possession of the land you are trying to sell.
2. covenant of right to convey
promise that you have legal right to sell this land.
3. covenant against encumberances
a promise that there are no rights on the land held by third parties.
future covenants
Future covenants protect the grantee from random shit that could happen in… the future.
A future covenant can be breached at the time of delivery… but it can also happen anytime after as well.
Future covenants do run with the land -> so a present owner can sue the person BEFORE the grantor who gave the land to them if the earlier person caused the covenant to be broken!!!!!!!!!!
1. covenant of quiet enjoyment
breached by 1. eviction of grantor; 2. by someone else showing up with superior title.
2. covenant of warranty
this just means the grantor will pay your legal costs if someone shows up with better title than you. he will help you defende against them and shit.
3. covenant of further assurances
this is just a promise to make sure the title is always good. if it’s defective, the grantor will give you a new one. he will take care of the later discovered liens that spring up, etc.
quitclaim deed
0 promises, 0 covenants
worst type of deed.
The funniest part about quitclaim deeds is that they don’t even contain a covenant to convey… you aren’t even SAYING you can sell this land… you’re just like “take whatever the fuck I have… maybe it’s nothing, maybe it’s something”
Obviously, just completely making shit up and lying would be fraud.
But you can give a quitclaim even if you have NO interest in the property, but it is POSSIBLE you may get some interest (like if you have a disputed interest or you and your sister are fighting over a will relating to the property)
If the grantee is stupid enough to take a chance on you and it turns out you own nothing… they can’t sue you.
the general warranty deed
all 6 covenants.
Even if the encumbrances are UNKNOWN to the grantor… STILL A BREACH.
TRICK:
The covenants of quiet enjoyment and covenants of warranty are NOT breached by a WRONGFUL claim or eviction by a third party.
ONLY BY SOMEONE WITH A REAL SUPERIOR TITLE
The grantor only needs to defend against an ACTUALLY superior title… not a wrongful attack on your deed by someone who DOESN’T have better title than you
special warranty deed
The special warranty deed basically says “I own this property, I can give it to you, and when I was living there I didn’t do any weird shit to it like put an easement, mortgage or lien on it.”
It only guarantees two things, and these are ONLY promises on behalf of the grantor THEMSELVES… not anyone before them:
- The Grantor promises that they have the right to convey (and didn’t convey it to anyone else BUT the grantee); AND
- The property is free from encumbrances that arose WHEN THE GRANTOR HAD THE LAND or that were created BY THE GRANTOR;
The Grantor will NOT defend title if the encumbrance or claim is about some shit the OLD owner did before them.
deeds that are void
Forged;
Not delivered; or
Deeds involving fraud in the factum … this is when the grantor DOESN’T know it’s a deed he’s giving over. There is fraud in the DOCUMENT itself.
If I say “this is a birthday card” and you sign it, and it’s a deed… VOID for fraud in the factum
deeds that are voidABLE
Made by minors or incapacitated people;
Made through mistake;
Made through undue influence; OR
Fraud in the INDUCEMENT makes it voidable
This is when NOBODY is trying to hide the fact that this is a deed, but there are fraudulent STATEMENTS that get someone to hand it over.
lapse
This is when someone getting a gift in a will… dies… before the testator.
Normally, if someone gives a specific piece of real property to a sibling or child in their will… and the sibling or child dies before the testator… the sibling or child’s heirs do not get the property as it has lapsed (since they died)
anti-lapse statute
All states have some form of anti-lapse statute.
These statutes save the gift and allow it to pass to the beneficiary’s living descendants, but generally only if the beneficiary was a sibling or child of the testator.
The whole idea is this. If you give some shit to your sister and your sister dies… you’re kind of okay with having your niece or nephew get it. But if you give some shit to your friend Johnny O, typically…. you only really care about Johnny O getting it. You don’t know Johnny O’s estranged kids.
ademption
ademption is when a specific bequest of real property (or personal property) simply isn’t in the estate when you die. You sold it. You lost it.
Remember, the will SPEAKS at the time of death.
If I give you GoatAcre in my will… then before I die I sell GoatAcre… GoatAcre is adeemed by extinction. They’ve tested this recently.
Random Goat-Note: You can’t give a deed that says “to Goat, provided that Goat does not sell the land for 10 years.”
this is restraint on alienation.
title assurance systems
Recording acts protect grantee’s by allowing them to record their land deeds and provide public notice to everyone of their rights!
The acts penalize people who FAIL to record and give everyone else notice.
You have to tell everyone about the land you own so if a double dirty dealer sells it to 57 different people, we can figure out who should own it.
These recording acts are to protect people called bona-fide purchasers. This is just someone who purchases a property without notice. An innocent buyer.
Every recording statute differs in the sense that it provides a different time when the second buyer qualifies as a bona-fide purchaser and wins over the first person who bought the land from the double dirty dealer.
race statute
In a race statute (only three states have this lol), whoever records the deed first wins. It’s a race to the courthouse. That’s a little joke I make with myself sometimes. I say “it’s a race to the courthouse for race statutes.”
So if Goat conveys GoatAcre to Rainbow Brown FIRST and then Kevin Tipcorn SECOND… then skips town… who wins between Rainbow and Kevin?
So if Rainbow records first… Rainbow wins.
If Kevin records first… Kevin wins.
