Real Estate Transactions

Question 1

What five elements does the standard form for a seller broker contract and seller buyer contract contain?

Answer 1

Land

Parties

Interest being conveyed

Price

Signature*

Question 2

Open Listing

Answer 2

Broker receives commission only if the broker finds a buyer ready, willing, and able to buy on seller’s terms before anyone else does; Procuring cause – when a broker finds such a buyer

Question 3

Exclusive Listing

Answer 3

Broker entitled to a commission if she or another broker finds a buyer

Question 4

Exclusive right to sell

Answer 4

Promises broker a commission if property is sold even if seller finds a buyer

Question 5

Multiple listing service

Answer 5

• Brokers in an area pool their efforts by listing all properties for whom any of them has obtained a listing agreement
• Listing broker – original broker ordinarily obtains an exclusive right to sell; will share commission if another broker sells property

Question 6

How much is a broker’s commission generally?

Answer 6

5-8%

Question 7

When does a broker earn commission?

Majority Rule

&

Growing Minority (Elsworth Dobbs Rule)

When is commission usually due?

Answer 7

Majority rule
• Broker finds buyer – procures offer from a ready, willing, and able buyer on seller’s terms
• Issue: Places the risk of buyer not obtaining financing on seller once purchase K is signed
- Default by either buyer or seller: seller still owes the commission because broker completed duties
- Buyer normally makes a substantial down payment at K of sale, which can be used to pay broker if buyer defaults

Growing Minority – Elsworth Dobbs Rule
• Broker earns commission at closing
• Exception: if seller backs out unreasonably

Commission usually due at closing

Question 8

Fidicary duties:

Between broker and seller?

Between broker and buyer?

Transaction brokers?

Answer 8

Broker and seller: yes

Between broker and buyer: not usually..

• Many states now require brokers to disclose to buyers that they are working for the seller
• May be liable for failure to disclose known latent defects in the property that might have led buyer to decide to not buy

Transaction brokers: no

• Some states are experimenting with allowing brokers to represent neither seller nor buyer
• Working for competing parties with conflicting interests
• No fiduciary duty, but states impose some statutory duties

Question 9

What is a purchase agreement?

What are the two requirements?

Answer 9

Seller - Buyer contract

Requirements:

1. Description of the property
2. Agreement to buy at a certain price

Question 10

Besides the two requirements, what else might a purchase agreement include?

Answer 10

1. Condition of title
2. Burden of risk of loss
3. Form of deed
4. Warranties as to the premises
5. Warranties to title
6. Who will pay the taxes
7. Time of closing
8. Conditions and contingencies for the buyer
9. Collateral agreements – anything not real estate
10. Waiver of legal claims for any breaches

Question 11

Burden of Risk of Loss:

What is its function?

What is the CL rule?

What are states now doing?

Answer 11

• Example: house burns down between writing of purchase K and taking of possession
• CL rule: risk was on buyer because equitable buyer after purchase K
• Most states have enacted statutes to give risk of loss to seller until buyer takes possession

Question 12

Waiver of legal claims for any breaches

Answer 12

• Waiver and merger doctrine: when buyer accepts deed at closing, acts as waiver to any title defects under Purchase K that could have been raised prior to closing

Question 13

Conditions in Purchase Agreement

Answer 13

Parties may put conditions that allow them to get out of the K

Must act in good faith

Example: buyer gets financing; buyer is satisfied with results of inspection (survey of boundaries, physical inspection, title search)

Question 14

Definition of Title

Answer 14

Formal right of ownership of property

Question 15

• Marketable title: what does it ensure?

What are the exceptions?

What does it require in the buyer?

Answer 15

A marketable title is free from any reasonable doubts as to the validity of the title (no defects) and free from encumbrances, except:

• Ordinary utility easements servicing property
• Mortgages and liens repayable by seller at closing
• Mutual reciprocal servitudes for residential plots
• Zoning and gov regulations
• Requires buyer to accept some level of minimal risk due to reasonableness standard
• Good faith obligation to notify seller of title defects prior to closing and a reasonable extension of time for closing to cure defects UNLESS K has a “time is of the essence” clause

Question 16

Title Problems: Defects

Defective if conveyance was… (5 defects)

What can seller do to fill gaps?

