The Closing - Deeds

Question 1

what happens to land sale contract when closing occurs?

Answer 1

If the buyer permits the closing to occur, the contract is said to merge with the deed (it disappears) and, in the absence of fraud, the seller is no longer liable on the promises in the contract, only those in the deed.

Question 2

what does a deed do?

Answer 2

transfers legal title from a grantor to a grantee

Question 3

what is required to execute a valid deed? and acronym

Answer 3

LEAD

Lawfully Executed And Delivered

Question 4

why do we have a delivery requirement for valid deeds?

Answer 4

Delivery turns on the grantor’s intent that title pass immediately, even if possession is postponed

Question 5

when is delivery requirement for valid deed satisfied?

effect of rejection

what are the presumptions concerning delivery?

when is extrinsic evidence admissible?

what happens when a deed is delivered with oral conditions? written conditions?

Answer 5

WHEN DELIVERY IS SATISFIED

(1) The delivery requirement could be satisfied when the grantor physically or manually transfers the deed to the grantee. It’s permissible here to use the mail or agent or messenger.

(2) delivery is satisfied when there is actual physical transfer of the instrument when there is present intent to transfer …

Ask “Did grantor have the present intent to part with legal control? and “Did grantor manifest present intent to be bound?”

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EFFECT OF REJECTION

rejection defeats delivery - if grantee expressly rejects the deed, that overcomes the presumption of acceptance, and deed cannot pass title

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PRESUMPTIONS

(1) acceptance is presumed

(2) if grantor retains possession of the deed, presumed that deed has not been delivered

(3) if grantee has possession of the deed, delivery is presumed

(4) delivery is presumed if deed is
(a) handed to grantee
(b) acknowledged by grantor in front of a notary
or
(c) recorded

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EXTRINSIC EVIDENCE

—admissible—
All types of evidence, including the grantor’s conduct or statements before or after the alleged delivery, are admissible to prove the grantor’s intent to pass title.

—not admissible—
Outside evidence is not permitted to show that an unconditional deed given directly to a grantee was subject to a condition.

WHAT IF DEED IS DELIVERED WITH ORAL CONDITIONS OR WRITTEN CONDITIONS?

(1) oral conditions – oral conditions drop out and delivery is complete

(2) written conditions – valid when delivered; if condition is grantor’s death, the deed creates a future interest in the grantee

Question 6

what happens when a deed is delivered to a third party?

with instructions

without instructions

with conditions

Answer 6

WITH INSTRUCTIONS - VALID

A delivery to a third party with instructions to deliver the deed to the intended grantee = valid delivery
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WITHOUT INSTRUCTIONS - DEPENDS

Hinges on whether third party is an agent of the grantor or the grantee.

A delivery to the grantor’s lawyer = probably not delivery

A delivery to the grantee’s lawyer = probably is delivery

WITH CONDITIONS

(1) escrow transaction

What it is:
— Grantor delivers an executed deed to a third party, known as an escrow agent, with instructions that the deed be delivered to the grantee once certain conditions are met (condition typically is the payment of the purchase price)

How it works:
– if conditions are met, title passes to grantee

If agent is also given written instructions:
– grantor is bound by the delivery to the agent

if agent is also given ORAL instructions
– grantor may change the instructions and recall the deed while it’s still in the agent’s hands, unless there is a written contract of sale
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(2) donative escrow with conditions

If the grantor gives a deed to a third party with instructions to turn it over to the named donee only when certain conditions occur, grantor may be able to get the deed back if she changes her mind:

(a) If the condition is something other than the grantor’s death (the grantee’s marriage, for example), the grantor may change her mind and demand the deed back before condition occurs

(b) If the condition is the grantor’s death, the grantor cannot get the deed back because they intended to presently convey a future interest.

(c) if the grantor’s condition is a condition of survival (O to A only if A survives O) is NOT a condition of grantor’s death / does NOT convey a future interest; just indicates that grantor does not want to part with anything till death = NO DELIVERY

Question 7

what is the lawful execution requirement for a valid deed?

Answer 7

LAWFUL EXECUTION

(1) writing signed by the grantor
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(2) unambiguous description of the land

need not be perfect, but must be unambiguous
—- “all of O’s land” = good [we can know meaning of “all” by research]
—- “some of my land” = not good/too imprecise

NOTE: if description is insufficient, title is not transferred and grantor retains title

NOTE: if description is ambiguous, rather than vague or inadequate, parol evidence is permitted to clear up ambiguity

BUT: If the deed is delivered with the land description left totally blank, the deed is void unless the grantee was explicitly given authority to fill in the description
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(3) identification of the parties by name or description

If a deed is delivered with the name of the grantee left blank:
– the court presumes the person taking delivery has authority to fill in the name of the grantee.
– If the person fills in a name, the deed is valid.

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(4) words of intent to transfer, such as “grant”

NO NEED TO RECITE CONSIDERATION OR PASS CONSIDERATION

Question 8

what are covenants for title?

