Property AMP Set - Land Sale Contracts

Question 1

Which of the following does not state the standard for the implied covenant of marketable title?

A Title a reasonably prudent buyer would be willing to accept

B Title free from questions that might present an unreasonable risk of litigation

C Title reasonably free from doubt

D Title a reasonable jury found the covenantor to hold

Answer 1

D

Title a reasonable jury found the covenantor to hold does not state the standard for the implied covenant of marketable title. Marketable title is title reasonably free from doubt, i.e., title that a reasonably prudent buyer would be willing to accept. Generally, this means an unencumbered fee simple with good record title. Every land sale contract contains an implied covenant that the seller will provide marketable title at closing. While it need not be perfect title, it must be free from questions that might present an unreasonable risk of litigation. QUESTION ID: P0050A Additional Learning

Question 2

Which of the following is true when a buyer of land dies before the contract closes?

A The contract will close only if the successors to the buyer’s personal property opt to pay the purchase price

B The successors to the buyer’s real property rights may demand a conveyance of the land at closing

C The contract is voided by the buyer’s death

D The contract is voidable by the seller

Answer 2

B

When a buyer of land dies before the contract closes, the successors to the buyer’s real property rights may demand a conveyance of the land at closing. The doctrine of equitable conversion provides that once the contract is signed and both parties are entitled to specific performance, the buyer of land is considered to own the real property, and the seller is entitled to the proceeds of the sale. Equity regards the seller as holding bare legal title to the realty in trust for the buyer as security for the debt owed. When a party to the contract dies before closing, his interest passes accordingly, and thus the takers of the deceased buyer’s real property may demand a conveyance at closing. When a buyer of land dies before the contract closes, whether the contract will close is not determined by the successors to the buyer’s personal property opting to pay the purchase price. However, if the takers of the buyer’s real property demand a conveyance, as stated above, they are entitled to exoneration at common law (i.e., successors to the buyer’s personal property would have to pay the purchase price out of their share of the buyer’s estate). But statutes in a majority of states have abolished the doctrine of exoneration. In these states, as a practical matter, takers of the real property will have to pay the price unless the buyer specifically provided to the contrary. When a buyer of land dies before the contract closes, the contract is NOT voided by the buyer’s death, and the contract is NOT voidable by the seller. As is explained above, the doctrine of equitable conversion determines the passage of title when a party to a land sale contract dies before the closing. On closing, the takers of the buyer’s real property are entitled to legal title. QUESTION ID: P0053A Additional Learning

Question 3

Which of the following statements regarding specific performance of a land sale contract is true?

A Specific performance is available only to the buyer

B Specific performance is available only to the seller

C If the seller cannot convey marketable title, the buyer may not obtain specific performance

D Both the buyer and the seller generally are entitled to specific performance

Answer 3

D

Both the buyer and the seller generally are entitled to specific performance of a land sale contract. A court of equity will order a seller to convey title if the buyer tenders the purchase price. The remedy at law, damages, is deemed inadequate because land is unique. Courts also generally will award specific performance for the seller if the buyer is in breach, although a few courts will do so only if the property is especially unique (e.g., not if a developer is selling a house in a large subdivision of similar houses). The seller’s ability to recover in equity is sometimes explained as necessary for mutuality of remedy. In either case, specific performance is NOT available only to the seller or only to the buyer. If the seller cannot convey marketable title, the buyer MAY obtain specific performance of the land sale contract with an abatement of the purchase price in an amount reflecting the title defect. QUESTION ID: P0058B Additional Learning

Question 4

A title insurance policy owned by the mortgagee protects:

A The mortgagee and the seller only

B The mortgagee only

C The mortgagee, the seller, and the buyer

Answer 4

B

A title insurance policy owned by the mortgagee protects the mortgagee only. Title insurance can be taken out by the owner of the property or the mortgage lender, ensuring good record title as of the policy’s date and defending that title in the event of litigation. An owner’s policy protects only the person who owns the policy (i.e., the property owner or the mortgage lender) and does not run with the land to subsequent purchasers. In contrast, a lender’s policy follows any assignment of the mortgage loan. In either case, the seller and the buyer would not be protected by a policy owned by the mortgagee. QUESTION ID: P0060B Additional Learning

Question 5

When will a real estate broker be considered the buyer’s agent?

A Always

B In the absence of an agreement to the contrary

C Only if this is specifically agreed to

D Never

Answer 5

C

A real estate broker will be considered the buyer’s agent only if this is specifically agreed to; it is NOT always the case. Most real estate sales contracts are negotiated by real estate brokers. The broker who obtains the listing from the seller is the seller’s agent, as are other agents who participate in the sale unless they specifically agree to serve as the buyer’s agent. Thus, in the absence of an agreement to the contrary, the broker is the seller’s agent. As the seller’s agent, a broker owes a fiduciary duty to the seller. However, he also has a duty to the buyer to disclose material information about the property if he has actual knowledge of it. QUESTION ID: P0061B Additional Learning

Question 6

Under the doctrine of equitable conversion, equity regards the buyer of land as __________.

