Real Property MBE

Question 1

Fee Simple Absolute

Answer 1

Absolute ownership of potentially infinite duration

“To A” or “to A and his heirs” * Freely alienable, devisable, and descendible; no accompanying future interest

Question 2

Defeasible fee

Answer 2

potentially infinite duration, subject to termination by the occurrence of an event; alienable, devisable, and descendible

Question 3

Fee Simple Determinable

Answer 3

Limited by specific durational language (e.g., “so long as,” “while,” “during,” “until”)

o Automatically terminates upon happening of the stated event

o Future interest: Grantor (or his successor in interest) retains possibility of reverter; or if the future interest is in a third party, it is an executory interest

Question 4

Fee Simple Subject to Condition Subsequent

Answer 4

o A present fee simple that is limited by specific conditional language (e.g., “upon condition that,” “provided that,” “but if,” or “if it happens that”)

o Will terminate only if the grantor affirmatively demonstrates intent to terminate

o Future interest: Grantor reserves right to terminate estate upon happening of a stated event; grantor must specifically retain right to reenter

Question 5

Fee Simple Subject to Executory Interest/Limitation

Answer 5

o A present fee simple that is limited by specific conditional language

o Automatically terminates upon happening of the stated event, and title passes to a third party

o Future interest: Executory interest held by the third party (i.e., someone other than the grantor)

Question 6

Life Estate

Answer 6

—present possessory estate fully transferable during measuring life

• If third party: “to A for life,” “to B after the life of A,” or “to B for the life of C” (pur autre vie); “to A for life, but if he drinks, then to B” (defeasible)
• If measured by the grantee’s life, not devisable/descendible by the grantee; if measured by another’s life, LE may be devisable/descendible
• LE may be cut short by specified event (defeasible life estate)
• Life tenant’s (LT) rights: o Right to possess o Right to collect rents, lease/sell/mortgage (must pay taxes on financial benefit from the land)

Question 7

Life Estate Waste

Answer 7

Waste—limits the rights of a holder of a LE, LT must deliver property to future interest holder in substantially the same condition as when LT took possession

o Permissive—occurs when LT permits the premises to deteriorate through neglect, failure to preserve, or a failure to reasonably protect the property; LT must make reasonable repairs (up to amount of income produced by property or, if LT is in actual possession, the fair rental value)

o Voluntary— occurs when the condition of the property is substantially changed due to LT’s affirmative action  Decrease in property value—not permitted

 No decrease in property value—ameliorative waste; permitted when the change results in a reasonable use of the property unless future interest holders have reasonable objection

o Holder of any future interest—may bring suit against LT for an injunction

Question 8

LE Allocation of Burdens

Answer 8

LT must pay property taxes to the extent LT receives a financial benefit from the land; pre-existing mortgage obligations and assessments for public improvements are allocated between LT and future interest holder

Question 9

Future Interests

Answer 9

—an ownership interest in presently existing property which may commence in possession or enjoyment sometime in the future

Question 10

Reversion

Answer 10

held by a grantor who transfers a LE or estate for years without conveying the remaining FI to a third party; not subject to RAP; alienable, devisable, and descendible

Question 11

Possibility of Reverter

Answer 11

a FI retained by a grantor when a FSD is conveyed; alienable, devisable, and descendible

Question 12

Right of reentry

Answer 12

(right to terminate; right of entry; power of termination) a FI retained by a grantor after a FSSCS is granted; alienable, devisable, and descendible in most states

Question 13

Remainder

Answer 13

a FI that becomes possessory upon the natural expiration of a prior estate that is created in the same conveyance in which the remainder is created

• Vested—not subject to any conditions precedent; ascertainable grantee

o Vested remainder subject to open  If at least one class member is qualified to take possession at the time of the conveyance (but less than all of them), each class member’s share is subject to partial diminution because additional takers not yet ascertained can still vest

o Vested remainder subject to complete divestment—the occurrence of a condition subsequent will completely divest the remainder

• Contingent—created in an unascertainable grantee or is subject to an express condition precedent to grantee’s taking (because of unknown beneficiary or known beneficiary subject to condition precedent that has not yet occurred)

Question 14

Executory interests

Answer 14

—a FI in a third party (not a remainder) that cuts the prior estate short upon the occurrence of a specified condition; transferable and subject to RAP

• Shifting—cuts short a prior estate created in the same conveyance, so the estate shifts from one grantee to another grantee upon the happening of a condition
• Springing—divests the grantor’s interest or fills a gap in possession in which the estate reverts to the grantor

Question 15

Future Interests Transferability

Answer 15

remainders/executory interests are transferable inter vivos and devisable/descendible

Question 16

Class gifts

Answer 16

—transfer to members of a group; beneficiaries and amount of gift are subject to change

