Property II

Question 1

Statute of Frauds (Easements)

Answer 1

Because an easement is an interest in land, the Statute of Frauds applies. To comply with the Statute of Frauds, an easement must:

• (1) be in writing;
• (2) identify the parties;
• (3) describe the servient and dominant land (if any);
• (4) describe the exact location of the easement on the servient land; and
• (5) state the purposes for which the easement may be used.

Question 2

Easement Length, Width, and Location

Answer 2

When the instrument creating the easement fails to fix these factors, but merely establishes a right of way over a particular area, the easement is generally construed to extend over so much of that area as is reasonably necessary to effect the purpose of the easement. The easement does not necessarily encompass the entire area mentioned in the easement.

Under the majority rule, once the location of an easement is fixed, it cannot be moved without the consent of the owners of both the servient and dominant estates.

Question 3

Easement Type of Use

Answer 3

The general rule is that an easement owner’s use of the easement for purposes that differ from or exceed the expressly authorized purposes of the easement is a trespass and is not allowed. However, there is a distinction between new modes of uses and new or additional uses.

Question 4

Easement Frequency and Intensity of Use

Answer 4

In the absence of express language to the contrary, the grantor and grantee of an easement are assumed to have contemplated a normal increase in the frequency and intensity of the use of the easement over the years. Where the easement is appurtenant, this increased use must be the result of a normal development of the dominant estate. Such increased use will be permitted as long as no unreasonable additional burden is placed upon the servient estate.

• Note the difference between a change in the intensity of the use and the type of use.

If the partitioning of the dominant estate was a normal and foreseeable change in the use of the property, the owner of each part can use the easement, as long as no unreasonable additional burden is placed upon the servient estate.

Question 5

Easement Relocation

Answer 5

In the majority of jurisdictions in the United States, neither the owner of the dominant nor servient estate may unilaterally relocate the easement once it has been fixed.

A small number of jurisdictions follow a different rule. The servient estate is permitted to relocate an easement, provided that the relocated easement affords the dominant estate benefits that are substantially similar to those that the dominant estate enjoyed under the original easement. This is a growing modern trend, adopted by the restatement.

Question 6

Easement Use for Non-Dominant Land

Answer 6

The standard rule is that the owner of an appurtenant easement cannot use the easement, nor permit its use, for the service of land which was not part of the dominant estate at the time the easement was created. Such a use is considered a trespass. Courts will not terminate an easement for misuse by the dominant estate owner. Only injunctive relief may be granted to the servient estate owner.

Question 7

Easement Maintenance and Repair

Answer 7

In the absence of an express provision in the written instrument governing easement maintenance and repair obligations, the easement owner is assumed to have a duty to make those repairs necessary so as not to interfere with the servient owner’s use and enjoyment of his property. Similarly, the easement owner has the right to make such repairs and improvements as are required to accomplish the purpose of the easement, as long as she does not unreasonably increase the burden on the servient estate. The owner of the servient estate has no such repair or maintenance obligations.

Question 8

Servient Estate Owner’s Duties

Answer 8

The servient estate owner has a duty to refrain from interfering with the easement owner’s enjoyment of her rights. However, since the easement owner is not entitled to exclusive possession of the burdened portion of the servient estate, the servient owner can use his property in whatever manner he chooses, so long as he does not hinder the use and enjoyment of the easement.

Question 9

Succession of Appurtenant Easement to Dominant Estate

Answer 9

Absent an express provision in the deed stating otherwise, an appurtenant easement is presumed to be transferred with the dominant estate. The benefit of the easement runs with the land unless the terms of the transfer or the terms of the creation of the easement preclude the benefit from running.

Question 10

Succession of Appurtenant Easement to Servient Estate

Answer 10

If the servient estate is transferred, the burden of the easement runs with the land so as to be enforceable against the successors of the servient estate if the original parties intended that it run and the successor of the servient estate has notice of the easement. If no contrary intention is expressed in the granting instrument, courts presume the parties intended the burden to run.