A owning the real property as soon as the contract is signed

B holding bare legal title to the property in trust for the seller

C absolved of the risk of loss if the property is destroyed without fault before closing

D entitled to possession of the real property as security for the legal title owed

Answer 6

A

Under the doctrine of equitable conversion, equity regards the buyer of land as owning the real property as soon as the contract is signed. When the parties sign a land sale contract and are entitled to specific performance, the buyer is considered to be the owner of the real property. The seller’s interest consists of the right to the proceeds of sale and is considered personal property. Equity does not regard the buyer of land as holding bare legal title to the property in trust for the seller. Although the buyer is considered the owner of the real property in equity once the contract is signed, the seller retains bare legal title. The title is considered to be held in trust for the buyer as security for the purchase price. Equity does not regard the buyer of land as absolved of the risk of loss if the property is destroyed without fault before closing. Because equitable conversion deems the buyer the owner of the real property, the buyer bears the risk of loss in this situation. In a minority of states, the Uniform Vendor and Purchaser Risk Act reverses this result. Also, a seller whose casualty insurance covers the loss must apply the insurance proceeds against the purchase price. Equity does not regard the buyer of land as entitled to possession of the real property as security for the legal title owed. Although the seller’s bare legal title is held in trust for the buyer, possession follows the legal title. Therefore, even though the buyer is regarded as owning the property, the seller is entitled to possession until the closing. QUESTION ID: P0052 Additional Learning

Question 7

Which of the following is true when a seller of land dies before the contract closes?

A The contract is voidable by the seller’s estate.

B The successors to the seller’s personal property must give up equitable title at closing.

C The successors to the seller’s real property must give up legal title at closing.

D The contract is voided by the seller’s death.

Answer 7

C

When a seller of land dies before the contract closes, the successors to the seller’s real property must give up legal title at closing. Under the doctrine of equitable conversion, the buyer of land is considered to own (i.e., hold equitable title to) the real property once the contract is signed. The seller is entitled to the proceeds of sale. Equity regards the seller as holding bare legal title in trust for the buyer as security for the debt owed. When a party to the contract dies before closing, her interest passes accordingly. The deceased seller’s personal property takers are thus entitled to the sale proceeds on closing but must surrender legal title at that time. The successors to the seller’s personal property do NOT give up equitable title at closing when a seller of land dies before the contract closes. As stated above, under the doctrine of equitable conversion, the buyer obtains equitable title to the land upon the signing of the contract. If the seller dies before closing, the bare legal title she held passes to the takers of her real property, who must surrender it to the buyer at closing (when both legal and equitable titles merge in the buyer). The takers of the seller’s personal property succeed only to the proceeds of the sale, not the title to the real property. When a seller of land dies before the contract closes, the contract is NOT voidable by the seller’s estate. It can be enforced against the takers of her real property when closing occurs. Furthermore, the contract is NOT voided by the seller’s death. As is explained above, the doctrine of equitable conversion affects the passage of title when a party to a land sale contract dies before the closing. On closing, the seller’s estate must surrender legal title to the buyer, and the estate is entitled to the proceeds of the sale. QUESTION ID: P0053 Additional Learning

Question 8

A seller who has not conveyed title will be considered in breach of her land sale contract __________.

A after the closing date, regardless of whether the buyer has tendered performance

B if the buyer tenders the purchase price on the closing date

C if she attempts to extend the closing date beyond the contract’s terms

D before the closing date, if the buyer finds a defect in the seller’s title

Answer 8

B

A seller who has not conveyed title will be considered in breach of her land sale contract if the buyer tenders the purchase price on the closing date. The closing is when the parties are to exchange the purchase price and the deed. However, the buyer’s obligation to pay the purchase price and the seller’s obligation to convey the title are deemed to be concurrent conditions. Thus, neither party is in breach of the contract until the other party tenders performance. A seller who has not conveyed title will not be considered in breach of her land sale contract if she attempts to extend the closing date beyond the contract’s terms. If time is of the essence in a real estate transaction, a party who fails to tender performance by the closing date is in total breach. However, courts assume that time is not of the essence in land sale contracts, and no facts here overcome this presumption. Thus, a party’s failure to perform is not considered a breach until the other party tenders performance—even if the closing date has passed. Merely attempting to extend the closing date will not make nonperformance a breach. A seller who has not conveyed title will not be considered in breach of her land sale contract before the closing date if the buyer finds a defect in the seller’s title. Every land sale contract contains an implied covenant that the seller will provide the buyer with marketable title at closing, and title defects render title unmarketable. However, a buyer who determines that the seller’s title is unmarketable must notify the seller and provide a reasonable time to cure the defect, even if this requires a reasonable extension of the closing date. A breach does not occur unless the seller then fails to cure. A seller who has not conveyed title will not be considered in breach of her land sale contract after the closing date, UNLESS the buyer has tendered performance. Because the parties’ obligations are concurrent conditions, neither party is in breach of the contract until the other party tenders performance, even if the date designated for the closing has passed. While a party who is late in tendering performance is liable in damages for incidental losses she caused, the lateness in such a case does not constitute a material or total breach if the delay is reasonable. QUESTION ID: P0056 Additional Learning

Question 9

Who generally will be entitled to specific performance of a real estate contract?

