Recording, Conveyancing, Real Estate Contracts, Possessor's Rights and Interests

Question 1

What is purpose of recording acts?

Answer 1

To protect subsequent bona fide purchasers who are protected by the development of the public record. They are used to determine which party prevails in the case of multiple transferees

Question 2

What is a Bona Fide purchaser?

Answer 2

A buyer who pays fair consideration for property without any knowledge or reason to have knowledge that the seller previously transferred the property to a different person. Value more than nominal. Most jurisdictions hold that antecedent debt sufficient value. Donees, heirs and devisees – not BFPs

Question 3

What are the three types of recording statutes?

Answer 3

Notice, race-notice, pure race

Question 4

What is a notice statute?

Answer 4

A jurisdiction whose rule allows a subsequent bona-fide purchaser to prevail over an earlier purchaser if the earlier purchaser’s deed was not recorded and the subsequent purchaser did not know of the earlier transfer. THIS IS THE MAJORITY RULE. SO IN THIS J, NO NEED FOR SUB BFP TO RECORD

Question 5

What is a race notice statute?

Answer 5

NO NOTICE AND FIRST TO RECORD. A jurisdiction whose rule allows a subsequent bona-fide purchaser to prevail over an earlier purchaser if, and only if, the subsequent purchaser did not know of the earlier transfer and the subsequent purchaser’s deed was recorded before the first purchaser’s deed. RECORD FIRST.

Question 6

What is a pure race statute?

Answer 6

FIRST TO RECORD WINS. A jurisdiction whose rule determines which party prevails in a twice transferred property case strictly on the basis of whose deed is recorded first. NOTICE NOT AN ISSUE. RARE.

Question 7

What is actual notice?

Answer 7

BFP must not have actual notice, that is knowledge actually obtained from somewhere.

Question 8

What is record/constructive notice?

Answer 8

Searched indexes. Saw something or nothing.

Question 9

Are transfers acquired from adverse possession recordable?

Answer 9

No, not until action for quiet title resolved.

Question 10

What are the elements of a deed?

Answer 10

Deed is a document that evidences ownership of a property. Deed must contain a granting clause; must describe the property to be conveyed. Deed must be properly delivered. D must be signed by grantor.

Question 11

What is the granting clause?

Answer 11

The “granting clause” lists the transferor (the seller in a buy-sell transaction) and the transferee (the buyer in a buy-sell transaction) and a statement to the effect that the transferor is transferring the land to the transferee. The granting clause usually lists the consideration that the transferee is paying for the land, however, this is not a necessary part of the deed. Consideration is not necessary to complete a transfer of property. Consideration is usually mentioned simply to allow the transferee to attain the status of “bona-fide purchaser” which is important to protect against the repossession of the land later on. However, a deed without any consideration listed is still fully binding. Both parties to the transaction must be listed in the granting clause. It is not necessary that the deed list the parties by name. A description that leaves no doubt as to the identity of the party is sufficient.

Question 12

What is an adequate description of the property in a deed?

Answer 12

Must describe the property that it purports to convey. This means that the deed must contain information necessary to clearly and precisely identify the parcel that is being conveyed. It is okay if certain outside evidence is required to figure out exactly which parcel is being conveyed. The property that a deed purports to convey can also be described using survey markers (markers placed there for the purpose of delineating property boundaries), by natural or artificial monuments (eg. “from this pole to that tree…”), by reference to maps, by courses of direction and distances (eg. “from the pole, running East-Northeast at a 74 degree angle for 123 feet” etc.) or even by common name (eg. “the estate known as Maple Run”) or by quantity (“40 acres of land between the Rivers Styx and Lethe”). Essentially, any description that would allow people to understand which property is being referred to by the deed will be sufficient to cause the deed to be effective.

Of course, the deed needs to be complete in its description. If a deed gives a northern boundary, but not a southern boundary and it is not obvious what the southern boundary is, the deed may be void for incompleteness. As a practical matter, deeds that are used these days describe the property in detail, using several of the above methods.

Question 13

What constitutes delivery of the deed?