If the successor to the servient estate purchases the servient estate without notice of the easement, under most modern recording statutes the easement will be extinguished and the new owner will not be subject to the burden of the easement. For an appurtenant easement to pass with purchase, the purchaser must: (1) be a bona fide purchaser and (2) have notice of the easement. Types of notice include:

• (a) Inquiry Notice → Easement is obvious based on the land’s location or appearance.
• (b) Constructive Notice → Easement has been recorded in public records, even if the purchaser doesn’t know of its recording.
• (c) Actual Notice

Question 11

Succession of Easements In Gross

Answer 11

Restatement (Modern) View → An easement in gross will not pass when the owner of the easement sells his or her land. Instead, for the benefit of the easement in gross to pass to a successor of the grantee, the easement must be assigned. Under the restatement view, all easements in gross are assignable unless the parties did not intend the easement to be assignable, or the assignment would offend some important public policy.

Older View → If the primary purpose of the easement is to gain economic benefit, the easement is deemed commercial in nature and there arises a rebuttable presumption that it is assignable. If the primary purpose of the easement is to gain personal satisfaction, the easement is deemed non-commercial in nature and there arises a rebuttable presumption that it is not assignable.

Question 12

Release (Express Easement Termination)

Answer 12

An easement may be terminated by a release given by the owner of the easement interest to the owner of the servient tenement. A release requires the concurrence of both owners and is, in effect, a conveyance. The release must be executed with all the formalities that are required for the valid creation of an easement.

Question 13

Abandonment (Express Easement Termination)

Answer 13

An easement can be extinguished without conveyance where the owner of the privilege demonstrates by physical action an intention to permanently abandon the easement. The oral expressions of the owner of the easement that he does not intend to use the easement again by themselves are insufficient to constitute an abandonment of the easement. Similarly, nonuse itself is not considered sufficient evidence of an intent to permanently abandon the easement. Note, however, that oral expressions may be sufficient if accompanied by a long period of nonuse.

Question 14

Prescription (Express Easement Termination)

Answer 14

An easement is extinguished by a use of the servient tenement by the possessor of it which would be privileged only if the easement did not exist, provided that:

• (1) the use is adverse as to the owner of the easement; and
• (2) the adverse use is, for the period of the prescription, continuous and uninterrupted.

Sufficient Acts → The burden of establishing adverse acts is quite high. Courts tend to distinguish between temporary and easily removable improvements (not sufficient) and permanent and expensive improvements that are difficult and damaging to remove (sufficient).

• Note: Some jurisdictions do not allow the prescriptive period to begin to run until the easement owner attempts to use the easement.

Question 15

Merger (Express Easement Termination)

Answer 15

When the easement holder acquires ownership of the servient estate, he gains rights of use greater than those held pursuant to his easement. As a result, the lesser rights are swallowed up by the greater rights. This is the process of “merger.”

• Note: Possession that is limited (life estate, term of years, etc.) will merely suspend the rights of the easement for the duration of the estate.

Question 16

Estoppel (Express Easement Termination)

Answer 16

An easement is extinguished when action is taken by the owner of the servient tenement inconsistent with the continued existence of the easement, if:

• (1) such action is taken in reasonable reliance upon conduct of the owner of the easement;
• (2) the owner of the easement might reasonably have foreseen such reliance and the consequent action; and
• (3) the restoration of the privilege of use authorized by the easement would cause unreasonable harm to the owner of the servient tenement.

Question 17

Easements Implied by Prescription

Answer 17

Prescriptive easements are created by actual use of another’s land in a way one might use an easement, which is:

• (1) open and notorious;
• (2) hostile to the other’s ownership interest; and
• (3) continuous for the statutory period.

One cannot obtain an easement by prescription if they had permission for the use of the land. In such instances, the use is no longer hostile to the other’s ownership interest.

Question 18

Easements Implied by Prior Use (Implication)

Answer 18

An easement implied by prior use is created if:

• (1) there is severance of land held in common ownership;
• (2) there is an existing, apparent, and continuous use of one parcel for the benefit of another; and
• (3) the easement is reasonably necessary for that use.

In general, the necessity requirement for an easement implied by prior use requires a showing of need which, by definition, may be less than that required to use an easement by necessity, but something more than simple convenience.

