The Closing - Deeds Flashcards
The Closing - Deeds
- If buyer permits closing, K is said to merge w/ deed and, absent of fraud, seller is no longer liable on promises in K, only those in deed.
- Controlling doc now is the deed.
- Deed transfers legal title from grantor to grantee.
- To pass legal title from grantor to grantee deed must be “LEAD”: Lawfully Executed & Delivered.
LAWFUL EXECUTION OF A DEED
- Valid deed requires: SWIW
(1) Writing signed by grantor
(2) Sufficient land description
(3) Identification of parties
(4) Words of intent to transfer, ex. “grant” - Note: Deed need not recite consideration, nor must consideration pass to make a deed valid.
Description of Land in the Deed
- Need not be perfect, but must be unambiguous & provide good “lead.”
Effect of Insufficient Description
- If description is insufficient to give good lead, title isn’t transferred.
- If description is ambiguous, rather than insufficient, parol evidence is permitted to clear up ambiguity.
Tip
- If deed is delivered w/ name of grantee left blank, ct presumes person taking delivery has authority to fill it in. If person fills in name, deed is valid.
- If land description is left blank, deed is void unless grantee was explicitly given authority to fill it in
THE DELIVERY REQUIREMENT
- Deed isn’t effective unless it has been delivered.
- Delivery turns on grantor’s intent that title pass immediately, even if possession is postponed.
- Acceptance is presumed.
- Could be satisfied when grantor physically/manually transfers deed to grantee, but not necessary
- It’s permissible here to use mail/agent/messenger.
- Standard for delivery is a legal test & is a test solely of present intent.
Acceptance and Rejection
- Rejection defeats delivery.
- Acceptance is presumed, but if a grantee expressly rejects deed, it is ineffective to pass title.
Presumptions Concerning Delivery
- If grantor retains possession of deed, it’s presumed that it hasn’t been delivered.
- If grantee has possession of deed, delivery is presumed.
- Delivery is presumed if deed is:
(1) Handed to the grantee,
(2) Acknowledged by grantor in front of a notary, or
(3) Recorded
Extrinsic Evidence
- All types of evidence, including grantor’s conduct/ statements b/f or after alleged delivery, are admissible to prove grantor’s intent to pass title.
- Parol evidence is not permitted to show an unconditional deed given directly to grantee was subject to a condition
Delivery with Oral Conditions
- If deed, absolute on its face, is transferred to grantee w/ an oral condition, what result? Cannot use PE
Delivery with Written Conditions
- Deed w/ written condition is generally valid when delivered.
- If condition is grantor’s death, deed creates future interest (an executory interest) in grantee
Delivery to Third Party
- Delivery to 3rd party w/ instructions to deliver deed to intended grantee is a valid delivery.
- Whether a delivery to 3rd party w/o instructions is a valid delivery depends on whether 3rd party is grantor/grantee’s agent.
- For instance, a delivery to grantor’s lawyer is probably not delivery, while delivery to grantee’s lawyer probably is.
Transfer to Third Party with Conditions (Escrow Transaction)
- Grantor may deliver executed deed to 3rd party, known as escrow agent, w/ instructions that deed be delivered to grantee once certain conditions are met.
- This typically condition is payment of purchase price.
- What happens once conditions are met?
- If escrow agent is given written instructions, grantor is bound by delivery to agent.
- But, if grantor gives oral instructions, grantor may change instructions & recall deed while still in agent’s hands, unless there is a written K of sale.
Donative Escrow with Conditions
- Grantor gives deed to 3rd party w/ instructions to turn it over to named donee only when certain conditions occur
- If condition is something other than grantor’s death (ex. grantee’s marriage), grantor may retrieve it.
- If condition is grantor’s death, grantor cannot get deed back b/c they intended to presently convey a future interest.
Tip
Watch out for condition of survival. Although condition that grantee survive grantor seems like the same thing as a condition of grantor’s death, it isn’t. Unlike condition of grantor’s death, which conveys a future interest, a conveyance to grantee “only if grantee survives grantor” indicates that grantor does not intend to part w/ anything until death. Thus, there is no delivery.
COVENANTS FOR TITLE
- 3 types of deeds used to convey property interests other than leaseholds: general warranty deed, special warranty deed, and quitclaim deed.
- Difference among them is scope of title assurance (covenants for title).
Tip
Be careful not to confuse covenants for title w/ real covenants (written promises to do/not do something on the land). Real covenants do not relate to title.
The Quitclaim
- Grantor isn’t even promising that he has title to convey.
- This is the worst deed for buyer
- Conveys only what grantor has at time of conveyance.
The General Warranty Deed
- Best deed for buyer
- Warrants against all defects in title, including those caused by grantor’s predecessors.
- Typically contains all 6 covenants, present and future
GWD: Present Covenants
- SOL for breach of a present covenant begin to run at time of delivery
- 3 present covenants:
(1) Seisin:
(2) Right to convey:
(3) Against encumbrances:
GWD: Future Covenants
- The next 3 covenants are future covenants.
- Future covenant is not breached, if ever, until grantee is disturbed in possession.
- 3 future covenants:
(1) Quiet enjoyment: Grantor promises that grantee will not be disturbed in possession by 3rd party’s lawful claim of title.
(2) Warranty: Grantor promises to defend against reasonable claims of title by 3rd party & to compensate grantee for any loss caused by claim of superior title.
(3) Further assurances: Grantor promises to do whatever is needed to perfect grantee’s title if it later turns out to be imperfect.
TIP
Covenant for quiet enjoyment & covenant of warranty are similar covenants for title.
