The Closing - Deeds

Question 1

The Closing - Deeds

Answer 1

• 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.

Question 2

LAWFUL EXECUTION OF A DEED

Answer 2

• 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.

Question 3

Description of Land in the Deed

Answer 3

• 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.

Question 4

Tip

Answer 4

• 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

Question 5

THE DELIVERY REQUIREMENT

Answer 5

• 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.

Question 6

Acceptance and Rejection

Answer 6

• Rejection defeats delivery.
• Acceptance is presumed, but if a grantee expressly rejects deed, it is ineffective to pass title.

Question 7

Presumptions Concerning Delivery

Answer 7

• 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

Question 8

Extrinsic Evidence

Answer 8

• 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

Question 9

Delivery with Oral Conditions

Answer 9

• If deed, absolute on its face, is transferred to grantee w/ an oral condition, what result? Cannot use PE

Question 10

Delivery with Written Conditions

Answer 10

• Deed w/ written condition is generally valid when delivered.
• If condition is grantor’s death, deed creates future interest (an executory interest) in grantee

Question 11

Delivery to Third Party

Answer 11

• 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.

Question 12

Transfer to Third Party with Conditions (Escrow Transaction)

Answer 12

• 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.

Question 13

Donative Escrow with Conditions

Answer 13

• 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.

Question 14

Tip

Answer 14

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.

Question 15

COVENANTS FOR TITLE

Answer 15

• 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).

Question 16

Tip

Answer 16

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.

Question 17

The Quitclaim

Answer 17

• 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.

Question 18

The General Warranty Deed

Answer 18

• 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

Question 19

GWD: Present Covenants

Answer 19

• 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:

Question 20

GWD: Future Covenants

Answer 20

• 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.

Question 21

TIP

Answer 21

Covenant for quiet enjoyment & covenant of warranty are similar covenants for title.

Question 22

The Special Warranty Deed

Answer 22

• 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.)

Question 23

Statutory Special Warranty Deed

Answer 23

• 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.

Question 24

Damages and Remote Grantees

Answer 24

• Present covenants can’t be enforced by remote grantees, but future covenants run w/ grantee’s estate.

Question 25

DEFECTIVE DEEDS

Answer 25

• 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.

Question 26

Tip

Answer 26

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.

Question 27

Fraudulent Conveyances

Answer 27

• 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.

Question 28

CLOSING DOCUMENTS

Answer 28

• Most real estate closings require more than exchange of deed.
• Events involving signing of numerous documents & sometimes last-minute negotiations

Question 29

Closing Disclosure

Answer 29

• 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.

Question 30

Notification of Defects

Answer 30

• 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

Question 31

Environmental Report

Answer 31

• 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

Question 32

CONVEYANCE BY GIFT AND WILL

Answer 32

• 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.

Question 33

Ademption

Answer 33

• 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.

Question 34

Land Under Executory Contract

Answer 34

• 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.

Question 35

Other Proceeds Not Subject to Ademption

Answer 35

• 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.

Question 36

Exoneration

Answer 36

• 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.

Question 37

Lapse and Anti-Lapse Statutes

Answer 37

• 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.

Question 38

Degree of Relationship to Testator

Answer 38

• 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.

Question 39

Application to Class Gifts

Answer 39

• 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

Question 40

Anti-Lapse Statute Does Not Apply If Contrary Will
Provision

Answer 40

• Statute does not apply if there is a contrary will provision (ex. gift is contingent on beneficiary’s surviving testator).

Question 41

Abatement

Answer 41

• 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.