Race to the courthouse to record.
notice statute
the second purchaser wins if they have NO NOTICE
So if Goat conveys GoatAcre to Rainbow Brown FIRST and then Kevin Tipcorn SECOND… then skips town… who wins between Rainbow and Kevin?
So for Kevin to win:
Rainbow would have to not record; AND
Kevin couldn’t have notice that Rainbow bought it before him (doesn’t MATTER if he records or not!!!!!)
notice statue example:
a conveyance of interest in land (from O to A) shall not be valid against any subsequent purchaser for value (B) without notice thereof, unless the conveyance is recorded by A.
A= Rainbow Brown B = Kevin Tipcorn
race-notice statute
fucking nightmare for BFP’s. The hardest one for them to win with.
Race-notice encourages the second purchaser to record. But if Kevin gets it without notice then Rainbow goes and records first… Kevin LOSES.
So if Goat conveys GoatAcre to Rainbow Brown FIRST and then Kevin Tipcorn SECOND… then skips town… who wins between Rainbow and Kevin?
So how does Kevin win in a race-notice jurisdiction?
He can only be bona-fide in a race-notice if:
Rainbow doesn’t record; AND
Kevin takes without notice; AND
KEVIN HAS TO NOW FUCKING RECORD BEFORE RAINBOW
NOT ONLY DOES HE HAVE TO BE INNOCENT WITHOUT NOTICE, HE HAS TO GET HIS ASS TO THE COURTHOUSE FIRST
THIS ONE IS HARDER TO WIN THAN NOTICE
race notice statue example:
A conveyance of interest in land (from O to A) shall not be valid against any subsequeent purchaser for value (B), without notice thereof, whose conveyance is first recorded (B)
A = rainbow brown
B = kevin tipcorn
what exactly is notice?
can be
1. actual
if prior to closing for example, buyer two finds out about buyer 1.
2. constructive
So buyer #2 is under a duty to INSPECT the land. So if a reasonable inspection WOULD reveal that someone else owned it…. EVEN IF BUYER #2 doesn’t do any inspection… they’re still considered to be on notice.
If someone sells me DRAKES house… and all I needed to do was fucking show up to realize that DRAKE HIMSELF was living there… but I DIDN’T… I’m still on constructive notice.
record notice
when it comes to record notice… buyer #2 always has a duty to search the record office. If it’s recorded in the record office… obviously… you’re on notice.
what is a bonafide purchaser
You must be a purchaser
Can’t be a donee and get it as a gift
Can’t be an heir
Can’t get it from a will
Can’t be a judgment creditor
Can’t have notice (AIR)
Actual, constructive, or inquiry
And they must pay value
Can’t be love or affection, REAL value (I mean love has sentimental value, but the bar exam is ruthless when it comes to money -> exemplify laptop fee’s going up by $2,000 next year)
But if the property is worth $1,000,000, and you pay $500,000 that is still considered value
shelter rule
It’s just when an heir, donee, or devisee gets the land from a bona-fide purchaser and becomes bona-fide themselves.
Even if THEY have notice… they are protected by the BFP’s status.
They get sheltered like a little lost puppy and will prevail against ANY interest the BFP would have prevailed against.
ex: Let’s say Goat conveys to Rainbow Brown, who does not record. Later on, Goat conveys to Kevin Tipcorn, a BFP, who records. Then KEVIN goes and conveys it to Nancy Riverfoot for FREE as a gift, and she has ACTUAL notice of the Goat to Rainbow Brown ORIGINAL transfer.
Nancy wins under BOTH notice and race-notice statutes.
because Kevin beats Rainbow
mortgagee for value
they are treated the same as BFP’s and all the same rules apply with the dumb little statutes and the BFP statuses.
title insurance
two types
1. owners title insurance
2. lenders title insurance policy
owner’s title insurance policy
So an owner’s policy simply insures that buyers will have clear title to the property. They investigate the title for you. If your title ends up being fucked up, they have to reimburse you for losses later on.
The last thing you want when you are buying an enormous mansion is to realize that there is a problem with the title. I hate when that happens.
Maybe someone else is saying they own it, or you find outstanding liens or encumbrances, or even worse… fraud.
I currently have this home under contract. But I got title insurance and realized to my dismay that I actually did not fully own that path to the left of my pickleball court. It is actually a runway for small airplanes that I share with my neighbor.
It’s situations like this that title insurance protects us against.
Trick #1: An owner’s policy of title insurance continues to protect the owner of the property if they are EVER sued by a buyer way down the chain, even one hundred fucking years later. It protects you forever.
Trick #2: owner’s title insurance policies cover BOTH the named owner AND their heirs and devisees so long as the named owner or their heirs OWNS THE DAMN PROPERTY
No, it doesn’t “run with the land” and cover subsequent purchasers (later buyers have to get their own title insurance, they can just mooch off yours)
But it covers YOU AND THE FAM
Ex.
F24 Trick Alert: They’ll probably say Nancy Riverfoot bought an owner’s title insurance policy then conveyed it to her friend Sally Walterson and then Sally discovers the title is fucked up. So Sally tries to come after Riverfoot’s policy…. nope.
SHE IS A FRIEND SHE IS NOT PART OF THE FAMILY
Ex. 2
Goat had an owner’s title insurance policy. They investigated his new property in the Hampton’s and ASSURED him it had good title.
He died and passed the Hampton estate onto his son LiL Goat in his will.
Then someone showed up with superior title.
Can LiL Goat get indemnification from the title insurance company?
