Property Outline PART 2 (Final) Flashcards
1
Q
Required formalities for a Promissory Note
A
Subject to Statute of Frauds
Four Key Components:
1. The amount: Usually limited by the applicable loan-to-value ratio
2. The Interest rate: Can be fixed, adjustable, “teaser rate,” etc.
In theory, usury laws limited amount of interest that can be charged but not actually
3. The Term: Usually 25-30 years; may include due on sale clause, acceleration clause and/or prepayment penalty
4. The amortization schedule: Can be fully amortized or only partially amortized with a “balloon payment” at the end;
Each mortgage payment is applied to pay some principal of loan and some interest on the loan; mostly interest in early part of schedule
2
Q
Fraud and other mischief (mortgages)
A
General rule: When there is fraud in the creation of loan or security instrument or subsequent transactions, the fraudulent document is invalid, and even bona fide purchasers for value (BFP) are not protected under the Recording Acts
3
Q
Required formalities for a Mortgage?
A
- Subject to Statute of Frauds
• MAJ: Same requirements as for a Valid Deed
• Identifies borrower and lender
• Identifies property to be security
• Contains borrower’s intent to use property as security
• If combined with mortgage/deed of trust, recites that repayment is secured by
mortgage/deed of trust, thus linking the two transactions
• Signed by borrower - Executed mortgage must be delivered to lender
- Not required to be recorded to be enforceable
4
Q
Two primary forms of security interests
A
Promissory Note and Mortgage (typical mortgage)
Mortgagor = borrower = debtor = buyer of property (“giving the mortgage”)
Mortgagee = lender = creditor
Promissory Note and Deed of Trust or “power of sale mortgage” (allows nonjudicial foreclosure)
Trustor = borrower = debtor = buyer of property
Trustee = 3rd party (usually bank or title company)
Beneficiary of the trust = Lender = Creditor
5
Q
Lien theory vs Title theory vs Intermediate theory (mortgage forclosure)
A
Lien theory (MAJ): Mortgage is a lien on property If default, lender can foreclose and can only get title and right to possess through foreclosure process
Title theory:
Transfer of title
If default lender can take possession without foreclosure or can foreclose
Intermediate theory
If default, lender is entitled can take possession (and collect rents/profits) upon default before foreclosure is completed
6
Q
“acceleration clause” (mortgage)
A
Allows the lender to demand full payment of the loan if the borrower fails to make even one installment payment.
7
Q
Due on Sale Clause
A
Mortgage can be paid off at property sale (to protect lender from rising interest rates)
8
Q
“Assumes the mortgage”
A
Buyer who assumes the mortgage debt becomes primarily liable to pay the loan
The original borrower becomes secondarily liable (meaning they can be sought after later)
Novation: lender agrees to substitute the liability of the buyer for that of the original borrower who is released from liability. (only lender can release)
9
Q
“Subject to the mortgage”
A
Buyer can lose interest in the property but not assets from original borrower’s mortgage
Buyer can pay the loan but no duty to do so
In default, the buyer will lose their property interest via a foreclosure
10
Q
Lenders Options when borrowers default
A
Work with borrower to get back on track
- Modification of loan or mortgage
- Use contract remedies/sue to enforce the promissory note against whomever is liable (See rules re if buyer assumed mortgage or took subject to mortgage)
- Take possession without foreclosing (if mortgage theory allows)
- Accept “Deed in Lieu of Foreclosure”
- Initiate Foreclosure
11
Q
Special rule if default on mortgage where property is Life Estate
A
Life estate holder owes interest on the mortgage
Remainder holder owes the principal
12
Q
Lender takes possession without foreclosure (mortgage foreclosure alternative)
A
Can only do this if they have a right to do so under the mortgage (ie title theory of mortgage states)
Usually they don’t want to possess it because they would be taking on the risks of possession including tort liability
But might do so if good revenue-producing property or to protect from waste
13
Q
Deed in lieu of foreclosure (mortgage foreclosure alternative)
A
Get the deed instead of foreclosure
Effect is it releases the borrower from all obligations related to the mortgage and lender full ownership rights of the property
Required for transaction: consent of both mortgager and mortgagee
14
Q
Borrowers options if default
A
- Request loan modification
- Reinstate the loan (pay what was due)
- Exercise right of equitable redemption = “redeem the property” by paying off the whole debt, e.g. by taking out another loan to pay off this one, or get someone else to assume it before the foreclosure sale.