Answer 16

• If prior conveyance was…

• Unrecorded
• Unsigned
• Without the requisite consent of a co-owner /
  spouse
• Induced by forgery
• Fraudulent

• Seller may produce affidavits or parol evidence to fill gaps

Question 17

Title Problems:

Title was based on Adverse Possession

Answer 17

• May be marketable if it could be clearly established
• Conklin v. Davi: court held this was marketable if it could be clearly established (outstanding claims could not succeed + no real likelihood that any claim would ever be asserted)

Question 18

Title Problems:

Portion of Title lost to Another, 3 Ways

Answer 18

• Adverse possession
• Foreclosure
• Eminent domain

Question 19

Title Problems:

Subject to encumbrances belonging to third parties

Six types

and Test

Answer 19

1. Easements
2. Covenants
3. Mortgages
4. Liens
5. Contract Rights
6. Options

•Test: Reasonable buyer would’ve been aware at time of k… visible?

Question 20

Six Possible Types of Title problems

Answer 20

1. Defects in chain of title
2. Based on adverse possession
3. Portion of title lost to another
4. Subject to encumbrances belonging to third parties
5. Landlocked without means of access to public roads
6. In violation of a zoning law or existing covenants

Question 21

Breach.

Seller has until (blank) to cure defects

Title is not rendered unmarketable until (blank)

Answer 21

• At date of closing – seller has until date of the closing to cure defects

Title is not rendered unmarketable until conveyance of title

Question 22

Two remedies to breach

Answer 22

• Buyer may rescind deal and recover deposit
• Buyer may bargain with seller to reduce price

Question 23

• Reasonable extension of time for closing to cure defects will be granted unless………

Answer 23

Contract says “time is of the essence”

Question 24

What is an “abstract of title”

Answer 24

When A’s lawyer goes to the courthouse and researches title for A, the abstract of title is the chain of title the lawyer found and conveys back to A.

Question 25

_Variations on contracts_ 1. Record Title 2. Insurable Title 3. Clause Waiving Objection to existing covenants

Answer 25

1. Record title – more certain than marketable title; ensures no gaps in chain of title 2. Insurable title – likely to be a lower standard; certain types of title defects often excluded from scope of coverage 3. Clause waiving objection to existing covs – generally does not cover a violation of a restriction

Question 26

Who is the risk of loss on in the purchase agreement? What is the modern trend?

Answer 26

Because the purchase agreement passes equitable title, buyer is assumed to be buying insurance and therefore the risk of loss is on the BUYER! • Modern trend shifts risk of loss is on seller

Question 27

Fixtures and Personal Property: How does the buyer secure them in the deed for the real property?

Answer 27

* Normally property transfers do not include personal property (readily removable) * Collateral agreement = if you want personal property to be part of the sales agreement, you list it in “other items”

Question 28

Who is the buyer in a loan/mortgage?

Answer 28

The Bank is the buyer. Bank obtains a lien on the property, usually in the form of a mortgage, which allows bank to foreclose on the property and have it sold and the proceeds used to pay off the debt if the borrower defaults

Question 29

True or False: A deed can effectively transfer personal property

Answer 29

TRUE Only issue would be whether deed was "delivered"

Question 30

Deed Waiver & Merger

Answer 30

Sales contract merges into deed at closing, so buyer cannot sue seller for breach of sales contract after accepting deed at closing Can still sue for title covenants in deed

Question 31

Delivery of deed to grantor’s agent. Effective? Why/Why Not?

Answer 31

NOT EFFECTIVE. Because authority to deliver may be revoked by grantor prior to effective delivery to grantee • Grantee OR grantor may die before effective delivery

Question 32

Delivery of Deed to grantee's agent. Effective?

Answer 32

YES EFFECTIVE

Question 33

Delivery of deed to escrow agent Death Escrow, what does it create The role of Gift Causa Mortis

Answer 33

-Irrevocable deed delivery to escrow agent constitutes effective delivery on date thereof when conditions specified for conveyance are later satisfied (even if grantee or grantor dies before terms for conveyance are satisfied – so long as the terms are satisfied) (death escrows typically are held valid). • **Death Escrow** – present gift of a future interest; Example: deed conveying interest to commence on death of grantor _creates a remainder in grantee subject to life estate in grantor_ * Signed deed is valid and irrevocable * Doctrine of gifts causa mortis does NOT apply to real prop – irrevocable even if made in contemplation of death

Question 34

When is the delivery for the following deeds effective? * 1. If conditioned in deed.... * 2. If oral condition “to commence at grantors death”..... * 3. If oral condition other than O’s death

Answer 34

• If conditioned in deed → effective when condition is fulfilled even if grantee or grantor dies before then • If oral condition “to commence at grantors death” → invalid - Attempted testamentary transfer must be by will • If oral condition other than O’s death → courts split - Valid but condition void (Statute of Frauds/Recording Acts) - Invalid (grantor’s intent/void condition voids gift) - Valid and condition valid