Real Property (Main Deck)* Flashcards
WHEN APPROACHING A PROPERTY QUESTION, WHAT 2 BROAD AREAS SHOULD YOU CONSIDER?
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STEP 1: RIGHTS IN LAND
1A: Possessory Interests
1B: Rights Incidental to Ownership in Land
1C: Rights to Use Another’s Land
STEP 2: REAL ESTATE TRANSACTIONS
2A: Conveyancing
2B: Mortgages
RIGHTS IN LAND:
LIST 5 TYPES OF POSSESSORY INTERESTS
1) Present Estates
2) Concurrent Estates
3) Future Interests
4) Landlord/Tenant
5) Taking of Possessory Interests
POSSESSORY INTERESTS:
LIST THE TYPES OF PRESENT ESTATES
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1) Fee Simple Absolute
2) Defeasible Estates
a) Fee Simple Determinable
b) Fee Simple Subject to Condition Subsequent
c) Fee Simple Subject to Executory Interest
3) Life Estates
a) Life Estate
b) Life Estate Pur Autre Vie
FEE SIMPLE ABSOLUTE
(Definition, Rule, and Note)
Definition: A fee simple absolute is the broadest estate possible, with absolute ownership of an undivided interest for an unlimited period of time.
Rule: Property held in fee simple absolute can be freely divided, sold, bequeathed, or inherited (i.e.. freely devisable, descendible, and alienable).
Note: Under the common law, the language “and her heirs” or similar language created a fee tail. A fee tail limited the duration of the estate by restricting a successive owner’s ability to transfer the estate to anyone other than a lineal descendent. Most jurisdictions have abolished this rule and a successor who takes title under a fee tail will have title in fee simple absolute.
DEFEASIBLE ESTATES
(Define, Note (2))
Definition: Defeasible estates are fee simple estates that are subject to termination upon the occurrence of a specified event.
Note:
1) Three types of defeasible estates are possible:
a) Fee Simple Determinable,
b) Fee Simple Subject to Condition Subsequent,
c) Fee Simple Subject to Executory Interest.
2) Defeasible estates are freely transferable. Thus, a defeasible fee may be divided, sold, bequeathed, or inherited subject to the stated condition or event.
DEFEASIBLE ESTATES:
FEE SIMPLE DETERMINABLE (& POSSIBILITY OF
REVERTER)
(Definition, Rule, and Note (3))
Definition: A fee simple determinable is a defeasible estate that is intended to continue until the occurrence of a stated event or violation of a stated condition.
Rule: Should the event occur or condition be violated, the fee simple determinable automatically terminates, and ownership reverts to the Grantor or the Grantor’s heirs in fee simple absolute.
Note:
1) The parties hold the following rights:
a) The Grantee holds a fee simple determinable,
b) The Grantor holds a possibility of reverter.
2) The Grantor must use clear durational language to create a fee simple determinable.
DEFEASIBLE ESTATES:
FEE SIMPLE SUBJECT TO A CONDITION SUBSEQUENT (& RIGHT OF REENTRY)
(Definition, Rule, and Note (2))
Definition: A fee simple subject to a condition subsequent is a defeasible estate that, upon the occurrence of a stated event or violation of a stated condition, may be terminated by the Grantor.
Rule: Upon the occurrence of the stated event or violation of the condition, the Grantor must act to terminate the Grantee’s rights and exercise his right of reentry. Forfeiture is not automatic.
Note: The parties hold the following rights:
1) The Grantee holds a fee simple subject to a condition subsequent,
2) The Grantor holds a right of reentry.
DEFEASIBLE ESTATES:
FEE SIMPLE SUBJECT TO AN EXECUTORY INTEREST
(Define & State the Rule)
Definition: A fee simple subject to an executory interest is a defeasible estate that provides for the passing of ownership from the Grantor to a Grantee (springing executory interest) or from one Grantee to another (shifting executory interest) upon the occurrence of a stated event or violation of a stated condition.
Rule: The transfer of interest from the Grantor to the Grantee or from one Grantee to another is automatic if the stated event occurs or condition is violated.
Note: The parties hold the following rights:
1) Springing Executory Interest:
a) The Grantor holds a fee simple subject to the Grantee’s executory interest,
b) The Grantee holds a springing executory interest.
2) Shifting Executory Interest:
a) The Grantee holds a fee simple subject to a third party’s executory interest,
b) The third party holds a shifting executory interest.
LIFE ESTATE
(Define & State the Rule)
Definition: A life estate is an interest in land measured by the life of the Grantee.
Rule: Upon the death of the life tenant, the interest automatically reverts to the Grantor (reversion) or shifts to a third party (remainder).
Note: The parties hold the following rights:
1) The life tenant may sell her life interest in the land and is entitled to all ordinary uses and profits from the land, but must not commit waste.
2) If the disposition of the property upon the death of the life tenant is not specified, the Grantor retains a vested future interest (reversion).
3) If it is stated that the interest in the estate will shift to a third party upon the death of the life tenant, the third party has a vested future interest (remainder).
LIFE ESTATE PUR AUTRE VIE
(Define & State the Rule)
Definition: A life estate pur autre vie is an interest in land measured by the life of a person other than the Grantee.
Rule: Upon the death of the measuring life, the interest automatically reverts to the Grantor (reversion) or shifts to a third party (remainder).
Note: The parties hold the following rights:
1) The life tenant may sell his life interest in the land and is entitled to all ordinary uses and profits from the land, but must not commit waste.
2) If the disposition of the property at the end of the measuring life is not specified, the Grantor retains a vested future interest (reversion).
3) If it is stated that the interest in the estate will shift to a third party at the end of the measuring life, the third party has a vested future interest (remainder).
POSSESSORY INTERESTS:
LIST 3 TYPES OF CONCURRENT ESTATES
1) Tenancy in Common
2) Joint Tenancy
3) Tenancy by the Entirety
POSSESSORY INTERESTS:
TENANCY IN COMMON
(Define & State the Rule)
Definition: A tenancy in common is a concurrent estate in which the cotenants own a separate and distinct share of the property.
Rule: Each cotenant owns an individual part of the whole, but each has a right to possess and enjoy the whole.
Note:
1) Each cotenant’s interest is descendible, divisible, and alienable.
2) Wrongful ouster occurs when one cotenant wrongfully excludes another from possession ofthe whole, or any part of the whole.
3) Upon death of a cotenant, her interest descends to her heirs (i.e., no right of survivorship).
4) Cotenants must not commit waste.
JOINT TENANCY
(Define & State the Rule)
Definition: A joint tenancy is a concurrent estate in which each tenant owns an undivided interest in the whole estate.
Rule: Each cotenant owns an undivided interest in the estate with the right of survivorship. Upon the death of one joint tenant, the decedent’s share passes automatically to the surviving joint tenant(s).
Note: Each joint tenant’s interest is alienable, but it is not devisable or descendible.
HOW IS A JOINT TENANCY CREATED?
Rule: Four elements are required to create a joint tenancy:
1) Unity of time (interests must vest at the same time),
2) Unity of title (interests must be acquired by the same instrument),
3) Unity of interest (interests must be identical), AND
4) Unity of possession (interests must allow for all to equally enjoy the whole).
Note:
1) If an owner of a fee simple estate wishes to hold it as a joint tenant with another person, a straw man must be used: The owner conveys the property to a straw man, who then conveys back to the Grantor and other party (or parties) as joint tenants.
2) Because joint tenancies are disfavored, there must be a clear expression of intent to create a joint tenancy (i.e., clearly state the right of survivorship).
HOW CAN A JOINT TENANCY BE SEVERED?
Rule: A joint tenancy may be severed in three ways:
1) Sale,
2) Partition, OR
3) Mortgage.