- Offer lender a Deed in lieu of foreclosure: lender doesn’t have to accept
- Allow property to be foreclosed
- Abandon the property
15
Q
Judicial Foreclosure process:
A
- Lender formally notifies borrower of default
- If borrower doesn’t act to resolve the problem, the lender files and serves complaint against borrower, junior lienholders and any other persons holding an interest in the property that are subordinate to the mortgage being foreclosed
- Defendants can answer the complaint and object
- Court considers any objections and rules in hearing; usually gives a judgment for lender providing for foreclosure sale as remedy
- Notice of foreclosure sale given
- Foreclosure sale occurs and highest bidder at foreclosure purchases property
- Judicial confirmation of the sale
- Official execute and delivers deed to purchaser
- Proceeds of foreclosure sale are distributed according to priorities
- Lender may seek deficiency judgment (if allowed)
16
Q
Nonjudicial Foreclosure Process
A
By contract and with some state regulation (notice requirements)
17
Q
State of Title after foreclosure
A
Lender must give proper notice to all junior lienholders and any other persons holding an interest in the property that are subordinate to the mortgage being foreclosed on
If state law provides a statutory right of redemption, the borrower can use it to reclaim the property for a certain time after the foreclosure sale. (equitable is before)
Title now fully on buyer unencumbered
18
Q
Priority of Obligations (mortgage foreclosure)
A
Upon default of its loan, any mortgagee/beneficiarry of Deed of Trust can initiate foreclosure
Order of Distribution:
- Pay expenses of sale, attorney fees, and court costs
- Pay the principal and accrued interest of loan that was foreclosed
- If anything left (“surplus”), pay off any junior liens or interests in order of priority
- If anything still left, give to mortgager for her equity
19
Q
General Rule to Establish Priority and Exceptions:
A
First in time is the general rule
Exceptions:
1. Operation of a recording act
(Will depend upon type of RA in the jdx and usually if lender had any kind of notice of prior mortgages/liens)
2. Subordination agreement in which creditor agrees to give priority to a junior mortgage or lien
3. Purchase Money Mortgage
4. Modifications of a Senior Mortgage
5. Future Advance Mortgage
6. Subrogation
7. Other state laws providing particular types of liens priority (e.g. property tax liens, child support liens, HOA liens…)
20
Q
Purchase-Money Mortgage
A
A purchase money mortgage is a mortgage in which the loan proceeds are used to acquire title
Doesn’t have to be a residential property
A PMM has priority over other mortgages created by or that arose against the purchaser-mortgager prior to the purchaser mortgagor’s acquisition of the property, whether the PMM is recorded or not.
But PMM’s priority can be defeated by subsequent mortgages or liens by operation of the Recording Acts (if PMM not recorded) or by agreements between relevant parties. (e.g. a Subordination Agreement)
21
Q
How a purchase money mortgage works:
A
A PMM has priority over other mortgages created by or that arose against the purchaser-mortgager prior to the purchaser mortgagor’s acquisition of the property, whether the PMM is recorded or not.
But PMM’s priority can be defeated by subsequent mortgages or liens by operation of the Recording Acts (if PMM not recorded) or by agreements between relevant parties. (e.g. a Subordination Agreement)
22
Q
Modification of a Senior Mortgage effect on priority
A
If there are two mortgages and the senior mortgage is modified in a way that makes it more burdensome to borrower the junior mortgage is given priority over the modification (e.g. the increase in the debt), but only the modification.
- -payment schedules probably not enough
- -alterations in principal or amount are though
23
Q
Future Advance Mortgage
A
If the original mortgage requires the lender to make further loans to the borrower after the original mortgage is executed, then such advantages will have the same priority as the original mortgage.
However, if further loans optional while having notice of junior lien, then those advances will have priority below the junior lien unless a statute provides otherwise.
Fact to be in hypo is that there is a requirement on further loans
24
Q
Subrogation
A
[=substitution]
A mortgage taken out for refinancing a preexisting senior mortgage. Takes the priority position of the senior mortgage even though there may have been other mortgages/liens on the property between the time of the original mortgage and the refinancing.
But subrogation will not be enforced if there are countervailing equities (ie. circumstances that would make it unfair to enforce subrogation)
25
“Two funds” rule of marshalling
Applies when there are two lenders/mortgagees who have mortgages on one tract of land but one of them also has a mortgage on another tract of land
“Two funds” rule of marshalling is equitable doctrine that requires a senior creditor, having two or more funds to satisfy its debt, to first dispose of the fund not available to a junior creditor so as to preserve, if possible, the equity of the one whose lien extends to only one fund.
Ie bank must foreclose one without junior mortgages first
VERY SPECIFIC FACT SITUATION
Creditor asks a court to force a superior creditor to satisfy their debt out of the security interest which the invoking creditor does not have a lien against.
26
Borrower’s rights after foreclosure
Legal challenges to set aside the sale are available, but they are rarely successful because difficult standard. E.g. “shock the conscience of the court”
Statutory right of redemption vs equitable right of redemption
Allows borrower to reclaim the property for some specified time period after the foreclosure sale for a specified price (usually amount paid)
Equitable right of redemption:
Allows borrower to buy property after default but before foreclosure
27
Lender’s Rights after foreclosure
Deficiency judgments
If foreclosure sale proceeds are insufficient to pay a debt, lender can bring a personal action against debtor for the “deficiency” if state allows
Person(s) responsible to pay the loan are generally responsible for any deficiencies if state allows.
