The Land Sale Contract

Question 1

Two Step Real Estate Conveyance Process

Answer 1

Every conveyance of real estate consists of two steps:

1) The land contract, which conveys equitable title to the buyer. The contract endures until the closing;

(Gap between is called the escrow period in which the rules of contracts applies)

2) The closing, where the deed passes legal title to the buyer and becomes the operative document.

Question 2

GA Land Sale Contracts Name (Important)

Answer 2

Bonds for title

Question 3

Statute of Frauds Applies

Answer 3

The real estate involves the transfer of an interest in land, so SOF applies. It requires a writing signed by the party against whom enforcement is sought.

The writing must:
1) identify the parties
2) describe the property; and
3) include the price or a means of determine the price

Question 4

Inaccurate Description of the Land In Contract

Answer 4

If a land sale contract overstates the size of the parcel, the buyer is entitled to specifically perform the contract with a pro rata reduction in the price

Question 5

Doctrine of Part Performance

Answer 5

Part performance is an equitable doctrine that allows a buyer to enforce an oral real estate contract by specific performance if:
1) the oral contract is certain and clear; and
2) the acts of partial performance clearly prove the existence of a contract.

The second requirement is met if 2/3 of the following are satisfied:
a) the buyer has taken possession of the property
b) the buyer has paid the purchase price or a portion
c) the buyer has made substantial improvements

Question 6

GA Doctrine of Part Performance

Answer 6

To enforce an oral land contract in GA, there must be:

1) full payment accepted by the seller; or
2) possession plus partial payment; or
3) possession plus valuable improvements

Question 7

Doctrine of Equitable Conversion

Answer 7

Under the doctrine of equitable conversion, once the contract is signed, equity regards the buyer as the owner of the real property.

The conveyance of equitable title transfers the risk of loss to the buyer. So if the land is destroyed between the time of signing and closing, through not fault of either party, the buyer bears the risk of loss.

NOTE - the right to possession rests with the party having legal title. So the seller is entitled to possession until closing.

Question 8

Passage of Title on Death

Answer 8

Buyer - because the buyer has equitable title to the property, upon death his interests passes as real property to their estate

Seller - a deceased seller’s interest (the right to the purchase price) passes to their estate as personal property

Question 9

What are the two implied promises in land sale contracts

Answer 9

1) Implied covenant of marketable title
2) Seller will not make false statements of material fact

Question 10

Implied Covenant of Marketable Title

Answer 10

Every contract contains an implied covenant that the seller will convey marketable title at the closing. Marketable title it title reasonably free from doubt and the threat of litigation.

This can be breached by:
– defects in the record chain of title
– encumbrances
– zoning violations

Question 11

Defects in Record Chain of Title (Marketable Title)

Answer 11

Even if a portion of the title rests on adverse possession, it is unmarketable because the seller is unable to provide good record title.

Question 12

Encumbrances (Marketable Title)

Answer 12

Mortgages, liens, restrictive covenants, easements, options to purchase, and significant encroachments render title unmarketable UNLESS the buyer has waived them.

NOTE - beneficial easements or one that is visible or known to the buyer does not impair marketability because the purchaser is presumed to have contracted to accept the land subject to them.

Question 13

Satisfying Mortgages

Answer 13

A seller has a right to satisfy a mortgage or lien at closing with the proceeds of the sale. Therefore, prior to closing, a buyer cannot claim that title is unmarketable because it is subject to a mortgage if the closing will result in that mortgage discharge.

Question 14

Zoning Violations (Marketable Title)

Answer 14

zoning restrictions do not affect marketable title, but an existing violation of a zoning ordinance does render title unmarketable

Question 15

Remedy if Title is Not Marketable

Answer 15

The buyer must notify the seller and give the seller reasonable time to cure the defects.

If the seller fails to cure the defects, the buyer’s remedies include rescission, damages, specific performance with abatement, and quiet title suits.

NOTE - if closing occurs, the covenant of marketable title is not actionable because it merges with the deed

Question 16

Seller Will Not Make False Statements of Material Fact

Answer 16

This is the second implied promise in the land sale contract. The seller may be liable to the purchase after the closing for defects if they knowingly made a false statement of material fact that the buyer relied on, actively concealed a defect, or failed to disclose known defects in the property.

Question 17

Failure to Disclose Defects

Answer 17

For the seller to be liable for failure to disclose defects:

1) the seller must know or have reason to know of the defect;
2) The seller must realize the buyer is unlikely to discover the defect; and
3) the defect must be serious enough that the buyer would probably reconsider the purchase

Question 18

Disclaimers of Liability

Answer 18

General disclaimers will not serve to protect the seller from liability for fraud or failure to disclose.

However, specific disclaimers (seller is not liable for any defects in the roof) will likely be upheld

Question 19

Warranty of Fitness and Habitability

Answer 19

The land contract contains no implied warranties of fitness or habitability - Caveat emptor (buyer beware)

Question 20

New Home Construction

Answer 20

Most courts recognize an implied warranty of fitness or quality in the sale of a new home by a builder (vendor)

A person may sue a builder for negligence in performing a building contract. Some courts permit the ultimate buyer to sue despite a lack of privity with the builder.

Question 21

GA New Home Construction (IMPORTANT)

Answer 21

GA law does not imply any warranties as to the quality of condition of an existing new house in favor of the purchaser by the builder-vendor.

However, a cause of action for fraud resulting from passive concealment of a defect places upon the vendor a duty to disclose defects where he has special knowledge not apparent to the purchaser.

A builder-vendor generally has superior knowledge with regard to the condition of the home and is chargeable with knowledge of alleged defects from its construction.

An owner who makes negligent repairs to a preexisting home is not considered a builder-vendor.

Question 22

Time of Performance (Real Estate Contract)

Answer 22

Courts presume time is not of the essence in real estate contracts. Therefore, the closing date isn’t absolutely binding, and a party late in tendering performance can still enforce the contract if they tender within a reasonable time.

Question 23

When Time is of the Essence

Answer 23

Time is of the essence if

1) the contract so states;
2) the circumstances indicate that was the parties intent; or
3) one party gives the other notice that time is of the essence

Question 24

Remedies for Breach of Sales Contract

Answer 24

The nonbreaching party is entitled to damages (difference between contract price and market value on date of breach, plus incidental damages); or specific performance

Question 25

GA Breach of Sales Contract (IMPORTANT)

Answer 25

When a contract for the sale of land is breached, the nonbreaching party may pursue either (1) damages for breach or (2) specific performance

When specific performance is pursued, courts have awarded both specific performance and incidental damages (closing costs, attorney’s fees)

Breach of contract remedies are available only if the plaintiff pursues those remedies in lieu of specific performance

Question 26

Earnest Money (liquidated damages)

Answer 26

Sales contract usually require the buyer to deposit earnest money with the seller that provide that if the buyer defaults, the seller may retain the earnest money as liquidated damages.

Courts will uphold the retention of the earnest money if the amount appears to be reasonable in light of the seller’s anticipated and actual damages