SEVERANCE OF A JOINT TENANCY:
SALE
(State the Rule)
Rule: A joint tenant can sell or transfer her interest during his lifetime with or without the cotenant’s knowledge or consent. However, the sale severs the joint tenancy as to the seller’s interest, and the buyer takes the interest as a tenant in common.
Note: If a joint tenancy is made up of three or more interest holders, the non-transferring parties maintain their interests as joint tenants. Only the transferred interest is held as a tenancy in common.
SEVERANCE OF A JOINT TENANCY:
PARTITION
(State the Rule)
Rule: A joint tenancy may be partitioned by:
1) Voluntary agreement, OR
2) Court order.
Note: A court may order the severance and partition of the estate in the case of a dispute between joint tenants. The court may:
1) Divide the property evenly between the joint tenants, OR
2) Force the sale of the property and divide the proceeds among the tenants.
SEVERANCE OF A JOINT TENANCY:
MORTGAGE
(State the Rule)
Majority Rule (Lien Theory): A joint tenant’s execution of a mortgage on his interest in the joint tenancy does not sever the joint tenancy.
Minority Rule (Title Theory): A joint tenant’s execution of a mortgage on his share will sever the joint tenancy, but as to the encumbered share only.
TENANCY BY THE ENTIRETY
(Define & State the Rule)
Definition: A tenancy by the entirety is a joint tenancy between a husband and wife that automatically arises when property is conveyed to both of them.
Rule: Each spouse has the right of survivorship in the property, which cannot be defeated through one spouse’s unilateral conveyance of her share to a third party. Upon the death of one spouse, the decedent’s share passes automatically to the surviving spouse.
Note: Creditors of only one spouse may not attach interests held in tenancy by the entirety.
POSSESSORY INTERESTS:
LIST THE FUTURE INTERESTS THAT MAY ARISE IN GRANTORS, GRANTEES, & THIRD PARTIES
In Grantor:
1) Possibility of Reverter
2) Right of Reentry (Power of Termination)
3) Reversion
In Grantee/Third-Party:
1) Remainders
a) Absolutely Vested Remainder
b) Vested Remainder Subject to Open
c) Vested Remainder Subject to Divestment
d) Contingent Remainder
2) Executory Interests
a) Shifting Executory Interests
b) Springing Executory Interests
POSSIBILITY OF REVERTER
(Define & State the Rule)
Definition: The possibility of reverter is a future interest that arises in the Grantor.
Rule: If a condition stated in the conveyance of a fee simple determinable is breached, the possibility of reverter becomes a possessory interest in the estate.
Note: The possibility of reverter is automatically created in the Grantor when she conveys a fee simple determinable to a Grantee.
RIGHT OF REENTRY
(Define & State the Rule)
Definition: The right of reentry is a future interest held by the Grantor that provides her the right to terminate a fee simple subject to a condition subsequent.
Rule: When conveying a fee simple subject to a condition subsequent, a Grantor must expressly reserve the right to terminate and reenter the land upon occurrence of a specified event or violation of a specified condition.
REVERSION
(Define & State the Rule)
Definition: A reversion is the estate retained by a Grantor who has conveyed a lesser estate than she owns.
Rule: A reversion is automatically created upon the Grantor’s conveyance of a lesser estate than she owns.
Note: Reversion accompanies:
1) Life estates, AND
2) Invalid attempts to convey a remainder to the Grantor’s heirs.
REMAINDER
(Define & State the Rule)
Definition: A remainder is a future interest in a third person that can become a present possessory interest only after the natural expiration of the preceding estate.
Rule: To be valid, a remainder:
1) Must be created in the same instrument as the prior estate that it follows, AND
2) Must become a present possessory interest immediately upon the termination of the prior estate.
LIST 4 TYPES OF REMAINDERS
1) Absolutely Vested Remainder
2) Vested Remainder Subject to Partial Divestment
3) Vested Remainder Subject to Total Divestment
4) Contingent Remainder
ABSOLUTELY VESTED REMAINDER
(INDEFEASIBLY VESTED REMAINDER)
(State the Rule)
Rule: An absolutely vested remainder is a remainder that:
1) Is created in a known, existing person,
2) Is not subject to any conditions, AND
3) Is not subject to divestment.
Note:
1) The remainder is vested because the holder is certain to acquire a possessory interest in the estate at some point in the future.
2) Interest in an absolutely vested remainder is fully transferable and devisable.
VESTED REMAINDER SUBJECT TO PARTIAL DIVESTMENT
(VESTED REMAINDER SUBJECT TO OPEN)
(State the Rule)
Rule: A vested remainder subject to partial divestment is certain to become a possessory interest, but each interest holder’s estate is subject to diminution due to the possibility of unascertained people qualifying as members of the class.
Note:
1) Avested remainder subject to open is created in a class of individuals.
2) Two additional rules apply to vested remainders subject to partial divestment:
a) Rule of Convenience: The class of individuals that may claim an interest in a vested remainder subject to partial divestment closes at the moment that any member ofthe class is entitled to demand possession of his share of the interest.
b) Womb Rule: A child in gestation at the time the class closes will be considered part ofthe class.
VESTED REMAINDER SUBJECT TO TOTAL DIVESTMENT
(State the Rule)
Rule: A vested remainder subject to total divestment is not subject to a condition precedent, but is subject to and may be cut short by a condition subsequent.
Note: The remainder is vested, but may be divested by the condition subsequent.
CONTINGENT REMAINDER
(State the Rule)
Rule: A contingent remainder is:
1) Created in an unborn person,
2) Created in an unascertained person, OR
3) Subject to a condition precedent.
a) Note: The remainder does not vest until the condition precedent occurs.
EXECUTORY INTERESTS
(Define)
Definition: Executory interests are future contingent interests in third parties that either divest a transferee’s preceding estate (shifting), follow a gap in possession (springing), or cut short the Grantor’s estate (springing).
Shifting Executory Interest: A future interest in a Grantee that divests the right of another Grantee.
Springing Executory Interest: A future interest in a Grantee that divests the right of the Grantor or follows a gap in ownership of the estate.
WHAT 5 DOCTRINES SHOULD YOU CONSIDER WHEN THINKING ABOUT THE VALIDITY OF FUTURE INTERESTS?
1) The Rule of Destructibility of Contingent Remainders
2) The Rule in Shelley’s Case
3) The Doctrine of Worthier Title
4) The Rule Against Restraints on Alienation
5) The Rule Against Perpetuities
DESTRUCTIBILITY OF CONTINGENT REMAINDERS
(State the Rule)
Common Law: A contingent remainder is destroyed if it fails to vest (i.e.. was still contingent) before or at the time the preceding estate terminated. In such a case, the Grantor or the Grantor’s heirs take in fee simple through reversion.
Modern Law: The destructibility of contingent remainders has been abolished
RULE IN SHELLEY’S CASE
(RULE AGAINST REMAINDERS IN GRANTEE’S HEIRS)
(State the Rule)
Rule: The Rule in Shelley’s Case states that if one document creates both a freehold estate in a person and a remainder in that person’s heirs, the Grantee takes both the freehold estate and the remainder (i.e., fee simple absolute).
DOCTRINE OF WORTHIER TITLE
(RULE AGAINST REMAINDERS IN GRANTOR’S HEIRS)
(State the Rule)
Rule: Under the Doctrine of Worthier Title, an attempted
remainder in the Grantor’s heirs is invalid and becomes a reversion in the Grantor.
RESTRAINTS ON ALIENATION
(Define)
Disabling Restraint: A disabling restraint seeks to make any attempted transfer of an estate void.
Forfeiture Restraint: A forfeiture restraint provides that the Grantor may terminate the estate if transfer is attempted.
Promissory Restraint: A promissory restraint is the Grantee’s promise not to transfer the estate.