Deficiency rules and anti-deficiency statutes (no majority rule)
Some states prohibit deficiency judgments entirely on PMMs and on deeds of trust that are foreclosed by power of sale
Some states limit the amount that the lender can recover as a deficiency
28
Equitable Mortgage
Security interest transaction disguised as only a sale of land.
If courts find deed is security for debt, then foreclosure required and considered a mortgage.
29
Installment Land Contract
Similar to mortgage
Property transfers right after final installment
In typical contract remedy for any default is forfeiture
Harsh remedy even for minor default
No maj rule for alternatives to forfeiture, but for our purposes most jurisdictions provide some other remedy for vendee/buyer especially if vendee/buyer has paid a substantial amount of installments
Court probably won’t let lender kick off borrower after 80% paid with no process
30
Equitable Mortgage/Absolute Deed as Mortgage/Equitable Vendor’s Lien
It is a security interest transaction disguised as only a sale of land
• Debtor already owns the property
• Debtor arranges for loan from a lender
• Debtor give absolute deed to lender with no reference to debt to be paid or the property being a security interest for a debt
• Usually debtor remains on property and makes some other arrangement for the return of the property ownership to Debtor after the loan is repaid
* If default, because the lender has absolute deed, the lender wants to just evict the debtor and keep the property without any other process.
* But this can be harsh to debtor
* So, upon the debtor’s request, the court in equity may find that the parties actually intended a deed or other instrument to be security for a debt, and so the court will treat it as a mortgage, regardless of the form, and require lender to use foreclosure process to get title to the property
31
Recording Acts in General
1. General Rule: First in Time is First in Right
2. Recording Acts Create Exceptions:
A. If subsequent “purchaser/claimant” is eligible
and qualifies for protection under the relevant
Recording Act, or
B. If “Shelter Rule” applies
32
Types of Notice (recording act)
Actual notice
• Read, saw, or heard a fact
* Constructive Notice [= the law treats it as if it’s true]
* Record Notice
* Inquiry Notice
* Imputed Notice
33
Record Notice
All people presumed to know facts in public records
| • Property records, probate records, court records, birth and death records, etc. (416)
34
Inquiry Notice
• Courts assume purchasers perform due diligence
• Person presumed to know certain information that Rable person would have found if:
1. Person read, saw, heard some fact that would put a Rable person on notice
--Often a stranger on the property or a reference in a recorded document
2. And if the person performed a Rable search
3. The search would have produced certain information
• Modern rule: Quitclaim deed does not create inquiry notice
35
Imputed Notice
Notice presumed by virtue of special relationship
ie A purchaser of land has imputed notice of all matters relating to the purchase of which his agent (e.g. a solicitor) has (or ought reasonably to have) knowledge.
36
Pure Race jxn
Eligible for protection against prior unrecorded interests under the Recording Acts:
only if subsequent purchaser recorded first
Thus, the knowledge of the winning transferee is irrelevant.
37
Pure Notice or Race-Notice Recording Act jxns
Subsequent BFP is eligible for protection against prior unrecorded interests under the Recording Acts
a. Again, a BFP is one who takes his interest without either actual or constructive notice of the prior transfer and pays value for the interest.
b. In a notice state, a subsequent BFP prevails over a prior unrecorded transferee, regardless of whether he/she records first.
“race-notice” legislation.
To come within the protected class, a subsequent purchaser must not only be a BFP, but it must also be the first to record, as in a race act state
38
Who is NOT eligible for protection against prior unrecorded conveyances under the Recording Acts?
Donees
Devisees and Heirs
But if Donee, Devisee or Heir get interest and properly records, it prevents subsequent claimant from using RA against them
39
Judgment creditors and RA protection
Whether judgment creditors are eligible for RA protection against prior interests depends upon state law and type of debt.
Maj rule: not eligible unless statute allows
State law: About half the states explicitly include judgment creditors (below). But if not explicitly included by statute, then generally not eligible. Even then sometimes only voluntary (mortgages etc)
40
The Shelter Rule
Rule: Someone who is not a BFP, but who gets an interest from a BFP who would have qualified for protection of the relevant recording act, is “sheltered” by the BFP’s protected status.
So, once a person’s title is protected under the recording act, that person can transfer good title to anyone—even someone who has actual notice of a prior adverse right or a donee—and the subsequent owner is “sheltered” under the BFP.
The Shelter Rule does not apply in Pure Race Recording Act jurisdictions because in those jurisdictions notice is irrelevant, only need to determine who was first to record.
41
Suggested process for applying Recording Acts
1. What is the applicable recording act?
2. Is the interest covered by the applicable recording act?
3. Who is seeking protection of the recording act? Remember: Title is relative [Hint: Will always be the subsequent purchaser who is seeking help from the recording act.]
4. Is the claimant eligible for protection?
5. Does the claimant qualify for protection under the relevant recording act, including applying the Shelter Rule (if applicable)?