Fuck yes. As he is an HEIR within the FAMILIA.
OWNER’S TITLE INSURANCE PROTECTS BOTH YOU AND YOUR FAMILY DOWN THE LINE.
Owner’s policies are indefinite and cover your heirs AND retroactive claims that arise later on with an 82nd buyer (like in the case of Ronald Walterson)… but they do NOT run with the land and cover friends and random subsequent buyers.
mortgage
a security interest in property that you give to the bank in exchange for them lending you some money.
a voluntary transfer of a security interest in your land to secure a debt.
do mortgages need to be in writing?
yes and signed by the mortgagor (i.e. the person borrowing the money) or someone acting on their behalf.
do mortgages require consideration?
No!
The underlying obligation is sufficient consideration =)
you’ve given enough by allowing Mr. Bank to have a security interest
what rights does the mortgage give the mortgagee (the bank)?
1. foreclosure
the mortgagee has the right to foreclose if the borrower doesn’t pay (which means they can sell the property and use to pay the debt you owe)
2. right to collect regular payments
both principal and interest
3. right to inspect
make sure you don’t destroy the property with waste.
what rights does the mortgage give the mortgagor? (the borrower)
1. redemption
The right of redemption simply means that the mortgagor has the right to pay off the full mortgage at any time during the mortgage and own the property free and clear.
The right of redemption extends into the foreclosure process, and we’ll talk about that in a bit (don’t get too excited)
It also gives the mortgagor the right to use and enjoy the property so long as the mortgage obligations are met.
when are mortgages effective against third parties?
when they are filed properly in the public records.
Someone’s “knowledge” of the mortgage is irrelevant. It all depends on when they are filed!
The date of filing determines their priority rank. How easy is that!
So in the event of a foreclosure if the borrower runs out of money and stops paying… the second recorded mortgage doesn’t get paid until the first recorded mortgage has been fully paid off.
Look at Goat Stewart here. He will serve the first pieces of his cake before he even gets to the second layer, just like the first and second mortgage.
can you mortgage your land to secure the debt of another person?
Yes - A mortgage to secure the debt of another is valid.
Sometimes the bar exam tries to confuse us with a situation where a scammer gets one of their family members or friends to mortgage their property to secure a loan for the scammer’s property.
One time my gangster friend Ollie who I met at a strip club tried to convince me to get my parents to mortgage their home as security so he could get a $200,000 loan for a nail salon. He said we could make $200,000 a year profit at the nail salon and pay the bank back in a year before we started turning a major profit.
It was an interesting idea, but I didn’t even bring it up to my parents. They are very gentle older people and the mere mention of this plan would terrify them.
But a person can put a mortgage on their property to secure the debt of another. If my parents had done this… and then Ollie wouldn’t have paid back the bank on his nail salon loan… the bank would have foreclosed on my parents house… wtf.
what is a purchase money mortgage?
funds used directly to buy the home - THESE HAVE SUPER PRIORITY
priority over everything and everyone to get paid first.
recorded purchase money mortgages have priority over non-purchase money mortgage claims, even ONES that were recorded BEFORE THE PURCHASE MONEY MORTGAGE
Let’s say Goat is looking to move. He wants something simple with a nice view and good amenities for $195 million dollars.
But he only has $100 million.
So he goes to Chase Bank Private Client and they give him the final $95 million he needs to purchase this little fixer upper.
What they gave Goat was a purchase money mortgage. This is just an industry term meaning that funds were used directly to buy a home.
Why are purchase money mortgages important?
Banks are hesitant to lend people money to buy homes. It’s kind of risky and they don’t want to do it. So we wanted to give them incentive.
So the law says “Okay Mr. Bank… if the buyer defaults, you will be the first mortgage to be paid in the foreclosure sale when we sell the house. Above all the other mortgages and liens. Above every other fucking claim… you will prevail… for the risk you took”
And thus, the super-priority of the Purchase Money Mortgage was born.
when you use your mortgage to buy a home versus buy a swimming pool
when you use it to buy a home, it is a purchase money mortgage / “first mortgage”
when you take out a second loan on your homes equity to install a swimming pool, that’s a home equity loan / “second mortgage”
future advance mortgage
Future advanced mortgages are simply mortgages where the lender distributes the money at different times. So the money is not all distributed at once.
The most important thing our little squirrel brains need to know about future advance mortgages to answer these MBE questions is whether or not the payments are mandatory or optional
Mandatory:
Imagine a construction company is building a hotel. The mortgagor gives the construction company $10 million up front and then another guaranteed $5 million when they are 50% done.
This is a mandatory payment with a mandatory triggering condition (the property being 50% done)
When the payments are mandatory like this… all the new payments have the same priority as the original mortgage.
So let’s say a creditor comes along and puts a lien on the construction company before they get the $5 million second mandatory advance. You can picture that creditor as a little lien stream coming in between the original $10 million payment and the next $5 million payment.
So who gets paid first in the event of foreclosure? The $10 million first, the lien second, then the $5 million third?
NO the $15 million has to be paid off at foreclosure before the dumbass lien gets paid. when payments are mandatory, the junior lien is junior ot both the initial payment and the future payment down the line.
The law is basically like “look you dumbass lien holders, you KNEW damn well this construction company was going to get another $5 million mandatory payment… so why’d you put your stupidass lien on this thing and expect it to be paid second? You are paid LAST after all the mandatory payments.”