RULE AGAINST RESTRAINTS ON ALIENATION
(State the Rule)
Rule: Absolute restraints on fee simple estates are void.
Exception: The following restraints on alienation are valid:
1) Forfeiture and promissory restraints on life estates,
2) Forfeiture restraints on transferability of future interests,
3) Rights of first refusal,
4) Restrictions on assignments and subleasing.
Note: Restraints on alienation for a limited time and for a reasonable purpose generally will be upheld.
RULE AGAINST PERPETUITIES
(State the Rule)
Rule: No interest in property is valid unless it must vest, if at all, no later than 21 years after some life in being at the creation of the interest.
Note:
1) The Rule Against Perpetuities applies only to non-vested interests such as:
a) Contingent remainders,
b) Executory interests,
c) Class gifts,
d) Rights of first refusal.
2) The RAP does not apply to vested future interests (i.e., reversions, possibility of reverter, powers of termination and vested remainders).
3) The life in being at the creation of the interest is known as the measuring life.
4) The measuring life must be a human life.
WHAT DOCTRINES SHOULD YOU CONSIDER WHEN DISCUSSING THE RIGHTS & RESPONSIBILITIES OF PRESENT & FUTURE INTEREST HOLDERS?
1) The Law of Waste
a) Affirmative Waste
b) Permissive Waste
c) Ameliorative Waste
2) The Law of Fixtures
LAW OF WASTE
(State the Rule)
Rule: When more than one person holds an interest in land (i.e., present and future interest holders), the holder ofthe present interest is entitled to the ordinary uses and profits of the land, but cannot do anything that injures the interests of the future interest holder.
Note: If the present interest holder commits waste on the land, the future interest holder can sue for damages (legal) or to enjoin the waste (equity).
3 TYPES OF WASTE
(Define)
Voluntary (Affirmative) Waste: Harm or decrease in the value of the estate resulting from the present interest holder’s intentional conduct.
Permissive Waste: Harm to the property caused by the present interest holder’s failure to exercise reasonable care to protect the estate.
Ameliorative Waste: A physical change that economically benefits the land but was unauthorized by the future interest holder.
Note:
1) Ameliorative waste is prohibited at common law.
2) Modern law permits ameliorative waste if:
a) The activity increased the value of the estate and was necessary due to changes in surrounding neighborhood, OR
b) All future interest holders have agreed to the change.
THE LAW OF FIXTURES
(State the Rule)
Rule: Fixtures pass with the ownership of land, and the removal of a fixture constitutes voluntary waste.
Note: A present interest holder may not remove a fixture even if he installed it.
POSSESSORY INTERESTS:
LEASEHOLD
(NON-FREEHOLD ESTATES)
(Define)
Definition: A leasehold, also known as a non-freehold estate, is an interest in land that permits the interest holder to hold or use property for a period of time.
Note: Four types of leaseholds exist:
1) Tenancy for Years
2) Periodic Tenancy
3) Tenancy at Will
4) Tenancy at Sufferance
TENANCY FOR YEARS
(TENANCY FOR A TERM)
(Define & State the Rule)
Definition: A tenancy for years is a tenancy that lasts for a fixed period of time.
Rule: A tenancy for years:
1) Is created by an explicit agreement between the parties, AND
2) Will end automatically upon expiration of the term agreed upon unless the parties agree to extend the tenancy.
Note: A term greater than one year must be in writing to comply with the Statute of Frauds.
PERIODIC TENANCY
(Define & State the Rule)
Definition: A periodic tenancy is a lease that continues for intervals with no fixed termination date.
Rule: A periodic tenancy may be created by:
1) Express agreement (e.g., month-to-month),
2) Implied agreement (e.g., setting payment of rent at fixed intervals), OR
3) Operation of law (i.e., accepting payment from a tenant who has remained beyond the conclusion of the original lease),
a) Note: The intervals are determined by the frequency with which rent is tendered after a periodic tenancy arises.
Note:
1) A periodic tenancy automatically renews until either the landlord or the tenant gives notice of termination.
2) To terminate a periodic tenancy:
a) Notice of one of the parties is required, AND
b) The tenancy must terminate at the end of an interval.
TENANCY AT WILL
(Define & State the Rule)
Definition: A tenancy at will is a lease that can be terminated at the whim of either party.
Rule: A tenancy at will is created by an express agreement between the parties and can be terminated by either party without advance notice.
Note: Unless the parties expressly agree to a tenancy at will, the payment of rent at regular intervals will create an implied periodic tenancy.
TENANCY AT SUFFERANCE
(Define & State the Rule)
Definition: A tenancy at sufferance is created when a tenant wrongfully retains possession of property beyond the expiration ofthe lease.
Rule: When a tenant retains possession beyond the termination of a leasehold estate, the tenant is deemed to hold a tenancy at sufferance.
Note: The tenancy at sufferance lasts until:
1) The landlord evicts the tenant, OR
2) The landlord holds the tenant to a new term by accepting rent,
a) Note: Accepting rent transforms the tenancy at sufferance into a periodic tenancy.
LIST 4 DUTIES OWED BY THE TENANT
1) Duty to Pay Rent
2) Duty not to Commit Waste
3) Duty to Repair
4) Duty to Inform
DUTY TO PAY RENT
(State the Rule)
Rule: A tenant has a duty to pay rent according to the terms agreed upon with the landlord.
Note: At common law. a tenant remains liable for rent even if the property is made completely uninhabitable through fire, flood, etc. unless a provision releasing the tenant of the duty to pay rent in the event of such an occurrence was included in the lease.
WHAT ARE A LANDLORD’S REMEDIES IF A TENANT FAILS TO PAY RENT?
Rule: A landlord’s remedies if a tenant breaches the duty to pay rent depend upon whether the tenant remains in possession of or abandons the property:
1) If the tenant remains in possession of the property, the landlord may:
a) Institute legal action to evict the tenant, OR
i) Note: The tenant becomes a tenant at sufferance until he vacates.
b) Sue the tenant for past due rent owed to the landlord.
2) If the tenant abandons the property, the landlord can:
a) Accept the tenant’s abandonment as an implicit offer of surrender,
b) Hold the tenant responsible for unpaid rent as if the tenant still occupied the premises, OR
c) Lease the property and hold the breaching tenant liable for the difference between the rent owed to the landlord by the breaching tenant and the rent received from the new tenant.
DUTY NOT TO COMMIT WASTE
(State the Rule)
Rule: A tenant holds a duty to not commit waste on leased property.
Note: Three types of waste are possible:
1) Voluntary waste (overt harmful acts or removal of fixtures),
2) Permissive waste (failure to make ordinary repairs),
3) Ameliorative waste (increasing the value of the property).
a) Common Law: Ameliorative waste is prohibited, and the landlord is entitled to the cost of returning the property to the unaltered state,
b) Modern Rule: Ameliorative waste is permitted if the change increases the value of the property and the change is necessary due to changes in the surrounding neighborhood.
DUTY TO REPAIR
(State the Rule)
Common Law: At common law, a tenant’s duty to repair arises automatically in a leasehold unless the lease specifies otherwise.
Modern Rule: Under modern law, the implied warranty of habitability has shifted the duty from the tenant to the landlord.
Note:
1) The landlord and tenant may contractually assign the duty to repair to the tenant.
2) Many courts will not enforce a contractual agreement assigning the tenant the duty of making repairs to ordinary wear and tear.
DUTY TO INFORM
(State the Rule)
Rule: A tenant has a duty to inform the landlord of any
condition that may cause damage to the property or create liability for the landlord.