Question 17

Survival Contingency

Answer 17

when ambiguous, majority applies at termination of interest that precedes remainder; minority requires surviving only grantor, not LT

Question 18

RAP

Answer 18

Specific FIs are valid only if they must vest or fail by the end of a life in being plus 21 years

Question 19

RAP Affected FIs

Answer 19

—RAP applies to contingent remainders, vested remainders subject to open, executory interests, and powers of appointment; rights of first refusal and options may be unless commercial; RAP does not apply to FIs that revert to the grantor (reversion, possibility of reverter, right of reentry)

Question 20

RAP Measuring Lives

Answer 20

must be human; there can be more than one; if not specified, then the measuring life is the life directly related to the FI that is subject to RAP

Question 21

RAP Creation Events

Answer 21

—RAP tests the FI as of the time that it is created

Question 22

RAP “Vest or Fail” Requirement

Answer 22

—if there is any possibility that it will not be known whether the interest will vest or fail within the applicable period, then RAP has not been satisfied

Question 23

RAP Effect of Violation

Answer 23

except in rare cases when voiding the FI undermines the grantor’s intent, only the offending interest fails

Question 24

RAP special rule for class gifts

Answer 24

(“bad as to one, bad as to all”)—if RAP voids a transfer to any class member, then the transfer is void as to all class members, even those whose interests have already vested

o Rule of convenience—can operate to prevent application of RAP to a class transfer, but the application of the rule of convenience to a class transfer does not automatically forestall the application of RAP

o Exceptions—transfers of a specific dollar amount to each class member; transfers to a subclass that vests at a specific time

Question 25

RAP Charity exception

Answer 25

Charity-to-charity exception—if property passes from one charity to another, RAP does not apply

Question 26

RAP Common Violations

Answer 26

o “Survival beyond age 21” condition

o Fertile octogenarian

o Unborn spouse

o Defeasible fee followed by executory interest

o Conditional passage of interest

Question 27

Tenancy in Common

Answer 27

(default co-tenancy) * Two or more grantees with unity of possession * No right of survivorship (ROS) * Each cotenant holds undivided interest with unrestricted rights to possess whole * Interest freely devisable/transferable

Question 28

Joint Tenancy

Answer 28

• Two or more persons own the property with ROS
• Four unities (PITT)
  o Equal rights to possess the whole
  o With identical equal interests
  o Created at the same time o By the same title
• Severance—converts a JT into a TC (but only with respect to the severed share)
  o Sale—don’t need consent; severs JT as to seller but JT of non-transferors remains intact
  o Mortgage—severs JT under title theory, but not under lien theory
  o Judicial lien—the lien typically will not sever the JT; severance occurs when the property is levied and sold

Question 29

Tenancy by Entirety

Answer 29

• Same unities as JT, plus unity of person (parties must be married to each other when deed is executed or conveyance occurs)
• Neither party can alienate or encumber the property without the consent of the other
• Recognized in about half the states; where recognized, majority presume a conveyance to a married couple creates a TE, and that divorce converts it to a TC

Question 30

Rights/Obligations of Co-Tenants

Answer 30

• Each co-T has the right to possess the entire property and is generally not required to pay rent when other co-Ts do not use the property (unless co-T has been ousted)
• Co-T can collect contribution from other co-Ts for operating expenses (e.g., taxes), but if in sole possession, only if they exceed the rental value of the property
• Co-T cannot compel other co-Ts to share expenses for repairs by an action for contribution; may maintain a separate action for contribution in some states if notified other co-Ts of need for the repairs; in an action for accounting/partition, necessary repair expenses recouped indirectly
• Co-T has no right to contribution for improvements (may be entitled to additional value in a partition action)
• Co-T must account for rent received from third parties, but can deduct expenses; net proceeds are divided among co-Ts based on ownership interests
• Co-T owes a duty of fair dealing to other co-Ts, but generally does not owe fiduciary duties to other co-Ts; exception: a co-T buys the property at a tax or foreclosure sale (the other co-Ts can buy back their interests within a reasonable time)
• Partition—a TC or JT (but not a TE) generally has the right to unilaterally partition property; a partition in kind, preferred by courts, is a physical division of the property
• Easements—co-Ts may agree to create an easement; a unilaterally-created easement is only enforceable against the co-T who created it

Question 31

Fair housing and discrimination

Answer 31

federal Fair Housing Act (FHA) prohibits discrimination in the sale, rental, and financing of homes and in other housing-related transactions (such as advertising, homeowner’s insurance, and zoning)

• Exemptions—owner-occupied buildings with no more than four units (including the owner’s unit) and single-family homes sold or rented without a broker are generally not subject to FHA (but are subject to advertising rules)
• Protected classes—prohibition applies to discrimination based on race, color, religion, national origin, sex, disability, and familial status
• Racial discrimination—plaintiff need only show a disparate racial impact, not a racial intent or purpose