A The buyer

B The seller

C Neither the buyer nor the seller

D Both the buyer and the seller

Answer 9

D

Both the buyer and the seller generally will be entitled to specific performance of a real estate contract. A court of equity will order a seller to convey title if the buyer tenders the purchase price. The remedy at law, damages, is deemed inadequate because land is unique. Courts also generally will award specific performance for the seller if the buyer is in breach, although a few courts in recent years have refused to award specific performance to sellers if the property is not considered “unique.” The seller’s ability to recover in equity is sometimes explained as necessary for mutuality of remedy. QUESTION ID: P0058 Additional Learning

Question 10

Which of the following theories does not create an exception to the Statute of Frauds for land sale contracts?

A The buyer’s detrimental reliance estops the seller from asserting the Statute of Frauds as a defense

B The buyer’s acts of part performance unequivocally establish the existence of an oral contract

C It is contrary to public policy to insist that the parties memorialize their agreement in writing

Answer 10

C

It is NOT contrary to public policy to insist that the parties memorialize their agreement in writing. Rather, public policy strongly favors requiring the parties to do so. A land sale contract must be memorialized in writing and signed by the party to be charged to be enforceable under the Statute of Frauds. However, courts in most states will award specific performance of a contract absent a writing under the doctrine of part performance. The doctrine applies if the buyer has performed at least two of the following acts:1. Taken possession of the land;2. Made substantial improvements to the land; and/or3. Paid all or part of the purchase price.Some courts will accept as part performance additional acts showing the buyer’s detrimental reliance. Two theories support this exception: (i) the buyer’s acts of part performance unequivocally establish the existence of an oral contract; and (ii) the buyer’s detrimental reliance estops the seller from asserting the Statute of Frauds as a defense. QUESTION ID: P0049B Additional Learning

Question 11

Which of the following would not make title to land unmarketable?

A Evidence that a prior grantor lacked capacity to convey the property

B The existence of a mortgage on which the statute of limitations has run

C The defective execution of a prior deed in the chain of title

D A significant variation in the description of property from one deed to the next

Answer 11

B

The existence of a mortgage on which the statute of limitations has run would not make title to land unmarketable. Every land sale contract contains an implied covenant that the seller will provide marketable title at closing. While it need not be perfect title, it must not present the buyer with an unreasonable risk of litigation. Generally, this means an unencumbered fee simple with good record title. Title may be unmarketable because of a defect in the chain of title. Examples include a significant variation in the description of the land from one deed to the next, the defective execution of a prior deed in the chain of title that thus fails to meet the requirements for recordation, and evidence that a prior grantor lacked capacity to convey the property. Many courts hold that an ancient lien or mortgage on the record will not render title unmarketable if the seller has proof of its satisfaction or the statute of limitations on the claim would have run under any possible circumstance, including tolling for disabilities. QUESTION ID: P0050B Additional Learning

Question 12

Under the doctrine of equitable conversion, equity regards the seller of land as:

A Owning the real property

B Holding bare legal title to the realty in trust for the buyer

C Bearing the risk of loss if the property is destroyed without fault before closing

Answer 12

B

Under the doctrine of equitable conversion, equity regards the seller of land as holding bare legal title to the realty in trust for the buyer. When the parties sign a land sale contract and are entitled to specific performance, the buyer is considered to be the owner of the real property. The seller retains bare legal title, which is considered to be held in trust for the buyer as security for the purchase price. Because possession follows the legal title, the seller is entitled to possession until the closing even though the buyer is regarded as owning the property. Under the doctrine of equitable conversion, equity regards the buyer as owning the real property, whereas the seller’s interest (the right to the proceeds of sale) is considered personal property. Because equitable conversion deems the buyer the owner of the real property, the buyer bears the risk of loss if the property is destroyed without fault before closing. Note, however, that in a minority of states, the Uniform Vendor and Purchaser Risk Act reverses this result. Also, a seller whose casualty insurance covers the loss must apply the insurance proceeds against the purchase price. QUESTION ID: P0052A Additional Learning

Question 13

Under the doctrine of equitable conversion, if improvements on realty are destroyed without fault before the closing date:

A The risk of loss is on the seller

B Neither party bears the risk of loss

C The risk of loss is on the buyer

D The risk of loss is shared equally by the seller and the buyer

Answer 13

C

Under the doctrine of equitable conversion, if improvements on realty are destroyed without fault before the closing date, the risk of loss is on the buyer in most states. When the parties sign a land sale contract and are entitled to specific performance, equity regards the buyer as the owner of the real property. The seller retains bare legal title, which is considered to be held in trust for the buyer as security for the purchase price. Because the buyer is deemed the owner of the real property, he bears the risk of loss if neither party is at fault. Some states, however, have adopted the Uniform Vendor and Purchaser Risk Act, which places the risk of loss on the seller unless the buyer has either legal title or possession of the property at the time of the loss. In either case, the risk of loss is NOT shared equally by the seller and the buyer, nor is it true that neither party bears the risk of loss. QUESTION ID: P0052B Additional Learning