Note: An easement implied by prior use will not be extinguished when the necessity for the easement disappears.

Question 19

Easements Implied by Necessity

Answer 19

The requirements for finding an easement by necessity are (1) an original unity of ownership of the claimed dominant and servient estates, and (2) the existence of the necessity at the time of severance. There are two approaches for determining the existence of the necessity:

• Majority (Restatement) Approach → Access over the servient parcel must be reasonably necessary. Specifically, the use needs to be slightly more necessary than the reasonably necessary requirement to establish an easement by prior use.
• Minority (Traditional) Approach → The necessity must be an absolute necessity, such as the dominant parcel being landlocked.

Note: The rights of usage will terminate once the necessity disappears. If the necessity disappears and reappears, the rights are not brought back automatically.

Question 20

Real Covenants v. Equitable Servitudes

Answer 20

Real Covenants are promises concerning the use of the land that benefits and burdens both the original parties and the successors. Courts recognize them as running with the land. Real covenants require the servient owner to take or perform certain acts. The main difference from equitable servitudes is that a breach of a real covenant will warrant monetary damages.

Equitable Servitudes are “negative” or “restrictive covenants,” meaning they prohibit the owner of the burdened land from using the land in specified ways. Breach is enforced by injunction rather than monetary damages.

The current trend is to call both “covenants” or “covenants running with the land.”

Question 21

Covenant Validity Test

Answer 21

The general rule is that a restriction is presumptively enforceable, given that (1) it is not arbitrary, (2) it is not against public policy, and (3) the burden of enforcement does not outweigh the benefits. Note that not all restraints are unreasonable. Reasonableness should be determined by reference to the common interest of the development as a whole and not the objecting owner.

Question 22

Touch and Concern

Answer 22

The covenant must be of the type that “touches and concerns” the land. The phrase generally means that the effect of the covenant is to make the land itself more useful or valuable to the benefited party. As a general matter, for the burden of a covenant to run, performance of the burden must diminish the landowner’s rights, privileges, and powers in connection with her enjoyment of the land. Note that economic impacts such as a promise to pay fees to the homeowner’s association in a condominium is considered to touch the land.

• (a) Affirmative Covenants → For the burden of an affirmative covenant to touch and concern the land, the covenant must require the holder of the servient estate to do something, increasing her obligations in connection with enjoyment of the land.
• (b) Negative Covenants → For the burden of a negative covenant to touch and concern the land, the covenant must restrict the holder of the servient estate in his use of that parcel of land.

Question 23

Horizontal Privity

Answer 23

This requirement rests on the relationship between the original covenanting parties. Specifically, horizontal privity requires that, at the time the promisor entered into the covenant with the promisee, the two shared some interest in the land independent of the covenant (e.g., grantor-grantee, landlord-tenant, mortgagor-mortgagee, developer-community).

Question 24

Vertical Privity

Answer 24

This requirement refers to the relationship between the original parties and their respective successors.

• (a) Strict vertical privity requires that the successor succeeds the entire estate. In other words, the land must be bought in fee; a life estate will not work.
• (b) Relaxed vertical privity only requires some interest to be passed in order for the covenant to pass.

Question 25

Covenant Requirements (Traditional View)

Answer 25

Question 26

Implied Reciprocal Covenants

Answer 26

Implied reciprocal covenants burden and benefit every piece of land in the community in a “common scheme or plan.” These are viewed as an implied promise by the developer to impose the same restrictions on every lot. The higher the percentage of the deeds that contain the restriction, the more likely it is implied for all the lots. Implied covenants are more frequently enforceable as equitable servitudes. Any landowner in the community may enforce an implied reciprocal covenant against another.

Question 27

Covenant Requirements (New Restatement View)

Answer 27

First, the restatement view makes no distinction between real covenants and equitable servitudes. Consistent with the traditional approach, intent and notice are always required. The touch and concern requirement, however, is replaced with the requirement that the covenants are not (1) illegal, (2) unconstitutional, or (3) against public policy.

