Selling Real Property- Part I (Ch. 8) Flashcards
Step 1 of a typical real estate sale
Purchase contract- The parties negotiate and sign a written contract, and prepare to consummate the transaction.
Step 2 of a typical real estate sale
The Closing- The contract is fully performed; the buyer pays the purchase price, the lender advances loan funds, and the seller transfers title.
Step 3 of a typical real estate sale
Title Protection- The buyer protects her title through covenants, a title opinion based on a search of public land records, and/or a title insurance policy.
Four most common issues during the purchase contract stage
Statute of Frauds, unmarketable title, equitable conversion, and the seller’s duty to disclose.
General rule for oral agreements to buy real estate
These agreements are not enforceable.
Basic Statute of Frauds requires that a contract have these three elements:
Essential terms (identity of parties, price, and property description), a writing, and a signature (signed by the party to be charged).
Why is an oral contract unenforceable?
To prevent fraud and discourage perjury, based on the original Statute of Frauds.
Hickey v. Green (1982)
P and D made an oral agreement for purchase of a house, but D revoked when she received a better offer. The court held that the agreement was binding because P relied on it in agreeing to sell his own house to someone else. Rule is that an oral contract can be enforced on the basis of reliance and when injustice can only be avoided by enforcement.
Three most common types of property descriptions
Government survey (divides country into 36 sq. mi. blocks called townships, consisting of 36 sections), metes and bounds (describes parcel using distance and direction), and subdivision map (showing location of each lot).
2 major exceptions to the Statute of Frauds
partial performance and equitable estoppel
partial performance exception to the SoF:
buyer must (1) take possession, (2) pay at least part of the purchase price, and (3) make improvements to the property. Reason for this exception is that buyers would only perform these actions if a contract existed. Some jurisdictions requires only 2 of the 3 elements.
equitable estoppel exception to the SoF:
oral contract may be enforced if (1) one party acts to his detriment in reasonable reliance on another’s oral promise, and (2) serious injury would result if enforcement were refused.
marketable title- general rule
Title is unmarketable if (1) the seller’s property interest is less than the one she purports to sell, (2) the seller’s title is subject to an encumbrance, or (3) there is reasonable doubt about either (1) or (2).
Seller is generally required to convey marketable title at which stage of the transaction?
At the closing (seller can use time before the closing to cure any defects, but buyer can rescind when it becomes clear seller will not be able to convey marketable title at the closing).
Lohmeyer v. Bower (1951)
P agreed to purchase a house from D, but ( before closing) he discovered the house violated local ordinances by being too close to lot border lines and it was only one story tall. The court allowed rescission b/c there were encumbrances that would subject buyer to potential litigation, and the seller was not transfering the title she purported to be selling when the agreement was made.
Existence of statutes doesn’t make title unmarketable, but…
violation of those statutes makes title unmarketable.
equitable conversion- general rule
during the period between the contract signing and the closing (executory period), if the property is damaged or destroyed the buyer will bear that risk ( doesn’t apply if the contract explicitly state who will bear the risk).
Brush Grocery Kart v. Sure Fine Market (2002)
During a dispute over purchase price for a grocery store which was currently being leased, the property was damaged in a hail storm. Court held that the owner, not the lessor bore the risk of the damage because the lessor did not yet have right to possession, as there was no formal agreement to purchase.