Question 14

If the buyer of land determines that the seller’s title is unmarketable, the buyer:

A May sue on the implied covenant of marketable title after closing

B Must notify the seller and give a reasonable time to cure the defects

C Must take title to the land “as is”

D May sue for damages for breach as soon as the defect is discovered

Answer 14

B

If the buyer of land determines that the seller’s title is unmarketable, the buyer must notify the seller and give a reasonable time to cure the defects. Every land sale contract contains an implied covenant that the seller will provide marketable title at closing. Marketable title is title reasonably free from doubt, which a reasonably prudent buyer would accept. While it need not be perfect title, it must not present the buyer with an unreasonable risk of litigation. Generally, this means an unencumbered fee simple with good record title. If the buyer of land determines that the seller’s title is unmarketable, the buyer may NOT sue for damages for breach as soon as the defect is discovered. As stated above, he must notify the seller and give her reasonable time to cure, even if this requires extending the closing date, and even if time is of the essence. If the seller fails to cure the defects, then the buyer may rescind the contract, sue for damages for breach, get specific performance with abatement of the purchase price, or (in some jurisdictions) require the seller to quiet title. Thus, it is not required that the buyer take title to the land “as is.” The buyer may NOT sue on the implied covenant of marketable title after closing. This covenant applies at the contract stage of a land sale transaction, before the closing (i.e., exchange of purchase price and deed). The closing extinguishes the contract, which is said to merge with the deed. Then, absent fraud, the seller is no longer liable on this implied covenant; the buyer must rely on any assurances made in the deed. QUESTION ID: P0055A Additional Learning

Question 15

If the seller is in breach of a land sale contract at closing, is the buyer entitled to specific performance?

A No, because damages are available for breach of a land sale contract

B Yes, regardless of whether he tenders the purchase price

C Yes, if he tenders the purchase price

D No, because only the seller is entitled to specific performance

Answer 15

C

Yes, if the seller is in breach of a land sale contract at closing, the buyer is entitled to specific performance IF he tenders the purchase price. Although damages are available for breach of a land sale contract, they are not the only remedy. The usual measure of damages for breach of a land sale contract is the difference between the contract price and the market value of the land on the date of the breach, plus any incidental damages. However, if the buyer tenders the purchase price, a court of equity will order the seller to convey title. The remedy at law (i.e., damages) is deemed inadequate because land is unique. Note that if the seller cannot give marketable title, but the buyer wishes to proceed with the transaction, the buyer usually can get specific performance with an abatement of the purchase price in an amount reflecting the title defect. Although courts generally will award the seller specific performance if the buyer is in breach, the buyer also is entitled to this remedy if the seller breaches, as explained above. QUESTION ID: P0058A Additional Learning

Question 16

If a mortgage exists on property when a real estate contract is signed:

A The mortgage is extinguished

B Title may be marketable

C Title is unmarketable

D The contract is void

Answer 16

B

If a mortgage exists on property when a real estate contract is signed, title may be marketable. Every land sale contract contains an implied covenant that the seller will furnish marketable title on the date of closing. Generally, encumbrances (i.e., mortgages, liens, easements, and covenants) render title unmarketable. However, a seller has the right to satisfy a mortgage or lien at the closing with sale proceeds. Thus, if the purchase price is sufficient and this is accomplished simultaneously with the transfer of title, the buyer cannot claim that the seller’s title is unmarketable. If a mortgage exists on property when a real estate contract is signed, the mortgage is NOT extinguished. Rather, the mortgage will remain on the land and will encumber the title in the hands of the buyer unless it is satisfied as explained above. If the mortgage is not timely satisfied, the seller will breach the implied covenant of marketability, for which the buyer may pursue several remedies (e.g., rescission, damages, or specific performance with abatement of the purchase price). The contract is NOT void. QUESTION ID: P0059B Additional Learning

Question 17

The fact that a seller acquired title to land by adverse possession might breach which of the following?

A The covenant against encumbrances.

B The implied covenant of marketable title.

C The covenant of warranty.

D The covenant for quiet enjoyment.

Answer 17

B

The fact that a seller acquired title to land by adverse possession might breach the implied covenant of marketable title. Every land sale contract contains an implied covenant that the seller will provide marketable title at closing. While it need not be perfect title, it must not present the buyer with an unreasonable risk of litigation. Generally, this means an unencumbered fee simple with good record title. An adverse possessor’s title may be considered unmarketable if he tries to sell the land, because the purchaser might have to litigate the facts of the adverse possession (i.e., actual entry giving exclusive possession that is open and notorious, adverse, and continuous throughout the statutory period). The seller would not breach the covenant for quiet enjoyment. A deed may contain covenants for title, through which a grantor warrants against title defects created by himself and prior titleholders. Through a deed’s covenant for quiet enjoyment, a grantor warrants that the grantee will not be disturbed by a third party’s lawful claim of title to the property. Although title acquired by adverse possession might breach the implied warranty of marketable title, discussed above, it is valid legal title. Thus, the fact of adverse possession, if true, actually gives the seller title and hence does not violate the deed covenants. The seller would not breach the covenant of warranty. Through a deed’s covenant of warranty, a grantor agrees to defend the grantee from any third party’s lawful or reasonable claims of title, and to compensate the grantee for any related loss. A grantor will breach this covenant only if he does not defend or compensate the grantee if litigation arises. The seller would not breach the covenant against encumbrances. Through a deed’s covenant against encumbrances, the grantor warrants that there are no encumbrances (e.g., easements, profits, or mortgages) against the title or interest conveyed. How title itself was acquired is inconsequential. QUESTION ID: P0050 Additional Learning

Question 18

What is the usual measure of damages for breach of a real estate contract?