The restatement view also abandons the requirements of horizontal and vertical privity. Instead, the restatement draws a distinction between affirmative and negative covenants.

• The burdens and benefits of affirmative covenants run to persons who succeed to an estate of the same duration as owned by the original parties, including in most cases an adverse possessor. But affirmative covenants do not run to persons who hold lesser estates than those held by the original parties to the covenant.
• Negative covenants are treated like easements, which run to successors because they are interests in land.

Question 28

Doctrine of Changed Circumstances (Covenants)

Answer 28

The doctrine will be applied only if the changed conditions have adversely affected the benefitted lots, making it impossible to achieve the original parties’ intent, even if the covenants were enforced. The focus is on the benefitted lot, not the burdened lot. The courts will continue to enforce a restriction that is still substantially valuable to the benefitted land, even though changed conditions have caused a hardship to the burdened owner. The changes must be radical, and the covenant must outlast the benefit.

In a border lot scenario, changed conditions outside that only impact the border lots and not the lots inside will not trigger the doctrine under the majority rule.

Question 29

Relative Hardship (Covenants)

Answer 29

If the hardship on the defendant is very great, and the benefit to the plaintiff is relatively minor, the court may refuse to issue an injunction, particularly if the defendant acted without knowledge of the covenant.

The court is likely to look at the extent to which the hardship on the defendant increased because of changed circumstances that were not anticipated when the covenant was made. Consequently, the application of the relative hardship doctrine often requires a consideration of changed circumstances, and thus the two doctrines are somewhat intertwined.

The doctrine will not apply if the owner of the burdened lot created the hardship.

Question 30

Acquiescence (Covenants)

Answer 30

If a benefited party acquiesces in a violation of the servitude by one burdened party, he may be deemed to have abandoned the servitude as to other burdened parties. Note that this defense will not apply if the prior violation occurred in a location so distant from the complainant that it did not really affect his property.

Question 31

Estoppel (Covenants)

Answer 31

If the benefited party has acted in such a way that a reasonable person would believe that the covenant was abandoned or waived, and the burdened party acts in reliance thereon, the benefited party will be estopped from enforcing the covenant.

Question 32

Waiver (Covenants)

Answer 32

The benefitted party may lose his right to enforce the covenant against the burdened party by waiver if he has not enforced violations of the covenant against other burdened parties.

Question 33

Enforcement of Restrictive Covenants (CICs)

Answer 33

The requirements for enforcement of a restrictive covenant are:

• (1) the defendant must have constructive or actual notice of the existence of the restriction;
• (2) a reasonable demand for compliance with the restriction after breach; and
• (3) compliance with any applicable procedural due process considerations which require notice of the commencement of the litigation and an opportunity to be heard in court.

The right to enforce a restrictive covenant can be lost by waiver but only if the previous violations affected the scheme and landscape of the area such that there is no longer any substantial value in enforcing the restriction.

Question 34

Homeowner’s Association Standing to Sue (Zoning Variances)

Answer 34

There are four factors for determining whether a particular association has standing to assert the rights of its members who might be affected by the issuance of a zoning variance. They are:

• (1) the capacity of the organization to assume an adversarial position,
• (2) whether its size and composition reflect a position fairly representative of the community or interest which it seeks to protect,
• (3) the adverse effect of the decision sought to be reviewed on the group represented, and
• (4) whether full participating membership is available to the residents and property owners in the neighborhood.

Question 35

Homeowner’s Association Modifying Covenants

Answer 35

If the homeowner’s association has modified, changed, or altered a covenant, it will be enforced if it is clear, unambiguous, and reasonable. A modified covenant is reasonable if it affects the whole community and not just one member.

Question 36

Euclid Rational Basis Test

Answer 36

Before a zoning ordinance can be declared unconstitutional, it must be said that its provisions are clearly arbitrary and unreasonable, having no substantial relation to the public health, safety, morals, or general welfare. The burden of proof is on the person seeking to avoid the ordinance.

The provision will be arbitrary when it arises from the unrestrained exercise of will, caprice, or personal preference based on will or random choice, rather than reason or nature.

