Real Property: Land Conveyancing Flashcards
Process of Conveyance
Every conveyance of real estate consists of a two-step process:
(1) The land contract, which endures until step 2 (short period of time)
(2) The closing, where the deed becomes the operative document
The Land Contract: Standard
Statute of Frauds and Land Contract
Land contract must
(1) be in writing
(2) signed by the party to be bound (i.e. Defendant) and the other party
(3) describe the land
(4) state some consideration
The Land Contract: Amount of land in contract is more than actual size of parcel
Remedy: specific performance with a pro rata reduction in price
The Land Contract: Statute of Frauds Exception
Doctrine of Part Performance:
Equity will require specific performance of oral contract for sale of land if 2/3 satisfied:
(a) B takes possession
(b) B pays all or part of the price
(c) B makes substantial improvements
The Land Contract: Risk of Loss
Equitable conversion applies: Equity regards as done that which ought to be done – so, inequity, once a contract is signed the buying party owns the land (subject to payment on closing)
The Land Contract: Risk of Loss - Destruction
If between contract and closing the property is destroyed through no fault of either party, Buyer bears the risk of loss, unless K specifies otherwise
The Land Contract: Implied Promises
Two implied promises in every land contract
(1) Seller promises to provide marketable title at closing
(2) Seller promises not to make any false statements of material fact
The Land Contract: Implied Promises - Marketable Title
Seller promises to provide marketable title at closing – i.e., free from reasonable doubt, free from lawsuits and threat of litigation
Title is unmarketable if: AEZ
(a) Adverse possession: even if only part of title rests on adverse possession, or
(b) Encumbrances: servitudes and mortgages render title unmarketable (but can satisfy at closing with proceeds from sale), unless buyer has waived them
(c) Zoning violations: unmarketable if violates zoning ordinance
The Land Contract: Implied Promises - No False Statements of Material Fact
Seller is liable for material lies and material omissions
General disclaimer of liability (e.g., “as is” or “with all faults”) will not excuse seller from liability for fraud
Majority of states hold seller liable for failure to disclose latent material defects
The Land Contract: Implied Warranties
Land contract contains no implied warranties of fitness or habitability (caveat emptor – buyer beware)
EXCEPTION: implied warranties of fitness and workmanlike construction apply to sale of a new home by a builder-vendor
The Deed: Definition and Requirements
The deed passes legal title from seller to buyer
Requirements: LEAD - Lawfully Executed and Delivered
The Deed: Lawful Execution
Standard: Deed must be (1) in writing and (2) signed by the grantor.
Consideration is not required.
Description of the land does not have to be perfect, simply must be an unambiguous description
The Deed: Delivery
Delivery requirement can be satisfied by:
(a) Physical transfer from grantor to grantee
(b) Via mail, a messenger, or an agent
(c) Legal standard: present intent to transfer (regardless of physical transfer)
(d) Via escrow with instructions that conditions be met before transfer
Recipient’s express rejection of the deed defeats delivery
The Deed: Oral conditions
If a deed, absolute on its face, is transferred to grantee with an oral condition, the oral condition drops out and delivery is done
Quitclaim Deed
Contains no covenants
Grantor isn’t even promising he has title to convey (but still promising marketable title at closing)
*Worst deed buyer can get
General Warranty Deed
General warranty deed warrants against all defects to title, include those attributable to grantor’s predecessors
Typically contains six covenants:
Present Covenants (would breach on delivery) (don’t run with land)
(1) Covenant of seisin: grantor owns the estate
(2) Covenant of right to convey: grantor has power to transfer
(3) Covenant against encumbrances: no servitudes or mortgages on blackacre
Future Covenants (breaches only if grantee disturbed in possession)
(4) Covenant for quiet enjoyment: grantee won’t be disturbed in possession by 3rd party w/ lawful claim of title
(5) Covenant of warranty: grantor will defend grantee against lawful title claims brought by others
(6) Covenant for further assurances: grantor will do what’s needed in the future to perfect title
- Best deed buyer can get
Statutory Special Warranty Deed
Contains two promises grantor makes on behalf of himself
(1) Grantor promises he hasn’t conveyed to anyone other than grantee
(2) Land is free from encumbrances made by grantor
Notice Statute
(O conveys to A, and the O conveys to B)
The last bona fide purchaser to enter wins.
A conveyance of an interest in land shall not be valid against any subsequent purchaser for value, without notice thereof, unless the conveyance is recorded
If, at the time B takes, he is a bona fide purchaser, he wins. It doesn’t matter if A ultimately records before B (so long as not recorded when B buys)
Race Notice Statute
(O conveys to A, and the O conveys to B)
To prevail, B must (1) be a BFP and (2) win the race to record.
Any conveyance of an interest in land shall not be valid against any subsequent purchaser for value, without notice thereof, whose conveyance is first recorded.
Bona Fide Purchaser
One who
(1) Purchases for value, and
(2) Is without notice that someone else got there first
Notice: Types
Three Types of Notice: AIR
(1) A - Actual: B learns of A’s purchase before B’s closing
(2) I - Inquiry: (a) on notice of whatever an examination of the land would show (buyer has duty to inspect); (b) if recorded instrument makes reference to unrecorded transfer, buyer has duty to do reasonable follow up
(3) R - Record: deed was properly recorded
The Shelter Rule
One who takes from a BFP will prevail against any entity that the transferor-BFP would have prevailed against
Wild Deed
If a deed, entered on the records, has a grantor unconnected to the chain of title, the deed is a wild deed. It is incapable of giving record notice of its existence.