A Nominal damages.

B The nonbreaching party’s incidental out-of-pocket costs.

C The difference between the contract price and the market value of the land on the date of breach.

D Restitution of the “earnest money” deposit.

Answer 18

C

The usual measure of damages for breach of a real estate contract is the difference between the contract price and the market value of the land on the date of breach. Incidental damages, such as the buyer’s title examination and moving or storage costs, can also be recovered. If the seller breaches by furnishing unmarketable title in good faith, about half of the courts limit the buyer’s recovery of damages to the nonbreaching party’s (i.e., the buyer’s) incidental out-of-pocket costs, such as title examination, and restitution of the “earnest money” deposit. However, this limited recovery is not the usual measure of contract damages. When the buyer breaches, courts usually will allow the seller to retain the buyer’s “earnest money” deposit as liquidated damages. Nominal damages, which are awarded where a breach is shown but no actual loss is proven, are not the usual measure of damages for breach of a contract for the sale of land. QUESTION ID: P0057 Additional Learning

Question 19

The Statute of Frauds requires that a land sale contract be memorialized in a writing that contains a description of the property, identification of the parties to the contract, and:

A The time payment is to be tendered

B The price and manner of payment, if agreed upon

C The time the deed is to be furnished

Answer 19

B

The Statute of Frauds requires that a land sale contract be memorialized in a writing that contains a description of the property, identification of the parties to the contract, and the price and manner of payment, if agreed upon. The Statute also requires that the memorandum be signed by the party to be charged. The closing date, which is the time payment is to be tendered and the deed is to be furnished, is not an essential term of a land sale contract under the Statute of Frauds. Matters incidental to the contract (e.g., furnishing of deeds, prorating of taxes, title insurance) can be determined by custom; they need not appear in the writing nor even have been agreed upon. If no specific time is mentioned, the closing date will be construed to be within a reasonable time. QUESTION ID: P0048A Additional Learning

Question 20

Under the doctrine of equitable conversion, if the seller of land dies before the contract closes, __________.

A The contract is voided by the seller’s death

B The contract is voidable by the seller’s estate

C The successors to the seller’s real property must give up legal title at closing

Answer 20

C

Under the doctrine of equitable conversion, if the seller of land dies before the contract closes, the successors to the seller’s real property must give up legal title at closing. The doctrine of equitable conversion provides that once the contract is signed and both parties are entitled to specific performance, the buyer of land is considered to own the real property, and the seller is entitled to the proceeds of the sale. Equity regards the seller as holding bare legal title to the realty in trust for the buyer as security for the debt owed. When a party to the contract dies before closing, his interest passes accordingly. If the seller of land dies before the contract closes, the contract is NOT voidable by the seller’s estate. It can be enforced against the takers of his real property when closing occurs. Furthermore, the contract is NOT voided by the seller’s death. As is explained above, the doctrine of equitable conversion affects the passage of title when a party to a land sale contract dies before the closing. On closing, the seller’s estate must surrender legal title to the buyer, and the estate is entitled to the proceeds of the sale. QUESTION ID: P0053B Additional Learning

Question 21

Which of the following would render title to land unmarketable?

A A visible easement that benefits the property

B A mortgage that the seller is poised to satisfy at closing

C A very slight encroachment onto an adjacent landowner’s land

D An existing violation of a zoning ordinance

Answer 21

D

An existing violation of a zoning ordinance would render title to land unmarketable. Every land sale contract contains an implied covenant that the seller will provide marketable title at closing. Marketable title is title reasonably free from doubt, which a reasonably prudent buyer would accept. While it need not be perfect title, it must not present the buyer with an unreasonable risk of litigation. Generally, this means an unencumbered fee simple with good record title. The mere existence of a zoning ordinance does not constitute an encumbrance. However, title to land that currently violates a zoning ordinance would be considered unmarketable. A mortgage that the seller is poised to satisfy at closing would not render title to land unmarketable. A seller has the right to satisfy a mortgage or lien at the closing with the proceeds from the sale. Thus, as long as the purchase price is sufficient and this is accomplished simultaneously with the transfer of title (e.g., through the use of escrows), the buyer cannot claim that title is unmarketable; the closing will result in a marketable title. A visible easement that benefits the property would not render title to land unmarketable. Most courts hold that a beneficial easement (e.g., a utility easement) that was visible or known to the buyer does not constitute an encumbrance. In contrast, an easement that reduces the value of the property or is unknown to the buyer constitutes an encumbrance that renders title unmarketable. A very slight encroachment onto an adjacent landowner’s land would not render title to land unmarketable. Regardless of whether an adjacent landowner is encroaching on the seller’s land or vice versa, an encroachment will not render title unmarketable if:1. It is very slight (only a few inches) and does not inconvenience the owner on whose land it encroaches;2. The owner encroached upon has indicated that he will not sue on it; or3. It has existed for so long (many decades) that it has become legal by adverse possession (if the state recognizes adverse possession title as marketable).In contrast, a significant encroachment constitutes a title defect that renders title unmarketable. QUESTION ID: P0054A Additional Learning