Question 37

Nonconforming Uses (Zoning)

Answer 37

A use that exists at the time of passage of a zoning ordinance and that does not conform cannot be eliminated at once. Generally, the nonconforming use may continue indefinitely, but any change in the use (e.g., tearing down an old building and replacing it with a new one) must comply with the zoning ordinance. Some statutes provide for amortization—i.e., the gradual elimination of nonconforming uses (e.g., the use must end in 10 years).

Question 38

Conditional Use Permits (CUPs)

Answer 38

Some unusual uses (e.g., hospitals, funeral homes, etc.) require issuance of a special permit even though the zoning of the particular district (e.g., commercial) allows that type of use. The nature of a conditional use permit is to allow a measured control over the extent of land uses which are desirable in small numbers, but detrimental in large numbers. Overconcentration is a legitimate basis for regulation.

Question 39

Variance

Answer 39

A variance from the literal restrictions of a zoning ordinance may be granted by administrative action. The property owner must show (1) that the ordinance imposes a unique hardship on him and (2) that the variance will not be contrary to the public welfare.

The hardship cannot be self-inflicted, and cannot be based solely on financial or economic reasons. The typical scenario is when an owner cannot redevelop on an irregularly-shaped lot.

Question 40

Vested Rights

Answer 40

Vested rights refer to the idea that zoning cannot be changed to deny a person a right to proceed with their planned land use.

• Majority (Late Vesting) → Rights are not recognized until the owner has incurred substantial expenditures in good faith reliance on an issued permit.
• Minority (Early Vesting) → Rights are vested at the time of application for the permit. Under the minority, a landowner will be entitled to approval unless:
  
  • (a) there is a compelling state interest,
  • (b) he proceeded without reasonable diligence, or
  • (c) proceedings for zoning were initiated before the owner’s application.

Question 41

Zoning Estoppel

Answer 41

An owner or developer may invoke zoning estoppel only if he, relying reasonably and in good faith upon a government act or omission, makes a substantial change in position or incurs such extensive obligations and expenses that it would be highly inequitable or oppressive to enforce the regulation.

Reliance to establish zoning estoppel must be substantial, and the purchase of land alone is generally insufficient to constitute substantial reliance. Moreover, estoppel will not be applied if the developer has good reason to believe, before or while acting to his detriment, that the government’s position may soon change.

Question 42

Adverse Possession Rule

Answer 42

To establish title by adverse possession, the possessor must show (1) an actual entry giving exclusive possession that is (2) open and notorious, (3) continuous throughout the statutory period, and (4) adverse or “hostile” to the possession of the true owner.

Only a minority of states require the adverse possessor to pay taxes on the property. However, in all states, payment of property taxes is good evidence of a claim of right.

Question 43

“Actual” (Adverse Possession)

Answer 43

The claimant must use the land in the same manner that a reasonable owner would given its location, character, and nature.

Question 44

“Exclusive” (Adverse Possession)

Answer 44

The claimant’s possession cannot be shared with the owner of the property or the public in general. Generally, the claimant needs to show that the title holder was excluded. This does not mean that no one other than the claimant can use the property, as owners routinely allow others on their land.

Question 45

“Open and Notorious” (Adverse Possession)

Answer 45

The claimant’s possession must be open and obvious so that if the owner performed a reasonable inspection of the land, he would become aware of the adverse claim.

Question 46

“Continuous” (Adverse Possession)

Answer 46

The claimant’s possession must be as continuous as a reasonable owner’s would, given the location, character, and nature of the land.

Question 47

“Adverse/Hostile” (Adverse Possession)

Answer 47

States differ on this element, but all agree that possession that is authorized by the owner does not meet the requirement. States follow three different approaches to this element:

• (a) Some states require a good faith belief that the claimant is the owner of the property.
• (b) Some states require a bad faith intent by the claimant.
• (c) Claim of Right → The majority of states don’t look at the subjective intent of the claimant, but rather look at the conduct of the claimant. If all of the other elements are met, this requirement is implied to be satisfied.