The Special Warranty Deed
- Contains same covenants as GWD, but grantor makes those promises only on behalf of himself. (Makes no representations on behalf of his predecessors in interest.)
Statutory Special Warranty Deed
- Many state statutes provides the type of deed conveyed by use of “grant” in a conveyance w/o a designation of type of deed.
- Statutes provide for deed that creates 2 limited assurances
(1) grantor has not conveyed same estate/any interest therein to anyone other than grantee and
(2) estate is free from encumbrances made by grantor.
Damages and Remote Grantees
- Present covenants can’t be enforced by remote grantees, but future covenants run w/ grantee’s estate.
DEFECTIVE DEEDS
- Void deed will be set aside even if property has passed to bona fide purchaser
- Voidable deed will be set aside only if property has not passed to bona fide purchaser.
- Void deeds are forged, never delivered, issued to nonexistent grantee, or obtained by fraud in factum (grantor was deceived & did not realize she was executing a deed).
- Voidable deeds are executed by minors/ incapacitated persons, obtained through fraud in inducement, duress, undue influence, mistake, and breach of fiduciary duty.
Tip
Watch for a situation in which a joint owner attempts to convey property by forging signature(s) of other owner(s). Such a conveyance would be valid as to interest of owner whose signature is genuine but void as to other owner(s). Thus, if one joint tenant executes a deed for entire property with his own signature and forged signature of other joint tenant, conveyance works a severance; buyer would hold as a TIC w/ joint tenant whose signature was forged.
Fraudulent Conveyances
- Deed may be set aside by grantor’s creditors if made:
(1) w/ actual intent to hinder, delay, or defraud any creditor of grantor; or
(2) w/o receiving reasonably equivalent value in exchange for transfer, & debtor was insolvent/ became insolvent as a result of transfer. - However, deed will not be set aside as against any grantee who took in good faith & paid reasonably equivalent value.
CLOSING DOCUMENTS
- Most real estate closings require more than exchange of deed.
- Events involving signing of numerous documents & sometimes last-minute negotiations
Closing Disclosure
- Residential mortgage lenders must provide closing disclosure to mortgagors at least 3 business days prior to closing.
- Disclosure must give details about mortgage:
(1) principal, interest, & payment amounts
(including taxes & insurance);
(2) closing costs;
(3) potential surprises to mortgagors (ex. future changes in interest rates/balloon payments), and
(4) cash required to close. - If this in not done, mortgagor may be able to cancel mortgage/ recover damages.
Notification of Defects
- Seller of residential property must provide a form to buyer at closing, notifying buyer of any physical defects of which seller is aware
- Seller will be liable for known defect after closing if he fails to do so
Environmental Report
- Owner of real property must pay to cure any environmental damage to property, even if damage occurred bf owner owned property.
- Parties must negotiate the report, to be signed by both parties at closing, identifying seller’s guarantees
CONVEYANCE BY GIFT AND WILL
- Real estate may be conveyed by gift/will.
- Deed may convey real property by inter vivos gift if:
(1) donative intent,
(2) delivery, and
(3) acceptance.
Ademption
- If property is specifically devised/granted in testator’s will, but testator no longer owns it at time of death, gift fails.
- Ademption applies only to specific grants, which can be satisfied only by delivery of a particular item, not by money.
- A gift of land is always a specific devise.
- If testator specifically devises property & then sells/ gives away part of that property, only that portion is adeemed; remainder passes to devisee.
Land Under Executory Contract
- Ademption doctrine does not apply to proceeds of land sale K that was executory at time of testator’s death (devisee gets proceeds in place of land).
- This takes precedence over equitable conversion doctrine.
- Ademption does not apply when K is entered into by rep of incompetent testator.
Other Proceeds Not Subject to Ademption
- When property is damaged/destroyed b/f testator’s death but casualty insurance proceeds are not paid until after testator’s death, ademption does not usually apply.
- Beneficiary of specific bequest takes insurance proceeds.
- Ademption does not apply to property condemned by government where taking was b/f death but condemnation award was paid after death.
Exoneration
- At CL and in some states, devisee of specific
property is entitled to have land “exonerated” by payment of liens & mortgages from testator’s residuary estate. - Majority of states have statutorily abolished the exoneration doctrine, requiring the will to expressly provide for payoff.
Lapse and Anti-Lapse Statutes
- Lapse occurs when beneficiary of gift in a will dies b/f testator.
- Under CL, if lapse occurred, gift was void.
- Nearly all states now have statutes preventing lapse by permitting gift to pass to predeceasing beneficiary’s living descendants under certain circumstances.
- These statutes vary as to the scope of beneficiaries covered by the statute.
Degree of Relationship to Testator
- Many anti-lapse statutes apply only when named beneficiary is a descendant of testator.
- Others apply if beneficiary is more remote, (descendant of testator’s grandparent).
- Others apply to any relative, and still others apply to any beneficiary at all.
- Anti-lapse statute substitutes beneficiary’s descendants for beneficiary.
- Property will never pass under anti-lapse statute to predeceasing beneficiary’s spouse.
Application to Class Gifts
- If class member w/in coverage of anti-lapse statute predeceases testator leaving surviving issue, statute will apply & the issue will take deceased class member’s share of gift
Anti-Lapse Statute Does Not Apply If Contrary Will
Provision
- Statute does not apply if there is a contrary will provision (ex. gift is contingent on beneficiary’s surviving testator).
Abatement
- Gifts are abated (reduced) if estate assets are not sufficient to pay all claims against estate & satisfy all devises & bequests
- Absent contrary will provision, estates in most states abate this order:
(1) property passing by intestacy,
(2) the residuary estate,
(3) general legacies, and
(4) specific devises & bequests.