Property Flashcards

Question

What is the rule for real estate security priority?

Answer 1

**Real Estate Security Priority** **General Rule** - ***first in time, first in right*** The general rule of priority for real property security is: the first in time to give notice of the secured interest is first in right. **Notice** - given by ***recording*** the mortgage **Recording** - giving public notice of changes in interests in real estate - transfer of title or mortgage - created by statute - didn't exist at CL - statute calls for it to be placed in a particular county office **Importance of Recording** - mortgage is valid between the parties whether or not it is recorded - however, if a mortgage isn't recorded, a mortgagee might lose priority to a third party - another mortgagee or a BFP

Answer 2

**Subject to Mortgage** - A buyer purchases property ***subject to a mortgage*** when a mortgage remains on the property, but the buyer makes no agreement to be personally liable for the mortgage. - When property is purchased subject to a mortgage, the ***buyer risks losing the land through foreclosure*** if the seller-mortgagor fails to pay the mortgage. - The ***original seller-mortgagor*** remains ***personally liable*** for the mortgage. - If the seller-mortgagor later defaults, the bank can foreclose the mortgage and sell the property that the buyer has purchased. - If this occurs, the buyer is not liable for any deficiency that remains after the foreclosure sale. **Assumption of Mortgage** - The buyer can ***assume the mortgage*** by agreeing to pay the seller-mortgagor's debt. - ***Both*** the original seller-mortgagor, ***and*** the new buyer-mortgagor who assumed the debt, remain ***personally liable*** for the mortgage. **Assumption & Novation** - If a buyer assumes a mortgage, and the bank releases the prior seller-mortgagor and substitutes the buyer as the new mortgagor, this is a ***novation***. - When there is a novation, the seller-mortgagor is no longer personally liable for the mortgage, and only the ***new buyer-mortgagor*** is ***personally liable***.

Answer 3

**Mortgage** - security interest in real property - held by a lender as a security for a debt - usually a loan of money - not a debt in itself - lender's security for a debt - transfer of an interest in land from the owner to the mortgage lender - on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied A mortgage is security for the loan that the lender makes to the borrower

Answer 4

**Foreclosure** - process by which the ***mortgagor's interest in real property is terminated*** - real property is ***generally sold*** to satisfy the debt in **Priority** - priority of the mortgage is generally determined by the ***time it was placed on the property*** **Junior Interests** - foreclosure will terminate interests junior to the mortgage being foreclosed, but will not affect senior interests - junior liens to the mortgage being foreclosed will be wiped out, along with all other interests - if a senior lien is in default, the junior mortgagee may pay it off to avoid being wiped out by its foreclosure - buyer at the sale will take title as it existed when the mortgage was placed on the property **Notice** - junior lienholders are necessary parties in a foreclosure - failure to include a necessary party preserves their interest despite the foreclosure **Proceeds** - proceeds of the foreclosure sale are paid in order: 1. sale expenses, attorney fees, and court ***costs*** 2. principal and accrued interest on the ***foreclosed loan*** 3. any ***junior liens*** or other junior interests in the order of their priority 4. any remaining proceeds go to the ***mortgagor*** - if the proceeds are insufficient to satisfy the mortgage debt, the ***mortgagee can sue the mortgagor for the deficiency***

Answer 5

On a mortgage, generally the debtor and mortgagor are the same person, but they need not be - they can be two different people

Answer 6

**Real Covenant** 1. written 2. promise do or not do something on the land 3. intent that it runs with the land 4. touch and concern the land 5. privity of estate 6. notice - eg, maintain a fence, cut grass, build commercial buildings **Run with Land** - real covenants run with the land - subsequent owners can enforce them or be burdened by them **Intent** - parties intend that successors in interest be bound by the covenant - can be inferred from language or circumstances **Notice** - in CL jurisdictions, no notice is required - in recording statute jurisdictions, a BFP who has no notice and records first is not bound bu the covenant **Touch & Concern Land** - makes the land more useful or valuable to the benefitted party - diminishes the rights, privileges, or powers of the burdened party **Privity** - requires both horizontal and vertical privity - horizontal privity - when created, both parties shared some interest in the land independent of the covenant - vertical privity - the successor to the covenanting party holds the entire durational interest held by the covenantor at when created

