Real Property MBE Questions Flashcards
Restraints on alienation
A provision that restricts the transferability of real property.
- A direct (or absolute) restraint on alienation is void as unreasonable restraint is disfavored because public policy encourages the free transfer of property interests.
- A partial restraint—one that is for a limited time and a reasonable purpose—is generally valid.
Disabling restraint
- Prohibition on transfer of property interest by its owner
- Always void
Forfeiture restraint
- Restraint where owner forfeits property interest if owner attempts to transfer it
- Restraint on future interest or life estate can be valid
Promissory restraint
- Promise by property-interest holder not to transfer property interest
- Can be valid
Common exceptions to enforceability of a due-on-sale clause affecting residential property
- Devise, descent, or transfer to joint tenant upon death
- Transfer to spouse or child
- Transfer to ex-spouse in divorce
- Transfer to borrower’s living trust
- Creation of subordinate lien without occupancy rights
- Granting leasehold interest of less than 3 years without option to purchase
Right of first refusal (ROFR)
A preemptive right that gives its holder the opportunity to acquire property from a seller before it is transferred to a third party.
Such a provision is valid if it complies with the statute of frauds—i.e., is in a writing that is signed by the party to be charged and contains all essential terms—and its terms are reasonable.
Reasonableness is determined by balancing the utility of the purpose served by this restraint against the likely harm that would result from enforcing it.
Transfer of promissory note & mortgage
Transfer of mortgage without note:
Both documents are transferred unless:
- expressly prohibited in note/mortgage
- forbidden by statute or public policy or
- increases mortgagor’s duties, burdens, risks
Transfer of note without mortgage
- Transfer is void
Nonnegotiable v. negotiable promissory note
A negotiable promissory note can be assigned by simply endorsing and delivering the note to the assignee. However, a nonnegotiable promissory note requires a separate assignment document to transfer ownership.
doctrine of equitable conversion
Under the doctrine of equitable conversion, a buyer receives equitable title to real property upon entering a land-sale contract. In contrast, the seller retains legal title and acquires the equitable right to receive the purchase price upon closing. As a result, a judgment obtained against the seller after the execution of the land-sale contract is not enforceable against the real property—even if the claim arose before the contract was executed.
Deed requirements
A deed is effective to convey a real property interest when it (1) is in writing and signed by the grantor, (2) identifies the grantor and grantee, (3) describes the property being transferred, and (4) contains words of transfer.
time is of the essence
Strict adherence to the closing date is not required in equity unless time is of the essence. Time is of the essence when:
- the contract specifically states that “time is of the essence”
- circumstances indicate that it was the parties’ intention to strictly adhere to the closing date or
- one party gives the other party notice that time is of the essence within a reasonable time prior to closing.
If time is of the essence and the seller cannot deliver marketable title on the date of closing, then the seller is in breach and the buyer can rescind the contract. This is true even if the seller can correct the issue within a reasonable time after closing.
Subjacent support
The right to subjacent support—i.e., support from beneath the surface of land—arises when the owner of land grants the right to mine minerals to a third party. The owner of the mineral rights may be:
- strictly liable to the surface owner for any failure to support the land and any buildings that existed on the land at the time the mineral rights were conveyed (provided that the damage would have occurred in the land’s natural state) or
- liable for negligence for any damage to improvements built after the mineral rights were conveyed.
Implied Warranty of Marketability
All contracts for the sale of land have an implied warranty that the seller will convey marketable title to the buyer upon closing unless otherwise stated. To be marketable, title must be reasonably free from doubt and under no threat of litigation, such that a reasonable person would accept and pay for it.
If the seller cannot convey marketable title, the buyer can rescind the contract and refuse to close. The buyer can also choose to accept the land with the defect and enforce the contract. If the seller refuses to perform, then the buyer can:
- rescind the contract and seek restitution
- seek specific performance with an abatement of the purchase price or
- sue for damages.
Doctrine of subrogation
Under the doctrine of subrogation, a third party (subrogee) who pays another’s mortgage loan in full becomes the owner of the loan and the mortgage securing that loan to the extent necessary to prevent unjust enrichment. This means that the subrogee may seek reimbursement from the debtor or enforce the mortgage.