Optional
If the payments are optional on the other hand… like if the bank said “we might pay you $5 million if we like how the construction looks halfway through” … then the junior lien has priority over the later payments.
when payments are optional, the junior lien lender has priority over amounts transferred later on after the lien
installment contracts
These are simply contracts for the sale of land where the buyer purchases the land by making payments in installments over time and the seller keeps title to the property until the last payment is made.
One of the Goat tricks here is that the seller does not have to convey marketable title until the last payment is made.
what if a buyer fails to make an installment payment?
Common Law: Buyer would lose all past payments and have to fuck off.
Nowadays, unless there is a forfeiture clause which states time is of the essence, this doesn’t happen.
Modern View: In most states the seller is only allowed to keep the reasonable value of the rental value at the time the buyer lived there.
What if the installment buyer totally defaults and stops even trying to pay or do anything?
The seller can sue them for breach of contract, restitution, foreclosure, quiet title, or try to rescind the contract (it is a contract after all my Goats)
The seller can also use self-help and get them physically thrown off the property since they have the title.
what if the seller of an installment land does not give up the title at the last payment?
All the buyer can do is sue for the return of all the payments they’ve made.
what is an absolute deed as security (i.e. an equitable mortgage)?
Let’s say Goat opens up a small dodgeball gym
The gym is not doing so well… mainly because Goat has been doing too many trick shots on people.
Goat has poor credit… so he can’t take out a mortgage on the land. He desperately needs money to keep it going.
So Goat asks to borrow money from Rainbow Brown in exchange for a security interest in the dodgeball gym Goat owns.
Rainbow agrees… but instead of executing a note or a mortgage deed… Rainbow simply asked for the deed itself with a writing which said “after the loan is paid back, Goat can get the deed back for the dodgeball gym.”
The moment Goat does not pay, Rainbow Brown can simply avoid foreclosure altogether and take the property back, stripping Goat of any rights he would have under a normal mortgage.
Goat is “selling him the deed” and leasing it… but in reality Goat is a disguised borrower. If Goat defaults on his “rent” payments, which are really loan payments, then Rainbow, who holds legal title, can instantly terminate the tenancy and option rights without having to go through foreclosure and keep the property.
This is a disguised mortgage and it is used to fuck people over who are desperate or unaware of the law.
A disguised mortgage that you may not see… and when you see it, it may be too late.
Courts are hostile to these arrangements and will usually treat these bullshit loans as mortgages if it seems that they were designed to prevent the borrower’s right to redeem. The court will look at extrinsic evidence to figure out what the parties actually were trying to do.
Moral of the story: Once a mortgage, always a mortgage.
deed of trust
This is kind of like the legal version of the disguised mortgage.
A deed of trust is when the title is given to a third party (a trustee) to hold as security for a loan between a borrower and a lender.
Basically, if the borrower fucks up and defaults on the loan… the Trustee can sell the property and apply the proceeds to the debt.
There is no judicial supervision for a foreclosure sale when it comes to a deed of trust. You’re on your own. People use deeds of trust because they’re cheaper (judicial foreclosures are expensive as shit), there’s more privacy since they aren’t public, and it’s faster than judicial foreclosure. A neutral third party is also involved (the trustee). You get it my Goats.
mortgage theories
- title theory
- lien theory
title theory (minority of states)
In a title theory state (minority of states), a mortgage granted by one joint tenant severs the joint tenancy and turns it into a tenancy-in-common.
lien theory (majority of states)
In a lien-theory state (the majority of states are lien theory states), if one joint tenant takes out a mortgage it is only considered a lien and will not sever the joint tenancy.
So if a joint tenant takes out a mortgage in a lien theory state it will not break up the UNITIES (remember how joint tenancies need those stupid unities of time, title, interest & possession?)
Therefore the joint tenancy will SURVIVE.
redemption
How can we rise after we default on our mortgage?
Redemption in equity... or as I call it “the last opportunity”, is a chance for borrowers to save their property from foreclosure.
Almost all states allow it and it simply means that at any time prior to the foreclosure sale, a debtor has the right to redeem the land and save the property.
How exactly do you save your property before a foreclosure?
By paying the missed payments + interest + costs
It’s that simple
mortgages containing an acceleration clause
these are valid and allowed
An acceleration clause is just a provision in certain mortgages which says “hey motherfucker, if you default or start missing your payments or doing some weird shit… you owe me the full amount of the original mortgage we agreed to, not just the missing payments.”
Basically after you fuck up the mortgage payments are… well… accelerated.
Then if you want to redeem it you have to pay the full balance plus accrued interests and costs.
EVERYTHING.
Acceleration clauses are typically triggered by nonpayment of the mortgage… but they can also be triggered by things like failing to pay insurance premiums on the house. Your mortgage payments can be accelerated by failure to pay insurance if this is what the acceleration clause says. Stay alert.
can the debtor waive the right to redeem when they originally sign up for a mortgage?
hell no
redemption is the most important RIGHT and you cannot bargain yourself out of it.
Sometimes the MBE will mindfuck you and make you think you can give up the right of redemption in the event of default when you’re originally making the mortgage with the other party.
You can’t.
is there a mechanism that allows us to save the property after the foreclosure sale?
Half the states out there actually have fucking statutes for this shit.
