Real Property Flashcards
What are the four essential terms that must be included in a writing for the transfer of an interest in real property under the Statute of Frauds?
The terms that must be included are:
- description of the property
- description of the parties
- price AND
- any conditions of price or payment if agreed on.
What is the seller entitled to if the buyer breaches a contract for the sale of real property?
The seller is entitled to expectation damages, measured by the difference between the contract price and the market price at the time of the breach.
In a real estate sales contract, what recourse does a seller have if the buyer breaches?
The seller may seek rescission of the contract.
What can the buyer recover if the seller breaches a contract for the sale of real property?
The buyer can recover expectation damages.
Marketable title is title that is reasonably free from doubt in both fact and law. Title is not reasonably free from doubt if it contains what four defects?
Title is not reasonably free from doubt if it has any of the following:
- defects in the chain of title
- encumbrances
- significant encroachments OR
- zoning violations
A homeowner entered into a written contract with a buyer to sell his property for $300,000. At the time of contracting, the homeowner had a mortgage with the bank on the property. Three months later, just before the closing, the buyer called the homeowner to tell him he could not buy the property. At the time of the buyer’s breach, the market price on the property was $280,000. The homeowner eventually closed on the property with another buyer six months later for $270,000. Under the traditional rule, what can the homeowner recover in his suit against the buyer for breach of the contract?
A. The homeowner can recover a maximum of $20,000, representing the difference between the original purchase price and the value of the property at the time of the breach.
B. The homeowner can recover $20,000, representing the difference between the original purchase price and the value of the property at the time of the breach, plus interest payments made between the contracted closing and the eventual close of the property.
C. The homeowner can recover $30,000, representing the difference between the original purchase price and the actual purchase price, plus interest payments made between the contracted closing and the eventual close of the property.
D. The homeowner cannot recover because he had yet to deliver a deed on the property.
B. The homeowner can recover $20,000, representing the difference between the original purchase price and the value of the property at the time of the breach, plus interest payments made between the contracted closing and the eventual close of the property.
Under the traditional rule, when a buyer breaches a contract for the sale of real property, the seller is entitled to expectation damages, measured by the difference between the contract price and the market price at the time of breach. Note that some courts now measure expectation damages based on the difference between the contract price and the resale price in order to compensate the seller in a falling market; however this is not the traditional rule, so this rule is inapplicable in this case. Moreover, the seller can also recover foreseeable consequential damages, such as mortgage interest payments that the seller must make due to the buyer’s breach. Here, the market value for the property was $20,000 less than the contract price when the buyer breached the contract. Under the traditional rule, the homeowner can recover this $20,000 plus additional interest payments that he had to make due to the buyer’s breach. As such, this is the correct answer choice.
What are the three terms that a mortgage deed must include?
A mortgage deed must include:
- identity of parties
- description of property AND
- intent to create a security interest.
Define purchase-money mortgage.
A purchase-money mortgage is mortgage to a vendor of the real estate or to a third-party lender to the extent that the proceeds of the loan are used to acquire title to the real estate or to construct improvements on the real estate if the mortgage is given as part of the same transaction in which title is acquired.
Define deed of trust.
In a deed of trust, the debtor/note maker is the settlor, who gives a deed of trust to a trustee who is closely connected to the lender. In the event of a default, the trustee is directed to proceed with a foreclosure sale. Deeds of trust are generally treated like mortgages.
The following three mortgage theories are in effect in various jurisdictions of the United States: title theory, lien theory, and intermediate theory. Define each.
The title theory is the classic common law model for determining the nature of the interests held by the mortgagor and the mortgagee. Under the traditional title theory, the mortgagee receives legal title to the mortgaged real property and has a right to take possession of and to collect rents and profits from the property.
In a lien theory jurisdiction, the mortgagee receives a lien, and the mortgagor retains legal and equitable title and possession to the mortgaged real property, unless and until foreclosure occurs.
In an intermediate theory jurisdiction, the mortgagor retains legal title until default occurs. After default, legal title and possession pass to the mortgagee, who may then begin to collect rents and profits.
If a senior mortgage is modified, when does a junior mortgage prevail over the modification?
If a senior mortgage is modified, then a junior mortgage prevails if the modification materially prejudices the holder of the junior mortgage.
What is the result if the transferee of mortgaged real property assumes the mortgage and mortgage payments are not made?