Question 22

Which of the following is true of a mortgage on property subject to a real estate contract?

A If the closing occurs, the mortgage will be extinguished

B The seller may satisfy the mortgage at the closing with proceeds of the sale

C The seller must satisfy the mortgage prior to closing

Answer 22

B

The seller may satisfy the mortgage at the closing with proceeds of the sale. Every land sale contract contains an implied covenant that the seller will furnish marketable title on the date of closing. Generally, encumbrances such as mortgages, liens, easements, and covenants render title unmarketable. However, if a seller can satisfy a mortgage or lien at the closing with sale proceeds—i.e., the purchase price is sufficient and this is accomplished simultaneously with the transfer of title—the buyer cannot claim that the title is unmarketable. Thus, the seller need NOT satisfy the mortgage prior to closing. If the closing occurs, the mortgage will NOT be extinguished. Rather, it will remain on the land and will encumber the title in the hands of the buyer. QUESTION ID: P0059A Additional Learning

Question 23

Whose agent is the real estate broker who lists property for sale, absent an agreement to the contrary?

A Neither the buyer’s nor the seller’s agent

B The seller’s agent

C Both the buyer’s and the seller’s agent

D The buyer’s agent

Answer 23

B

The real estate broker who lists property for sale is the seller’s agent, absent an agreement to the contrary. Most real estate sales contracts are negotiated by real estate brokers. The broker who obtains the listing from the seller is the seller’s agent, as are other agents who participate in the sale unless they specifically agree to serve as the buyer’s agent. As the seller’s agent, a broker owes a fiduciary duty to the seller. However, he also has a duty to the buyer to disclose material information about the property if he has actual knowledge of it. QUESTION ID: P0061A Additional Learning

Question 24

Which of the following is not an essential term of a land sale contract under the Statute of Frauds?

A A description of the property.

B An identification of the parties to the contract.

C A closing date.

D A price and manner of payment, if agreed upon.

Answer 24

C

A closing date is not an essential term of a land sale contract under the Statute of Frauds. The closing is when the parties tender performance of the contract, i.e., exchange the purchase price and deed. Matters incidental to the contract (e.g., furnishing of deeds, prorating of taxes, title insurance) can be determined by custom, and a closing date will be construed to be within a reasonable time. They need not appear in the writing nor even have been agreed upon. The essential terms of a land sale contract under the Statute of Frauds are: 1. A description of the property; 2. An identification of the parties to the contract; and 3. A price and manner of payment, if agreed upon. The Statute also requires the contract to be in writing and signed by the party to be charged. QUESTION ID: P0048 Additional Learning

Question 25

Which of the following is true of a mortgage on property subject to a real estate contract?

A The buyer will not be affected even if the mortgage is not paid on closing.

B The buyer may sue for damages if the mortgage exists when the contract is signed.

C The seller is prevented by the mortgage from transferring title.

D The seller may satisfy the mortgage at the closing with proceeds of the sale.

Answer 25

D

For property subject to a real estate contract, the seller may satisfy the mortgage at the closing with proceeds of the sale. Every land sale contract contains an implied covenant that the seller will furnish marketable title on the date of closing. Generally, encumbrances such as mortgages, liens, easements, and covenants render title unmarketable. However, if a seller can satisfy a mortgage or lien at the closing with sale proceeds—i.e., the purchase price is sufficient and this is accomplished simultaneously with the transfer of title—the buyer cannot claim that the title is unmarketable. The buyer may NOT sue for damages if the mortgage exists when the contract is signed. The implied covenant of marketability obligates the seller to furnish marketable title at the date of closing. The buyer cannot rescind prior to that date on the basis that the seller’s title is unmarketable, and he must give the seller time to cure. Because the seller may satisfy the mortgage on the closing date with sale proceeds, a breach of covenant does not occur—and thus liability for damages does not arise—until the closing. The seller is NOT prevented by the mortgage from transferring title. While mortgages and liens generally render title unmarketable, the buyer may waive them in the contract of sale. The buyer WILL be affected if the mortgage is not paid on closing. If the mortgage is not paid at the time title is transferred, it will remain on the land and will encumber the title in the hands of the buyer. Hence, the buyer will want to be certain that there are sufficient funds from the proceeds of sale to pay off the mortgage, and that such payment is in fact made. QUESTION ID: P0059 Additional Learning

Question 26

Absent an agreement to the contrary, the real estate broker who lists the property is __________ agent.

