Real Estate Transactions Part V: Deed Warranties (cont’d), Title Insurance, Closing

Question 1

What is title insurance? (Barros)

Answer 1

Insurance companies will issue policies that cover the insured against title risk. Policy holders typically pay a one-time premium at the time of closing. In return, the insurance company agrees to pay litigation costs and cover losses that result from title problems. (453)

Question 2

What is a policy insuring a lender commonly called? (Barros)

Answer 2

Either a loan policy or a lender policy. (454)

Question 3

What is a policy insuring an owner commonly called? (Barros)

Answer 3

An owner policy. (454)

Question 4

What are some advantages title insurance has over other title assurances? (Barros)

Answer 4

Making a claim on an insurance policy is much easier than, say, trying to recover against the grantor of the property under a general warranty deed. Another related advantage is that title insurance has relatively low counterparty risk compared to other methods of title assurance. Additionally, title insurance has the credit of the insurance company behind it. To be sure, insurance companies occasionally become insolvent, but this is a rare event and state departments of insurance often will step in to protect the policyholders of an insolvent insurer. In most circumstances, a property owner should be able to quickly and easily make a claim on a title insurance policy. (453-54)

Question 5

What are two exclusions are important when it comes to title insurance? (Barros)

Answer 5

(1) Basic title insurance policies often exclude coverage for mechanics’ liens.

(2) Basic title insurance policies often exclude coverage for title risks that would be discoverable from a survey of the property. (454)

Question 6

What is a gap risk? (Barros)

Answer 6

Gap risk is the risk that someone will record an interest in the property during the gap.

Question 7

What is the gap when it comes to gap risk? (Barros)

Answer 7

Before closing, you do a diligent title search. You get the deed at closing. Some amount of time will pass before you can get down to the recorder’s office p. 455to record your deed. This period of time is the “gap.” (454-55)

Question 8

How can surveys of a property play a role in the mitigation of title risk? (Barros)

Answer 8

Surveys can identify encroachment and boundary issues and can identify discrepancies between the parties’ understanding of the property being conveyed and the legal description of the property in the deed. A survey might be especially important if the title insurance policy being used for the transaction excludes coverage for title defects that would have been revealed by a survey. (455)

Question 9

How can physical inspections of a property play a role in the mitigation of title risk? (Barros)

Answer 9

A walk around the boundaries of the property (or a look at the property on Google Maps) might reveal an unpaved driveway that is being used by a neighbor pursuant to an unrecorded easement. It also might reveal the physical occupancy of all or part of the property by a tenant pursuant to an unrecorded lease. Recall that physical occupancy can lead to the creation of inquiry notice. A diligent buyer of property will take a look at the property and will take reasonable steps to inquire into potential issues raised by the physical inspection. (456)

Question 10

How may state seller disclosure laws help buyers when buying real property? (Barros)

Answer 10

State seller disclosure laws may require the seller to disclose title issues to the buyer and may provide the buyer with an action for money damages against the seller for failure to comply. (458)

Question 11

What happens in a conventional closing? (Barros)

Answer 11

In a conventional closing, everything happens at once. All of the parties gather at the same place and same time, and execute the documents all at once. All of the money goes into the account of the person holding the closing (typically a lawyer or a title company), and this money is disbursed by the end of the closing. Of course, not everything literally happens at once, but everything happens in quick sequence as part of the same process, with all of the parties present. (496)

Question 12

What happens in an escrow closing? (Barros)

Answer 12

In an escrow closing, the parties appoint an escrow agent to conduct the closing. The escrow agent holds the relevant documents and money and then disburses them to the appropriate party. Escrow relationships should always be created by written agreement. (497)

Question 13

What is significant about an escrow written agreement? (Barros)

Answer 13

The agreement should give specific instructions to the escrow agent and should make it clear that the escrow agent is serving to facilitate the transaction and is not acting as the agent of one or other of the parties. (497)

Question 14

What does a time is of the essence clause do? (Barros)

Answer 14

A time is of the essence clause (often a provision that simply states that “time is of the essence”) establishes that dates in the contract are important and should prevent a court from giving the other party an extension for the time to perform. Absent a time is of the essence clause, a court might not strictly enforce the dates in the contract and instead give the parties a reasonable time to perform. (497)

Question 15

What is a deed? (Barros)

Answer 15

A deed is a legal instrument for the transfer of real property. (497)

Question 16

What must be in a deed for it to satisfy the Statute of Frauds? (Barros)

Answer 16

(a) Be in writing

(b) State the essential terms of the conveyance

(i) The identity of the grantor and the grantee

(ii) The legal description of the property

(iii) Contain words of conveyance indicating a transfer of the interest from the grantor to the grantee

(c) Be signed by the grantor (500)

Question 17

Even if a deed satisfies the Statute of Frauds, what else must happen before it is effective? (Barros)

Answer 17

It must be delivered. (501)

Question 18

What is the doctrine of estoppel by deed? (Barros)

Answer 18

The doctrine of estoppel by deed applies in the rare circumstance where (a) the grantor delivers a deed to a grantee at a time when the grantor does not have actual ownership of the property, but (b) at some time after deed delivery, the grantor gets ownership of the property. (501)

Question 19

What must happen during delivery of deeds to make sure they are recognized (Barros)

Answer 19

Delivery must be made with the present intent to transfer the interest then and there. (501)

Question 20

What happens if a grantor tries to put a condition on the delivery of a deed? (Barros)

Answer 20

Conditions tied to the grantor’s death almost always render the deed invalid because of Statute of Wills concerns. (506)

Question 21

What is the majority view of on the effect of conditions other than the death of the grantor? (Barros)

Answer 21

The majority view is that the condition is unenforceable and the delivery is valid. Under this approach, the conveyance from Arthur to Brenda would be valid, whether or not Brenda survived Arthur. (506)

Question 22

What is the minority view of on the effect of conditions other than the death of the grantor? (Barros)

Answer 22

The minority view is that the condition is enforceable and the delivery is valid only if the condition is met. Under this approach, the conveyance from Arthur to Brenda would be valid only if Brenda survives Arthur. There may be something of a modern trend towards the minority approach. (506)

Question 23

What happens if the grantor delivers a deed to a third person, with an instruction to deliver the deed to the grantee if a condition is met? (Barros)

Answer 23

In this circumstance, the condition will be valid and the delivery effective so long as the grantor does not maintain a degree of control over the deed by reserving the right to take back the deed. (This issue of control was important in Rosengrant.) This is true even if the condition is the grantor’s death. (506)

Question 24

Must a deed be accepted by the grantee to be effective? (Barros)

Answer 24

Yes. (507)

Question 25

What happens when a grantee accepts a deed (even if they didn’t sign it)? (Barros)

Answer 25

By accepting the deed, the grantee is bound by any conditions or obligations in the deed, even though the grantee did not sign the deed. (507)

Question 26

What is a deed poll? (Barros)

Answer 26

A deed signed by only the grantor is sometimes called a deed poll. (507)

Question 27

What is an indenture? (Barros)

Answer 27

An indenture was a deed executed by both parties in duplicate on a single piece of parchment and cut in half along a ragged line. (507)

Question 28

How do courts deal with deeds that are procured by fraud? (Barros)

Answer 28

Deeds procured by fraud are voidable but do convey good title to subsequent good faith purchasers. (507)

Question 29

How do courts deal with forged deeds? (Barros)

Answer 29

Forged deeds are void and do not pass good title to any person in the subsequent chain of title. (507)