6. If yes, apply the recording act.
7. If not, apply first-in-time rule.
42
Subtlety behind donees and heirs in Recording Acts
In most states, transfers by devise or inheritance do not have to be recorded in public land records to make them legally effective against subsequent purchasers. Usually recorded in other public records so doesn't have to be.
43
Title Insurance
Owner’s insurance: This covers the named insured for title defects that
predate her acquisition of the property. Generally covers the insured’s
liability under any warranties of title made when she sold the property.
Most policies protect the owner even after she conveys to someone else.
44
Nuisance (2 types)
A private nuisance arises when one uses his land in a manner that injures a private owner or occupant in the use or enjoyment of that person's land.
A public nuisance is an activity that interferes with the rights of the public in general, usually by threatening the public health, safety, or morals.
45
Trespass vs Nuisance
A physical entry onto land owned or occupied by another is a trespass, not a nuisance. A nuisance involves conduct other than physical entry that interferes with the use or enjoyment of land.
46
Private Nuisance (2 types)
Nuisance per se
An act or condition that is always considered to be a nuisance, regardless of the surrounding circumstances, i.e. prohibited by law
Nuisance per accidens
A nuisance only because of the surrounding circumstances, such as its location and manner of operation
47
Private Nuisance Elements Overall
1. Actual Cause ("but for" test)
2. Legal (“Proximate”) Cause
3. Intentional (other factors)
4. Unreasonable element = balancing test (Eight factors)
5. Significant Harm Element (Must be a significant harm that would be suffered by a normal person in the community (ie not eggshell plaintiffs))
a. legal cause
b. intentional or
c. unreasonable vs gravity
d. significant harm
48
Unreasonable factor (private nuisance)
Gravity of the harm factors:
1. the extent of the harm (mainly in terms of degree and duration)
Lowered property value maybe not enough alone
2. the character of the harm (physical damage or personal discomfort)
3. the social value of the plaintiff's use and enjoyment
4. the suitability of the particular use or enjoyment invaded to the character of the locality; and
5. the burden on the plaintiff of avoiding the harm.
Utility of conduct factors:
6. the social value of the primary purpose of the defendant's conduct
7. the suitability of the conduct to the character of the locality; and
8. the impracticability of preventing or avoiding the interference.
A court must compare
(a) the “utility” of the defendant's conduct with
(b) the “gravity of the harm” that this conduct causes to the plaintiff
49
Severe harm test:
An intentional interference is deemed unreasonable under this test if “the harm caused by the conduct is serious and the financial burden of compensating for this and similar harm to others would not make the continuation of the activity not feasible.”
The utility of the defendant's conduct is irrelevant under this alternative test.
50
Defenses to liability for private nuisance
* Consent or acquiescence
* Laches
* Prescriptive easement
* Statute of limitations
* Coming to the nuisance (traditional common law)
* Modern right to farm statutes
51
Defenses to Private Nuisance
“coming to the nuisance”
Almost all courts reject this defense because it effectively allows first-in-time residents to stifle new development in the community.
Instead, a number of courts consider the plaintiff's “coming to the nuisance” as one factor in determining reasonableness.
the modern “right-to-farm” statutes.
Although the details vary from state to state, the general approach of these statutes is the same: farms and other agricultural activities are immune from nuisance liability if the facts giving rise to the claim have existed for a specified period of time
52
Remedies for Private Nuisance
Traditional c/l: an injunction ordering the nuisance to cease and compensatory damages, if warranted, for past harms
Contemporary courts more flexible
Balancing the equities: By far, the single most important factor in this process is the relative economic impact of the injunction on the parties. All other things being equal, then, a court will issue an injunction only if the resulting benefit to the plaintiff is greater than the resulting damage to the defendant.
53
Public Nuisance
“An unreasonable interference with a right common to the general public”
Any intentional conduct which unreasonably interferes with the public health, safety, welfare, and morals.
Can overlap with private nuisance but different in substance
54
Village of Euclid v. Ambler Realty Co. (zoning) (when zoning is unconstitutional)
Zoning restrictions are unconstitutional if
1. “clearly arbitrary and unreasonable” and without
2. “substantial relation to the public health, safety, morals, or general welfare.”
The power to pass zoning regulations derives from states’ police powers.
55
Nuisance damages
If the nuisance is permanent, the plaintiff receives all damages—covering both past and future harm—in one lawsuit.
Damages are measured by the extent to which the nuisance diminishes the fair market value of the affected property.
If the nuisance is temporary or “continuing,” the plaintiff only recovers damages that compensate for past harm; he may bring successive lawsuits in the future as additional damages are incurred.
56
Unreasonableness (public nuisance) factors
Factors that bear on unreasonableness include:
(1) whether the conduct “involves a significant interference” with the public heath, safety, peace, comfort, or convenience;
(2) whether the conduct is prohibited by a statute, ordinance, or regulation; and
(3) whether the conduct is continuing or permanent and has a “significant effect upon the public right.”
