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Property II > Real Estate Transactions > Flashcards

Real Estate Transactions Flashcards

1
Q

TX Property Code 5.021 requires that contracts for the sale of real property _______.

A

TX Property Code requires all contracts regarding the sale of real property to be in writing

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2
Q

In a contract for the sale of real property, to comply with SOF, there must be

A

1) A writing or writings (A series of writings or emails suffices)
2) That identify the buyer and seller (The grantee only has an equitable interest (if paid consideration) before the name is filled in.
3) Promise of the seller to sell and the buyer to buy
4) Physical property description
5) Price or formula for determining the price
6) Time for closing (If no time is expressed, a reasonable time will be inferred)
7) Signatures of the parties against whom it will be enforced (E-signatures work)

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3
Q

Exceptions to SOF

A

Equitable Estoppel OR Part Performance (TX) Jurisdictions use one or the other.

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4
Q

Exceptions to the SOF

Equitable Estoppel

A

Equitable Estoppel

a. Oral agreement is admitted to exist or is clearly proved; AND
b. One party has induced the other to substantially change position in justifiable reliance on an oral contract; AND
c. Serious or irreparable injury would result from refusing specific performance

Detrimental Change: Most courts require that the party seeking enforcement be obligated to sell current home or have no other options; if only out deposit then probably only restitution damages.

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5
Q

Exceptions to the SOF

Partial Performance (TX) A Buyer must:

A

Part Performance (TX ): (usually applied for buyer), generally limited and applies when

Buyer must:

a. Take possession of the property; AND
b. Pay all or part of the purchase price; (TX: entire purchase price must be paid.) AND
c. Make improvements, or if no improvements, have the presence of such facts that would make the transaction a fraud upon the purchaser if not enforced

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6
Q

The Executory Period is ___________.

A

The time between contract of sale and closing

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7
Q

When someone purchases land, they are getting ___________.

A

physical land AND title to the land

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8
Q

Title is _____________.

A

Title is the formal right of ownership of property, including the legal obligations

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9
Q

Marketable Title

A

There is an implied covenant that seller will deliver marketable title by the time of closing

Title is marketable if it is free from reasonable doubt such that a prudent person, with knowledge of all the facts and circumstances and their legal significance, would be willing to accept it.

The mere possibility of a defect that has no probable basis does equate to unmarketable title

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10
Q

Title is marketable if __________.

A

Title is marketable if it is free from reasonable doubt such that a prudent person, with knowledge of all the facts and circumstances and their legal significance, would be willing to accept it.

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11
Q

An insurable title is _________?

A

Insurable title is a title that the title insurance company is willing to take a risk on by issuing title insurance for

(NOTE: Marketable title is different from an insurable title)

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12
Q

What makes title unmarketable? (5)

A
  1. Land acquired by limitation title (adverse possession)
  2. Title that is subject to an outstanding oil & gas lease, fractional share of ownership in another, a lesser estate than contracted for (not the entire estate being promised)
  3. Encumbrances (covenants, easements, mortgages, judgment lien, tax lien)
  4. The chain of title must not create any reasonable uncertainty as to the quality of title
  5. Existing violations of zoning ordinances/land use regulations
  6. Zoning ordinance itself is not an encumbrance
  7. Purchaser takes title subject to all public regulations
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13
Q

Encumberances on marketable title

A

Encumbrances (covenants, easements, mortgages, judgment lien, tax lien)

A purchaser can take title subject to covenants & easements BUT a violation of a covenant render title unmarketable even if taking subject to the covenant

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14
Q

What creates reasonable uncertainty as to quality of title?

A

The chain of title must not create any reasonable uncertainty as to the quality of title:

  • Discrepancies with names
  • Discrepancies with property descriptions
  • Deed not properly signed or notarized but recorded
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15
Q

What impact do existing violations of zoning ordinances/land use regulations have on the sale process?

A

Existing violations of zoning ordinances/land use regulations make a title unmarketable.

  • Zoning ordinance itself is not a problem. Only an existing violation of.
  • Purchaser takes title subject to all public regulations

Exception: Visible Beneficial Easements –> it is assumed that the buyer’s offer has been made with reference to visible beneficial easements such as for utilities. Beneficial easements (including sewer easements) do not render title unmarketable

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16
Q

Consequence of an unmarketable title:

A

A prudent purchaser who discovers problems during the executory period can:

(1) have the defects fixed (to make title marketable) OR (2) can rescind the contract

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17
Q

EQUITABLE CONVERSION & RISK OF LOSS

By Common Law (Majority Rule), what happens when there is injury or destruction to the property during the sale process?

A

Common Law (majority rule): an injury or destruction to the property by fire, flood, hurricane, earthquake or other disaster after the date of the contract is irrelevant to the parties’ obligations. As the new owner, buyer bears the risk of loss.

(NOTE: TX has its own rule in the Property Code.)

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18
Q

Doctrine of Equitable Conversion

A

Once the contract is signed, the BUYER has equitable title and the SELLER is considered to have legal title. This ensures the seller has a claim for the sales price secured by a vendor’s lien on the land

Consequence: if property is damaged during the executory period, buyer still has to buy the property and pay the contract price. Seller is not obligated to restore the property to its prior condition.

