Real Estate Contracts - Equitable Conversion and Risk of Loss

Question 1

Who is responsible for damages to the property in the period between when the land sale contract merges with the deed?

Answer 1

Depends on jurisdiction.

In the majority of jurisdictions, the purchaser holds equitable title during the period between the execution of the contract and the closing and delivery of the deed. During this period:

1. The purchaser is responsible for any damages to the property;

AND

2. The seller, as holder of legal title, has the right to possess the property.

A minority of jurisdictions follow the Uniform Vendor and Purchaser Risk Act. This places the risk of loss on the seller until closing and the delivery of the deed.

Question 2

If property worth $100k, and we agree to a $50k as deposit for liquidated damages, and then B dies, and trustee of estate demands money back, but S says no and tries to enforce the deposit for liquidated damages, what is result?

Answer 2

Trustee wins, NOT BECAUSE B DIED, but because the $50k provision is not enforceable. Not enforceable because The amount fixed must be reasonable relative to either the anticipated loss (viewed as of the time the contract was signed) or to the actual loss (as determined by the passage of time).

unreasonable penalty = unenforceable, even if agreed upon by both parties.