57
Zoning Regulates:
Use
Height
Area/Bulk
58
Zoning is constitutional unless
Valid unless “arbitrary and unreasonable, having no substantial relation to the public health safety and welfare or morals” =
• Is the law’s objective a legitimate or permissible government objective? and
• Does the law’s means bear a rational relation to that objective
59
Primary Flexibility Devices (zoning)
Designates uses as either:
• Permitted (“as of right”) uses
• Permitted with condition or
• Not permitted
60
Zoning SDP/EP rational basis standard
• Presume constitutionally valid
• Plaintiff must prove “clearly arbitrary or unreasonable, having no
substantial relation to the public health, safety or welfare”
61
Conditional Use Legal standards: (zoning)
Depends upon the ordinance
• Some specify which conditional uses are allowed in a particular zone
and the specific conditions that will be attached
• Some give general criteria, e.g. conditions to make the use consistent
with general H, W & S
62
Zoning Variance legal standard
Legal standard
1. Hardship to owner based on characteristic of land (not owner’s self-imposed hardship or specific need)
2. If allow variance, must also protect the public interest (not alter essential character of area)
63
Zoning Variance: Two types
* Bulk/area (all jurisdictions have)
| * Use (minority rule: only some jurisdictions have)
64
Conditional use/special use permits/special exceptions (zoning)
• Use is permitted but only with conditions or as “special exception” to ensure that it doesn’t cause problems where it is located
65
Non-conforming uses doctrine
A nonconforming use is a use of property that was allowed under the zoning regulations at the time the use was established but which, because of subsequent changes in those regulations, is no longer a permitted use.
66
Vested rights doctrine
having a legally enforceable property right to get a discretionary permit (no need to know rules, just concept)
67
Analysis for Legal attacks on local governments’ land use regulation
1. Generally, local governments’ land use regulation is a legitimate exercise of its police power
2. But any action can be challenged under a number of legal theories:
• Substantive Due Process
• Procedural Due Process
• Equal Protection
• Regulatory Taking
• Violation of state or local laws, e.g. giving a variance when not justified under rule or illegal discrimination
3. What happens if a property owner violates zoning ordinance?
A. Administrative enforcement by the local government: fine and/or injunction
B. Appeal to civil court
68
Public purpose test (ED)
Scope of public purpose is “coterminous with police power,” and therefore subject to “rational basis” test, i.e. “rationally related to a conceivable public purpose”
“Public purpose” test is satisfied as long at it’s a “legitimate government purpose”
69
Outline of legal issues (zoning/taking)
```
• Violation of state or local laws: failure to grant a variance
when justified under rule?
• Substantive Due Process violation?
• Procedural Due Process violation?
• Equal Protection violation?
• Regulatory Taking?
```
70
Initial application of legal rules (Zoning)
• Violation of state or local laws: failure to grant a variance when justified under rule
• Rule: 1. Hardship to owner based on characteristic of land (not owner’s self-imposed hardship or specific need)
2. If allow variance, must also protect the public interest (not alter essential character of area)
• No facts that there is a hardship based upon the land itself
• Substantive Due Process violation?• Rule
• Presume constitutionally valid
• Plaintiff must prove “clearly arbitrary or unreasonable, having no substantial relation to the public health, safety
or welfare”
• App: Was the opposition of the nearby parking-lot operator the only reason that her variance denied?
Was there any other rational basis?
* Procedural Due Process violation?
* No facts for violation: She apparently got notice and opportunity to be heard
* Equal Protection violation?
* Other similarly-situated nearby building recently got a parking variance
* Was she discriminated against based upon a suspect classification? No facts to support.
* Regulatory Taking?
* Effect will be several offices in O’s building will have to be left vacant = $ cost to her
* Preview: These facts do not support finding of a regulatory taking
71
Elements of Eminent Domain
1. Government can take “private property”: can be any property interest (e.g. possessory, nonpossessory, security interest, etc.);
2. For “public use”;
3. As long as it provides “just compensation” for the property interest(s) taken
72
How is “just compensation” measured and what does it include?
• Generally = “fair market value” (FMV) of the property interest taken,
but, if necessary, courts use other just and equitable standard
• FMV = “amount that a willing buyer would pay in cash to a willing
seller” for that property interest
* “Highest and best use” but reasonably probable
* Not include sentimental value, replacement value or goodwill
* May include offsetting severance damages from special benefit
73
Kelo case
Economic development can be public use
74
Hawaii Housing Authority v. Midkiff (ED)
A state may use the eminent domain process to take property that is heavily concentrated in the hands of a few private landowners and redistribute it among the general population of private individuals.
75
Berman v. Parker (ED)
Seizing title to real estate for the public purpose of preventing or eliminating slums is within Congress’s power of eminent domain if reasonably necessary to eliminate or prevent slums provided the owners receive just compensation.