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19
Q

Vender & Purchaser Risk Act & TX Property Code

A
  1. When (a) Seller retains both legal title and possession and (b) destruction was not through any fault of the buyer…seller may not enforce the contract and buyer can get earnest money back.
  2. When either legal title OR possession has transferred…seller may enforce the contract and buyer is not entitled to recover any portion of the price already paid
  • Scenarios: when seller allows buyer to take possession prior to closing OR seller rents from buyer after closing
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20
Q

SELLER’S DUTY TO DISCLOSE: Used Homes

(Old Common Law)

A

Common Law: seller had no duty to disclose, thereby leaving buyer with no remedy for defective property conditions whether discovered before or after closing

Law presumed a reasonable buyer would conduct a pre-purchase investigation and protect himself by negotiating for an express warranty or other terms in the contract

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21
Q

SELLER’S DUTY TO DISCLOSE: Used Homes

(Modern Rule)

A

Modern Rule (TX): Residential transactions impose a duty to disclose known facts that materially affect the value of the property (TX Property Code §5.008)

  1. A defect is material if a reasonable person would attach importance to it
  2. Latent defects are not readily discoverable by buyer

* Applies to single family residence (“sale of residential real property comprising not more than one dwelling unit“)

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22
Q

SELLER’S DUTY TO DISCLOSE: Used Homes

(Modern Rule)

Types of Defects

A

Latent material defects (always) = Electrical, lighting, appliances, flooring, roof, foundation, termites, plumbing

Legal defects (always) = Zoning violations, building code violations, other legal conditions that affect use or enjoyment such as easements and covenants

Off-site conditions (maybe) = Nearby toxic waste dump, airport, earthquake zone, nuclear power plant **Not required under §5.008**

Psychological impacts (not disclosed but can’t lie about it)._ If death relates to a condition of the property, it must be disclosed_ **Often governed by stigma statutes** (ex: Former resident with AIDS, murder, suicide, haunted house)

In some states, sellers are required to disclose about sex offenders in the area

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23
Q

DUTY TO DISCLOSE

(Used Homes)

Home Owner’s Association fees

A

Home Owner’s Association fees must be disclosed

TX property code § 5.012 provides requirements for disclosure of information regarding HOA’s

  • Subject to mandatory membership
  • Restrictive covenants
  • Dues payable
  • Amount of dues subject to change
  • Lien on property with foreclosure option
  • Must provide notice before contract or risk termination
  • If this notice is part of a sales contract or another notice, the purchaser’s signature on the notice may be omitted
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24
Q

DUTY TO DISCLOSE

(Used Homes)

HOA Fees Exception: No Duty to Disclose

A

Exception: No duty to disclose if transfer is:

  • A foreclosure sale
  • A deed in lieu of foreclosure (homeowner gives home to lender to avoid foreclosure)
  • By a mortgagee or beneficiary under a deed of trust who acquired the property via foreclosure sale
  • By a fiduciary administrating the deceased’s estate
  • From one co-owner to one or more co-owners (co-tenant buying out other co-tenant’s share)
  • New residence of not more than one dwelling unit which has not previously been occupied for residential purposes
    • Practically, buyer would want to get an option period and have an inspection to check for defects. But inspections don’t check for mold or pests!
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25
Q

Completed disclosure form pursuant to § 5.008 must be received ______

A
  • be provided to buyer before entering into the contract.
  • If received after the contract, buyer has the right to cancel the contract within 7 days of receipt of the form
  • A majority of other states have also adopted a statutory disclosure form
    • Lying amounts to material misrepresentation, giving the buyer a common law remedy
    • TX doesn’t include a section for noise but does ask whether a home was part of a lawsuit
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26
Q

DUTY TO DISCLOSE

Remedies for failing to disclose when there is a duty/fraudulent concealment/misrepresentation

A
  1. If undisclosed defect discovered during executory period –> rescind contract, return earnest money, interest, costs & fees
  2. If undisclosed defect discovered after executory period –> rescind contract, return purchase price with interest, damages, costs & fees
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27
Q

DUTY TO DISCLOSE

Causes of Action for Failure to Disclose

A

Causes of Action for Failure to Disclose

  • Common law fraud
  • Fraud in the real estate transaction (TX BUS & COM CODE)
  • Deceptive Trade Practices Act (DTPA)
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28
Q

NEW HOME WARRANTIES

Common Law

A
  • This is the modern rule. Originally, builder was protected by caveat emptor (buyer beware) no duty to disclose and even if the home was negligently constructed there was no liability unless an express warranty was provided
  • Seller/builder has a duty to disclose material latent defects but not via § 5.008 rules/forms
  • Implied warranties of habitability and good workmanship are included in the transaction (may be waived or changed in some circumstances) NOTE: These don’t exist in resale/used homes
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29
Q

NEW HOME WARRANTIES

Imlied Warranty of Habitability

A
  • Must provide a home that is safe for human habitation
  • Standards by which they are measured are uncertain
  • Protects average home buyer who lacks ability and expertise to discover latent defects of a new house. (This only covers latent defects.)
  • Can be waived only if a defect is disclosed to the buyer and the buyer specifically accepts the property with that defect. Waiver occurs only as to that issue – not a general waiver

EX: Well-constructed house on toxic waste dump, Well-constructed house over sinkhole

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30
Q

NEW HOME WARRANTIES

Implied Warranty of Good Workmanship

A
  • Minimal standards of care used in construction of new home
  • Standards by which they are measured are uncertain
  • Defines the level of performance expected when parties fail to make an express provision in their contract
  • **Cannot waive workmanship unless another standard of care is expressed in the contract. **(This is a gap filler)

EX: Inferior workmanship (not complying with building code) in poorly constructing pipes is substandard work but not unsafe for habitation; or Crooked house

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31
Q

Examples of

New Home Implied Warrranties overlapping (sometimes inferior workmanship can compromise the structure and cause home to be unsafe)

A

Poorly built chimney made home unsafe in that it caught on fire after first use of fireplace

Poorly built foundation makes home unsafe in that it could result in walls crumbling, ceilings caving in

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32
Q

Breach of New Home Implied Warranties of

Habitability and Good Workmanship

A

If there is a problem, buyers must give notice to the builder so that he/she may have an opportunity to remedy the problem (RCLA (Residential Construction Liability Act))

Breach: can bring a claim under Deceptive Trade Practices Act

Termination: Seller cannot choose to terminate the contract, but buyer might be able to (especially if he gets an option period)

  • Reason for treating buyers and sellers differently –> buyer is stuck with property and all the problems while seller just gets money and walks away
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33
Q