LIST 3 DUTIES OWED BY THE LANDLORD
1) Implied Warranty of Habitability
2) Implied Covenant of Quiet Enjoyment
3) Duty to Deliver Possession
IMPLIED WARRANTY OF HABITABILITY
(IMPLIED WARRANTY OF FITNESS)
(State the Rule)
Rule: Regardless of the terms of a lease, landlords must ensure residential rental properties meet basic standards of suitability for human habitation.
Note: Basic standards of suitability often are determined by local housing regulations.
WHAT ARE THE TENANT’S REMEDIES IF THE IMPLIED WARRANTY OF HABITABILITY IS BREACHED?
Rule: If the implied warranty of habitability is breached, the tenant may:
1) Move out and terminate the lease.
2) Make reasonable repairs and deduct the cost of repairs from future rent payments.
3) Reduce or withhold rent payments until the court determines the fair rental value of the property. OR
4) Continue paying rent and sue the landlord for damages.
IMPLIED COVENANT OF QUIET ENJOYMENT
(State the Rule)
Rule: Every lease contains an implied covenant of quiet enjoyment, in which a landlord promises not to interfere with a tenant’s possession ofthe property.
Note:
1) The implied covenant of quiet enjoyment can be breached by:
a) Actual eviction (exclusion of the tenant from the entirety of the property),
b) Partial eviction (exclusion of the tenant from part of the property), OR
c) Constructive eviction.
2) A tenant may claim constructive eviction if:
a) The landlord’s action or failure to act has rendered the property unsuitable for its intended use,
b) The tenant has notified the landlord of the condition,
c) The landlord has failed to repair the condition, AND
d) The tenant vacates the property within a reasonable time of the landlord’s failure to respond.
3) The covenant of quiet enjoyment is implied in both residential and
RETALIATORY EVICTION
(State the Rule)
Rule: If a tenant reports a landlord for a housing code violation, the landlord may not penalize the tenant by raising rent, harassing the tenant, or evicting the tenant.
DUTY TO DELIVER POSSESSION
(State the Rule)
Majority: The landlord must place the tenant in actual physical possession of the premises.
Minority: The landlord is required only to provide the tenant with the legal right to possess the premises.
PRIVITY, PRIVITY OF CONTRACT & PRIVITY OF ESTATE
(Define)
Privity: The connection or relationship between two parties, each having a legally recognized interest in the same subject matter.
Privity of Contract: The relationship that exists between parties to a contract, allowing them to sue each other while preventing a third party from doing so.
Privity of Estate: A mutual or successive relationship to the same right of property, as between Grantor and Grantee or landlord and tenant.
ASSIGNMENTS & SUBLEASES
(State the Rule)
Rule: Unless prohibited or restricted in the lease, a tenant may freely transfer her leasehold interest in whole (assignment) or in part (sublease) to another.
Note:
1) If a tenant transfers the entirety of her leasehold through assignment:
a) The tenant is no longer in privity of estate with the landlord,
b) The tenant remains in privity of contract with the landlord.
2) If a tenant transfers part of her leasehold through a sublease:
a) The landlord and tenant remain in privity of estate and privity of contract,
b) The landlord is in neither privity of state nor privity of contract with the sublessee,
c) The tenant and the sublessee are in privity of contract.
POSSESSORY INTERESTS:
LIST 3 WAYS POSSESSORY INTERESTS MAY BE TAKEN BY ANOTHER
1) Adverse Possession
2) Zoning
3) Eminent Domain
ADVERSE POSSESSION
(State the Rule)
Rule: Title may vest in an occupier of land if the property owner does not, within the statutory period, take action to eject an occupant who claims adversely to the owner. Four requirements must be met for an occupant to take by adverse possession:
1) The adverse possessor’s use of the land must be open, notorious, and visible,
2) The possession must be hostile,
3) The possession must be continuous, AND
4) The possession must continue for at least the statutory period.
Note: Permission to use the property defeats acquisition of property by adverse possession.
EXPLAIN THE 4 REQUIREMENTS FOR AN OCCUPANT TO TAKE BY ADVERSE POSSESSION
1) Open, Notorious & Visible: The adverse possessor must use the property in a manner similar to that in which an owner of a similar property would use it.
2) Hostile: Possession must be without the owner’s consent.
3) Continuous: Possession must be continuous through the statutory period of time.
a) Exception: Possession by two or more adverse possessors following directly after each other may be tacked (i.e., added together) if the possessors are in privity.
4) Statutory Period: The possessor must remain in possession of the land for the entirety ofthe statutory period,
a) Exception: If the owner is disabled at the time the cause of action accrues, the owner is given additional time to bring an ejectment action.
ZONING
(Define & State the Rule)
Definition: Zoning laws are public land-use regulations usually enacted by local governmental bodies pursuant to their police powers.
Rule: Zoning laws must be written and enforced in compliance with the Constitution:
1) Takings Clause: A zoning regulation that deprives a landowner of all economically viable use of her land will be deemed a taking.
2) Procedural Due Process: A landowner is entitled to a hearing to challenge or request a variance from a zoning law. To obtain a variance, an owner must show:
a) Denial ofthe variance would cause the owner undue hardship,
b) The problem is unique to the owner’s property, AND
c) Granting the variance will not harm the general welfare ofthe area.
3) Substantive Due Process: A zoning law that bears no rational relation to a permissible state objective may violate substantive due process.
4) Equal Protection: Zoning regulations may not be enacted or enforced so as to exclude racial minorities.
EMINENT DOMAIN
(Define & State the Rule)
Definition: Eminent domain is the power granted by the 5th Amendment to the government that allows the government to seize private property for public use.
Rule: To properly exercise the government’s power of eminent domain:
1) The use for which the property is taken must be public, AND
2) The landowner must be provided with just compensation for the property.
Note:
1) As long as the intended use of the property is substantially related to a purpose sanctioned by a legislative body, courts usually find the purpose to be public use.
2) Just compensation is usually determined by the fair market value of the property.
TAKINGS
(Define)
Explicit Takings: The condemnation of private land by a governmental body in order to use the land for a public use.
Implicit Takings: The diminution of a property’s economic value resulting from regulations imposed by a governmental body.
Note: Courts generally find implicit takings from governmental regulation only in cases where the regulation drastically interferes with a landowner’s use of the property or causes a near complete loss of economic value.
RIGHTS IN LAND:
LIST THE RIGHTS THAT ARE INCIDENTAL TO THE OWNERSHIP OF LAND
1) Support
a) Lateral Support
b) Subjacent Support
2) Water Rights
a) Lakes and Streams
b) Ground Water
c) Diffused Surface Water (Runoff)
d) Water Boundaries
3) Right to Airspace
4) Right to Exclude Others
RIGHT TO LATERAL SUPPORT
(State the Rule)
Rule: Each landowner is entitled to have his land in its natural state supported by adjoining parcels of land.
Note: An owner of an adjoining parcel who removes lateral support (e.g., through excavation on her parcel) is strictly liable for any damage to the natural state of adjoining parcels caused by the withdrawal.
RIGHT TO SUBJACENT SUPPORT
(State the Rule)
Rule: Each landowner is entitled to have her land in its natural state supported by the earth below.
Note: An owner of underground rights who removes subjacent support (e.g., through underground mining):
1) Is strictly liable for any damage to the natural state of the land caused by the withdrawal of subjacent support, AND
2) Will be held liable for damage to existing structures on the land caused by the negligent withdrawal of subjacent support.
WATER RIGHTS:
WHAT ARE THE 3 APPROACHES TO DETERMINING RIGHTS IN LAKES, RIVERS, & STREAMS?
**Riparian Principle - Natural Flow Theory **
Rule: Each owner of land that touches or abuts the water of a lake, river or stream holds the right to have the water kept at its natural level and quality.
Note: Domestic use takes precedence over commercial use.