76
Wayne v. Hathcock (ED) (eminent domain to private individuals)
Held: Transfer of condemned property to a private entity is allowed under the Michigan state constitution on the following bases:
1. “Public necessity of the extreme sort” that requires collective
action by government, generally highways, railroads and
instrumentalities of commerce;
2. Where the property remains subject to public oversight after
transfer to a private entity; or
3. Where the property is selected because of “facts of independent
significance” (e.g. public health and safety) rather that the interests
of the private entity.
77
The Categorical Rules (takings)
Categorical or per se rules offer “categorical” answers or “bright line rules” (is/isn’t a taking) based primary on one factor, not a consideration and balancing of several factors
78
Three tests for taking problems
1. Ad hoc Balancing Test (Penn Central) = default test
2. Categorical (Per Se) Tests
A. Permanent Physical Occupation (Loretto)
B. Total Taking (Lucas)
3. Exactions (Nollan/Dolan/Koontz): Unconstitutional Conditions Doctrine
79
Whole Parcel rule vs Conceptual Severance
• Whole parcel rule: impact of regulation = 5/100 = 5% of value of relevant
property interest
```
• Conceptual severance: impact of regulation = 100% of the value of relevant
property interest (the support estate which is subject of the regulation)
```
80
reciprocity of advantage rule
The average reciprocity of advantage rule maintains that there is a subset of benefit-conferring regulations that do not rise to the level of a compensatory taking: those that provide reciprocal benefits to the regulated parties.
81
Penn Central Factors
1. What is the economic impact of the regulation on the [present] use of the property at issue?
2. What is the extent of the regulation’s interference with the property owner’s distinct, reasonable, investment-backed expectations (DRIBE)? [future use]
3. What is the character of the government action?
82
DRIBE (takings)
1. Distinct expectations?
2. Reasonable expectations?
3. Backed by investment (that will now be unable to recoup)? (NB: neither purchase price nor “soft costs” count)
83
Categorical Rule: Permanent Physical Occupation
Loretto: If government regulation authorizes a permanent physical occupation by a 3P, then automatically a taking
Eliminated the right to exclude!
84
Categorical Rule: PPO
If gov forces owner to let third party install, that's a per se taking
If gov forces the owner to install himself, not a taking
85
If taking increases value
Maybe just nominal damages ($1)
86
Exactions
NOT a third categorical rule; treat separately from RT analysis
Per Lingle based upon “Unconstitutional Conditions
Doctrine”: Government cannot condition the provision of a discretionary benefit (e.g., a permit, license, grant, contract,
etc.) on the waiver of a constitutionally protected right.
ie. invalidated loyalty oaths for jobs
87
Categorical Rule: Total Taking
(Lucas)
If a law deprives a property owner of all economically beneficial or productive use of the land, it effects a taking.
Does it matter that the law’s purpose was to preserve the barrier island and protect property and people on the coast from events like
No – categorical rules look only at single factor – here, the effect of the
law on the economic and productive use of the property
88
“Exceptions” to the Total Takings Categorical Rule
No compensation required if “the logically antecedent inquiry into the nature of the owner’s estate shows that the proscribed use interests were not part of his title to begin with”
How do we know what’s not part of the title to begin with?
The limitation “must inhere in the title itself, in the restrictions that background principles of the state’s law of property and nuisance already place upon land ownership”
Logically-required exception, not a compromise.
89
Conceptual severance smart developer trick
How might a clever property developer maximize profit?
• Sell all the land EXCEPT the lots by the pond, then claim “total taking” of the 4 lots
• Florida Rock Industries v. Loveladies Harbor
90
Apply Conceptual Severance or Whole Parcel Rule?
Majority in Penn Central held “whole parcel rule” applies and some other later cases seem to confirm
• But uncertainty because of language in Lucas and Koontz
• And, some district courts and appellate courts have applied conceptual severance, e.g. Loveladies Harbor, but USSC has never reviewed and decided the issue directly
91
Exactions: Black Letter Law Test
In order to be an allowable exaction, must fulfill both elements:
1. Nature: There must be an essential nexus between the
exaction and the negative effects on public interest that
would be caused by the use (Nollan)
2. Extent: The exaction must be roughly proportional to the
project’s impact (Dolan)
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What are a government’s options if court finds its law is a regulatory taking?
1. Amend regulation so that it is not a taking and pay temporary takings damages
2. Withdraw the regulation and pay temporary takings damages
3. Make the regulation permanent, i.e. exercise its power of eminent domain, and pay permanent taking damages for the property interest(s) taken
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Temporary Taking Damages Rule
If the court does find that a regulatory taking has occurred, and the government withdraws the regulation, then the government owes damages for the time the unconstitutional law adversely affected the land = FMV of the use of the property interest during the takings period
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Special Warranty Deed
Usually contains all six deed covenants of title (can be modified to exclude one or more)
But grantor only warrants to defend the title based upon title defects caused by grantor’s own acts or omissions while she owned the property.