Breach of New Home Implied Warranties of

Habitability and Good Workmanship

When Buyer defaults, seller may seek

A
  1. Recission (equitable) and keep earnest money
  2. Specific performance (equitable)
  3. Retain the realty and file suit seeking damages
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34
Q

Breach of New Home Implied Warranties of

Habitability and Good Workmanship

When** Seller defaults,** Buyer may seek

A
  • Rescission & return of earnest money
  • Specific performance
  • Sue for breach of contract and damages
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35
Q

Compensatory Damages

A

Compensatory Damages

  • Award damages for the loss of bargain (majority rule & TX).
  • Purchase price under contract – fair market value at the time of breach = “loss of bargain”
    • Can consider the resale value only as evidence of FMV (it is not determinative)
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36
Q

BREACH

Special Damages

A

Special Damages (available in TX)

May be awarded if

  1. The damages were a natural and probable consequence of the breach AND
  2. The breaching party reasonably knew or should have known from the facts and circumstances that the damages would be incurred

​Note: Possession is factored into damage award and may lower damages

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37
Q

BREACH

Punitive Damages

A

Punitive Damages (available in TX)

May be awarded if

  1. The breach was in reckless disregard of the contractual obligations** OR**
  2. The breaching party intended to harm the non-breaching party

Note: Possession is factored into damage award and may lower damages

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38
Q

CLOSING

During the executory period, equitable title belongs to the _____ and legal title belongs to the ________.

A

During the executory period, equitable title belongs to the** Buyer** and legal title belongs to the Seller.

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39
Q

When the buyer accepts the deed at closing…

A

When the buyer accepts the deed at closing…

  1. Buyer is deemed to be satisfied that all contractual obligations have been met
  2. The promises in the contract merge into the deed
    • Physical obligations still exist after the deed is accepted
    • The terms included in the deed are what survive closing
  3. Legal title (the formal right of ownership and the evidence of such ownership) is transferred to grantee
  4. Covenants of title in the deed apply
    • Marketability of title no longer provides ground for recission
  5. Ends the executory period
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40
Q

At CLOSING, for title to transfer…

A

At CLOSING, for title to transfer…

  1. The deed must comply with the SOF
  2. There must also be a **proper execution, delivery & acceptance **
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41
Q

Requirements for a valid deed

(subject to SOF) (5)

A

Requirements for a valid deed (subject to SOF) (5)

  1. Writing
  2. That identifies the grantor and grantee
  3. Contains words of conveyance
  4. Provides an adequate physical description of the property
  5. Contains the signature of the grantor

*No requirement of consideration*

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42
Q

EXECUTION requires ________.

A

Execution requires the signature of the grantor. Without a valid signature, the deed is VOID and passes no title

Valid signature =

  1. Grantor signs
  2. Grantor gives grantee permission to sign
  3. Grantor gives some other person permission to sign
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43
Q

EXECUTION

Signature or the Grantor

Forgery & Fraud

A

Forgery: A signature made without the grantor’s consent. A forged deed is void, even as to a bona fide purchaser (Not Grantor’s signature = VOID)

**Fraud: ** An intentional perversion of the truth for the purpose of inducing another to part with some valuable thing belonging to him or to surrender a legal right

  • A deed obtained by fraud is voidable; a bona fide purchaser can prevail
  • Grantor’s signature, but Grantor did not intend to convey this much/is otherwise mistaken

EX: BFP prevails: grantor signs the document without reading it –> grantee sells to a BFP –> BFP keeps the land but grantor can bring a claim of fraud against grantee

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44
Q

The person claiming under the deed must prove the intent of the grantor to deliver title

A

This is a fact question!

  • In TX, recording a deed creates a rebuttable presumption that the grantor intended to convey the land
  • If the grantee has physical possession of the deed, a rebuttable presumption exists that delivery has occurred
  • These presumptions may be overcome by showing:
    • That fraud, accident or mistake accompanied the delivery or recording OR
    • That grantor had no intent of divesting himself of title (no delivery)
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45
Q

Conditional Delivery of a Deed in a Grantee

A

Majority view/TX: If there is an attempted conditional delivery in a grantee, the title is immediately transferred and the condition has no effect

Minority view: If there is an attempted conditional delivery in a grantee, there is no delivery and the title remains with the grantor

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46
Q

Conditional Delivery of a Deed in a Third Party

A

A conditional delivery to a third party is valid if:

  1. Grantor has an _intent to convey an interest NOW _AND
  2. It is not revocable

EX: Every regular real estate closing. The deed is delivered to the escrow agent at the title company with the verbal instruction/condition not to hand it over to the grantee until they comply with all terms of the contract, i.e. sign docs & pay money.

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47
Q

The Death Escrow -

A

When third party is instructed to deliver the deed to the grantee upon grantor’s death

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48
Q

**The Death Escrow **

Deed in a Box

A

Deed in a Box: Grantor executes a deed conveying property to a grantee and places it in a safe deposit box where it is discovered after grantor’s death. Here there is no delivery because grantor did not manifest any requisite intent to convey the interest

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49
Q

The Death Escrow

Deed in a Box with key

A

Deed in a Box with key: Grantor executes a deed conveying property to a grantee and places it in a safe deposit box. Grantor gives the only key to grantee.

Courts are likely to find that this was a proper delivery because by giving the key to grantee, grantor relinquished his ability to revoke

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50
Q

The Death Escrow

Close Relative

A

Courts are more likely to find delivery where the grantee is a close relative on the theory that the conveyance is consistent with prudent estate planning

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51
Q

A Grantee’s acceptance of a deed _______.

A

Grantee’s acceptance of a deed is presumed

  • A grantee can disclaim a conveyance within a reasonable time
  • If no acceptance then deed is VOID and passes no title
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52
Q

System of Title Assurance

A

System of title assurance =

  • Covenants of Title +
  • Public Record System/Title Search +
  • Recording Statues and the Priority System +
  • Title Commitment +
  • Title Insurance Policy
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53
Q

What are the impacts of the Recording System?