In these states the borrower has the right to redeem the property for a fixed period (usually 6-12 months) AFTER THE FORECLOSURE SALE HAS HAPPENED
Yes I just said that… AFTER THE FORECLOSURE SALE
But didn’t someone just BUY THE HOUSE… AT THE DAMN FORECLOSURE SALE!??! WHAT HAPPENS TO THEM?!
How can you redeem it after the foreclosure sale?
You face off against the person who just bought it… and literally just take it back from them.
If a state allows for statutory redemption… the mortgagor can simply pay the foreclosure sales price and it nullifies the foreclosure sale.
Pay attention my Goats…the price they have to pay to take back the property is the the foreclosure sale price (PLUS interest)… NOT the amount of the original debt.
So let’s say Rainbow Browns house goes into foreclosure and Kevin Tipcorn pays $100,000 to buy it at the foreclosure sale (the predatory fuck that he is… the house was probably worth way more… but people buy homes at distressed prices at these foreclosure sales)
If we are in a state that allows for statutory redemption… Rainbow Brown can buy back his house WHILE Kevin is actively living in it for $100,000, so long as he does it 6-12 months after the foreclosure sale (depending on what the state law says)
who is liable for the mortgage when there are co-owners?
Every co-owner of a property encumbered by a mortgage is liable for 100% of the mortgage
They like to be like “Johnny and Mark were tenants in common. They took out a mortgage on their property. Johnny wanted out of the mortgage so he tried to pay 50% of it and demanded a release from his share of the mortgage.”
Um… no.
You gotta pay all that shit to free the property of the mortgage.
Not just 50%.
They are both jointly and severally liable for that mortgage.
You can’t mortgage only part of a property. That wouldn’t even make sense. Because the bank needs to foreclose if you don’t pay and their remedy is to sell the WHOLE damn property. Who tf ever sold half a house?! Oh… I have HALF A HOUSE for sale… please enjoy. Hell no.
So when that mortgage drops on a house… everyone has to pay. Nobody can get out of it until the whole thing is paid off.
can we transfer a mortgage?
yes
Both the creditor (the mortgagee who is lending the money) and the debtor (the mortgagor who is taking out the mortgage) can transfer a mortgage.
wtf is a difference between a mortgage and a note?
Mangoes for Nutrition stands for the idea that a Mortgage follows a Note transfer.
When you want a loan, you give the bank two things:
1. a promissory note
A promissory note is just an IOU… it says “hey, I promise to pay Mr. Bank back their money. I won’t let you down Mr. Bank.”
That’s all fine and well… but what happens if we go back on our promise to Mr. Bank?
that’s where the mortgage kicks in
2. mortgage
The mortgage allows for the bank to reach out and grab our land if we break our promise and don’t pay Mr. Bank back. It’s a document that says “if you don’t pay back your IOU… we are seizing your land and selling it”
investor foreclosing on buyer
Walter Flannelshirt purchased a home by executing both a mortgage and a note.
The bank then assigns the note to an investor.
Walter stops paying.
The investor (who just had the note assigned to him) then forecloses on Walter.
Walter has never even fucking heard of this investor. He objects to it.
What result my Goats? Can the investor do this?
YES
MANGOS FOR NUTRITION
THE MORTGAGE FOLLOWS THE NOTE
what happens if you simply assign the mortgage without promissory note?
not a thing.
you have an imaginary nothing.
notice of transfer
what happens if we tell the borrower that we transferred the note?
If the bank or lender (mortgagee) tells the borrower (mortgagor) that they transferred the note… the mortgagor cannot pay the original mortgagee… they gotta pay the third party it got transferred to.
So in our last example… if the bank told Walter they transferred it to the investor… he couldn’t pay the bank anymore.
notice of transfer
what happens if we don’t tell the borrower that we transferred the note?
So in our last example… if the bank didn’t tell Walter they transferred the note to the investor… he could still pay the bank and it would be effective.
can the debtor - mortgagor transfer their mortgage?
Yes, they can
So the same rules apply to mortgagor-debtors.
The mortgage follows a properly transferred note.
Mortgages, like deeds, must also be recorded.
Let’s say on January 1st, Goat takes out a $100,000 mortgage on the Pasture from Fleece & Funds financial. Fleece & Funds records the mortgage on January 2nd. On January 10th, Goat sells Pasture to Walter Flannelshirt (he recently lost his home). Walter has no knowledge of the Fleece & Funds mortgage. Is he liable to pay it?
Yes. It doesn’t matter if we are in a notice jurisdiction (where Fleece & Funds would win since they recorded) or in a race-notice jurisdiction (where Fleece & Funds would win since they won the race to record AND Walter was on record notice of their mortgage)… Walter now has the fucking mortgage.
what happens at closing when someone buys a home with an existing mortgage on it?
Scenario #1: The buyer pays cash and terminates the existing mortgage.
Goat wants to buy a house from Kevin Tipcorn for $300,000. Kevin has a mortgage with a remaining balance of $150,000 on the house. Goat gives the whole $300,000 and half is used to satisfy the mortgage, the other half is given to Kevin. No more mortgage. Simple. Full cash.
Most buyers don’t have the cash to do this though.
So we move to the next scenario
Scenario #2: The buyer pays off the existing mortgage using their own mortgage.
Goat wants to buy a house from Kevin Tipcorn for $300,000. Kevin has a mortgage with a remaining balance of $150,000.
So Goat takes out a $300,000 mortgage and shows up to closing.
Kevins balance is paid off ($150k) and Kevin gets the remaining $150k for himself.