Answer 13

A deed is not effective until it has been delivered from the grantor to the grantee. Deed must be delivered to the grantee with the specific intent to give title over to the grantee. If the grantor gives the grantee the deed without the intent of passing title to the land over to the grantee, then the delivery is not effective. For example:

“Fred and Barney have signed a contract that states that Barney will buy Fred’s house for $500,000. Barney comes over to Fred’s house to finalize the details and to receive the deed. Fred is holding a deed to the property and he tells Barney he will give the deed to Barney the next day, after Fred has had a chance to review the deed with his attorney. While Fred and Barney are talking, Fred’s wife, Wilma, comes home carrying some heavy packages. Fred goes to help Wilma with the packages but before he does so, he gives the deed to Barney to hold while he goes to help Wilma. In this case, although Fred has physically given the deed over to Barney, and although he is contractually bound to give the house to Barney, he did not intend to transfer title to the land when he gave the deed. Therefore, this delivery of the deed is ineffective.”

If a deed is written and then (1) notarized by a notary public and (2) then given by the owner of the property to another person, and (3) that person records the deed in the County Property Records Office, then courts will presume that the delivery was made with the intent to transfer the property. In other words, if these three elements are met, the grantor has the burden to prove that he or she did not properly deliver the deed if he or she wants to keep ownership of the property.

Question 14

What are the rules re delivery of a deed in a gift transfer?

Answer 14

As with any gift transfer, delivery only effective at the time that it is actually delivered into the possession of the grantee. Also like any other transfer, it is only effective if the grantor is alive at the time of the delivery. If the grantor sends a messenger to deliver the deed to the grantee and then the grantor dies before the delivery is actually made to the grantee, then the transfer is ineffective.

Question 15

Can third parties effectuate delivery of a deed?

Answer 15

Delivery must be made while both parties are alive. If the messenger is an agent of the grantee, then delivery is effective as soon as the deed is given to the grantee’s agent, provided no restrictions. For purposes of this rule, a person who holds a deed in escrow (as is often done, pending the delivery of the purchase money to the grantor) is considered to be an agent of the grantee. Thus, if the grantor gives the deed to the escrow agent and then dies, the escrow agent can give the deed to the grantee.

Question 16

What are the three categories of deeds?

Answer 16

Quitclaim deeds, general Warranty deed, special warranty deed. If a deed does not specifically mention what type of deed it is, it is presumed to be a general warranty deed.

Question 17

What is a quitclaim deed?

Answer 17

The “quitclaim deed” is the worst type of deed because it conveys no warranty whatsoever that the seller’s title is good title or that there are no encumbrances on the property. By giving a quitclaim deed, the transferor is, in essence, saying “here is whatever interest I have in the property.” If it turns out that the seller had no interest in the property, then the buyer obviously ends up with nothing, and the seller has no liability to the buyer for anything.

Obviously, a buyer should be extremely careful before agreeing to accept a quitclaim deed. If the seller’s title turns out to be faulty, the buyer will have no remedy against the seller. Quitclaim deeds almost always come with steep discounts in the purchase price because of the enormous risk that the buyer is taking.

Question 18

What is a general warranty deed?

Answer 18

On the opposite side of the spectrum from the quitclaim deed is the general warranty deed. The grantor of a general warranty deed makes five specific guarantees by the granting of the general warranty deed. These guarantees are sometimes known as “covenants” because they are part of the agreement between the grantor and the grantee.

Question 19

What are the five covenants that go along with a warranty deed?

Answer 19

Seisan; right to convey; lack of encumbrances; quiet enjoyment/covenant of warranty; further assurances

Question 20

What is the covenant of seisan?

Answer 20

a) Seisin: grantor guarantees that he or she owns the land that is being conveyed to the grantee. (Note: The term “seisin” is an ancient term that means the taking of legal possession of land.)

Question 21

What is covenant of right to convey?

Answer 21

Right to Convey: Grantor covenants (promises) that he or she has the power and authority to sell or give over the property to the grantee.

Question 22

What is covenant of lack of encumbrances?

Answer 22

grantor promises that there are no easements, mortgages, liens, or any other encumbrances on the property.