Riparian Principle - Reasonable Use Theory
Rule: Each owner of land that touches or abuts the water of a lake, river or stream holds the right to reasonable use of the water, as long as it does not unreasonably interfere with others’ reasonable use of
the water.
Note: Domestic use takes precedence over commercial use.
**Prior Appropriation Principle **
Rule: The first in time to appropriate water for a beneficial use gains the right to its future use against all others, regardless of ownership of the land abutting the water.
Note: Domestic and commercial uses are treated equally.
WATER RIGHTS:
WHAT ARE THE 4 APPROACHES TO DETERMINING RIGHTS IN GROUNDWATER?
**Absolute Ownership Doctrine **
Rule: The owner of land above the source basin may take as much water as he wishes for any purpose he wishes.
**Reasonable Use Doctrine **
Rule: The owner of land above the source basin may make reasonable use of the ground water, but can export water only if doing so will not harm others who hold rights to the water.
Correlative Rights Doctrine
Rule: Owners of land above the source basin own the underground water as joint tenants, and each is allowed a reasonable amount of water for his own
use.
Appropriative Rights Doctrine
Rule: The first in time to appropriate water for a beneficial use gains the right to its future use against all others.
WATER RIGHTS:
WHAT ARE THE 4 APPROACHES TO DETERMINING RIGHTS IN WATER RUNOFF?
**Natural Flow Theory **
Rule: A landowner cannot divert surface water onto another’s land or alter natural drainage patterns if doing so would injure landowners above or below her.
Common Enemy Theory
Rule: Surface water is treated as a common enemy and an owner can take any reasonable action necessary to change drainage and rid the land of the water.
Note: Landowners are held to a standard of ordinary care to avoid unnecessary or negligent damage to the land of others.
Reasonable Use Theory
Rule: The utility of the use is balanced against the harm caused to other landowners.
Capture of Surface Water Approach
Rule: A landowner can capture as much surface water as she wishes and may divert the water to any purpose on or off the land unless the diversion is malicious.
Note: A landowner may be restricted in the extent to which she may redirect water.
WATER RIGHTS:
ACCRETION & AVULSION
(Define & State the Rule)
Accretion
Definition: The slow accumulation of land along the banks of a body of water, deposited through the buildup of soil caused by the movement of the water.
Rule: Generally, land slowly added to the banks of a body of water belongs to the owner of the land encompassing the bank.
Avulsion
Definition: The sudden change in a water boundary caused by the movement of a body of water or stream.
Rule: The landowner retains property rights in the original boundaries before the avulsion.
RIGHTS IN AIRSPACE
(State the Rule)
Common Law: A landowner owns the rights to the airspace above his land, continuing indefinitely to the sky.
Modern Approach: A landowner owns the rights to only that airspace reasonably necessary for the use and enjoyment of his land.
Note: Rights in airspace include the right to be free from excessive noise.
RIGHTS IN LAND:
LIST 5 WAYS ONE MAY GAIN THE RIGHT TO USE ANOTHER’S LAND
1) Easements
2) Profits (Profit a Prendre)
3) Licenses
4) Real Covenants
5) Equitable Servitudes
EASEMENT
(Define)
Definition: An easement creates the privilege to use the land of another.
Note: Easements may exist as:
1) Affirmative or negative easements,
2) Appurtenant or in gross.
AFFIRMATIVE & NEGATIVE EASEMENTS
(State the Rule)
Affirmative Easement: The holder of an affirmative easement is entitled to make beneficial use of or act on another’s land (the servient tenement).
Negative Easement: The holder of a negative easement is entitled to prevent the owner of the servient tenement from using her land in a particular manner.
EASEMENT APPURTENANT & EASEMENT IN GROSS
(State the Rule)
Easement Appurtenant: An easement appurtenant allows its holder to use part of another’s land (the servient tenement) in a manner that directly benefits the holder’s use of his own land (the dominant tenement).
Easement in Gross: An easement in gross provides its holder with a personal benefit, derived from the servient tenement, that is not tied to the holder’s use of his own land.
Note: Easements in gross have only a servient tenement (and no dominant tenement) because the easement provides a personal benefit to the easement holder.
SERVIENT & DOMINANT TENEMENTS
(Define)
Servient Tenement: The land burdened by an easement.
Dominant Tenement: The land benefited by an easement.
LIST 4 WAYS TO CREATE AN EASEMENT
1) Express Grant
2) Reservation
3) Implication
4) Prescription
EASEMENT BY EXPRESS GRANT
(Define & State the Rule)
Definition: An easement by express grant is created through a provision in a deed or a will that grants another the right to use the servient land for a particular purpose.
Rule: An express easement must be:
1) In writing, AND
2) Signed by the holder of the servient tenement.
Note:
1) If a Grantor attempts to orally grant an easement extending beyond one year, the easement will be unenforceable under the Statute of Frauds.
2) A failed attempt to create an easement creates a license.
EASEMENT BY RESERVATION
(Define & State the Rule)
Definition: An easement by reservation is created through a provision in a deed and arises when an owner conveys title to land, but reserves the right to the continued use of part ofthe land for a particular purpose.
Rule: An easement by reservation must be:
1) In writing, AND
2) Signed by the holder of the servient tenement (the person to whom the land is being conveyed).
Note: An easement cannot be reserved in favor of a third party. A conveyor may only reserve an easement for herself.
EASEMENT BY IMPLICATION
(Define)
Definition: An easement created by implication is an easement created by operation of law.
Note: Easements may be implied:
1) From existing use, OR
2) By necessity.
EASEMENT BY IMPLICATION:
EASEMENT IMPLIED FROM EXISTING USE
(State the Rule)
Rule: An easement may be implied from existing use if:
1) A tract of land is severed into smaller parts and conveyed to a person other than the original owner,
2) The use for which the dominant tenement claims the easement existed before the land was divided,
3) The easement is reasonably necessary for the dominant tenement’s use and enjoyment of her land, AND
4) A court finds the parties intended the use to continue after division of the original parcel.
EASEMENT BY IMPLICATION:
EASEMENT IMPLIED BY NECESSITY
(State the Rule)
Rule: An easement by necessity may be implied when an easement is reasonably necessary to the dominant-tenement owner’s use of his land.
EASEMENT BY PRESCRIPTION
(Define & State the Rule)
Definition: An easement by prescription is an easement created through the principles of adverse possession.
Rule: To acquire a prescriptive easement, the use of the easement must be:
1) Open, notorious, and visible,
2) Hostile,
3) Continuous, AND
4) For the statutory period.
Note: Permission to use the easement defeats acquisition of an easement by prescription.
HOW IS THE SCOPE OF AN EASEMENT DETERMINED?
Rule: The parties’ intent generally determines the scope of an easement, subject to the requirement that the holder of an easement not overburden the servient estate. A servient estate may be overburdened if the easement holder:
1) Unreasonably intensifies use of the easement beyond the agreed upon terms,
2) Alters the purpose for which the easement is used, OR
3) Unilaterally extends an easement appurtenant to parcels of land beyond the original dominant tenement.
Note: To alter the scope of an easement, mutual assent is required.
LIST 7 WAYS TO TERMINATE AN EASEMENT
1) Express Agreement
2) Written Release
3) Abandonment
4) Estoppel
5) Unity of Title (Merger)
6) Destruction/Condemnation of Servient Estate
7) Prescription
TERMINATION OF EASEMENTS:
EXPRESS AGREEMENT
(State the Rule)
Rule: The instrument (deed or will) in which an easement is created may set the expiration date of an easement. If no expiration date is set, the easement is treated as perpetual.
TERMINATION OF EASEMENTS:
WRITTEN RELEASE
(State the Rule)
Rule: An easement can be terminated upon the written release of the easement holder.