Answer 8

assurances of good title

(1) general warranty deed

(2) special warranty deed

(3) quit claim deed

Question 9

what is a quitclaim deed and what covenants for title does it contain?

Answer 9

Carries no covenants, no promises

worst deed buyer can get

conveys only what grantor has at time of conveyance

Question 10

what is a general warranty deed and what covenants for title does it contain?

Answer 10

WHAT IS IT: warrants against all defects in title, including those attributable to grantor’s predecessors

PRESENT COVENANTS [means that if one is breached, it will have been breached at time of deed delivery]

(1) covenant of seisin
right to own the estate

(2) covenant of the right to convey
right to transfer without limit

(3) covenant against encumbrances
no liens/easements on the land

FUTURE COVENANTS [cannot be breached until grantee is disturbed in possession]

(1) covenant for quiet enjoyment
Grantor promises that grantee will not be disturbed in possession by a third party’s lawful claim of title.

(2) covenant of warranty
Grantor promises to defend against reasonable claims of title by a third party and to compensate the grantee for any loss sustained by the claim of superior title.

(3) covenant for further assurances
Grantor promises to do whatever is needed to perfect grantee’s title if it later turns out to be imperfect.

Question 11

when does the statute of limitations on present covenants begin to run? future covenants?

Answer 11

present - upon delivery of the deed that contains the covenant

future - when grantee is disturbed

Question 12

covenant against encumbrances in deed vs. implied covenant of marketability for real estate contract

Answer 12

Note that the rule regarding visible and known encum- brances is different for the real estate contract (pre-clos- ing) and the deed (post-closing).

For real estate contracts,
remember that a purchaser is generally presumed to have contract- ed to accept the land subject to visible easements (and therefore such easements do not impair marketability).

For deeds, remember that most jurisdictions hold that the covenant against encumbrances is breached even if the grantee knew of the encumbrance (whether or not it is visible).

Question 13

what is the special warranty deed

Answer 13

contains same covenants as general warrant deed but grantor makes those promises only on behalf of himself NOT on behalf of his predecessors in interest

Question 14

statutory special warranty deed

Answer 14

Many states have statutes that provide for what type of deed is conveyed by the use of the word “grant” in a conveyance without
a designation of the type of deed.

Often these statutes provide for a deed that creates by implication two limited assurances against acts of the grantor (not her predecessors):

(1) that the grantor has not conveyed the same estate or any interest therein to anyone other than the grantee
and
(2) that the estate is free from encumbrances made by the grantor.

Question 15

what happens when a remote grantee wants to enforce a covenant when breached?

Answer 15

Present covenants can’t be enforced by remote grantees

Future covenants run with the grantee’s estate, so if there are successive conveyances by general warranty deed and the last grantee is evicted by lawful claim of title, he may sue anyone up the line.

DAMAGES
— Some states allow him to recover to the extent of consideration received by a defendant-covenantor.

—- Other states limit recovery to the lesser of what he paid or what the defendant-covenantor received.

Question 16

what happens when deed is defective? Void vs. voidable deed

Answer 16

Void deed =
(a) forged
(b) never delivered
(c) issued to nonexistent grantee (dead etc.)
OR
(d) were obtained by fraud in the factum (that is, the grantor was deceived and did not realize that she was executing a deed)

Voidable deed =
(a) executed by minors
(b) executed by incapacitated persons,
(c) obtained through fraud in the inducement,
(d) obtained by duress or undue influence
(e) obtained by mistake,
OR
(f) obtained by breach of fiduciary duty
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A void deed will be set aside by the court even if the property has passed to a bona fide purchaser

Voidable deed will be set aside only if the property has not passed to a bona fide purchaser.

Question 17

what happens in situation in which a joint owner attempts to convey property by forging the signature(s) of the other owner(s)?

Answer 17

Such a conveyance would be valid as to the
interest of the owner whose signature is genuine but void as to the other owner(s).

the conveyance works a severance; the buyer would hold as a tenant in common with the joint tenant whose signature was forged.

Question 18

what is a fraudulent conveyance? what happens when conveyance was fraudulent ?

Answer 18

Even when a deed complies with the required formalities, it may be set aside by the grantor’s creditors if:

(1) Conveyance made with actual intent to hinder, delay, or defraud any creditor of the grantor;
OR
(2) Conveyance made without receiving a reasonably equivalent value in exchange for the transfer, and the debtor was insolvent or became insolvent as a result of the transfer.

EXCEPTION:
Deed will not be set aside as against any grantee who took in good faith and paid reasonably equivalent value.

Question 19

what are the closing documents you need to provide in addition to the deed?

Answer 19

(1) closing disclosure

Residential mortgage lenders must provide a closing disclosure to mortgagors at least 3 business days prior to closing.

This disclosure must provide details about the mortgage, including:
(1) principal, interest, and payment amounts (including taxes and insurance);
(2) closing costs;
(3) potential surprises to mortgagors (for example, future changes in interest rates or balloon payments);
and
(4) cash required to close.