A neither the buyer’s nor the seller’s

B the seller’s

C the buyer’s

D both the buyer’s and the seller’s

Answer 26

B

Absent an agreement to the contrary, the real estate broker who lists the property is the seller’s agent. Most real estate sales contracts are negotiated by real estate brokers. The broker who obtains the listing from the seller is the seller’s agent, as are other agents who participate in the sale unless they specifically agree to serve as the buyer’s agent. As the seller’s agent, a broker owes a fiduciary duty to the seller. However, he also has a duty to the buyer to disclose material information about the property if he has actual knowledge of it. QUESTION ID: P0061 Additional Learning

Question 27

The Statute of Frauds requires that a memorandum of a land sale contract be signed by:

A The party to be charged

B The seller

C All parties to the contract

D The party seeking to enforce the contract

Answer 27

A

The Statute of Frauds requires that a memorandum of a land sale contract be signed by the party to be charged. This is the party against whom the contract is to be enforced, NOT the party seeking to enforce the contract. Thus, if the buyer seeks to enforce the contract, the signature of the seller is required; however, if the seller seeks to enforce the contract, then the signature of the buyer is required. The contract need not be (but in practice usually is) signed by all parties to the contract. QUESTION ID: P0048B Additional Learning

Question 28

May a buyer obtain specific performance of an oral land sale contract?

A Yes, provided the buyer has paid most of the purchase price

B No, because the buyer’s remedy is damages

C No, because an oral contract does not satisfy the Statute of Frauds

D Yes, if the buyer has taken possession of and made substantial improvements to the land

Answer 28

D

Yes, a buyer may obtain specific performance of an oral land sale contract if the buyer has taken possession of and made substantial improvements to the land. While land sale contracts must be memorialized in writing and signed by the party to be charged to be enforceable under the Statute of Frauds, courts in most states will enforce an oral contract in equity under the doctrine of part performance if the buyer has performed at least two of the following acts:1. Taken possession of the land;2. Made substantial improvements to the land; and/or3. Paid all or part of the purchase price.Some courts will accept as part performance additional acts showing the buyer’s detrimental reliance. A buyer might not obtain specific performance of an oral land sale contract even if the buyer has paid most of the purchase price. As explained above, most jurisdictions require at least two acts of part performance. For an oral land sale contract, the buyer’s remedy is NOT damages. Only specific performance is available in equity under the doctrine of part performance. Although an oral contract does not satisfy the Statute of Frauds, a court may award specific performance if the buyer shows sufficient acts of part performance. Two theories support this remedy: (i) the buyer’s acts unequivocally evidence an oral contract; and (ii) the buyer’s detrimental reliance estops the seller from asserting the Statute of Frauds as a defense. QUESTION ID: P0049A Additional Learning

Question 29

Which of the following is true when a seller of land breaches the implied covenant of marketable title?

A The buyer may sue for breach after closing

B The closing date may be extended to allow the seller time to cure

C Rescission is unavailable as a remedy

D The seller can obtain specific performance

Answer 29

B

When a seller of land breaches the implied covenant of marketable title, the closing date may be extended to allow the seller time to cure. Every land sale contract contains an implied covenant that the seller will provide marketable title at closing. Marketable title is title reasonably free from doubt, which a reasonably prudent buyer would accept. While it need not be perfect title, it must not present the buyer with an unreasonable risk of litigation. Generally, this means an unencumbered fee simple with good record title. If the buyer determines that the seller’s title is unmarketable, he must notify the seller and give her a reasonable time to cure, even if this requires extending the closing date, and even if time is of the essence. When a seller of land breaches the implied covenant of marketable title, rescission IS available as a remedy. If the seller fails to cure the defects as explained above, then the buyer may rescind the contract, sue for damages for breach, get specific performance with abatement of the purchase price, or(in some jurisdictions) require the seller to quiet title. A court also may order rescission before the delivery date of an installment land contract if the buyer shows that the seller cannot possibly cure the defects in time. In contrast with the buyer’s remedies, the seller CANNOT obtain specific performance or damages (unless the seller cures the title defect within a reasonable time). When a seller of land breaches the implied covenant of marketable title, the buyer may NOT sue for breach after closing. The implied covenant of marketable title applies at the contract stage of a land sale transaction, before the closing (i.e., exchange of purchase price and deed). The closing extinguishes the contract, which is said to merge with the deed. Then, absent fraud, the seller is no longer liable on this implied covenant; the buyer must rely on any assurances made in the deed. QUESTION ID: P0055B Additional Learning

Question 30

Absent an agreement to the contrary, if the buyer of land does not tender the purchase price until after the closing date, __________.