Note: An oral release will not be valid unless accompanied by a demonstrated intent to abandon the easement.
TERMINATION OF EASEMENTS:
ABANDONMENT
(State the Rule)
Rule: An easement may be extinguished if the easement
holder:
1) Intends to permanently abandon the easement, AND
2) Manifests such intent through her conduct.
TERMINATION OF EASEMENTS:
ESTOPPEL
(State the Rule)
Rule: An easement may be terminated by estoppel if:
1) The easement holder indicates through words or conduct an intent to terminate the easement, AND
2) The owner of the servient estate changes her conduct in reasonable reliance on the easement holder’s representations.
TERMINATION OF EASEMENTS:
UNITY OF TITLE
(MERGER)
(State the Rule)
Rule: An easement will automatically be extinguished if one person acquires title to both the dominant and servient estates.
Note:
1) Termination by merger applies only to easements appurtenant.
2) The unity of title must be complete. Thus, the interest acquired in the servient tenement must be of equal or greater duration than the easement.
TERMINATION OF EASEMENTS:
DESTRUCTION OR CONDEMNATION OF SERVIENT ESTATE
(State the Rule)
Rule: The destruction or condemnation of the servient estate extinguishes all easements.
Exception: If the structure in which an easement was held was voluntarily destroyed by the servient tenement, the easement will not terminate.
TERMINATION OF EASEMENTS:
PRESCRIPTION
(State the Rule)
Rule: An easement may be terminated by prescription through interference with the easement holder’s rights in accordance with the principles of adverse possession. To terminate an easement by prescription, the servient-estate owner must interfere with the easement in a way that is:
1) Open, notorious, and visible.
2) Hostile.
3) Continuous. AND
4) For the statutory period.
PROFIT A PRENDRE
(Define)
Definition: A profit a prendre is an easement that confers
the right to enter and remove something of value from land held in the possession of another.
LICENSE
(Define)
Definition: A license provides its holder with the privilege to enter the land of another for a specified purpose but does not convey an interest in the land.
REAL COVENANTS
(Define & State the Rule)
Definition: A real covenant is a written promise to do or not do something related to land. Covenants may be affirmative or negative:
1) Affirmative Covenant: An affirmative covenant is a promise to affirmatively do something related to land.
2) Negative Covenant: A negative, or restrictive, covenant is a promise to refrain from doing something related to land.
Rule: Covenants must be in a writing that satisfies the Statute of Frauds to run with the land. Covenants will not be implied, nor can they arise through prescription.
COVENANTS:
3 TYPES OF NOTICE
(Define)
Actual Notice: A party with actual knowledge of the covenant’s existence is on actual notice.
Record Notice (Constructive Notice): A party is on record notice if the covenant would be revealed by a search ofthe public records.
Inquiry Notice: A party who knows of facts that would cause a reasonable person to investigate further is on inquiry notice of the facts such an investigation would uncover.
WHAT DOES IT MEAN FOR A COVENANT TO RUN WITH THE LAND?
Rule: A covenant runs with the land when the contractual promise between two parties is:
1) Binding against future purchasers ofthe promisor’s land, AND
2) Enforceable by future purchasers of the promisee’s land.
HOW DO YOU DETERMINE IF A COVENANT WILL RUN WITH THE LAND?
Step 1: Determine if the burden runs with the land.
Step 2: Determine if the benefit runs with the land.
WHAT IS REQUIRED FOR A BURDEN TO RUN WITH THE LAND?
Rule: In addition to the requirement that covenants be in writing, four elements must be present for a burden to run with the land:
1) Intent,
a) The original parties must have intended the covenant to run with the land.
2) Privity of Estate,
a) Horizontal Privity, AND
i) The promise must have been made in connection with a conveyance of land between the original promisor and promisee,
b) Vertical Privity,
i) The successor to the promisor or promisee must succeed to the entire interest held by the party she is succeeding.
3) Touch and Concern, AND
a) The burden must relate directly to the use and enjoyment of the promisor’s land.
4) Notice.
WHAT IS REQUIRED FOR A BENEFIT TO RUN WITH THE LAND?
Rule: In addition to the requirement that covenants be in writing, three elements must be present for a benefit to run with the land:
1) Intent,
a) The original parties must have intended the covenant to run with the land.
2) Vertical Privity, AND
a) The successor to the promisor or promisee must succeed to the entire interest held by the party whom she is succeeding.
3) Touch and Concern,
a) The benefit of the covenant must relate directly to the use and enjoyment ofthe promisee’s land.
Note: Horizontal privity is not required for a benefit to run with the land.
EQUITABLE SERVITUDES
(Define)
Definition: An equitable servitude is a promise that will be enforced in equity against the successors of the original parties.
CREATION OF EQUITABLE SERVITUDES
(State the Rule)
Rule: Like real covenants, equitable servitudes are created by a promise in writing that satisfies the Statute of Frauds.
Exception: In the absence of a writing, an implied equitable servitude will be found to apply to all parcels within a subdivision if:
1) The developer, through use of a common plan or scheme, manifests an intent to uniformly impose restrictions on all lots within the subdivision, AND
2) Subsequent purchasers of subdivided parcels have actual or record notice of the restrictions.
WHAT IS REQUIRED FOR AN EQUITABLE SERVITUDE TO RUN WITH THE LAND?
Rule: An equitable servitude will be enforceable against the promisor’s successor if four elements are present:
1) Intent,
a) The original parties intended to create an obligation relating to the land.
2) Writing,
a) Note: A writing is not required for implied equitable servitudes.
3) Touch and Concern, AND
a) For the burden to run: The burden must relate directly to the use and enjoyment ofthe promisor’s land,
b) For the benefit to run: The benefit must relate directly to the use and enjoyment of the promisee’s land.
4) Notice,
a) The promisor’s successors must have actual, record or inquiry notice.
Note: Privity of estate is not required to enforce an equitable servitude.
HOW MAY EQUITABLE SERVITUDES BE TERMINATED?
Rule: An equitable servitude can be terminated by:
1) Express Agreement
2) Written Release
3) Abandonment
4) Estoppel
5) Unity of Title (Merger)
6) Destruction/Condemnation of Servient Estate
7) Prescription
REAL ESTATE TRANSACTIONS:
WHEN ANALYZING REAL ESTATE TRANSACTIONS, WHAT 2 BROAD AREAS SHOULD YOU CONSIDER?
1) Conveyancing
2) Mortgages
REAL ESTATE TRANSACTIONS:
CONVEYANCING
(Define)
Definition: Conveyancing is the act of transferring property title from one individual to another.
Note: Two documents are integral to the conveyance process:
1) Land Sale Contract
a) Definition: The land sale contract is the agreement between the buyer and seller that defines the terms ofthe
sale.
b) Note: Legal title is maintained in the seller until the payment terms have been fulfilled.
2) Deed
a) Definition: The deed is the document that passes legal title from the seller to the buyer.
b) Note: The deed supersedes the contract upon delivery ofthe deed.
LAND SALE CONTRACTS:
STATUTE OF FRAUDS REQUIREMENTS
(State the Rule)
Rule: The Statute of Frauds requires that the parties’ agreement:
1) Be in writing,
2) State the names ofthe parties,
3) Describe the property to be transferred,
4) State the purchase price of the property, AND
5) Be signed by the party to be bound.
Exception: Under the Doctrine of Part Performance, the party who has acted in reliance on an oral land sale contract may demand specific performance if:
1) The buyer takes possession and makes payments,
2) The buyer takes possession and makes substantial improvements to the property, OR
3) The seller transfers title to the buyer.