The mortgagee may foreclose and force the property to be sold.
What happens to junior interests (i.e., second or later mortgages) in the property with a foreclosure sale?
Junior interests are destroyed with a foreclosure sale.
Define foreclosure and redemption, and note whether each is a buyer’s or a seller’s remedy.
Foreclosure is a remedy for the seller, or mortgagee. It allows the seller to get her security interest back after nonpayment.
Redemption is a remedy for the buyer, or mortgagor. It allows the buyer to get his property back after payment has come due.
Define fee simple absolute, and state the language used to create a fee simple absolute.
A fee simple absolute is the largest possible estate in land, denoting the aggregate of all possible rights that a person may have in that parcel of land.
Example of creation language: “To B and his heirs.”
When does a determinable estate terminate?
A determinable estate automatically terminates on the happening of a named future event (“To A and her heirs for so long as the premises are used for educational purposes”).
What is the future interest created by a determinable estate?
A possibility of reverter, which may be implied, is the future interest created by a determinable estate.
How can an estate subject to a condition subsequent be cut short?
An estate subject to a condition subsequent may be cut short if the estate is retaken by the grantor or a third party on the happening of a named future event.
Example: O conveys “to A and his heirs, but if the premises are not used for educational purposes, then O has the right to reenter the premises and terminate A’s estate.”
What is a fee simple subject to an executory interest?
A fee simple subject to an executory interest is an estate that is automatically divested in favor of a third person on the happening of a named event.
Example: O conveys “to A for so long as the premises are used for charitable purposes, but if the premises cease to be used for charitable purposes, then to B.”
How long does a life estate last?
A life estate lasts for the duration of teh grantee’s life.
Example: O conveys “to A for life.”
Despite the prohibition on voluntary waste, when may natural resources be consumed?
They may be consumed:
- for the repair and maintenance of the property;
- with permission of grantor; OR
- under the open mines doctrine.
When is a life tenant allowed to commit ameliorative waste?
A life tenant may commit ameliorative waste when:
- the market value of the remainderman’s interest is not impaired AND either:
a. it is permitted by the remainderman; OR
b. a substantial and permanent change in the neighborhood has deprived the property of a reasonable current value.
Define reversion.
Reversion is a future interest retained by the grantor when the grantor transfers less than a fee interest to a third person. A reversion is NOT subject to the Rule Against Perpetuities (RAP).
Define possibility of reverter.
A possibility of reverter is future interest in the grantor that follows a determinable estate. A possibility of reverter is NOT subject to the Rule Against Perpetuities (RAP).
Define right of entry.
A right of entry is a future interest in the grantor that follows a fee simple or life estate subject to a condition subsequent. A right of entry is NOT subject to the Rule Against Perpetuities (RAP).
Define remainder.
A remainder is a future interest created in a third person, which is intended to take after the natural termination of the preceding estate.
Define vested remainder.
A person who takes a vested remainder must be ascertained or ascertainable at the time that the remainder is created. A vested remainder is transferable, descendible, and devisable.
Describe a remainder that is vested subject to open, sometimes called vested subject to partial divestment.
It is made to a class (e.g. his children) and has at least one member who is ascertainable and who has satisfied any conditions precedent to vesting, but it may have other members joint he class later.
When is a remainder contingent?
It is contingent if the takers are unascertained or the interest is subject to a condition precedent and therefore does not fall in automatically on the natural termination of the previous estate.
When will a contingent remainder become an executory interest?
The contingent remainder becomes an executory interest if it has not vested at the natural termination of the prior vested estate.
Define executory interest, and name the two types.
An executory interest is a future interest in a third person that cuts short the previous estate before it would have naturally terminated.
The two types of executory interests are:
- shifting executory interest, which cuts short a prior estate; interest passes from grantee to grantee AND
- springing executory interest, which does not become presently possessory until some time after the natural termination of the previous estate; interest passes from grantor to grantee.
Define tenancy in common.
It is a form of concurrent ownership where each co-tenant owns an undivided interest in the whole of the property with no right of survivorship.
What are the two ways a tenant in common can transfer her interest inter vivos?
It can be transferred:
- voluntarily, through a conveyance, lease, mortgage, or other transfer of a present possessory or future property interest; OR
- involuntarily, through a foreclosure on a mortgage of the tenant’s interest or an execution of a judgment creditor’s lien on the tenant’s interest in the property.