Answer 7

**Equitable Servitude** 1. written 2. intent that the restriction be enforceable by subsequent grantees 3. touches and concerns the land 4. notice - privity is not required. - A covenant that equity will enforce against the assignees of the burdened land who have notice regardless of whether it runs with the land at law. - usual remedy is an injunction against violation of the covenant.

Answer 8

**Fixture** - **Fixture:** chattel that has been so affixed to land that it has ceased being personal property and has become part of the realty. **Common & Divided Ownership** - **Common ownership:** a person owns both the land and the fixtures affixed to it. - **Divided ownership:** a landlord owns the property, but someone else affixes the chattel to the land. - In both common and divided ownership, - if the item becomes incorporated into the realty so fully that it loses its identity, it becomes part of the realty - if identification of the chattel is still possible, but removal would cause considerable loss or destruction, the items are considered fixtures (like heating pipes in a house) **Divided Ownership** - **Question:** has ownership of the chattel has passed to the landowner? - **Annexation: affixing chattel to realty** - **Accession:** intent of the annexor to make the chattels a permanent part of the real estate - **Life Tenant:** has a right to annex chattel; determine intent to make chattel a permanent annexation; personal representative can remove the chattel within a reasonable amount of time after death

Answer 9

**FIXTURES** - A fixture is a chattel that has been so affixed to land that it has ceased being personal property and has become part of the realty. - A fixture passes with the ownership of the land and must remain affixed. - How to tell if chattel is a fixture: 1. it is so incorporated into the realty that it has lost its identity (eg, bricks, concrete) 2. its removal would cause considerable damage to the premises (eg, plumbing, heating ducts, furnace) **COMMON OWNERSHIP** - the person who affixes (annexes) the chattel to the land ***owns both the chattel and the land*** (eg, install furnace in home) - the item is a fixture if they ***objectively intended to make the item part of the realty***, which is determined by: - nature of the item - manner of attachment - amount of damage if removed - adaptation of the item to the use of the realty **DIVIDED OWNERSHIP** - the chattel is owned and brought to the realty by someone other than the landowner (eg, tenant, life tenant, licensee, or trespasser) - **accession:** annexor’s intent to make the chattel a permanent part of the real estate. **a. Landlord-Tenant** - How to tell whether the affixed chattel qualifies as a fixture that must remain: - an agreement between the landlord and tenant is controlling - absent an agreement, a tenant is deemed to lack the intent to permanently improve the property - the tenant may remove the chattel so long as removal doesn't substantially damage the premises, or the tenant fixes any damage that occurs - must be removed by the end of the lease term, or within a reasonable time after the termination of an indefinite tenancy **b. Life Tenant and Remainderman** - same rules apply - the life tenant’s representative may remove annexations within a reasonable time after the life tenant’s death. **c. Licensee or Trespasser and Landowner** - licensees are treated much like tenants - trespassers usually lose their annexations - absent a statute, an adverse possessor or good faith trespasser can't remove fixtures (eg, house erroneously constructed on a parcel that possessor believed they owned) - some courts do allow a good faith trespasser recovery measured by the value added to the land (minus construction costs)

Answer 10

**Equitable Conversion** - applies when - a land-sale contract is created - each party is entitled to specific performance - **buyer** has ***equitable title*** - interest in ***real property*** - considered owner of the real property - **seller** has ***legal title*** - interest in ***personal property*** - right to the proceeds of the sale - if a party dies - **deceased seller**'s interest ***passes as personal property*** - bare legal title passes to the takers of the real property - must give up the title to the buyer when the contract closes - when the purchase price is paid, the money passes as personal property to those who take the seller's personal property - **deceased buyer**'s interest ***passes as real property*** - taker of the real property can demand a conveyance of the land at closing - If the seller dies during this time period leaving a will that devises the real estate to one person and the personal property to another, and if the contract contained no contingencies or all contingencies had been satisfied at the time of the death, the doctrine of equitable conversion applies. The determination of who will receive the proceeds thus depends on who had equitable title.