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Overview of Takings
```
•Eminent Domain
•Regulatory Takings
•Categorical rules
--Permanent Physical Occupation
--Total taking
•Ad hoc Balancing test
•Exactions: Unconstitutional Conditions Doctrine
```
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Road Map for (traditional) RT Analysis
1. Does the regulation pass substantive due process “rational basis” test?
--If no, then RT claim typically cannot proceed and landowner gets
injunctive relief
--If yes, consider if it could be challenged as a RT?
2. Does a categorical RT rule apply? Is there a credible argument that:
- -Permanent Physical Occupation by a 3rd party? If so, automatically a taking
- -Total Taking? If so, automatically a taking unless exception applies
3. If a categorical rule doesn’t apply or answer is unclear, apply ad hoc balancing test (Penn)
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Cedar Point Nursery v. Hassid
“Physical appropriation” = per se taking, but “regulation restricting use” is not a per se taking (and therefore is subject to ad hoc balancing test)
granting labor organizations a “right to take access” to an agricultural employer’s property to solicit support for unionization constitutes a per se physical taking.
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Right of redemption
The borrower can use it to reclaim the property for a certain time after the foreclosure sale. (equitable is before)
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Requirements for a valid deed
1. Statute of frauds (exceptions: Partial performance and Equitable estoppel) (signed)
2. Must state: Grantor’s name, Identify grantees: by name or other means
3. Contain words of conveyance
4. Description/identification of the land being conveyed
And maybe obvious, but the grantor must have legal capacity to convey and grantees must have capacity to receive
Rule: if deed does not include all required elements, it is void and cannot legally convey any interest
No consideration needed
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Estoppel by Deed Doctrine
If:
Grantor not own property interest at time of conveyance
Grantor delivers a warranty deed to purportedly convey the property interest to an innocent grantee (who does not know that grantor does not then own the land), and
Grantor later actually acquires title to the property interest
Then:
In equity, grantor is estopped to claim title superior to the grantee in the property interest
So, grantee owns the property interest
101
General Warranty Deed
All six covenants. Grantor will warrant and defend the title against the claims regarding title defects, including defects caused by prior owners.
102
Quitclaim Deed
By this deed the grantor “quits” (i.e. terminates or gives up) any right or claim to the property referenced in the deed
Includes no covenants of title
103
Valid Delivery Touchstone
Rule: grantor must manifest by words or actions an intent that the deed be immediately effective to transfer an interest in land (i.e. title) to the grantee
Generally any type of parol evidence, including conduct or statements made by the grantor before or after the alleged delivery, is admissible to prove her intent.
Words or actions can evidence the grantor’s intent
Intent must be to make immediately effective transfer of title
Relinquishing dominion and control over deed and property = evidence of intent.
Can be a future interest, so not necessarily right to immediate possession.
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Conditional Delivery to Grantee (and exceptions)
Must be immediate, no oral conditions, no conveyance dependence, no unmet condition EXCEPT:
Exception 1: Death Condition (“To grantee effective at my death”)
Majority: Delivery of a future interest (remainder in FSA) and Grantor retains present interest in life estate
Exception 2: Condition allowing grantor right to revoke (“To grantee, but grantor retains right to revoke grant”)
Majority: Delivery of present interest (FS C/S) and Grantor retains the RoE/PT
Formalistic justification
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Intentional Interference test (nuisance)
Intentional:
1. Acts to cause harm or
2. Knows the harm is resulting or substantially certain to result from conduct
106
Delivery to Third Party (unconditional)
Unconditional delivery of absolute grant to grantee’s agent is valid delivery to grantee (Caruso)
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Delivery to Third Party (conditional)
Sale Escrow/”True Escrow”
Conditional delivery of absolute deed to neutral 3P with written instructions regarding contract conditions = Valid delivery automatically occurs when the conditions are met.
But grantor retains title if conditions not met
Delivery of deed from escrow before conditions are met:
is ineffective (rogue escrow agent)
But if conflict between BFP against negligent grantor, then BFP wins
Equitable “relation back” doctrine re date of delivery:
When the conditions are fulfilled and physical delivery of the deed occurs, “if required to prevent injustice,” the date of delivery relates back to when the deed was initially deposited into escrow
108
Donative Transfer
(= no enforceable contract to convey the property)
Grantor gives deed “Blackacre to A in FSA when she marries” to Third Party for delivery to grantee
If condition not yet met, no delivery yet, so Grantor can retrieve the deed from Third Party
But if condition met and deed delivered, Grantor cannot retrieve
109
“Death Escrow” to a Third Party
If grantor has NOT retained control = “irrevocable death escrow” = valid delivery
If deed purports to convey FSA, interpret as inter-vivos gift that immediately conveys future interest (indefeasibly vested remainder in FSA) which becomes possessory at grantor’s death (who retains a life estate)
If grantor has retained sufficient control, then no delivery
E.g. if grantor instructs third party to give deed to grantee only if grantee survives grantor or third party is agent of grantor
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Transfer on Death Deed (elements)
Delivery is not required because deed has no legal effect until grantor dies
Usually require:
1. Contain essential elements of a reasonable deed
2. Written condition that title transfers at grantor’s death
3. Recorded before the grantor dies
Grantor retains normal ownership rights until death:
Can revoke at any time before death
Can sell or mortgage
If this property is not in estate at death, then no conveyance
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Facts to consider in analysis delivery of deed
1. Does a delivery presumption apply? Is it rebutted?
2. What did grantor do with the deed?
- -Put in a box
- -Gave to grantee
- -Gave to 3P
3. Was it an absolute deed or with condition? (written or oral)
4. Is there an applicable statute?
Remember the touchstone: Grantor must manifest by words or actions an intent that the deed be immediately effective to transfer title in land to the grantee.