Kevin is out of the picture. Goat has a $300,000 new mortgage to deal with. Easy math.
But what happens if our little buyer can’t get their own mortgage?
I’m glad you asked. They may have to try to assume an existing mortgage
Scenario #3: Assume the position.
the only important thing you need to know for the MBE is that if the problem says the buyer assumed the mortgage, BOTH the original mortgagor and the buyer are liable on it or ANY deficiency judgment after a foreclosure sale
The buyer is primarily liable, and the original mortgagor is SECONDARILY LIABLE
Mortgage interest rates are going up my Goats. The 30 year average fixed interest rate is over 7%. What the fuck.
Sometimes… you can’t qualify for a mortgage yourself. So a lender may allow a new buyer to assume an existing mortgage (assume is just a fancy word for step into the shoes of the original mortgagor and take over their mortgage)
the lender might want continued interest payments, so they will let a new buyer assume the mortgage instead of having it paid off all at once so the new buyer keeps paying interest.
This makes sense. Lenders love interest.
Sometimes a new buyer can qualify for a mortgage of their own… but the interest rate is just way shittier… so they will try and get the lender to agree to let them assume the old mortgage and step into the shoes of the old mortgagor .
Situation #4: The seller finds a willing buyer and says “fuck it, just take my property subject to the mortgage.”
If a new buyer takes subject to a mortgage, they are agreeing to make the mortgage payments without formally transferring the mortgage into their name.
The buyer has NO PERSONAL LIABILITY on the mortgage when they take subject to the mortgage. Literally NONE.
most lenders have a due on sale clause
This due on sale clause is like a fucking landmine that can blow up your whole “””””””"”subject-to plan”””””””” of transferring a mortgage.
A due on sale clause allows a creditor to demand FULL payment of a loan if the mortgagor transfers any interest in the property without the lender’s consent.
The creditor can demand everything the moment you try to sell or gift the property encumbered by a mortgage. And the lender can foreclose on your stupid ass immediately.
I know what you’re thinking “yea right Goat…. that’s a restraint on alienation. Impossible. You told us in the first module restraints on alienation were not valid.”
Due on sale clauses are both valid and enforceable and they are NOT a restraint on alienation.
discharging a mortgage
So full payment of a mortgage loan discharges a mortgage… this is simple.
Sometimes pre-payment is allowed, sometimes it isn’t.
Goat-Note: If the note or mortgage does not specifically allow prepayment… a prohibition on prepayment is implied.
Most banks are greedy as fuck and they want a bunch of interest… so sometimes they just outright don’t allow prepayment of mortgage loans.
But there’s really only one thing the NCBE tests when it comes to discharge of a mortgage: the deed in lieu of foreclosure
deed in lieu of foreclosure
Sometimes the bank doesn’t want to go through the costly process of foreclosure, so when you stop paying they say “just give us the damn deed and we’ll be done with your stupid ass.”
It is an alternative option to being foreclosed on.
Basically, the borrower transfers the title to the lender, satisfies their debt, avoids a deficiency judgment and doesn’t have to go through the process of foreclosure (which is long, and potentially publicly embarrassing… nobody wants to be the guy that got foreclosed on)
No more equity of redemption. You lost the home. It’s kind of a good deal for the borrower honestly. They avoid having to pay anymore money. The bank gets to sell the property quick and try to make some cash money and avoid a long ass foreclosure.
RULES
Rule #1: the transaction must be fair and equitable
If the lender takes the deed then demands some more money afterwards… the court will set aside the whole thing. Nope. Not fair and equitable. That is a scam. After giving up the deed… the borrower should be free.
Rule #2: the deed must be effective immediately.
you cannot say “yeah take the deed, but you can’t sell the house right away mr. lender
The shit has to kick in right away for it to be a true deed in lieu of foreclosure. Stop playing. The transfer must be effective immediately.
Rule #3: junior lienholders are NOT cut off, only the big dog main mortgage. the borrower is STILL liable to junior lienholders after giving over the deed.
Sometimes the bar exam will have a question where the borrower in default gives a deed in lieu of foreclosure… and they try to walk away thinking they are debt free of all claims on the property.
Nope.
You still gotta pay off those liens. You still gotta pay off that second mortgage. The only thing you are free from is the main mortgage loan, NOT the junior liens.
what exactly is foreclosure?
Foreclosure is when property is sold to satisfy a debt.
So basically when we stop paying our mortgage… the lender takes our property and sells it to satisfy our debt, then we have to pay the remaining balance.
There are two different types of foreclosure sales to sell the property:
1. judicial foreclosure
using the court system
2. non-judicial foreclosure
in states where “power of sale” clause is allwoed in the mortgage.. the lender can sell the property without the courts!
The ‘power-of-sale’ clause is just a line in the original loan document that says “we can sell this home at a private sale (not judicially supervised) without the courts if you stop paying us”
Self-help is never allowed my Goats - you need to either use the courts or have a power-of-sale clause if you want a private foreclosure sale.
inadequacy of the sale price in foreclosure sale
what if the lender accepts a bid that is extremely fucking low at the foreclosure sale? Wouldn’t that mean we would have to pay more out of pocket?
Inadequacy of the sale price alone is not a reason to void the foreclosure sale.
Let’s say my mortgage is for $250,000 and my house is appraised at $300,000.
I stop paying the mortgage.
The bank sells my house at the foreclosure sale for $150,000… then comes after me for the remaining $100,000.