A The seller may convey title at any time and will not be in breach

B Whether the buyer is in breach depends on whether the seller has tendered a conveyance of title

C The seller is excused from performing

D The buyer is in breach even if the seller has not conveyed title

Answer 30

B

Absent an agreement to the contrary, if the buyer of land does not tender the purchase price until after the closing date, whether the buyer is in breach depends on whether the seller has tendered a conveyance of title. The closing is when parties to a land sale contract are to exchange the purchase price and the deed. However, the buyer’s obligation to pay the purchase price and the seller’s obligation to convey title are deemed to be concurrent conditions. Thus, neither party is in breach of the contract until the other party tenders performance, even if the date set for closing has passed. Therefore, the buyer is NOT in breach if the seller has not conveyed title, and moreover, the seller must convey title concurrently or the seller will be in breach. The seller is NOT excused from performing absent repudiation or impossibility. QUESTION ID: P0056A Additional Learning

Question 31

If the buyer breaches the land sale contract, the seller may recover:

A Incidental damages only

B The fair market value of the land on the date of breach

C The contract price

D The difference between the contract price and the market value of the land on the date of breach

Answer 31

D

If the buyer breaches the land sale contract, the seller may recover the difference between the contract price and the market value of the land on the date of breach. This is the usual measure of damages. Incidental damages (e.g., the buyer’s title examination and moving or storage costs) also can be recovered. Additionally, when the buyer breaches, courts usually will allow the seller to retain the buyer’s “earnest money” deposit on the ground that restitution of the funds to the buyer would unjustly reward the party in breach. QUESTION ID: P0057A Additional Learning

Question 32

A seller may avoid liability for some property defects by including in the land sale contract:

A A clause permitting the buyer to investigate the property

B An “as is” clause disclaiming liability for any and all defects

C A clause identifying the specific defects and disclaiming liability for them

D No clause referring to defects in any way

Answer 32

C

A seller may avoid liability for some property defects by including in the land sale contract a clause identifying the specific defects and disclaiming liability for them. An “as is” clause disclaiming liability for any and all defects is not sufficient to overcome a seller’s liability for fraud, concealment, or failure to disclose, discussed below. However, specific disclaimers identifying and disclaiming liability for specific types of defects (e.g., “seller is not liable for leaks in the roof”) are likely to be upheld. A seller may not avoid liability for property defects by including in the land sale contract a clause permitting the buyer to investigate the property or no clause referring to defects in any way. On the contrary, omissions may give rise to liability. A seller’s liability for defects in the improvements to real property may be based on the seller’s (i) misrepresentation, (ii) active concealment, or (iii) failure to disclose serious defects known to her and which the buyer is not likely to discover. QUESTION ID: P0062B Additional Learning

Question 33

Which of the following will not make the closing date stated in a real estate contract binding?

A One party notifying the other within a reasonable time before the closing date that time is of the essence.

B The circumstances indicating that the parties intended for the closing date to be strictly binding.

C Both parties signing the contract.

D The contract including the phrase “time is of the essence”.

Answer 33

C

Both parties signing the contract will not make the closing date stated in a real estate contract binding. Generally, the time of performance stated in a land sale contract is not absolutely binding. A party, even though late in tendering her own performance, can still enforce the contract if she tenders within a reasonable time (e.g., a month) after the stated date. While courts presume that time is not of the essence, this presumption may be overcome as stated below. One party notifying the other within a reasonable time before the closing date that time is of the essence will make the closing date stated in a real estate contract binding. The court’s presumption that time is not of the essence will be overcome when a party gives proper notice to the contrary. The contract including the phrase “time is of the essence” will make the closing date stated in a real estate contract binding. The court’s presumption that time is not of the essence will be overcome if the contract states that it is. The circumstances indicating that the parties intended for the closing date to be strictly binding will make the closing date stated in a real estate contract binding. The court’s presumption that time is not of the essence will be overcome if it is clear that the parties intended it to be. Examples of such circumstances include land that is rapidly fluctuating in value or a party who must move from out of town and has no other place to go. QUESTION ID: P0051 Additional Learning

Question 34

The following would not make title to land unmarketable:

A A prior deed from a grantor who lacked capacity to convey the land.

B A restrictive covenant that limits development on the land.

C A zoning ordinance that restricts the use of the land.

D A hidden easement that reduces the value of the land.

Answer 34

C

A zoning ordinance that restricts the use of the land would not make title to land unmarketable. Every land sale contract contains an implied covenant that the seller will provide marketable title at closing. Marketable title is title reasonably free from doubt, which a reasonably prudent buyer would accept. While it need not be perfect title, it must not present the buyer with an unreasonable risk of litigation. Generally, this means an unencumbered fee simple with good record title. The mere existence of a zoning ordinance does not constitute an encumbrance. However, title to land that currently violates a zoning ordinance would probably be considered unmarketable. A restrictive covenant that limits development on the land would make title to land unmarketable. Mortgages, liens, easements, and covenants generally render title unmarketable unless the buyer waives them or they are paid off at the time of passage of title. A prior deed from a grantor who lacked capacity to convey the land would make title to land unmarketable. Title may be unmarketable because of a defect in the chain of title. Evidence that a prior grantor lacked capacity to convey the property would constitute such a title defect. A hidden easement that reduces the value of the land would make title to land unmarketable. Such an easement constitutes an encumbrance on the property. In contrast, the majority of courts have held that a beneficial easement that was visible or known to the buyer does not violate the marketable title covenant. QUESTION ID: P0054 Additional Learning