Answer 11

**Race-Notice** - No ***unrecorded*** conveyance or mortgage of real property shall be good against ***subsequent purchasers for value without notice***, who shall ***first record***. **BFP – Bona Fide Purchaser** 1. subsequent purchaser 2. for value 3. without notice of earlier purchasers 4. first to record deed - a BFP who records first takes title **Shelter Rule** - BFP's recording cuts off any rights of earlier purchasers - if BFP then conveys to a 3rd party who paid no value, the 3rd party has superior title to the earlier purchasers

Answer 12

**Deed** - A deed is a formal, legal document that transfers one entity’s rights of ownership to another. - The deed is the official “proof of transfer” for real estate. - Deed should contain the following: 1. Indication that it is a deed 2. Description of the property 3. Description of the grantee 4. Signature of the grantor - Must be validly delivered. - Must unambiguously identify the land and the parties - if it is too vague to adequately identify the intended grantees, it will be invalid

Answer 13

Acquiring Good Title If one enters a land-sale contract to sell land they don't actually own, but then obtain title before the closing date, the land sale contract is valid and enforceable by buyer

Answer 14

**Easement Appurtenant** - An easement appurtenant is one that benefits the dominant estate and "runs with the land" and so generally transfers automatically when the dominant estate is transferred. An appurtenant easement allows property owners to access land that is only accessible through a neighbor's land. **Easement in Gross** - An easement in gross benefits an individual or a legal entity, rather than a dominant estate. The easement can be for personal use (eg, boat ramp) or commercial use (eg, railroad). Historically, an easement in gross was neither assignable nor inheritable, but commercial easements are now freely transferable to a third party. They are divisible but must be exclusive (the original owner no longer uses it and exclusive to easement holder) and all holders of the easement must agree to divide. If subdivided, each subdivided parcel enjoys the easement.

Answer 15

- The basic ways of creating an easement are by: 1. express grant 2. implication 3. prescription. - An easement by express grant is one that is recorded and signed by the grantor and must comply with all the formalities of a deed. - An easement by prescription is similar to adverse possession. - An easement by implication is created by operation of law rather than a written instrument. - There are three types of easement by implication: 1. intended easement based on a use that existed when the dominant and servient estates were severed 2. easement implied from a recorded subdivision plan 3. easement by necessity

Answer 16

**Adverse Possession** - Title to real property may be acquired by adverse possession. Gaining title by adverse possession results from the operation of the statute of limitations for ejectment. If the owner does not, within the statutory time frame, take legal action to eject a possessor who adversely claims to own the property, the owner is thereafter barred from bringing suit for ejectment. Moreover, title to the property will vest in the adverse possessor. - To establish title by adverse possession, the possessor must show the following: 1. Actual possession of the land: This requirement is designed to give the true owner notice that a trespass is occurring. As a general rule, the adverse possessor will gain title only to the land she actually occupies. 2. Exclusive possession of the land: Exclusive, in this context, means that the possessor is not sharing with the true owner or the public at large. 3. Open and notorious possession: Possession is open and notorious when it is the kind of use the usual owner would make of the land. The adverse possessor's occupation must be sufficiently apparent to put the true owner on notice that a trespass is occurring. 4. Hostile: The possessor's occupation of the property must be adverse. This means that the possessor does not have the true owner's permissions to be on the land. The state of mind of the possessor is irrelevant. By the large majority view, it does not matter whether the possessor believes she is on her own land, someone else's, or has no idea who owns the land. 5. Continuous possession: The adverse claimant's possession must be continuous throughout the statutory period. Continuous possession only requires the normal degree of occupancy and use that the average owner of the property would do. - Notably, an action to quiet title is not a requirement for adverse possession. Bringing an action to quiet title is usually more of a practical situation that would happen in real life so the possessor can establish that he has valid title. However, it does not factor into whether title was established through adverse possession on the MBE.