Question 32

Conflict of laws

Answer 32

generally apply law of the situs (i.e., state where RP is located)

• Exceptions
  o When a document that conveys/transfers an interest in land specifies applicable law
  o When dealing with property acquired during marriage, the law of the spouses’ domicile when the property was acquired determines whether the property is marital or separate property
  o Collateral issue (e.g., transfer of land attacked as fraudulent), the law of the state with the most significant interest may apply

Question 33

Tenancy for Years

Answer 33

• Any fixed period of time
• Automatically terminates at end of term (no notice needed)
• May be terminated before the end of the term (e.g., breach of lease covenant gives rise to right to terminate)
• Created by express agreement
• If term longer than one year, Statute of Frauds (SoF) applies: written lease signed by party to be charged must identify parties, premises, lease duration, and rent to be paid

Question 34

Periodic Tenancy

Answer 34

• Repetitive, ongoing estate by set periods of time with no predetermined termination date; term may be fixed by the parties or by their actions
• Automatically renews at end of each period unless valid termination notice
• SoF does not apply unless initial term exceeds one year
• Created by express agreement, implication (no mention of duration), or operation of law (holdover tenant)
• Termination notice
  o Must generally be given before last period begins, but for a year-to-year periodic tenancy, notice must be given at least six months (rather than one year) in advance; late notice is effective for the next period
  o Generally effective as of the last day of the period
  o Oral notice is sufficient under common law, but most states now require some writing

Question 35

Tenancy at Will

Answer 35

• Does not have a specific term; continues as long as L and T want
• Created by express agreement or by implication
• May be terminated by either party; at common law, no notice required, but L must give T reasonable time to vacate; most states now require notice; may also be terminated by operation of law

Question 36

Tenancy at Sufferance (holdover tenancy)

Answer 36

• T wrongfully remains in possession after the expiration of a lease
• T is bound by terms of the lease that existed before expiration, including payment of rent
• Tenancy lasts until T vacates, L evicts T, or L elects to hold T to periodic tenancy

Question 37

Duties of Tenant

Answer 37

1. Pay rent—duty to pay unless premises destroyed (lease terminated and tenant excused), or material breach by landlord
2. Avoid waste
   * Affirmative waste—T is prohibited from committing voluntary waste
   * Ameliorative waste—T may make changes to physical condition of property that increase the property value if reasonably necessary for T to use property in reasonable manner, unless L and T agree otherwise
   * Permissive waste—unless relieved by lease, statute, or ordinance, T has a duty to repair the premises to keep it in its pre-rental condition; no duty to repair normal wear and tear (unless L and T agree)
3. Repair—non-residential leases, T may be contractually liable for all damage to property (unless caused by L)

Question 38

Landlord Remedies for Tenant’s Breach

Answer 38

• Failure to pay rent—(majority) L can sue for damages and evict and terminate lease (could not evict or terminate lease at CL)
  o Future rent—no anticipatory repudiation (AR) in most states; where AR applies, damages limited to difference between future rent under lease and either (i) reasonable rental value or (ii) actual rent collected from re-letting
  o Late rent—L entitled to damages; whether L can sue to remove depends on if breach is material or L waived right to evict by accepting late rent
• Abandonment—treated as offer to surrender rights under the lease
  o L accepts surrender—lease terminates and T liability for future rent ends
  o L rejects surrender—T remains liable for rent, but under majority rule, L has duty to mitigate damages
• Holdover T—L can accept holdover tenant as periodic tenant or tenant at sufferance or sue after notice to vacate

Question 39

Duties of Landlord

Answer 39

1. Possession—L must deliver actual physical possession or no obligation for T to pay rent
2. Repair—except for T damages, L must repair for residential but not for commercial leases
3. Warranty of habitability (residential)—premises must be fit for basic human habitation (health/safety), and if breached:
   * T must notify L of defect and give reasonable time to repair, and
   * Then T can refuse to pay rent, make reasonable repairs and deduct cost from future rent, or remain in possession, pay rent, and seek damages
4. Covenant of quiet enjoyment (commercial and residential)
   * T has a right to quiet use and enjoyment of the premises without interference from L
   * L has duty to control other tenants’ nuisance in common areas
   * Breach may amount to eviction
   o Actual—if L excludes T from premises, then lease is terminated and T’s obligation to pay rent ends
   o Partial—T excused from paying rent for L’s partial eviction, but must pay reasonable rental value if partial eviction by third party with superior claim; T not excused from paying rent for partial eviction by adverse possessor/trespasser
   o Constructive—substantial interference caused by L’s actions or failure to act, T must give notice of problem, L fails to respond, and T must vacate premises within reasonable time after L fails to fix problem
   o Retaliatory—L may not evict a residential T for complaining about housing code violations or refusing to pay rent when L breaches the warranty of habitability (defense not available to T in unjustifiable arrears)
5. Security deposit
   * Amount and terms (e.g., more for pet) generally set by state statute
   * Usually retained in an escrow account and must be promptly returned at the end of the lease, absent an explanation for retaining it