A

Impact of the recording system:

  • Clear rules promote alienability and economic efficiency while avoiding self-help
  • Makes it easy to establish the owner of land; allows for ownership & possession to be independent
  • Provides a repository for documents that might otherwise be lost
  • Protects certain purchasers and sometimes creditors against prior unrecorded interests
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54
Q

A Recording System search

by a prudent Buyer will reveal:

A

The search will reveal…

  • The history of all of the past owners of the land back to a certain point in time
  • All conveyances entered into by the various owners
  • Whether any other interests exist in this land

A prudent buyer should always conduct a search of the public records to check the state of title to the property!

55
Q

A search of public records should answer:

A

A search of public records should answer:

  1. WHO is the current owner AND
  2. WHAT do they own?
56
Q

What to search for in the public records

A
  • Search the deed indexes looking for deeds with the same property description
  • Search for deeds of trust, mechanics liens, easements, covenants, any adverse conveyances
  • May need to search other records as well: probate court filings, judgments in district and county courts, family court records
57
Q

Steps in Conducting a title search

using Title Search Indexes

A

: Searching back in time using the Grantee index

Searching forward in time with the Grantor Index

Use the information from the index to pull the recorded documents

58
Q

STEP 1:

Searching back in time using

the Grantee index

A
  1. As the purchaser, begin by searching the grantee index starting with your grantor/seller in the current transaction.
  2. You need to find the deed that your seller received when he took title to the property (when seller was the grantee)
  3. When you find that entry in the index, it will also tell you the name of the grantor in that transaction
  4. You will need to then take the name of the grantor in that transaction and look in the grantee index to find when that person received title to the land.
  5. You will continue this process until you have searched back in time for a sufficient number of years.
  6. Most residential transactions in TX will search back 40 to 50 years. (Anything beyond this has probably been taken care of by SOL, adverse possession, etc.)
59
Q

STEP 2:

Searching forward in time with

the Grantor Index

A

After going back, the buyer will then begin searching from that point forward in the GRANTOR indexes looking for any adverse conveyances by each grantor and making sure each part of the chain of title links up.

The search is conducted using each grantor’s name

  1. from the date the grantor is shown to have received the interest (date of the instrument)
  2. until the date the next person recorded (not necessarily the date of the instrument).

Follow this process through the present date with present grantor’s name.

60
Q

STEP 3:

Use the information from the index

to pull the recorded documents

A

STEP 3: Use the information from the index to pull the recorded documents

  • Can’t rely solely on the indexes because buyer is charged with knowledge of public documents
  • If the searcher finds adverse conveyances by the grantor, the process will also need to include searching for documentation indicating whether the adverse conveyance has terminated (if possible) or still remains on the title.
61
Q

Recording Statutes and the Priority System

General Rule is: _________________

A

RULE: FIRST IN TIME, FIRST IN RIGHT PREVAILS

A person cannot convey more than what they have
There are some limited exceptions to the first in time rule

62
Q

Recording Statutes and the Priority System

Exceptions to the General Rule

A

C/L => Equitable interest (1st in time) vs. Bona fide purchaser (2nd in time) = BFP wins

C/L => Estoppel of 1st in time by bona fide purchaser (2nd in time) = BFP wins

Statutory => Recording statute vs. BFP/GFC = BFP/GFC wins

Note: A GFC MUST rely on a recording statute because the other two exceptions only apply to BFPs!

63
Q

Recording Statutes and the Priority System

Exceptions to the General Rule:

C/L => Equitable interest (1st in time) vs.

Bona fide purchaser (2nd in time) = _____ wins

A

**BFP Wins. **Equitable interests cannot be enforced against a subsequent BFP (“a subsequent good faith purchaser for value”)
Equitable interests =

  1. Purchasers on a contract
  2. Beneficiaries of a trust (declared trust, constructive trust, resulting trust)
  3. Those holding a benefit of a restrictive covenant
  4. Mortgagees (majority/TX) – If mortgage is title jurisdiction à legal interest
  5. Rights arising by estoppel (easement by estoppel)
  6. Possibly holders of an implied easement
64
Q

Recording Statutes and the Priority System

Exceptions to the General Rule:

C/L => Estoppel of 1st in time by bona fide purchaser (2nd in time) = ____ wins

A

BFP Wins

If the person first in time has by words or conduct given the appearance that the state of title was different than what it really is, a BFP will be able to estop the person first in time from asserting their priority

65
Q

Recording Statutes and the Priority System

Exceptions to the General Rule:

Statutory => Recording statute vs. BFP/GFC = __ wins

A

BFP/GFC Wins

  • If there is a document that is required to be recorded but isn’t, the person first in time may lose their priority
  • Depends on jurisdiction (race, notice, race-notice)
66
Q

Title Assurance allows buyers to protect themselves from _____________.

A

Title Assurance allows buyers to protect themselves from getting a bad title,

  • usually through the use of a Recording System.
  • Deed covenants are a form of title assurance as a cause of action, but the recording system allows diligent buyers to do their homework before they pay.
67
Q

Chain of Title

A

Chain of Title: the recorded sequence of transactions by which title has passed from a sovereign to the present claimant

68
Q

Recording System Indexes

A

All information about a title (that is recorded) is kept at one location.

Purpose:

1) To try and prevent confusion and litigation on deeds by providing constructive notice to the world, &
2) Recording Statutes, to grant incentives to individuals to comply with the statutes in order to assure that their interest is not lost.

69
Q

Recording System Indexes

Tract Index:

A

Tract Index: rarely used; each piece of land has a unique I.D. # so that all documents related to that land are organized together.

* Tract Indexes would help avoid many notice problems with G/G indexes.

Grantor/Grantee Index: (Majority/TX)

                    - Two separate indexes are each organized by the last name of the grantor or grantee.
70
Q

Recording System Indexes

A

Grantor/Grantee Index: (Majority/TX) Two separate indexes are each organized by the last name of the grantor or grantee. (Must perform two separate title searches to find the Root of Title.)