Answer 17

**Equitable Mortgage** - A landowner in need of cash may "sell" the land to a person who will pay cash and may give the "buyer" an absolute deed rather than a mortgage. - If the court concludes, by clear and convincing evidence, that the deed was really given for security purposes, they will treat it as an ***equitable mortgage*** and require that the creditor foreclose it by judicial action, like any other mortgage. - This result will be indicated by the following factors: 1. existence of a debt or promise of payment by the deed's grantor 2. grantee's promise to return the land if the debt is paid 3. amount advanced to the grantor/debtor was much lower than the value of the property 4. degree of the grantor's financial distress 5. parties' prior negotiations.

Answer 18

**Recording & Priority** - At common law, in nearly all cases, priority was given to the grantee who received the property first. - However, statutes known as recording acts require a grantee to make some sort of recording so as to give notice to the world that title to certain property has already been conveyed, to put subsequent grantees or purchasers on notice. - Recording the deed is not essential to make it valid, but a grantee could lose out possession to a subsequent bona fide purchaser. - A subsequent BFP is one who gives valuable consideration and has no notice of the prior instrument. Recording Acts - There are three types of recording acts: notice, race-notice, and race statutes. - Under a NOTICE statute, a subsequent BFP prevails over a prior grantee who failed to record. The most important fact under a notice statute is that the subsequent BFP had no actual OR constructive notice at the time they purchased the property. - No conveyance or mortgage of real property shall be good against subsequent purchases for value and without notice unless the same be recorded according to law. - The most important words in this statute are “without notice.” This signals that the statute is a notice statute, so a subsequent BFP who records without notice prevails over a previous grantee. - Under a RACE-NOTICE statute, a subsequent BFP is protected only if they record before the prior grantee, without notice of the prior instrument. This gives an inducement to record quickly to reduce questions of title. - Under a RACE statute, whoever records first wins, and actual notice of a prior grantee is irrelevant. **Priority** ‐ Generally, the priority of a mortgage is determined by the time it was placed on the property. When a mortgage is foreclosed, it will terminate interests junior to the mortgage being foreclosed, but will not affect senior interest. Under the lien theory, the mortgagee is considered the holder of a security interest only and the mortgagor is deemed the owner of the land until foreclosure. This is the majority position. - Eg: The friend had a mortgage for $25,000, but did not record it. The recording act in this question’s fact pattern is a notice statute, so a subsequent BFP who took without notice prevails over a prior grantee who failed to record. The investor then sold the property to the buyer, who was a BFP (paid consideration and took without notice of the prior conveyance). Thus, the buyer took free and clear of the $25,000 lien owed to the friend. The buyer then took out a mortgage for $15,000, which the bank immediately recorded. Because the bank recorded, this lien attaches to the property.

Answer 19

**Tenancy in Common** A tenancy in common is an estate shared by two or more people in the same property at the same time. Each tenant in common has a separate and undivided interest in the property. The most important practical difference between a tenancy in common and a joint tenancy is that there is no right of survivorship between tenants in common. Tenants in common can receive their interests at different times and from different conveyances. Tenants in common can also hold unequal shares of the land, even if both tenants will have full use of all of the premises. When a tenant in common wants to create an easement or resolve a boundary dispute, that action will not affect the legal rights of any other tenants in common who do not sign the grant or agreement. Even when one tenant in common has sole occupancy of the premises, only agreements that all the tenants in common sign will apply to all of them.