Question 40

LL/T Tort Liabilities

Answer 40

1. Tenant—duty of care to invitees/licensees/foreseeable trespassers and may be liable for dangerous conditions/activities
2. Landlord * CL—liable for injuries in common/public areas, non-common areas under L’s control, or from hidden defect/faulty repair by L or L’s agent * Modern trend—general duty of reasonable care; liability for defects existing prior to T’s occupancy, failure to make required repairs, and criminal activities of third parties who injure Ts

Question 41

Assignment

Answer 41

complete transfer of T’s remaining lease term (transfer of a physical portion for remaining lease term is partial assignment)

Question 42

Sublease

Answer 42

any transfer for less than the entire duration of lease

Question 43

Assignee tenant

Answer 43

o Assignee-T liable to L for rent/covenants running with lease because assignee-T is in privity of estate (P/E) with L o If assignee-T reassigns lease, his P/E with L ends and the subsequent T is now in P/E with L

Question 44

Sublease tenant

Answer 44

o Not liable for rent/covenants in lease to L because not in P/E or privity of contract (P/C) with L (still liable to original lessee) o If sub-T expressly assumes covenants, then personally liable to L o Sub-T can enforce all covenants made by original lessee in sublease, but not any made by L

Question 45

Original Tenant

Answer 45

o Liable for lease covenants unless novation by L because still in P/C with L o P/E with L ends upon assignment but not sublease

Question 46

Landlord assignments

Answer 46

o Generally, L may assign lease rights and obligations to a third party (e.g., as part of a transfer of ownership) but L remains liable to T for all covenants in the lease o T must pay rent to assignee-L and obey lease covenants; assignee-L must perform any burden imposed by lease covenant o Attornment (T’s acknowledgment of a new L)—usually arises automatically upon payment of rent to assignee-L or notice to T but formal acknowledgment of an assignee-L’s ownership may be required in commercial leases

Question 47

Assignment/Sublease Limitations

Answer 47

• T can still assign/sublet if lease prohibits, but L can terminate for breach and recover damages * L can only withhold permission to grant assignment or sublease on reasonable grounds in relationship to the property being leased and not on a whim or personal prejudice

Question 48

Land Sale K - Real Estate Broker

Answer 48

an agent who owes his principal the duties of loyalty, care, competence, diligence, disclosure, and confidentiality * Seller’s agent o Listing broker—helps set the asking price and advertises the property o Selling broker—subagent of the listing broker; finds a buyer o Listing broker and selling broker generally share the commission * Buyer’s agent—may also receive a commission * Dual agent—represents both buyer and seller; prohibited in many jurisdictions * Transactional broker—does not represent either buyer or seller, but instead facilitates the sale by performing various functions; owes each party the duty to perform with skill, care, and diligence and to deal fairly with each party, but does not owe either party a duty of loyalty

Question 49

Land Sale K-Statute of Frauds

Answer 49

• Formalities—land sales K must be in writing, signed by the party to be charged, and contain all of the essential terms (parties, property description, terms of price/payment) o SoF also applies to other property interests such as assignments and options regarding the purchase of real property, leases over one year o A deed need not satisfy the SoF, but must be in writing, signed by the grantor, contain a description of the property, and identify the grantee; the deed must contain words of transfer * Part performance (SoF exception)—buyer takes possession of land, buyer remits all or part of purchase price, and/or buyer makes substantial improvements (most jurisdictions require at least two acts) * Detrimental reliance—specific performance (SP) permitted when party seeking enforcement has reasonably relied on K and would suffer hardship

Question 50

Land Sale K - Exceptions to SOF

Answer 50

• Part performance—consider payment of all or part of purchase price; possession by purchaser; substantial improvement by purchaser
• Detrimental reliance
• Admission

Question 51

Performance of Land Sale K

Answer 51

1. Marketable title * Title free from defects or unreasonable risk of litigation * Seller generally not required to deliver marketable title until closing; seller can use sale proceeds to pay off an existing mortgage, eliminating the related title defect * Buyer can rescind/recover out-of-pocket and earnest money payments, sue for breach, or sue for SP with an abatement of purchase price
2. Time of the essence—not enforced unless part of K (express/implied), but party failing to perform on closing date is in breach
3. Implied warranty of fitness—only for new homes, warrants use of adequate materials and workmanship; includes latent construction defects
4. Duty to disclose defects (all homes)—seller must disclose all known material physical defects not readily observable
5. Tender of performance—concurrent conditions, so if one party repudiates then nonrepudiating party excused, but B must give S sufficient time to cure title defect
6. Merger—land sales K obligations (e.g., duty to deliver marketable title) merge into deed upon delivery unless parties intend otherwise or the obligations are collateral to/independent of conveyance