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Deed Covenants of Title: Legal Issues Analysis
1. Which covenants of title does the deed include?
2. Are there any exceptions?
3. What constitutes a violation?
4. Are the covenants limited in scope? (possible defendants)
5. Who can sue? (possible plaintiffs)
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SIX COVENANTS IN DEEDS
Present:
Covenant of Seisin
Covenant of Right to Convey
Covenant Against Encumbrances
Future
Covenant of Warranty
Covenant of Quiet Enjoyment
Covenant of Future Assurances
114
Covenant of Seisin
Grantor owns the property interest (both type and quantity) that purports to convey
Breach: Not owning the type and amount of interest in the property purporting to convey
115
Covenant of Right to Convey
Grantor has the legal right to convey the property interest
Breach: Not having the legal right to convey, often overlaps with Covenant of Seisen
But can sometimes only breach this covenant
116
Covenant Against Encumbrances
No encumbrances
Role of buyer’s knowledge in obvious and visible encumbrances:
Majority rule: Covenant extends to all encumbrances even if known by buyer when accepted deed, unless deed language states otherwise (e.g. stated as an exception)
Minority rule: Presume buyer’s knowledge of “obvious and visible encumbrances” and that waived/took into account, so not a violation
Contrast this from rules whether easements violate warranty of marketability
117
Covenant of Warranty
Grantor promises to defend grantee against any lawful claim by someone with superior title made against grantee’s title and to compensate grantee for successful claim made against title.
Covers both complete loss of title and encumbrance on title
Breach: Someone with superior title actually or constructively evicts grantee, or grantee suffers some other damage by superior title exercising right
Remedy: Compensatory damages for value of lost property interest and attorneys’ fees for grantee’s unsuccessful defense of the title.
118
Covenant of Quiet Enjoyment
Grantor promises no one has superior title or interest in the property and so no one will lawfully interfere with grantees rights to property and possession
Breach: Someone with superior title disturbs grantee’s possession and enjoyment of the land, identical to CoW (just do one analysis for both)
119
Covenant of Future Assurances
Grantor promises to take whatever steps are reasonably necessary to perfect title and thereby protect grantee’s title
Usually to provide additional documents (e.g. reform deed, execute a release or a waiver)
Breach: Grantor fails to take reasonably necessary steps to “perfect” title and therefore protect grantee’s title
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Different rules re zoning ordinances (encumberance)
Existence alone is not encumbrance.
But, split on whether violation of zoning ordinance is an encumbrance
Some yes due to risk of litigation
Some no because only a risk and not a present lien or interest and may not be discoverable by title search of physical inspection
121
Who can sue on a breach of a present covenant
Majority rule: only the immediate grantee of this deed
| Minority rule: remote grantees (subsequent owners or successors in interest) can also sue
122
Remedies (breach of future covenants)
Usually compensatory damages for value of loss based upon defect, usually purchase price plus interest if total loss; otherwise proportional to loss
Damages for breach of most covenants (including seisen and right to convey) cannot exceed the purchase price paid by the grantee/plaintiff
Damages for breach of covenant against encumbrances, warranty and quiet enjoyment = amount necessary to remove defect (if possible) or loss of FMV of property caused by defect on the purchase date
Majority rule: Donee cannot recover damages against donor, even if warranty deed. Remember: most property rules intend to make workable market in land
123
Doctrine of Merger
Transition of governance of legal relationship of the parties by the contract for sale to stage governed by the deed
When buyer accepts the deed (usually at closing) the promises/covenants in contract for sale “merge” into the deed, and then buyer’s rights regarding title are largely determined by whatever type of deed has been delivered and accepted (and/or by their title insurance policy)
This doctrine assumes that when the deed is accepted, the parties have completed/settled all of their claims and obligations under the purchase and sale contract
Exceptions
Fraudulent deed
Collateral promises, i.e. not relating to title (e.g., that seller would repair roof before closing)
If exception would apply, plaintiff asks court to “set aside” deed so merger not apply.
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Exceptions to the SOF: Equitable Estoppel or Detrimental Reliance
Buyer must show:
(1) Evidence of an oral contract
(2) Buyer substantially changed position by doing reasonable/justifiable reliance
(3) Serious/irreparable injury will occur if not perform the contract