LAND SALE CONTRACTS:
IMPLIED WARRANTY OF MARKETABLE TITLE
(State the Rule)
Rule: Implied in every land sale contract is the seller’s promise to provide title free from reasonable doubt at the date of closing. Title is considered unmarketable if:
1) The property is encumbered (i.e., easements, restrictive covenants, or outstanding mortgages),
2) Defects in the chain of title exist, OR
3) The possibility of an unascertained future interest holder exists.
Note:
1) The buyer may waive defects that would otherwise render title unmarketable.
2) The seller generally has until the date of closing to provide marketable title.
3) After closing, the seller is released from the implied warranty but held liable to the promises made in the deed.
LAND SALE CONTRACTS:
DOCTRINE OF EQUITABLE CONVERSION & RISK OF LOSS
(State the Rule)
**Doctrine of Equitable Conversion **
Rule: The signing of the land sale contract vests the buyer with equitable ownership of the land and the seller with equitable ownership ofthe purchase price.
Risk of Loss
Rule: Generally, the risk of loss will transfer to the buyer upon signing of the contract.
Exception: The seller retains the risk of loss if:
1) The loss resulted from the seller’s negligence, OR
2) At the time of the loss, the seller could not have rendered marketable title.
DEEDS:
WHAT IS REQUIRED TO CREATE A VALID DEED?
Rule: To be valid, a deed must be:
1) Lawfully executed, AND
2) Lawfully delivered.
DEEDS:
LAWFUL EXECUTION
(State the Rule)
Rule: To be valid, the deed must:
1) Be in writing,
2) Describe the conveyed land with sufficient certainty,
3) Be signed by the Grantor, AND
4) Be witnessed or notarized (depending upon the jurisdiction).
DEEDS:
LAWFUL DELIVERY
(State the Rule)
Rule: Lawful delivery of a deed may be satisfied by:
1) The physical delivery ofthe deed by the Grantor to the Grantee, OR
a) Note: The Grantor may use an agent to deliver the deed or may mail the deed.
2) The Grantor’s manifestation other intent (through words or conduct) to make the deed presently operative to vest title in the Grantee.
Note:
1) Once a deed has been properly delivered and accepted, it is irrevocable. The only way to return legal title to the Grantor is to effect a new conveyance (i.e., execution of another land sale contract and delivery of the deed).
2) The recipient’s express rejection of a deed will defeat delivery.
LIST 3 TYPES OF DEEDS
1) General Warranty Deed
2) Special Warranty Deed
3) Quitclaim Deed
GENERAL WARRANTY DEED
(Define & State the Rule)
Definition: A general warranty deed provides a warranty against all defects in title, including those attributable to the Grantor’s predecessors.
Rule: General warranty deeds generally include six covenants for title that fall into two categories:
1) Present Covenants:
a) Covenant of Seisin,
b) Covenant of Right to Convey,
c) Covenant Against Encumbrances.
2) Future Covenants:
a) Covenant of Warranty,
b) Covenant for Quiet Enjoyment,
c) Covenant for Further Assurances.
GENERAL WARRANTY DEED:
COVENANT OF SEISIN
(Define)
Definition: The covenant of seisin pledges that the Grantor owns the estate described in the deed.
GENERAL WARRANTY DEED:
COVENANT OF RIGHT TO CONVEY
(Define)
Definition: The covenant of right to convey pledges that the Grantor has the legal right to convey title.
GENERAL WARRANTY DEED:
COVENANT AGAINST ENCUMBRANCES
(Define)
Definition: The covenant against encumbrances pledges
that there are no encumbrances on the land.
GENERAL WARRANTY DEED:
COVENANT OF WARRANTY
(Define)
Definition: The covenant of warranty is the Grantor’s
guarantee of good title and promise to defend the title
against legitimate actions brought by other claimants.
GENERAL WARRANTY DEED:
COVENANT FOR QUIET ENJOYMENT
(Define)
Definition: The covenant for quiet enjoyment is the
Grantor’s guarantee that the Grantee’s possession will not be disturbed by a third party with superior title.
GENERAL WARRANTY DEED:
COVENANT FOR FURTHER ASSURANCES
(Define)
Definition: The covenant for further assurances is the
Grantor’s guarantee that he will take whatever action is
reasonably necessary to perfect the Grantee’s title if the
title later turns out to be imperfect.
WHAT IS THE DIFFERENCE BETWEEN PRESENT & FUTURE COVENANTS?
Rule: Present and future covenants differ in the time at which each covenant can be breached:
1) A present covenant is breached, if ever, at the time the deed is delivered,
2) A future covenant cannot be breached until and unless the Grantee is disturbed in her possession of the property through actual or constructive eviction.
Note: The importance of the difference lies in determining when the statute of limitations begins to run in the case of breach:
1) For present covenants, the statute runs at the moment of delivery of the deed,
2) For future covenants, the statute runs at the moment of breach by actual or constructive eviction.
SPECIAL WARRANTY DEED
(Define & State the Rule)
Definition: A special warranty deed is one in which the Grantor guarantees the title only against defects created during his ownership ofthe property, not against defects in existence before his tenure as property owner.
Rule: With a special warranty deed, the Grantor warrants only that:
1) He has not encumbered the property, AND
2) He will defend the title against any defects arising under him.
Note: Special warranty deeds are commonly used in commercial transactions.
QUITCLAIM DEED
(Define & State the Rule)
Definition: A quitclaim deed is one in which no covenants are contained.
Rule: With a quitclaim deed, the Grantor transfers whatever interest she holds in the property and makes no promise or guarantee whatsoever as to the lack of defects in that interest.
Note: A quitclaim deed does not release the Grantor from the requirement implicit in the land sale contract to provide marketable title at closing.
RECORDING STATUTES
(Define)
Definition: Recording statutes require that deeds be properly recorded within the chain of title.
BONA FIDE PURCHASER
(Define)
Definition: A Bona Fide Purchaser (BFP) is one who:
1) Gives valuable consideration,
2) Has no notice of outstanding rights of others, AND
3) Acts in good faith concerning the purchase.
Note: Valuable consideration is consideration of more than nominal value, but it does not have to be what the property is actually worth.
3 TYPES OF NOTICE
(Define)
Actual Notice: A subsequent purchaser who, before closing, has actual knowledge of a prior purchaser’s existence is on actual notice.
Record Notice (Constructive Notice): A subsequent purchaser is on record notice of prior conveyances that have been properly recorded and appear in the property’s chain of title.
Inquiry Notice: A subsequent purchaser is on inquiry notice of anything that a reasonable physical inspection of the property would reveal.
LIST 3 TYPES OF RECORDING STATUTES
1) Race Statute
2) Notice Statute
3) Race-Notice Statute
RACE STATUTE
(State the Rule)
Rule: Whoever records first in time wins.
Note: Notice of prior claims is irrelevant.
NOTICE STATUTE
(State the Rule)
Rule: A subsequent purchaser prevails over a prior Grantee who failed to record if the subsequent purchaser had no actual or constructive notice of the prior purchase at the time of conveyance.
RACE-NOTICE STATUTE
(State the Rule)
Rule: A subsequent purchaser prevails over a prior Grantee who failed to record if:
1) The subsequent purchaser is a Bona Fide Purchaser, AND
2) She records before the prior purchaser.
CHAIN OF TITLE PROBLEM:
THE SHELTER RULE
(State the Rule)
Rule: Under the Shelter Rule, the transferor of an instrument passes on all of the transferor’s rights to the transferee. Thus, a Grantee who takes from a BFP is herself protected as a BFP and will prevail against any entity that the transferor-BFP would have prevailed against.
CHAIN OF TITLE PROBLEM:
WILD DEED
(Define & State the Rule)
Definition: A wild deed is a deed that is not connected to a chain of title.
Rule: A wild deed cannot give record notice to subsequent purchasers of its existence.