Question 52

Land Sale K - Remedies for Breach

Answer 52

1. Damages—difference between K price and market value (some jurisdictions: limited to B’s out-of-pocket expenses if seller (S) is unable to deliver marketable title but acted in good faith)
   * Buyer’s deposit as liquidated damages—generally, deposits of no more than 10% of the purchase price have been found to be reasonable liquidated damages, but courts may consider factors relating to the transaction or refuse to enforce liquidated-damages clauses when the S suffers no actual loss; when the K is silent, courts consider the same factors, and usually allow S to retain the deposit when reasonable
2. Specific performance (mutuality of remedies)

Question 53

Equitable Conversion

Answer 53

S’s interest converted by K into interest in proceeds of sale not in RP, once K is signed, B is owner of land subject to the condition he pay the purchase price at closing, but in interim between K and closing, B bears risk of loss if land is destroyed

Question 54

Options and rights of first refusal

Answer 54

subject to SoF

Question 55

Adverse Possession

Answer 55

1. Continuous/uninterrupted * Through statutory period (e.g., 10 (many states), 15, or 20 years) * Seasonal use okay if consistent with type of property (e.g., vacation home) * Tacking permitted, but no gaps and via non-hostile connections only (e.g., descent, devise, contract, or deed)
2. Actual—open/notorious physical presence by AP or another whose possession is attributable to AP; constructive AP gives title to whole
3. Hostile—must possess the land without owner’s permission * Majority of jurisdictions—ignore subjective intent; instead, must show objective intent to claim land as his own * Minority of jurisdictions—consider subjective intent: o Good faith—must believe the property is unowned or that he owns it o Bad faith—aggressive trespass
4. Exclusive—possession cannot be shared with true owner, but two or more people can adversely possess as tenants in common

Question 56

Delivery of Deeds

Answer 56

• At time of transfer, grantor must intend to make present transfer of property interest to grantee o Typically, intent is shown by delivery of the deed o Execution and recording—creates a rebuttable presumption that the deed is to be presently operative o Parol evidence admissible to establish intent when grantor keeps deed
• Transfer to grantor’s agent is not delivery but transfer to grantee’s agent is
• Transfer to third party with a condition is not delivery if grantor keeps absolute right to recover deed, but if not, treated like future property interest
• If conditioned upon death, grantor must intend to make a present gift
• Acceptance presumed for beneficial transfers

Question 57

Deed

Answer 57

• Many states allow real estate brokers to prepare real estate sales K; some states limit this to form Ks and some require attorney review
  o Non-attorneys may prepare mortgage lending docs
  o Jurisdictions are split as to requirement of attorney at closing, but non-attorney may not answer legal questions
• Valid deed requirements o Identified parties
  o Grantor’s signature
  o Words of transfer
  o Reasonably definite property description (extrinsic evidence admissible)
• Agent may execute deed
  o Equal dignities rule—agency authorization for real estate Ks must be in writing

Question 58

Notice Recording Act

Answer 58

 BFP (purchaser for value without notice) of prior interest prevails over prior grantee who failed to record  Must record against subsequent purchaser (e.g., “no conveyance/mortgage of RP good against subsequent BFP unless same be recorded according to law”)

Question 59

Race Recording Act

Answer 59

 First to record prevails, regardless of knowledge of prior conflicting interests (e.g., “no conveyance/mortgage of RP good against subsequent purchaser of value unless first recorded by law”)

Question 60

Race-Notice Recording Act

Answer 60

Subsequent BFP protected only if he takes without notice and is first to record (e.g., “no conveyance/mortgage of RP good against subsequent BFP unless first recorded by law”)

Question 61

Notice for Recording

Answer 61

tested as of the time of the conveyance; notice obtained after conveyance does not prevent purchaser from benefiting from recording

o Actual—a grantee with actual, personal knowledge of prior interest cannot prevail under notice or race-notice statute

o Inquiry—if reasonable investigation would disclose prior claims, a grantee cannot prevail against them (e.g., someone other than grantor has possession or documents referenced in chain of title)

o Record—properly recorded and appears in chain of title

Question 62

Title insurance

Answer 62

protects policy holder (owner or lender) against defects that could have been uncovered by careful title search or forged/undeliverable/unenforceable deeds