Question 23

What is covenant of quiet enjoyment/covenant of warranty?

Answer 23

G also promises that he or she will defend against a third party’s claims of superior title. In other words, if the grantee is sued by someone who claims to have had title to the land that was superior to the grantor’s title, then the grantor will help the grantee defend against the lawsuit. In addition, the grantor promises that he or she will compensate the grantee if the third party successfully takes title to the land (or any portion of the title to the land) against the grantee.

Question 24

What is covenant of further assurances?

Answer 24

Grantor promises to do whatever is necessary to perfect the conveyed title if it turns out that the grantor’s title was imperfect. If, for example, it turns out that there was a mortgage on the property at the time it was transferred, the grantor promises that he or she will pay off the mortgage so as to perfect the title of the grantee.

Question 25

What is a special warranty deed?

Answer 25

Used by the seller when the seller is confident that he or she owns the property, and is being honest about the conveyance, but is not so confident about the previous owners of the property. In this type of deed, therefore, the seller makes the same warranties as in the general warranty deed, but only makes those guarantees with respect to defects in title that arose during the time that the grantor had possession of the property. The grantor makes no warranty as to defects that arose before the property came into the possession of the grantor. For example:

1) Brian conveys Tanneracre to Lynn. Three years later, Alf brings an action against Lynn. Alf claims that while the property was in the possession of Willy, Alf bought the property from Willy and that he has a contract to prove it. Alf claims that Willy breached that contract and later gave the property to Brian. Alf succeeds in his lawsuit and is able to evict Lynn and take the property. The question of whether Brian is liable to Lynn for Lynn’s loss depends on what type of deed Brian used to convey the property to Lynn. If Brian used a quitclaim deed, of course, he has no liability to Lynn. If he used a general warranty deed, then Brian would be liable to Lynn for the damage she suffered as a result of Alf’s repossession because the covenants of seisin, right to convey and quiet enjoyment were all violated by Alf’s action against Lynn. However, if Brian used only a special warranty deed to convey Tanneracre to Lynn, Brian would escape any liability. This is because the defect (in this case, Willy’s conveyance of Tanneracre to Alf) arose before Brian came into ownership of Tanneracre. Therefore, Brian’s warranty to Lynn does not cover this defect.

If the seller violates any of the warranties that are conveyed with a deed, the buyer generally has a choice. He or she can rescind the contract and get the purchase price back, or, the buyer can keep the property and sue the seller for damages caused by the breach of the covenant.

Question 26

Do contracts for sale of property have to be in writing?

Answer 26

Yes. Not subject to UCC, so specificity required as to material terms. Usually satisfied if the writing identifies the parties, describes the land, states the purchase price, contains mutual promises to buy and sell, is signed by both parties.

Question 27

What is doctrine of part performance?

Answer 27

As with many other contracts affected by the Statute of Frauds, part performance can make a real estate transfer contract enforceable even in the absence of a written contract. In the context of a real estate transfer contract, part performance generally means possession of the property by the transferee plus either partial payment by the transferee or improvements to the land that are made by the transferee.

Question 28

What is marketable title?

Answer 28

Unless specifically agreed to otherwise, every contract for the sale of land contains an implied promise that the seller will convey “marketable” title to the buyer. Marketable title is title that is free from contention and/or doubt to the extent that a reasonable buyer would accept it. A seller who fails to convey marketable title under a contract that, expressly or impliedly, calls for marketable title, has breached the contract. In such a case, the buyer can refuse to pay the purchase price for that land and sue the seller for whatever other damages the buyer suffered as a result of the breach.

–Contractual requirement to convey marketable title ends with the delivery of the deed. When the deed is delivered, if it does not deliver “marketable” title, then the buyer has the option of refusing the deed and insisting that the seller convey title that is marketable or face a suit for breach of contract. However, once the buyer does accept the deed, all contractual obligations to deliver marketable title cease to be effective. This is based on the very logical idea that a buyer should not be able to “have his cake and eat it too” by accepting the seller’s title and later turning around and saying that the title that was delivered was no good. This rule is known as the “merger” rule because any promises that come with the contract of sale “merge” with the deed and are no longer effective once the deed is delivered.