CHAIN OF TITLE PROBLEM:
ESTOPPEL BY DEED
(Define & State the Rule)
Definition: The Doctrine of Estoppel by Deed protects an unwitting Grantee who acts in good faith reliance on good title being vested in the Grantor, when in fact the Grantor does not possess legal title to the property.
Rule: A Grantor who conveys an interest in property that he does not own is estopped from later denying the validity of the deed or asserting a claim to title in the property if he subsequently acquires a valid interest in the estate.
MORTGAGE
(Define & State the Rule)
Definition: A mortgage is a financing arrangement in which one party (mortgagor) gives the other (mortgagee) a security interest in land as collateral to guarantee the repayment of a loan.
Rule: A mortgage requires two documents:
1) Note, AND
a) Definition: The note is the mortgagor’s written statement of debt, which evidences the mortgagor’s promise to repay and includes a statement ofthe amount owed, interest, and terms of repayment.
2) Mortgage document.
a) Definition: The mortgage is the document in which the mortgagor pledges or conveys title to the mortgagee as security for repayment of the loan.
b) Note: The mortgage becomes void upon repayment of the loan according to the agreed upon terms.
LIST 3 MORTGAGE THEORIES
1) Lien Theory
2) Title Theory
3) Intermediate Theory
HOW ARE MORTGAGES TREATED IN LIEN THEORY JURISDICTIONS?
Rule: In lien theory jurisdictions, a mortgage creates no more than a lien (i.e.. an encumbrance) on the land, regardless of the language written into the mortgage document.
Note:
1) The mortgagee has no right to possession of the land while the loan is in repayment.
2) Only upon default does the mortgagee assume title and gain the right to take possession ofthe land.
HOW ARE MORTGAGES TREATED IN TITLE THEORY JURISDICTIONS?
Rule: in title theory jurisdictions, a mortgage acts as a conveyance of title to the mortgagee while the mortgage is in repayment, and (technically) provides the mortgagee with the right to possess the land at any time
Note: Upon default, the mortgagee can immediately take possession of the property.
HOW ARE MORTGAGES TREATED IN INTERMEDIATE THEORY JURISDICTIONS?
Rule: In intermediate theory jurisdictions, the mortgagor holds title to the land while in repayment.
Note: Upon default ofthe loan, title transfers automatically to the mortgagee, allowing the mortgagee to immediately take possession of the property.
WHAT HAPPENS WHEN MORTGAGED PROPERTY IS SOLD?
Rule: When mortgaged property is sold:
1) The seller (mortgagor) can pay off the mortgage at closing,
2) The buyer of the property can take the property subject to the mortgage, OR
3) The buyer of the property can assume the mortgage.
SELLING MORTGAGED PROPERTY:
TAKING SUBJECT TO THE MORTGAGE
Rule: If a purchaser of property takes subject to the mortgage, the purchaser agrees to make payments on the mortgage, but is not personally liable for repayment ofthe loan.
Note:
1) The mortgagee can foreclose if the purchaser does not pay according to the terms of the original loan, but the mortgagee cannot obtain a deficiency judgment against the purchaser.
2) If the purchaser defaults on the loan, the mortgagee can sue the original mortgagor for the outstanding balance of the loan.
3) If a deed is silent on the matter, the purchaser is presumed to have taken subject to the mortgage.
SELLING MORTGAGED PROPERTY:
ASSUMING THE MORTGAGE
Rule: If a purchaser of property assumes the mortgage, the purchaser assumes personal liability for repayment of the loan.
Note:
1) If the assuming purchaser defaults on the loan, the mortgagee can obtain a deficiency judgment against her.
2) The original mortgagor remains secondarily liable for repayment of the loan. If the mortgagee is unable to collect a deficiency judgment from the assuming purchaser, it may collect from the original mortgagor.
DUE-ON-SALE CLAUSE
(Define)
Definition: A due-on-sale clause is language included in
a mortgage that allows the mortgagee to demand full
payment of the loan if the mortgagor transfers any interest in the property without the mortgagee’s consent.
WHAT CAN THE MORTGAGEE DO IF A MORTGAGOR DEFAULTS ON THE LOAN?
Rule: Upon default by the mortgagor, a mortgagee may:
1) Assume title to the land, OR
2) Foreclose the property and use the proceeds of the sale to satisfy the mortgage.
MORTGAGOR’S OPTIONS AFTER DEFAULT
(State the Rule)
Majority View (Right of Redemption): A mortgagor has a right of redemption and an opportunity to redeem his land by satisfying the debt in full after defaulting on
a loan:
1) Equitable Redemption: A defaulted mortgagor may redeem his property by paying the full amount due any time before the foreclosure sale.
2) Statutory Redemption: A defaulted mortgagor may redeem his property by paying the full amount due up to a statutorily determined time period after the foreclosure sale is held.
Minority View (Common Law): Once a mortgagor has defaulted on his loan, he is barred from redeeming his land.
IN THE EVENT OF FORECLOSURE, IN WHAT ORDER ARE MULTIPLE MORTGAGEES PAID?
Rule: Foreclosure sale proceeds are used to satisfy mortgages in the order of their priority. The order of priority is determined chronologically.
Exception: The holder of a purchase money mortgage (i.e.. the mortgage used to buy the property itself) will always have first priority to the parcel it financed, as long as the mortgage is properly recorded
HOW DOES A FORECLOSURE AFFECT THE INTERESTS OF JUNIOR & SENIOR MORTGAGE HOLDERS?
Rule: Proceeds from a foreclosure sale are used to satisfy lienholders’ claims in descending order, and each claimant is entitled to receive full satisfaction before a junior lienholder can collect.
Junior Interests
Rule: Foreclosure terminates all interests junior to the mortgage being foreclosed. If insufficient funds remain to satisfy a junior lienholder’s claims, the lienholder’s only option is to proceed for a deficiency judgment against the mortgagor.
Note: All creditors junior to the party bringing the foreclosure action are necessary parties to the action. Failure to join a junior lienholder results in the preservation of that party’s claim against the property after the foreclosure and sale of the property.
Senior Interests
Rule: Foreclosure does not terminate interests senior to the interest being foreclosed.
Note: This means senior creditors’ mortgages are still attached to the land, and they may foreclose on the property at a future date. A buyer at a foreclosure sale resulting from default of a junior creditor’s loan takes subject to the senior creditor’s interest.
SUBORDINATION AGREEMENTS
(Define & State the Rule)
Definition: A subordination agreement is one in which a
lender agrees with the property owner (mortgagor) to subordinate an earlier (senior) loan to a later (junior) loan.
Rule: Subordination agreements must be notarized to be valid.
INSTALLMENT LAND SALES CONTRACT
(Define)
Definition: An installment land sales contract is an agreement between a buyer and seller in which the seller finances the sale price of the property and accepts installment payments from the buyer.
Note: The seller retains legal title to the property until the obligation is paid in full or until the agreed upon terms are fulfilled.
WHAT ARE THE 5 POSSIBLE OUTCOMES IF A BUYER DEFAULTS ON AN INSTALLMENT LAND SALES CONTRACT?
1) Forfeiture
a) Forfeiture is often provided for through a strict forfeiture provision in the contract as remedy for default of the agreement.
2) Restitution
a) Some jurisdictions require the seller to refund payments received before default, minus the amount of any damages suffered by the seller.
3) Right of Redemption
a) Some jurisdictions hold that equity requires a defaulting purchaser be given the chance to redeem the property through payment of the balance due, regardless of the inclusion of a forfeiture clause in an agreement.
4) Foreclosure
a) The contract is treated as if it were a mortgage. A foreclosure sale will be held and the proceeds used to satisfy the debt.
5) Waiver
a) If a seller has accepted late payments from the buyer, the seller’s pattern of accepting late payments may waive the right to demand timely payment.