Question 63

Types of Deeds

Answer 63

• General warranty
  o Present covenants  Seisin—grantor owns land as described in deed  Right to convey—grantor has right to transfer title  Against encumbrances—no undeclared encumbrances against land
  o Future covenants  Quiet enjoyment—grantee not disturbed in possession by third party’s lawful claim  Warranty—grantor will defend grantee against third party’s claim  Further assurances—grantor will do whatever future acts reasonably necessary to pass title if later determined title is imperfect
• Special warranty—same covenants of title as general warranty deed, but only warrants against defects arising during the time grantor has title
• Quitclaim deed—no covenants of title

Question 64

Conveyance by will

Answer 64

specific devise or residuary clause

• Special situations
  o Ademption—devise of real property fails because the testator no longer owns the property upon death

o Lapse—devise of real property can also fail if the beneficiary named in the will dies before the testator and no alternate beneficiary or is named
 Anti-lapse statute—prevents a gift from lapsing if the gift is made to individuals specified by the statute and they leave issue who survive the testator

By operation of law - intestate succession

Question 65

Conveyance by trust

Answer 65

o Trust—a fiduciary relationship wherein one or more trustees are called upon to manage, protect, and invest certain property and any income generated therefrom for the benefit of one or more named beneficiaries

 Inter vivos trust—created when the settlor conveys his property (res) to the trustee while the settlor is alive

 Testamentary trust—created by the settlor in his will

 Pour over trust—created by settlor during his life but not funded until his death by a devise in his will

Question 66

Restrains on Alienation

Answer 66

1. Restraint on legal interests
   * Forms of restraint
   o Disabling restraint—total prohibition on the transfer of the property interest by its owner; always void
   o Forfeiture restraint—property is forfeited if the interest owner attempts to transfer his interest; restraint on a future interest or a life estate can be valid
   o Promissory restraint—a promise by the property interest holder not to transfer the property interest; enforceable by an injunction or a suit seeking damages; restraint on a life estate can be valid

• Prohibited restraints—an absolute restraint on alienation of a fee simple is void; any restraint based on race, ethnicity, or religion is not enforceable
• Permissible restraints—restraints on the use of property (e.g., covenants) are generally permissible V.

2. Restraint on equitable interests—a restriction on the transferability of an equitable property interest, such as a spendthrift clause, is valid

Question 67

Mortgages

Answer 67

an interest in RP that serves as security for an obligation

1. Must satisfy SoF
2. Lien theory (majority)—debtor/mortgagor has title and right to possession until foreclosure and creditor/mortgagee has lien and right to land if there is default
3. Lien stays on land if mortgage instrument properly recorded
4. Creditor can foreclose by judicial proceedings which terminate junior interests (subordinate interests must be joined or remain on land and B takes subject to senior interests)

Question 68

Mortgage Alternatives

Answer 68

1. Deed of trust—trustee holds title for beneficiary (lender); mortgagee-lender cannot purchase property at a non-judicial foreclosure sale, but a beneficiary-lender can.
2. Installment land contract—seller retains title to RP until buyer makes final payment
3. Absolute deed—transfers unrestricted title to RP (may actually be a disguised mortgage if an obligation is created contemporaneously with the transfer)
4. Conditional sale and repurchase—RP sold and then leased back to the seller; if the lease is for a long time with option to repurchase, may be a disguised mortgage

Question 69

Mortgage Transfer

Answer 69

unless lender agrees to release, borrower remains liable after transfer of RP

1. Mortgagor’s liability
   * If transferee assumes mortgage, then borrower is secondarily liable (i.e., if borrower makes payments, she can seek reimbursement from transferee)
   * Borrower may be relieved of liability if lender impairs borrower’s right of recourse against transferee by: (i) modifying loan terms, or (ii) releasing transferee of liability; or if lender releases or impairs the RP subject to the mortgage
   * Due-on-sale clause—lender can demand immediate payment of full amount due
   * Due-on-encumbrance clause—lender can accelerate mortgage upon second mortgage
2. Transferee’s liability
   * If transferee assumes mortgage, transferee is personally liable for mortgage obligation
   * If transferee takes RP “subject to” mortgage, then transferee is not personally liable upon default (but RP may be sold at a foreclosure sale)

Question 70

Pre-foreclosure rights and duties

Answer 70

1. Lien theory state—mortgagee cannot take possession before foreclosure; title theory state—mortgagee theoretically entitled to possession at any time (but typically cannot take possession until default by mortgage terms)
2. Mortgagor has duty not to commit waste
3. Equity of redemption—after default but before foreclosure sale, mortgagor may regain title by paying amount of loan obligation currently owed, plus interest (can be full amount of unpaid loan is there is an acceleration clause)