1) Grantee Index: search backwards in time for the most recent grantee, then search until we find when their grantor got title.
2) Pull the actual deed to see what interest was conveyed, execution date, and whether or not the interest was conveyed to any others.

* Repeat for grantees until Root of Title is found (D/F is 60 years, depends on jurisdiction)

3) Grantor Index: search forward in time from our grantor’s grantor until we find our grantor. Then we can drop his grantor’s name, and only search our guy to present date until a complete Chain of Title is made.

71
Q

Recording Statutes require

A

Recording Statutes require deeds to be recorded, inter alia, in order to legally assert superior title.

Effects:

  1. Validity of Deed: Recording Statutes do not usually affect the validity of deeds.
  2. Common Law Winner: Recording Statutes provide that a subsequent bona fide purchaser is protected against prior unrecorded interests.
72
Q

Recording Statute Attacks

A

Analysis: First, draw out ALL conveyances with execution and recording dates.

  1. Who is the CL (first-in-time) winner? –> First EXECUTED in the CHAIN of TITLE.
  2. Jurisdiction Rule
  3. Who is trying to change CL result?—> “attacker is trying to change CL result”
  4. Multiple Prongs- begin with the top conveyances, do most recent LAST.
  5. Re-attack will usually happen after Sheltered party’s sheltered deed attacked; then the will use their own to re-attack.
73
Q

Pure Race Jurisdiction

A

Pure Race Jurisdiction: Successful attacker must show

1) Subsequent Deed (deed was EXECUTED after)
2) Purchaser- deed paid for, NOT gift (hence most deeds recite some consideration)
3) 1st to Record

74
Q

Pure Notice Jurisdiction (TX)

A

**Pure Notice Jurisdiction (TX): **Successful attacker must show—

  1. Subsequent Deed (deed was EXECUTED after)
  2. Purchaser- deed paid for, not gift (hence most deeds recite some consideration)
  3. Attacker was W/O Notice of Prior Deed: –> Attacker must show they were w/o:
    1. Actual Notice- actual subjective awareness of previous deeds even if they are not recorded (pure fact Q)
    2. Inquiry Notice- if the purchaser had gone out to the land in question, would they have learned about a prior conveyance or would they have become suspicious (MUST inspect land) –> Analysis: would anything about property Condition raise questions such that a reasonable would be suspicious.
    3. Constructive Notice- if purchaser HAD DONE title search, would they have learned about the other deed. –> Was the other deed UNRECORDED on the date the attackers deed was executed OR Recorded and OUTSIDE Title Chain?
75
Q

Race-Notice Jurisdiction

A

Race-Notice Jurisdiction –> Successful attacker must show—

  1. Subsequent Deed (deed was EXECUTED after)
  2. Purchaser- deed paid for, not gift (hence most deeds recite some consideration)
  3. 1st to Record
  4. Attacker was W/O Notice of Prior Deed: (* SAME as Pure Notice Requirement)
76
Q

Constructive Notice Rules/Exceptions

Notice Jurisdictions Title Search Depth:

A
  • Majority: the attacker must search backward in grantee index until “root of title found” (the conveyance where chain of title started). Then search forward in grantor index starting with the root until their grantor is found, and they can drop grantor’s when new are found.
    • Wild Deeds (outside chain of title) do NOT give constructive notice; usually original conveyor gives to multiple people; and the prior executed deed is recorded after subsequent deed executed.
  • ** Minority**: attacker/purchaser must expand title search to include all conveyances made by their grantor’s conveyor.
    • Constructive Notice will exist if the remote grantor re-conveyed the property b/c the attacker/purchaser should have (would have) seen during title search. (*bad policy)
77
Q

Constructive Notice Rules/Exceptions

Mother Hubbard Clause

A

Mother Hubbard Clause: omnibus clause in deed that references “all land in location/all other land” owned by the grantor.

  • Valid to transfer rights between two original parties
  • Does NOT provide constructive notice to later purchasers.

*Policy: not fair to subsequent purchasers; subsequent purchaser would be expected to look at every deed made by the grantor ever to make sure no Mother Hubbard clause was ever made.

Luthi v. Evans: “Kufahl”

78
Q

Shelter Rule

A

Shelter Rule: once a party locks in priority as a BFP, subsequent purchasers from that party will still have priority, no matter how much notice they had of a prior interest.

When someone CAN mount a successful recording statute attack on prior parties; they can pass title to subsequent grantees, who are sheltered from prior parties.

Caveat: BUT sheltered party is not protected from future attacks by subsequent purchasers/grantees UNLESS they record.

** Re-Attack: the most subsequent purchaser can always re-attack; and the sheltered party can re-attack after sheltered conveyance attacked.

79
Q

Hughes Rule

A

Hughes Rule: when deed is given, grantee has implied authority to fill in their name; but the deed is NOT valid until the name is filled in.

Ex: Board of Education v. Hughes: Hughes given deed w/o name, then mounted recording statute attack; court allowed it b/c Hughes had implied authority to put his name on the deed.

80
Q

Estoppel by Deed

(Common Law)

A

Estoppel by Deed: (Common Law) a deed executed before the grantor has true ownership passes automatically when the grantor becomes the T.O.

  • Only applies to COMMON LAW result.
  • *SPOT: Use to determine CL Winner, & should be RED FLAG for a potential chain of title problem –> Constructive Notice?
81
Q

Inter vivos transfers between a buyer and seller

Timeline

A

1) Negotiations (price, closing date)
2) Purchase Agreement- creates obligations but title has NOT transferred.
3) Executory Period- buyer can get inspection, secure financing etc.
4) Closing- transaction completed; title to property transfers via deed (formal written document).

82
Q

Remedies for Breach of Purchase Agreement:

Breach during executory period

                    Why would a party breach?
A

Why would a party breach? Market can change/appeal of deal can become bad for either.