–Although the delivery of the deed ends the contractual duty to deliver marketable title, the deed itself generally conveys a warranty that the title that the seller is giving to the buyer is good title (ie. free from defects or encumbrances, as we discussed in the last subchapter).

Question 29

How does a seller show marketable title?

Answer 29

–A seller can convey marketable title in two ways. The first, and best way is to show that the seller has good title to the property by producing the property’s “chain of title.” The chain of title for a parcel of property is the series of deeds and transfer records in the history of the property from the original “root” title (how the first possessor of the property came to possess it) to the present day.

–The second way a seller can show marketable title is by proving that he or she came to own the property by adverse possession. Of course, these two ways of showing marketable title are never both an option for the same property. Parties who come to own property via adverse possession cannot show a chain of title because there is no documentation that is filed that will indicate that ownership of property was changed by adverse possession. Proof of acquisition by adverse possession can be in the form of a court decision stating that the possessor owns the property. It is unclear whether title acquired by adverse possession that has never been adjudicated (decided) in court can constitute marketable title.

Question 30

What is defective title?

Answer 30

Title is considered defective, and therefore unmarketable, if there is a substantial defect in the title. Essentially, a defect is substantial if it is likely to cause the buyer injury in the future. This injury could be in the form of a third party repossessing the property, or even in the form of forcing the buyer to defend against a lawsuit by such a third party. There are two possible defects that can make title unmarketable:

1) Defect in the chain of title: If the chain of title is missing a “link” in its history prior to the acquisition of the property by the seller, the title is inherently unmarketable.
2) Encumbrances: Certain private encumbrances on the land can also make the seller’s title unmarketable. For example, if third parties hold mortgages, liens or easements on the property, or if the property is subject to certain covenants, this may or may not make the seller’s title unmarketable. Note that restrictive zoning laws are not considered to be encumbrances and such zoning laws will never, by themselves, make a seller’s title unmarketable. However, if the property is being used in a manner that violates the zoning law, that can potentially make the seller’s title unmarketable.

Question 31

What is the doctrine of equitable conversion/risk of loss?

Answer 31

In between the time that a contract for the sale of real estate is signed and the time that the deed is actually delivered to the buyer, the property is in a state of limbo. On the one hand, the buyer has the contractual right to receive the property. On the other hand, the seller still has possession and the current enjoyment of the property. In fact, the ownership of the property during this period is said to be split between the equitable ownership and the legal ownership.

As soon as the contract is signed, the buyer is said to own the house in “equity” since he or she has the right to receive possession of the house and it is only a matter of time before he or she does receive that possession. In other words, the “equitable title” changes hands as soon as the contract is signed. This rule is called the doctrine of “equitable conversion.” The “legal” title to the property on the other hand, does not pass to the buyer until possession of the property is actually deeded over to the buyer.

The importance of equitable ownership by the buyer manifests itself in many areas. If the buyer were to die in the interim, for example, his or her estate would be considered to be the owner of the real property, even though the buyer only owned a contractual right to the property.

Perhaps the most important ramification of the equitable conversion doctrine, however, is its effect on who bears the risk of loss of, or damage to the property that occurs through the fault of neither party. Under the traditional doctrine of equitable conversion, because equitable title to the property passes at the time of the signing of the sales contract, the risk of loss also passes from the seller to the buyer at the time of the signing of the sales contract. This remains the law in most states.

Many courts feel that this is an unfair rule because the seller, as the party in possession of the property until the closing, is in the best position to prevent damage to the property. Therefore, some courts, and even some states, have enacted laws that provide that the risk of loss does not pass from the seller to the buyer until the closing. Instead, the risk of loss always stays with the party in possession of the property. Under this rule, if there is a disaster that substantially reduces the market value of the property in between the signing of the contract and the closing, the buyer may deduct the amount of that decrease in value from the purchase price.

Of course, if one party is responsible for the decrease in value either through his or her negligence or intentional act, that party bears the risk of loss or damage.

Question 32

What are typical remedies for breach of a contract for sale of real estate?

Answer 32

Damages or specific performance