Question 71

Foreclosure

Answer 71

mortgagee takes RP when mortgagor defaults

1. Methods—judicially supervised sale, private sale, or strict foreclosure
2. Priority—if two+ mortgages, foreclosure terminates jr. interest and has no effect on sr. * “First-in-time, first-in-right” * Purchase-money mortgage (PMM) exception—mortgage given at the time of purchase of RP, generally has priority over mortgages and liens created by or that arose against the purchaser-mortgagor prior to the purchaser-mortgagor’s acquisition of the property * Recording-act exception—mortgages subject to general recording act; a recorded interest may take priority over an unrecorded one * Other exceptions—subordination agreements, mortgage modifications and replacements, future-advances, after-acquired property
3. Effects on parties * Mortgagor—interest eliminated * Purchaser of RP—takes property free of junior interest, subject to senior * Senior interests—unaffected * Junior interests—destroyed
4. Distribution of proceeds * Costs associated with the sale * Mortgage obligation being foreclosed * Mortgage obligations owed to junior interest holders in the order of the priority of their interests * Debtor-mortgagor
5. Deficiency * Most states: mortgagee permitted to bring a deficiency action against the mortgagor and/or any party who has assumed the mortgage * Some states: no deficiency action when the mortgagee forecloses via a privately supervised foreclosure sale or when the mortgage is a purchase-money mortgage; some states limit the total amount that may be recovered to the fair market value of the property

Question 72

Easements

Answer 72

the right held by one person to make specific, limited use of land owned by another

Question 73

Types of Easements

Answer 73

• Express—affirmatively created by parties in writing that satisfies requirements for a deed; by grant or by reservation
• Implied
  o Necessity  Dominant/servient estates must have been under common ownership  Necessity must arise when property severed and estates created  Property is virtually useless without benefit of easement across adjacent property
  o Implication  Dominant/servient estates must have been under common ownership  A quasi-easement existed at severance; may also be implied from a subdivision map or plat ownership  Prior use was continuous, apparent, or known  Easement reasonably necessary to dominant estate’s use/enjoyment
• Prescription—continuous, actual, open, and hostile for statutory period (e.g., 10 (many states), 15, or 20 years)
• Estoppel—good faith, reasonable, detrimental reliance on permission by servient estate holder, created to prevent unjust enrichment
• Negative—prevents owner from using land in specific ways, must be expressly created by writing signed by grantor, and usually only recognized for light/air/support/stream water from artificial flow

Question 74

Easement Transfer

Answer 74

• Easement appurtenant—benefit/burden transferred automatically with transfer of estate
• Easement in gross—benefits person, not estate o Burden transferred automatically with transfer of servient estate o Benefit transferable if commercial or parties intended it

Question 75

Easement Scope

Answer 75

court looks to reasonableness of use and intent of original parties and ambiguities resolved in favor of grantee

Question 76

Easement Termination

Answer 76

• Release—by writing that satisfies the requirements for the creation of a deed
• Merger—easement merges into title when owner of dominant or servient estate acquires fee title to the other estate
• Severance—severed by attempt to convey appurtenant easement separate from land it benefits
• Abandonment—owner affirmatively acts to show clear intent to abandon right (statements of intent without conduct and mere non-use insufficient to extinguish easement right)
• Destruction, condemnation, prescription, estoppel, end of necessity (easement by necessity)
• Unrecorded express easement not enforceable against BFP of servient estate

Question 77

Duty to maintain easement

Answer 77

easement owner has right and duty to maintain the easement; may seek contribution from co-owners of the easement for the cost of reasonable repairs and maintenance, in proportion to their use

Question 78

Profits

Answer 78

entitles holder to enter servient land and take from it the soil or some substance of the soil such as mineral, timber, and oil; created and analyzed similarly to easements, except profits cannot be created by necessity

Question 79

Licenses

Answer 79

• Privilege to enter another’s land
• Freely revocable unless coupled with an interest or estoppel (may result in easement by estoppel)
• Does not need to satisfy SoF
• Invalid oral easements may create license

Question 80

Real Covenants

Answer 80

• Writing—must comply with SoF to be enforced as real covenant
• Intent—rights/duties to run with land through explicit language or implied from totality of circumstances
• Touch/concern—benefit or burden must affect promisee/promisor as owners of land
  o Negative covenants—run with the land if they restrict the owner’s use or enjoyment of the land
  o Affirmative covenants—run with the land if they require the owner to do something related to the use and enjoyment of the land
• Notice (burden only)—must be constructive or actual
• Privity
  o Horizontal privity—(burden only) when estate and covenant in same instrument
  o Vertical privity—(covenant based on mutual/successive interest in land burdened/benefited by covenant)
  o Modern trend—no privity required; affirmative covenants run to successors of an estate of the same duration as the estate of the original party; negative covenants are analyzed similarly to easements