Question 48

Disability (Adverse Possession)

Answer 48

The statute might be tolled by disability of the owner. In order for the statute to be tolled due to disability, the disability must be present when the claimant takes adverse possession. Disabilities may include the owner being a minor, incompetent, or imprisoned.

Question 49

Life Tenancies and Remainders (Adverse Possession)

Answer 49

If an adverse possessor commences possession at a time when the record of ownership is divided between a life tenant and a remainderperson, the remainder is not affected by the adverse possession. This result rests on the theory that possession cannot be adverse to one who has no right to immediate possession, such as a remainderperson.

Question 50

Tacking (Adverse Possession)

Answer 50

In order for tacking to be permitted between adverse claimants, states require successive occupants to be in privity with each other. This is usually satisfied by a deed or will, and in some states, a familial relationship.

Question 51

Valid Deed Requirements

Answer 51

In order to have a valid deed, the deed must:

• (1) be in writing,
• (2) be signed by the grantor,
• (3) identify both parties,
• (4) contain words of conveyance (grant, convey transfer, give, etc.), and
• (5) describe the property.

Question 52

Statute of Frauds (Deeds)

Answer 52

In order to comply with the statute of frauds, a deed must:

• (1) include the essential terms of the sales contract (parties, intent to buy/sell, price, description, etc.),
• (2) be in a memo or other writing, and
• (3) be signed by the defendant.

Question 53

Part Performance (Deeds SoF Exception)

Answer 53

An oral agreement for the sale of property may be enforceable if the plaintiff:

• (a) took possession,
• (b) paid part of the purchase price, or
• (c) made improvements to the property.

Most jurisdictions require (a)+((b) or (c)).

Question 54

Equitable Estoppel (Deeds SoF Exception)

Answer 54

An oral contract can be enforced if:

• (1) one party acts to his detriment in reasonable reliance on another’s oral promise, and
• (2) serious injury would result if enforcement is refused.

Question 55

Property Description Methods

Answer 55

There are three common methods of property description in the U.S.:

• (a) Metes and bounds
• (b) Government survey
• (c) Plat or subdivision map

Question 56

Deed Delivery

Answer 56

A deed is not effective until it is delivered. The grantor must manifest by words or actions an intent that the deed be immediately effective to transfer an interest in land to the grantee.

Delivery of deed is a question of fact. In most states, delivery of deed will be presumed if (1) the deed is recorded and (2) the grantee has physical possession of the deed. The presumption can be overcome by affirmative evidence which proves that there was no delivery. For example, if the grantee stole the deed.

Note: A grantor keeping possession of the deed is not fatal to delivery, what matters more is the intent. Physically handing the deed to the grantee creates intent, and intent at delivery is the most important. What happens after delivery (such as taking the deed back) does not matter.

Question 57

Deed Delivery to Third Party

Answer 57

Deeds cannot be conditionally delivered to a grantee, but may be conditionally delivered to a third party, such as an escrow agent. The delivery date of the deed is the date delivered to the third party, because the effective date relates back to the date of deposit to the escrow. Deeds may also be delivered to an escrow irrevocably.

Whether or not a death escrow works depends on the grantor’s ability to retrieve the deed back from the escrow. Delivery may be precluded if the grantor has the ability to take the deed back from the escrow agent before death.

Question 58

Mortgage

Answer 58

A mortgage is the conveyance of the interest in real property as security for the performance of an obligation, which is almost always a loan of money evidenced by a promissory note. The mortgage must secure an obligation from the buyer, or it is a nullity.

Question 59

Deed of Trust

Answer 59

The debtor/notemaker is the trustor. The trustor gives the deed of trust to a third-party trustee, who is usually closely connected with the lender (e.g., the lender’s lawyer, affiliated corporation, or officer). In the event of default, the lender (termed the beneficiary) instructs the trustee to proceed with foreclosing the deed of trust by sale.

Question 60

Installment Land Contract

Answer 60

In an installment land contract, the debtor is the purchaser of the land who signs a contract with the vendor, agreeing to make regular installment payments until the full contract price (including accruing interest) has been paid. Only at that time will the vendor give a deed transferring legal title to the purchaser.