I can’t challenge this shit.
The lender just fucked me over. Now I owe these idiots $100,000.
There has to be gross inadequacy (i.e. they sold it for $3,700)
OR
Procedural irregularities in the sale itself(i.e. they didn’t advertise the foreclosure sale at all so only a single person showed up to bid on it)
the one time self-help is allowed in foreclosure
the full raccoon
Sometimes, prior to foreclosure, the mortgagee goes full raccoon and literally abandons the property or starts fucking it up on another level.
In this scenario, the banks can move in before foreclosure to protect their security interest (so it doesn’t get vandalized or there isn’t a garbage fire that is started)
deficiency judgment
All this means is that if the lender SELLS your house in foreclosure… and the sale price is NOT enough to cover the mortgage balance that YOU didn’t pay… they can get a judgment for the rest of the money against you personally.
what if there is a surplus in a foreclosure sale?
when we have one mortgage and the sale results in extra money to the homeowner!
If there are multiple claims on the property at one time… we have to figure out who gets the extra money and in what order. And there are levels to this shit when we have extra money left-over.
There are often many things standing in between the mortgagor and that sweet surplus money: interest on the foreclosed loan, second mortgages, expenses of the foreclosure sale, attorneys fees, court costs, and junior liens.
There is an order of payment that must be followed anytime there is surplus money available after the foreclosure sale.
I made this mnemonic for the situation:
Elephants (Expenses first: the sale, attorneys fees & court costs)
Munch (the foreclosed mortgage principal & interest is paid next)
Large (Then junior lienholders like weird credit card companies that have attached judgments on your house and second mortgages - first one to record gets paid first)
Melons (then finally… the mortgagor gets it. This almost never happens on the MBE and likely won’t on J24. Look at all these people who have to get paid before the mortgagor)
each level has to be paid off in full before the money trickles down to the next level
senior mortgages / lienholders at foreclosure
Let’s go back to our last example. What if Goat had been paying his mortgage for Bank A (the $30,000 first mortgage) totally fine… but he hadn’t been paying his second mortgage loan for Bank B (the $15,000 second mortgage to build the marijuana shed)?
Bank B gets pissed then forecloses. The property is sold at auction.
THE SECOND IN LINE OF PRIORITY JUST FORECLOSED MY GOATS. WE TRICKLE DOWN THE MONEY. WHAT HAPPENS TO THE ORIGINAL MORTGAGE?!? YOOOOOOOO. THIS IS A BIG ISSUE.
I’ll tell you what happens: absolutely nothing. The first mortgage from Bank A stays on the land just waiting to fuck over the new buyer like a snake in the grass.
IF I BUY THIS PIECE OF SHIT HOUSE AT THE FORECLOSURE AUCTION… I’M STILL GOING TO HAVE TO PAY OFF THE $30K BECAUSE SENIOR INTERESTS DON’T GET TOUCHED BY A FORECLOSURE.
I NEVER SAID TRICKLE UP… I SAID TRICKLE DOWN. FORECLOSURE DOESN’T DESTROY SENIOR INTERESTS.
Follow me on this one Goats: If the FAIR MARKET VALUE of this house is $50,000, I will ONLY bid $20,000 at auction… because I’ll have to PAY OFF the $30,000 senior mortgage from Bank A in addition to the sale price. ($20,000 + $30,000) = $50,000 (FMV)
If I paid the Fair Market Value of $50,000… I’d actually be paying $80,000…. since a junior mortgage foreclosure DOESN’T EXTINGUISH the senior mortgage.
I’D STILL HAVE TO PAY THE $30,000 IF THE SECOND IN LINE MORTGAGE FORECLOSED, IT WOULD ONLY WIPE OUT BANK C’S CREDIT CARD LIEN.
mortgage priority
two things to know about mortgage priority
First: Priority among mortgages is determined by the time they were recorded.
The first recorded mortgage has the highest priority (they get paid first)
The second recorded mortgage has the second highest priority (they get paid second)
The third recorded mortgage has a lower priority than the first and second mortgages (they get paid last)
Second: exception to above, recorded purchase money mortgage
When you loan a buyer money to buy a house (you don’t even have to be an ‘official lender’ by the way, it can be a loan between two family members)… that purchase-money loan gets super-priority over all other non-purchase money mortgages and claims, EVEN if the non-purchase money mortgage or liens were recorded first.
An unrecorded purchase-money mortgage still wins against prior recorded mortgages and liens… but loses against subsequently recorded mortgages and liens that come after it.
If the seller of the house lends you money to buy THEIR house… this is called a seller’s PMM or vendor’s PMM… if you take out a loan from the seller AND the bank to get two Frankenstein PMM loans… the seller’s purchase money mortgage has priority over the bank’s purchase money mortgage. Just a little trivia for you to remember.
what happens when we modify a senior mortgage and fuck over a junior mortgage without their consent?
Let’s say Bank A has a first mortgage on a property for $20,000 at a 3% interest rate, secured on January 1st, 2024.
Bank B gets a second mortgage for $10,000 on January 3rd, 2024. Bank B sees the first mortgage before they give their second mortgage and they’re like “oh yea… we’ll definitely get paid if some shit goes down. It’s only $20,000 at a favorable interest rate haha… we will get paid even though we’re second in line.”
On January 5th… Bank A modifies the terms of their loan - it’s now a $100,000 loan at a 5% interest rate.