Question 81

Equitable Servitudes

Answer 81

• Must be in writing (except for implied reciprocal servitudes)
• Requires intent for restriction to be enforceable by and against successors
• Must touch/concern (no privity required)
• If the servitude is to be enforced against a purchaser: Notice (actual, record, or inquiry)

Question 82

Implied Reciprocal Servitude

Answer 82

• Intent to create servitude on all plots (common scheme); no writing required
• Negative servitude (promise to refrain from doing something)
• Notice (actual, record, or inquiry) by party against whom enforcement is sought

Question 83

Defenses to Enforcement of Covenants and Equitable Servitudes

Answer 83

changed circumstances; laches; unclean hands; acquiescence; estoppel

Question 84

Transfer/Termination of Covenants

Answer 84

—these real property rights and obligations are transferred along with the real property itself. Notice is generally required to enforce them against a BFP. They are terminated upon release, merger, abandonment, estoppel, condemnation

Question 85

Common-interest ownership communities

Answer 85

—individually owned units are burdened by a covenant to pay an association that provides services and enforces other covenants

• Types o Property owners’ association o Condos (owners own unit and share of common areas) o Cooperatives
• Governance—governed by association, which is overseen by a board of directors. Rules laid out by declaration and other governing documents
• Powers of community—levy assessments (for general upkeep, repairs, improvements); manage, acquire, improve common property; adopt rules governing use of property (must not unreasonably interfere with owners’ rights); enforce governing documents and rules. Community has corresponding duties

Question 86

Fixtures

Answer 86

1. Definition * Fixture—chattel attached to RP such that it is treated as part of the RP when determining its ownership * Trade fixture—chattel used in a trade or business that is attached to RP (e.g., restaurant stove)
2. Structures built on RP and items incorporated into structure—become part of realty, but can be removed if: * Seller reserves right to remove fixture in sale K * Leased property can be restored to former condition without damage in reasonable time

Question 87

Government Regulation of Land (Zoning)

Answer 87

—local government’s authority to regulate land use is usually granted by an enabling act; states have mostly delegated to local; federal regulations are generally authorized by Article IV, Sec. 3 power over federal lands

Question 88

Zoning Rules

Answer 88

1. Void regulations—lack of authority; irrational or arbitrary (must be rationally related to a legitimate gov. purpose)
2. Types—based on use (residential, commercial, industrial); development (setbacks, density regulation); special concerns (environmental protection, historic preservation)
3. Challenges—based on Takings Clause, 14th A. Sub. Due Process and Eq. Protection, 1st A. Freedom of Speech, Fed. Fair Housing Act, Federal Religious Land Use and Institutionalized Persons Act, state constitution and statutes
4. Existing non-conforming property—may be “grandfathered” in, possibly subj. to amortization period; non-conformity cannot be expanded; can increase frequency or upgrade means of use if does not constitute a substantial change; can be transferred
5. Post-ordinance non-conforming property—owner may request special exception permit or administrative variance * Party seeking variance must show unusual situation, the variance does not deviate from comprehensive zoning plan, and compliance with the zoning ordinance would result in unnecessary hardship * May be use or area variances, and they may be subject to conditions
6. Other types of zoning—contract (permits in exchange for promises); floating (rules regarding use not linked to a particular area); cluster (consider zoning requirements as a whole, not lot by lot); planned unit development (not focused on plots, but on entirety)
7. Comprehensive plan—generally required and development must adhere to plan * “Spot zoning” is arbitrary discrimination against or in favor of the owner of rezoned property.
8. Relationship to covenants—compliance with a zoning restriction does not protect an owner from a suit for breach of a covenant; compliance with a covenant does not protect an owner from a zoning violation action

Question 89

Other Property Rights (air, water, support)

Answer 89

1. Theories
   * Riparian rights—water belongs to those who own land bordering the watercourse; owners may make any reasonable use of the water; water rights cannot be transferred separate and apart from the adjoining land
   * Prior appropriation—water rights are determined by priority of beneficial use; subsequent users must not infringe upon the rights of prior users; water rights may be transferred separately from the adjoining land
2. Support rights—the right to have the land supported in its natural state
   * Lateral support o Undeveloped (i.e., no improvements)—landowner who excavates on his land is strictly liable for damage to undeveloped adjoining land o Improvements—landowner who excavates on his land is strictly liable only if adjoining land would have collapsed in its undeveloped state o Improvements contribute to collapse—landowner who excavates on his land is only liable if he is negligent
   * Subjacent support—owner of the mineral rights is strictly liable for any failure to support the land and any buildings on the land at the time the rights were conveyed
3. Air rights—landowner has limited right to reasonable use and enjoyment of the airspace above his land as long as it does not interfere with another’s reasonable use and enjoyment of land