  • Falling Market: buyer might breach to try and get a better deal elsewhere.
  • Rising Market: seller might breach to try and get more $.
83
Q

Remedies for Breach of Purchase Agreement

Rescission

A

Rescission: Most common remedy especially when no change in FMV because no one loses much; both parties get walk, the K no longer exists.

  1. When allowed? Rescission doesn’t ripen until closing date, either party has until then to tender performance.
    • Buyer breach: seller can sell to another party.
    • Seller breach: buyer can recover partial payments made and walk way..
  2. Attempted rescission prior to closing is breach
84
Q

Remedies for Breach of Purchase Agreement

Specific Performance

A

Specific Performance: Property law sometimes allows b/c all land is unique, and damages are seen as insufficient.

  • Seller Breach: most common; b/c of uniqueness courts will force sale.
  • Buyer Breach: courts rarely force purchase; only when the seller cannot still sell the property at a commercially reasonable price will it be allowed.
85
Q

Seller Breaches Duty to Deliver Marketable Title

Buyer Options:

A

Buyer Options: always has the option to walk (best in flat market).

What if FMV of property has risen since K signed and period between where defect in title found?

Minority Rule: allows buyer benefit of bargain, title minus value of defects on the property.

Majority Rule (English Rule)(TX): the buyer is limited to rescission of the K, unless, as a matter of good policy, the breach was intentional.

86
Q

Deed Requirements

Delivery

A

Delivery (Big D)— required for deed to be operative

  1. Intent: requires the irrevocable intent to transfer property rights NOW;
  2. Delivery (small d): Delivery requires some act that the court can point to that constitutes a handing over of the deed.
  3. Acceptance: presumed, unless absolutely rejected by the grantee.
87
Q

Deed Requirements

Delivery

INTENT

A

** Intent:** requires the irrevocable intent to transfer property rights NOW;

  1. Future Interest can be transferred (Gruen)
  2. Rosengrant Rule: when the grantor has the ability to revoke the deed at any time; intent is NOT met. (ex. both names on envelope at bank)
  3. Deed can show intent.
  4. Gift— intent will usually be a JURY question
88
Q

Deed Requirements

Delivery

DELIVERY

A

Delivery (small d): Delivery requires some act that the court can point to that constitutes a handing over of the deed.

  1. Sweeny Rule: Grantor must have departed with possession of the deed at some point; but it can come back to them or be destroyed and be valid.
  2. Deed can be placed in hands of 3rd party
    • cannot just show the deed and make an oral promise
    • cannot be “ripped” from the grantor’s hands.
89
Q

Conditional Deeds Delivery

A

Conditional Deeds Delivery:

  1. Condition Written In Deed:
    • normal delivery requirements,
    • intent can be ascertained from deed language
  2. Oral Condition:
    • MUST be delivered to 3rd party.
    • Parole Evidence = inadmissible when given directly to grantee, only allowed when 3rd party holder.
90
Q

Doctrine of Merger

A

Doctrine of Merger: after DELIVERY OF DEED; the implied duty to deliver marketable title is GONE, and the buyer can ONLY rely on Deed covenants for title promises.

  • Effect: not ALL deeds have title promises, thus, buyer can have limited recourse.
    • Ex: Violation of Zoning regulations is breach of the duty to deliver marketable title but NOT a breach of deed covenants.
  • Applicability: ONLY applies to duty to deliver marketable title; does NOT apply to condition duties.
    • Remedy: buyer can get damages against seller for condition breach but CANNOT rescind, just cost to rectify.
91
Q

Types of Deeds

A

General Warranty Deed

Special Warranty Deed

Quitclaim Deed

92
Q

General Warranty Deed

A

General Warranty Deed:

  • full guarantee of the title that is represented;
  • usually contains six covenants concerning title, which promise that the title is absolutely free of the warranted defect.
  • Magic Words: “Grants, sells, and conveys” “warrant and forever defend” (no exceptions)
  • Contains covenants of title that warrant against any defect in the title, whether caused by the grantor in this transaction or some prior grantor

GWD is often required by lenders

“Against every person” –> applies to everyone, not just Grantor

93
Q

Special Warranty Deed

A

Special Warranty Deed:

  • contains all of the covenants of a general warranty, SWD only protects grantees from defects in title that arise AFTER the grantee enters the chain of title; not those that arose before.
  • Affords no protection against acts or omissions of third parties
    Any covenants of title only apply to defects caused by the acts or omissions of the grantor
  • Grantor’s Fault? -> This will be a fact question/jury question.
  • Magic Words: “warrant and forever defend…claims by, through, or under Grantor but not otherwise.”
  • “Grants, sells, and conveys” –> these words put promises into the document
  • “By and through or under Grantor” –> Grantor’s fault = Express Covenant of Special Warranty

May be ideal if grantor is the only owner/has owned the property for a long time

94
Q

Quitclaim Deed

A

Quitclaim Deed: No protection – hated in TX

  • contains NO covenants/warranties of title whatsoever,
  • Merely conveys whatever right, title or interest the grantor may have in the property
  • Grantor not liable for ANY defect in title.
  • Grantor is not promising that he owns the property or that if he has title that it is good title
  • Magic Words: “Quitclaim”; “Whatever rights I have I am giving to you.” “Grantor quitclaims to Grantee all of Grantor’s right, title & interest” (Language contains no warranties or representations as to what grantee is getting)

May be helpful…

If grantor wants to get rid of the property but does not know what he has
To take care of marketable title issues

95
Q

Deed Covenants

A

Split between present and future covenants; & only exist in GWD and SWD.

Present Covenants: all three give rise to one cause of action;

  • Accrual: UPON delivery.
  • Expiration: SOL starts ticking as soon as delivered.
  • “I’m giving you good title now, I can convey, no encumbrances except those that are EXCEPTED in the deed.”

Future Covenants: all three give rise to one cause of action;

  • Accrual: UPON actual interference (usually Quiet Title action)
  • Expiration: SOL begins running on actual interference.
  • “If anyone messes with you I am liable.”