Estoppel by Deed
One who conveys realty in which he has no interest (e.g. has already conveyed it away) is estopped from denying the validity of that conveyance if he later acquires that previously transferred interest
Mortgage: Definition
A mortgage is the conveyance of a security interest in land, intended by the parties to be collateral for the repayment of a debt
Debt + Voluntary lien in debotr’s land to secure the debt
Mortgage: Terms
Mortgagor/Debtor: landowner conveying land interest for money
Mortgagee/Creditor: entity lending money
Legal Mortgage
A mortgage evidenced by a writing
Also known as: note, security interest in land, deed of trust, mortgage deed, sale lease-back
Equitable Mortgage
Debtor/Mortgagor hands deed, absolute on its face, to Creditor/Mortgagee, instead of executing a note or mortgage deed
Parol evidence is allowed to show intent
Debtor/Mortgagor’s Rights
Unless and until foreclosure, debtor/mortgagor has title and the right to possess
Creditor/Mortgagee’s Rights
Has a lien on the property
Mortgage: Transfer of Interests
All parties to a mortgage can transfer their interests
Mortgage: Transfer of Interests - Creditor/Mortgagee’s Transferability
Creditor/Mortgagee can transfer his interest by:
(1) Endorsing the note and delivering it to the transferee. If this happens, transferee is eligible to become holder in due course
or
(2) Executing a separate document of assignment
Mortgage: Transfer of Interests - Holder in Due Course - Terms
If a note is endorsed and delivered, the transferee is eligible to become a holder in due course, which means he takes the note
(1) Free of any personal defenses that could have been raised against the original mortgagee (e.g. lack of consideration, fraud in the inducement, unconscionability, waiver, estoppel)
but
(2) Subject to real defenses the mortgagor might raise
Mortgage: Transfer of Interests - Holder in Due Course - Real Defenses
MAD FIFI4
M - Material
A - Alteration
D - Duress
FIF - Fraud in the Factum I - Incapacity I - Illegality I - Infancy I - Insolvency
Mortgage: Transfer of Interests - Holder in Due Course - Note Criteria
To be a holder in due course of the note, must meet all criteria:
(1) Note must be negotiable (made payable to named mortgagee)
(2) Original note must be endorsed, signed by the named mortgagee
(3) Original note must be delivered to transferee (photocopy unacceptable)
(4) Transferee must take note in good faith, without and notice of any illegality
(5) Transferee must pay value (more than nominal) for the note
Mortgage: Transfer of Interests - Recording
All recording statutes apply to mortgages as well as deeds
If debtor-mortgagor sells mortgaged land, the lien remains on the land so long as the mortgage was properly recorded
Mortgage: Transfer of Interests - Liability - Buyer Assumes the Mortgage
O sells to B, land has mortgage/lien on it
If B “assumes to mortgage”, O and B are personally liable – B is primarily liable, O is secondarily liable
Mortgage: Transfer of Interests - Liability - Buyer Takes Subject to Mortgage
O sells to B, land has mortgage/lien on it
If B takes “subject to the mortgage,” only O is personally liable and B assumes no personal liability
BUT, if the mortgage is recorded, it stays with the land and if O doesn’t pay the land may be foreclosed
Foreclosure: Process
Mortgage must be foreclosed by proper judicial action. At foreclosure, land is sold and sale proceeds go to satisfying the debt.
Foreclosure: Proceeds less than amount owed
Mortgagee/creditor brings a deficiency action against mortgagor/debtor
Mortgagee tries to convince court to seize something else to satisfy the debt.
Each claimant is entitled to satisfaction in full before a subordinated/junior lienholder may take.
If the proceeds are entirely used by more senior creditors, more junior creditors must look to something other than the land for satisfaction.
Foreclosure: Proceeds more than amount owed
Junior liens are paid in order of priority, and the remaining surplus goes to the debtor/mortgagor.
Foreclosure: Necessary parties
(1) Those with interests subordinate to those of the foreclosing party are necessary parties to the foreclosure action
(2) Debtor-mortgagor is a necessary party and must be joined (especially if creditor/mortgagee wants to proceed with personal deficiency judgment)
Failure to include necessary party preserves that party’s claim and mortgage stays on the land
Foreclosure: Effect on Interests
(1) Interests senior to the mortgage being foreclosed are not affected – the buyer at a foreclosure takes subject to such interest. Buyer is not personally liable to the senior interest, but it does mean foreclosure is likely
(2) Interests subordinate to the foreclosing party must be joined and their interests will be terminated
Foreclosure: Priorities
(a) Creditor/mortgagor has no priority until he records
(b) Once recorded, priority is determined by first in time, first in right
(c) EXCEPT, purchase money mortgage is highest priority
(d) If a mortgage obligates lender to make further advances of funds, those future advances have the same priority as the mortgage, BUT if the later advance is optional it loses priority
Foreclosure: Priorities - Purchase money mortgage
A mortgage given to secure a loan that enables the debtor to acquire the encumbered land
Highest priority mortgage
Foreclosure: Redemption in Equity
In all states
Debtor/mortgagor can try to redeem the land any time prior to the foreclosure sale; after the sale, equitable redemption is not possible
Satisfy equitable redemption by (a) paying off missed payment plus interest and costs, or (b) if acceleration clause, by full balance plus interests and costs
Foreclosure: Statutory Redemption
In half the states
Debtor/mortgagor has statutory right to redeem for some fixed period after foreclosure sale (typically 6 months to a year). Must pay foreclosure sale price (rather than original debt).
Redemption nullifies the sale
Covenant Against Encumbrances
The covenant against encumbrances ensures that there are neither visible (easements, servitudes, etc.) nor invisible encumbrances (mortgages, etc.) against the title or interest conveyed
This is a present covenant and is breached, if at all, at the time of conveyance.
Majority: present covenants do not run with the land and cannot be enforced by remote grantees