Bank B realizes all at once that they have been totally screwed over and lied to. They realize in an instant we live in a world of power. A world where one Boeing whistleblower “commits suicide” and then three weeks later another whistleblower dies of a mysterious illness that only affects 1 out of 60 million people. They realize their loan is now fucked.
Before the modification only $20,000 were “ahead of them” in the trickle down foreclosure payment structure. Now there is $100,000 ahead of them and way more interest. It isn’t fair. They never had notice of this, and if they did they might not have offered their second mortgage. Their chance of getting paid in foreclosure just plummeted.
So the rule is this: if the principal is changed or the interest rate is raised without the junior lienholders consent, the junior lienholder has priority over the raised amount. So the payment structure in foreclosure would be like this
Foreclosure -> $20,000 paid to Bank A –> $10,000 to Bank B –> $80,000 to Bank A.
priority of advances
So junior mortgages and liens have priority over optional payments the senior mortgagee is not obligated (optional advance payments) to make. So a credit card lien could wedge themselves in between optional future payments and steal priority over the later optional payments.
if a mandatory payment, they can’t wedge themselves as it attaches to the original mortgage.
equitable subrogation
Equitable subrogation is a principal which allows a mortgagee to acquire the rights and priority of an earlier lien or mortgage if the new mortgagee’s funds are used to pay off the prior mortgage. Pretty simple if you think about it.
Let’s say Gertie Hoofstein (this is a new character I’ve invented) gets a first mortgage to buy a home, then a Second Mortgage to repair her home. But Gertie’s interest rate on the first mortgage are just way too high.
Gertie is sad.
So Third Mortgage, Inc. calls her and says “Gertie please, don’t cry. Here’s what we’ll do. Let’s refinance your home. We’ll get you a third mortgage… it will be enough to pay off the full first mortgage and the interest on it… and you can refinance at a much lower interest rate with our mortgage.”
So the third mortgage then pays off the first mortgage. But wait… is the second mortgage still ahead of the third mortgage if foreclosure occurs? That wouldn’t really be fair, right? I mean… Third Mortgage just paid off First Mortgage and saved the day… it should have higher priority than second mortgage.
And it does. The third mortgage steps into the shoes of First Mortgage once it pays it off.
If this wasn’t the case, no one would ever offer money to help people pay off a mortgage and get a better interest rate if there were other claims ahead of them.
marshaling / “the two funds rule”
know it to eliminate it in the answer choices lol.
Let’s say Goat has a primary residence worth $100,000, and a vacation home worth $100,000
Lender A has a $90,000 mortgage on Goat’s primary residence.
Lender A has a $90,000 mortgage on Goat’s vacation home.
Lender B has a $10,000 mortgage on Goat’s primary residence.
Let’s say Goat stops paying and Lender A forecloses.
Lender A now has a choice… do they foreclose first on the vacation home where only they have a mortgage, or on the primary residence where both lenders have a mortgage?
Let’s say Lender A forecloses on the primary home and they are owed their $90,000 mortgage principal + $10,000 in interest. They sell the home for $100,000 and recoup their full investment.
All the money is gone. None left over.
This little fucker Lender A could have just SOLD THE DAMN VACATION HOME THAT ONLY THEY HAD THE MORTGAGE ON without messing with Lender B’s ONLY source to get paid.
THEY DRAINED THE HOME AND TOOK AWAY ANY CHANCE OF LENDER B GETTING THEIR MONEY
LENDER B ONLY HAD ONE CHANCE TO GET PAID - THROUGH THE PRIMARY RESIDENCE. LENDER A HAD TWO OPTIONS TO GET PAID: THROUGH EITHER THE VACATION HOME OR THE PRIMARY HOME!!!!
THERE WAS MONEY ENOUGH FOR EVERYONE
LENDER A BETRAYED LENDER B
Anyway, the two funds rule says that a senior creditor, having two or more options to satisfy their debt, has to FIRST dispose of the option not available to the junior creditor (THE DAMN VACATION HOME)
Does this make sense?
There was more than enough money for everyone to get paid, so why allow the first lender to destroy it for everyone by taking away the asset that the junior lender needed to get paid WHEN THEY HAD ANOTHER PERFECTLY GOOD HOME TO FORECLOSE ON that would have paid their full amount due and wouldn’t have extinguished little Lender B
When there’s a choice… do the right thing my Goats.
lenders title insurance
The lender’s title insurance policy is basically required to get a mortgage. It protects the lender if there is anything fucked up with the property, but it does NOT protect the buyer.
The lender makes YOU buy insurance… to protect THEM.
If Goat purchases a property with a mortgage and a lender’s title insurance policy… and there is an unknown easement on it which is discovered later on… this is a big problem.
It’s a problem for the mortgage lender because if Goat defaults, the lender would normally have the right to foreclose. But now they have to deal with this idiotic easement which will lower the value of their property, affecting their ability to recover their loan amount.
So the insurance company would give the lender money directly for the loss in value of the easement. If the property could be foreclosed on for $200,000 without the easement, and only $180,000 with the easement… the lender gets $20,000.
But the buyer is still stuck with this huge ass easement across his pickle ball courts. He would need owners title insurance to get money for this himself. So it doesn’t protect the buyer, only the lender.
Also, lender’s policies expire with the final payment of the mortgage. They do survive assignment of the mortgage to other people though. But once the mortgage is over, they disappear.