If the mortgagee fails to provide the disclosure, the mortgagor may be able to cancel the mortgage or recover damages.
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(2) notification of defects

A seller of residential property must provide a form to the buyer at closing, notifying the buyer of any physical defects of which the seller is aware.

A seller who fails to disclose a known defect that must be disclosed in this form will be liable for the defect after closing.
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(3) environmental report

An owner of real property must generally pay to cure any environ- mental damage (for example, soil contaminated by leaked gasoline) to the property, even if the damage occurred before the owner owned the property.

As a result, buyers of commercial real estate often ask sellers to guarantee that the property complies with environmental laws.

Sellers want to avoid making these guarantees, and the parties must ultimately negotiate an environmental report, to be signed by both parties at closing, that identifies which environ- mental guarantees the seller makes.

Question 20

requirements for conveying real estate by gift inter vivos:

Answer 20

(1) donative intent, (2) delivery, and (3) acceptance.

Question 21

what do you need to watch out for if real estate passing by will?

Answer 21

(1) ademption
(2) exoneration
(3) lapse and anti lapse statues
(4) abatement
(5) conflict of laws

Question 22

if real estate or personal property passing by will, what conflict of laws issues might come up?

Answer 22

To the extent that a will disposes of real property, its validity and effect are determined by the law of the state where the property is located.

With respect to dispositions of personal property, the law of the testator’s domicile at the time of their death controls the validity and effect of the will.

Question 23

if real estate passing by will, what is the abatement issue you should know about?

Answer 23

If the estate assets are not sufficient to pay all claims against the estate and satisfy all devises and bequests, the gifts are abated (that is, reduced).

Absent a contrary will provision, estates in most states abate in the following order:
(1) property passing by intestacy,
(2) the residuary estate,
(3) general legacies, and
(4) specific devises and bequests.

Question 24

what is ademption?

what about w/r to real estate?

land under executory K?

other proceeds not subject to ademption?

Answer 24

ADEMPTION

If property is specifically devised or bequeathed in the testator’s will, but the testator no longer owns it at the time of death, the gift fails.

ADEMPTION W/R TO LAND

LAND UNDER EXECUTORY K - NOT SUBJ TO ADEMPTION

By statute, the ademption doctrine does not apply to the proceeds of a contract for sale of land that was executory at the time of the testator’s death (that is, the devisee gets the proceeds in place of the land).

These statutes take precedence over the equitable conversion doctrine.

In addition, ademption does not apply when the contract is entered into by the representative of an incompetent testator.

OTHER PROCEEDS NOT SUBJECT TO ADEMPTION

When property is damaged or destroyed before the testator’s death but the casualty insurance proceeds are not paid until after the testator’s death, ademption does not usually apply. The beneficiary of the specific bequest takes the insurance proceeds.

Similarly, ademption usually does not apply to property condemned by the government where the taking was before death but the condemnation award was paid after death.

Question 25

when land is passed by will, what is the significance of exoneration?

Answer 25

At common law and in some states, the devisee of specific property is entitled to have the land “exonerated” by the payment of liens
and mortgages from the testator’s residuary estate. However, a majority of states have statutorily abolished the exoneration doctrine, requiring the will to expressly provide for payoff.

Question 26

what are lapse and anti-lapse statutes?

To which beneficiaries do anti lapse statutes apply?

class gifts?

when does anti lapse not apply?

Answer 26

LAPSE VS. ANTI LAPSE

LAPSE - A lapse occurs when the beneficiary of a gift in a will dies before the testator. Under the common law, if a lapse occurred, the gift was void.

ANTI LAPSE - Nearly all states now have statutes that prevent lapse by permitting the gift to pass to the predeceasing beneficiary’s living descendants under certain circumstances. These statutes vary as to the scope of beneficiaries covered by the statute.

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WHICH BENEFICIARIES ARE COVERED BY ANTI LAPSE STATUTE:

Option 1 - Many of the anti-lapse statutes apply only when the named beneficiary is a descendant of the testator.

Option 2 - Others apply if the beneficiary is more remotely related, such as a descendant of the testator’s grand- parent.

Option 3 - Others apply to any relative

Option 4 - still others apply to any beneficiary at all

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APPLICATION TO CLASS GIFTS

If a class member within the coverage of an anti-lapse statute predeceases the testator leaving surviving issue, the statute will apply and the issue will take the deceased class member’s share of the gift.

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WHEN ANTI LAPSE DOES NOT APPLY

The anti-lapse statute does not apply if there is a contrary will provi- sion; for example, the gift is contingent on the beneficiary’s surviving the testator.

Question 27

“share and share alike”

Answer 27

undivided one half interest in property as tenants in common

Question 28

when there is a mistake in the description of the land in the deed, what happens?

Answer 28

in order to validly convey land, deed must adequately describe land to be conveyed, otherwise, it may fail for definiteness

physical description in the deed will trump the number in the deed - rule of construction

if deed says it conveys “western parcel from western boundary to grove of apple trees, comprising 220 acres” but the acreage is actually 229, the 229 acres is conveyed and the deed is valid