In case of default, the contract may contain a forfeiture clause providing that the vendor may cancel the contract, retain all money paid to date, and retake possession of the land. However, the defaulting purchaser may be entitled to restitution to the extent his payments exceed the vendor’s damages.

Question 61

Deficiency Judgements

Answer 61

If the proceeds of the sale are insufficient to satisfy the mortgage debt, the mortgagee can bring a personal action against the mortgagor/debtor for the deficiency.

Question 62

Equity of Redemption

Answer 62

At any time prior to the foreclosure sale, the mortgagor has the right to redeem the land or free it of the mortgage by paying off the amount due. A mortgagor’s right to redeem her own mortgage cannot be waived in the mortgage itself. However, the right can be waived later for consideration.

Question 63

Statutory Right of Redemption

Answer 63

About half the states give the mortgagor (and sometimes junior lienholders) a statutory right to redeem for some fixed period after the foreclosure sale has occurred (usually six months or one year). The amount to be paid is usually the foreclosure sale price, rather than the amount of the original debt.

Be careful to distinguish equitable redemption, which is universally recognized (but only up to the date of the sale), from statutory redemption, which is only recognized by about half the states and applies only after foreclosure has occurred.

Question 64

Priority of Claims (Foreclosure)

Answer 64

The costs of the foreclosure get paid before anything else. Then, property tax liens have priority. Then, senior lienholders. Finally, junior lienholders. The homeowner will only receive proceeds from the foreclosure if there is a surplus after all of the mortgages and liens are paid off.

Question 65

Notice Statutes

Answer 65

Under a notice statute, a subsequent BFP prevails over a prior grantee who failed to record. The important fact under a notice statute is that the subsequent purchaser had no actual or constructive notice at the time of the conveyance. Constructive notice includes both record notice and inquiry notice. Note also that the subsequent BFP is protected, regardless of whether she records at all.

Example: A conveyance of an interest in land, other than a lease for less than one year, shall not be valid against any subsequent purchaser for value, without notice thereof, unless the conveyance is recorded.

Question 66

Race-Notice Statutes

Answer 66

Under a race-notice statute, a subsequent BFP is protected only if she records before the prior grantee, and has no actual or constructive notice at the time of the conveyance. To obviate questions about the time of delivery and to add an inducement to record promptly, race-notice statutes impose on the BFP the additional requirement that she record first.

Example: Any conveyance of an interest in land, other than a lease for less than one year, shall not be valid against any subsequent purchaser for value, without notice thereof, whose conveyance is first recorded.

Question 67

Race Statutes

Answer 67

Under a pure race statute, whoever records first wins. Actual notice is irrelevant. The rationale is that actual notice depends upon extrinsic evidence, which may be unreliable. Very few states have race statutes.

Question 68

Bona Fide Purchasers (Recording Statutes)

Answer 68

Only bona fide purchasers (BFPs) are entitled to prevail against a prior transferee under “notice” and “race-notice” statutes. To attain this status, a person must satisfy three requirements. The person must:

• (1) be a purchaser (or mortgagee/creditor if the statute so allows);
• (2) take without notice (actual, constructive, or inquiry) of the prior instrument; and
• (3) pay valuable consideration.

Question 69

Shelter Rule

Answer 69

A person who takes from a BFP will prevail against any interest that the transferor-BFP would have prevailed against. This is true even where the transferee had actual knowledge of the prior unrecorded interest.

Example: O conveys to A, who fails to record. O then conveys to B, a BFP, who records. B then conveys to C, who has actual knowledge of the O to A deed. C prevails over A. (And this is true whether C is a donee or purchaser.)

Question 70

“Wild Deeds”

Answer 70

A “wild deed” is a recorded deed that is not connected to the chain of title. It does not give constructive notice because the subsequent BFP cannot feasibly find it.

Question 71

Inquiry Notice

Answer 71

Inquiry notice can be gained (a) by further inquiry into facts that are known or should be known to the subsequent purchaser that would alert a reasonable person to inquire further to guard herself against the possibility of a prior grantee, or (b) by inspection of the property whether or not it is actually inspected, because purchasers have a duty to inspect.