​​Exceptions: when the grantor “excepted” the specific covenant in the deed or “excepted” a certain servitude etc.

96
Q

TX Form General Warranty Deed includes what covenants

A
  1. Implied covenant of no prior conveyances
  2. Implied covenant against encumbrances
  3. Express covenant of general warranty
97
Q

Covenant of Seisin

A

Present Covenant

I own what I’m conveying to you

98
Q

Right to Convey

A

Present

I have the right/power to convey to you (Trust)

99
Q

**Covenant **Against Encumbrances

A

Present covenant

I promise there are no encumbrances on the property

*Encumbrances include liens, easements, and covenants*

*During executory period –> violation of ordinance or regulation is ground for recission based on marketability of title

*After closing –> cannot rescind (legal obligations have shifted)

100
Q

Covenant of No Prior Conveyances (TX)

A

Present Covenant

I promise I have not conveyed the estate or any interest in the estate to anyone other than you

101
Q

Warranty or Quiet Enjoyment

A

*Only warrants quality, not quantity*

Future

I will defend your title against lawful claims and I will pay for losses suffered

102
Q

Covenant of Further Assurances

A

Future

I will execute any documents to make you secure in your title

103
Q

Warranty of Quantity

A

(not a standard covenant)

“warrants and defends that Mr. Dickens is receiving 99 acres”[1]

Present

Protects buyer if he ends up getting a smaller quantity than he was supposed to

[1] The words “more or less” would defeat warranty of quantity

104
Q

Future covenants are breached only when

A

Future covenants are breached only when the buyer/grantee is actually disturbed by one with paramount title, an event termed an eviction (can be constructive)

SOL begins from date of eviction

These run with the land, so a remote grantee can sue within the limitations period

105
Q

An eviction is

A

Eviction:

(1) an assertion of superior title[1] AND
(2) a yielding thereto

[1] Assertion must be by one who in fact has superior title

106
Q

The following do NOT constitute an eviction:

A
  1. Mere knowledge of a holder of superior title. No one has yet interfered with the grantee’s possession.
  2. A voluntary yielding to someone with superior title that is unasserted EX: If T abandons Blackacre once he finds out about M (who has superior title) à no eviction
  3. Standing your ground
  4. Purchase of an outstanding title when that title is not asserted
107
Q

What is an ouster in pais

A

A Constructive Eviction

The holder of superior title has the right to obtain possession and if that right is asserted and the covenantee may anticipate its actual exercise and surrenders possession as a result

108
Q

Eviction or no eviction:

M sends a letter to T stating that M is the true owner of Blackacre and he is going to sue T, so T leaves.

A

This is an eviction as long M is really the true owner.

Covenantee leaves after receiving a letter threatening suit a from holder of superior title = eviction

109
Q

Eviction or no eviction:

Covenantee leaves in response to holder of superior title filing suit

A

Covenantee leaves in response to holder of superior title filing suit = EVICTION

Covenantee must prove that the other party did in fact have superior title in order to establish breach of warranty

110
Q

Eviction or no eviction:

Purchase by a covenantee of an outstanding paramount title, when that title is actually and hostilely asserted

A

Purchase by a covenantee of an outstanding paramount title, when that title is actually and hostilely asserted = EVICTION

111
Q

Eviction or no eviction:

Court judgment against a covenantee

A

Court judgment against a covenantee does not require a yielding – it is automatically a constructive eviction

Once judgment is entered regarding the trespass to try title action, the breach of the covenant of warranty has occurred and SOL starts to run

112
Q

Eviction or no eviction:

Foreclosure sale

A

Foreclosure sale = constructive eviction

113
Q

The covenant of quiet enjoyment/warranty is immediately broken if

A

If covenantee cannot obtain possession because someone with paramount title is already in possession

114
Q

For covenants, when does the breach occur and statute of limitations begin to run?

A

Present covenants are breached at the time the deed is transferred **–> **SOL runs immediately

Future covenants are breached once there is an eviction **–> **SOL doesn’t run until eviction happens

TX SOL is 4 years from day of breach

115
Q

Express Covenants included in the deed

A

Express Covenants => Covenants not implied by law must be expressly included in the deed.

Quitclaim = none

Special Warranty (form) = covenant of special warranty

General Warranty (form) = covenant of general warranty

116
Q

Implied Covenants in a deed

A

Implied Covenants

No covenants are implied by common law – they come from statute

TX Property Code § 5.023: “grant” or “convey” creates:

  1. Covenant of no prior conveyances
  2. Covenant against encumbrances
117
Q

Note on Timing and Consideration

A

Note on timing of consideration and notice:

In a situation where the buyer is making some payments, gets notice of a prior interest, and then continues making payments in order to acquire legal title, the court will most likely find that the buyer took title to the property with notice of the prior interest. This defeats BFP status.

118
Q

Bona Fide Purchaser

A

**This CAN be a bank or lender **

Requirements:

  • In good faith
  • No actual, inquiry, or constructive notice of a prior interest at the time the subsequent interest is acquired
  • For consideration, not a donee – must acquire interest for good and valuable consideration (a bargained for exchange). A mortgagor gives purchase $ in exchange for title, therefore is a BFP

Exchanged consideration at the time of acquiring the interest in the land (purchase money, vendor’s lien, DOT, mortgage)

Receives more protection because the injury that results from the payment of money that creates the equity supporting giving preference to the innocent party that paid money over the first-in-time negligent party

119
Q

In TX, possession that gives notice is:

A

(1) open, visible, and unequivocal acts of occupancy
(2) that indicate exclusive dominion over the property (this is like adverse possession)

*Possession that is ambiguous or appears subservient to the holder of legal title is not sufficient to trigger a duty to inquire and will not impute notice*

120
Q

Issues that could impact constructive record notice:

A

Issues with timing:

  • Wild deed (the recorded deed is disconnected from the chain of title)
  • Recording too late (no constructive notice in TX)
  • Recording too early

Issues with indexing:

  • Improperly recorded deed (defective, doesn’t comply with statute) –> When a deed is actually recorded but not properly recorded, there is no constructive notice.
121
Q

Impact of a Quitclaim Deed

A

Impact of a Quitclaim Deed

  • *TX:** A person taking a quitclaim deed does not act in good faith as a matter of law – TX HATES QUITCLAIM DEEDS
  • *Minority**: A quitclaim deed in the chain of title puts the purchaser on inquiry notice, requiring them to conduct a reasonable investigation. However, the purchaser might still qualify as a BFP if the investigation does not reveal any prior interest. – “You better inquire!”
  • *Majority**: Quitclaim deed is treated liked any other deed – “Whatever”

Note: it matters what the quitclaim is being used for and when it appears in the chain of title

122
Q

A Bona Fide Purchaser (BFP) means

A

Bona Fide Purchaser

  • In good faith
  • No actual, inquiry, or constructive notice of a prior interest at the time the subsequent interest is acquired
  • For consideration, not a donee – must acquire interest for good and valuable consideration (a bargained for exchange)

IN GOOD FAITH

  • Any forgery in the chain of title defeats good faith (even if the purchaser is unaware of the forgery)
  • A low amount of consideration may be evidence of the absence of good faith
  • A quitclaim deed in the chain of title may impact (depends on jurisdiction)
123
Q

Good Faith Creditor

A

GFC = a person or entity who takes an interest in the property

(1) in good faith and
(2) without notice of any prior interest.

The difference comes in the consideration.

124
Q

A deed is properly recorded when…

A

(5) A deed is properly recorded when… SOF, acknowledged, timely, proper sequence, county

  1. Deed complies with SOF
  2. Deed is acknowledged (grantor swears that he is who he says he is)
  3. Timely recorded
  4. Deed is recorded in the proper sequence (NOT a wild deed)
  5. Must be recorded in the proper county
125
Q

In TX, what must be recorded?

A

(D DOT Mortgage, easements leases CODs, abstract liens)

  • Deeds
  • Deeds of trust
  • Mortgages
  • Express easement agreements
  • Leases longer than one year
  • Contract for deed
  • Abstract of judgment
  • Home equity lien, mechanic’s lien, extension of a mortgage or DOT lien
126
Q

Race Jurisdiction

A

Consideration – purchaser or creditor (depends on statute)

Must properly record first

Lack of good faith or actual knowledge is irrelevant

States: LA, NC

RULE: Person who wins the race to record wins!

Even a subsequent purchaser with actual knowledge of the prior interest!

127
Q

Race Notice Jurisdiction

A

Consideration – purchaser or creditor (depends on statute)

Must properly record first

Good faith/no notice of any kind

States: Half (CA, GA, MI, NJ, NM)

A subsequent purchaser is protected against a prior unrecorded instrument only if the subsequent purchaser:

  1. is without notice of the prior instrument
  2. records before the prior instrument is recorded
128
Q

Notice Jurisdiction

A

TEXAS

Consideration – purchaser or creditor (depends on statute).

**TX includes GFC & BFP!!**

** Good faith/no notice of any kind**

States: Half (TX, IL, MA, VA, FL)

A subsequent purchaser can prevail only if the subsequent purchaser has no notice of the prior unrecorded instrument. A BFP still wants to record to prevent future BFPs

129
Q

Equitable Interests

A

Equitable interests

  • Purchasers on a contract
  • Beneficiaries of a trust (declared trust, constructive trust, resulting trust)
  • Those holding a benefit of a restrictive covenant
  • Mortgagees (majority/TX) – If mortgage is title jurisdiction –> legal interest
  • Rights arising by estoppel (easement by estoppel)
  • Possibly holders of an implied easement (Disagreement)
130
Q

Damages for Breach of Covenant Against Encumbrances

A
  1. The amount it takes to eliminate the encumbrance OR
  2. If the encumbrance cannot be removed, the diminished FMV as a result of the presence of the encumbrance

**Note: You can also obtain injunctive relief to postpone a foreclosure proceeding in order to give covenantor a chance to pay off the encumbrance (lien)**

131
Q

Damages for Breach of

Covenant of Seisin

Right to Convey

No Prior Conveyances

Warranty & Quiet Enjoyment

A

If there is a partial or complete failure of title, grantee recovers…

  1. Value of the land at the time of eviction, taking into account appreciation and depreciation OR
  2. Value of the land plus improvements OR
  3. Purchase price plus interest (Majority view + TX)

*Depends on jurisdiction* and who you are suing

Purchase Price => Grantor is only liable in actual damages for the purchase price the grantor received when making the warranties. Technically, this means that grantee can receive more than what she paid (if suing a remote grantor – breach of a future covenant)

EX: B sells to T for $50k. T sells to R for $80k using quitclaim deed. R can sue B but B is only liable for $50k. If T sells to L for $110k and L sells to R for $80k, R can sue T and recover $110k.

132
Q

Other Recoverable Damages:

GrantEE in possession

A

SPLIT IN AUTHORITY

(1) Can only recover the amount of interest and taxes in excess of fair rental value during time of possession (TX)
(2) Can recover full amount of interest and taxes paid on the property

133
Q

Other Recoverable Damages:

GrantEE not in possession

A

Can recover full amount of interest and taxes paid on the property

134
Q

Other Recoverable Damages in Breach of Covenants

A

Other Recoverable Damages

  • Attorney’s fees and costs –> costs and attorney’s fees the grantee incurs in defending an eviction suit against a lawful title are recoverable from the grantor
  • Improvements to the Property –> If improvements are made in good faith, grantee can recover the enhanced value of the land as a result of the improvements

This is recovered from the person awarded possession (Majority view + TX)

Other Rules

  • No duty to mitigate damages in order to recover
  • Knowledge of an encumbrance does not prevent your ability to bring a claim but can impact the award of damages

Note: If covenantee ends up paying for nothing and has no recourse through covenants of title, he may be able to use theory of unjust enrichment against seller

Property II (7 decks)

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