Transfers of Real Property

Question 1

What does marketable title mean?

Answer 1

S must own the entire estate they claim to sell;
Land must be free of encumbrances;
Cannot be reasonable doubt as to any of these concerns.

Question 2

Statute of Frauds Elements

Answer 2

 1) Instrument must be written,
 2) Signed against whom enforcement is sought,
 3) Description of real property (address, meets and bounds, lot number), and
 4) Statement of price (USD or FMV)

Question 3

Exceptions to SOF

Answer 3

 Part Performance – buyer takes steps that suggest presence of contract of sale
• Payment of all or part of purchase price
• Taking possession of property, or
• Making substantial improvements on the land
 Estoppel –
• Change of position or detrimental reliance,
• Foreseeability of reliance, and
• Unconscionable injury

Question 4

During the executory period, parties may rescind the sales contract for a limited number of reasons

Answer 4

 Contract theories of rescission (e.g., fraud, duress, mistake)
 Violation of state or federal regulatory requirements (zoning laws)
• Very different implications of being subject to a zoning law vs. buying a house that is in violation of one
 Violation of common law duties
• Implied Warranty of Marketable Title (Effects the legal title of the property)
o A marketable title is one that is free from reasonable doubt, Lohmeyer

o Seller need not deliver marketable title until title transfer, so a seller who cures the title defects during the executory period bears no liability

Question 5

Should B’s knowledge of a condition preclude them from suing for breach of warranty?

Answer 5

oCourts all over the map

Question 6

Encumbrances to MT

Answer 6

o Mortgage
o Easement
o Lien
• Tax lien, mechanic's lien, judgment lien
o Water rights
o Options
o Leases
o Restrictive covenants & violations of them
o Violations of zoning ordinances

Question 7

Not Encumbrances to MT

Answer 7

o “Insignificant blemishes” on title
o Zoning, building or land use regulations
o Violation of building code
o Visible or known encumbrances (some j/d)
o Issues waived before or in sales K

Question 8

Duty to Disclose

Answer 8

o Majority rule – Seller must disclose known, material, latent defects to buyer
 When a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care with respect to the subject transaction, nondisclosure constitutes a basis for rescission as a matter of equity, Stambovsky
o Common law rule (minority) – caveat emptor
The seller was liable only if he (a) affirmatively misrepresented the condition of the property, (b) actively concealed its defects, or (c) owed a fiduciary duty to the buyer.

There are statute that otherwise overrides duty to disclose

Question 9

Limitations to Duty to Disclose

Answer 9

 On-site defects only - likely
 Seller created defects only
 Physical defects - probably not true across the board

Question 10

Waiving the duty to disclose

Answer 10

 Explicit waivers are sufficient

 As-is clauses unclear

Question 11

Equitable Conversion

Answer 11

 During the executory period, the buyer has the risk of damage to property
 Modernly, courts are moving away from this rule, where some place risk of loss on the party in possession
 Risk can always be allocated by contract and statute

Question 12

Merger

Answer 12

o Common law – When a buyer accepts a deed, the buyer is deemed satisfied that all the contractual obligations have been met, thus the contract merges into the deed

Question 13

The Deed

Answer 13

o The deed is a document that effects title transfer from grantors to grantees and ends the executory period
o Formal Requirements
 Statute of Frauds – in writing and signed by the grantor
 Description of the property and identification of the parties
• Grantee can be left blank, giving the deliveree the authority to fill it in
 Words of Intent – “Grant”
 Delivery
• Not effective until delivery
• requires two elements
o Intent to make a presently effective transfer; and
o Some act memorializing this intention.
• Evidence of grantor’s intent that the deed have present operative effect
• Handover – directly to grantee; by/to agents; or mail
• Recorded deeds are presumptively validly delivered
• In theory deed delivery can happen non-manually but in practice, manual delivery strongly advisable.
o Some states hold that non-manual delivery raises a presumption of invalidity

Question 14

Warranties - Present Assurances

Answer 14

o Warranties
 Present Assurances – Either violated at time of transfer or is not.
• Covenant of seisin – ownership, grantor owns the estate [type and amount] he purports to convey
• Covenant of right to convey – right to convey
• Covenant against encumbrances – similar to warranty of marketable title; a promise that there are no encumbrances on the title, other than those expressly listed in the deed; for example, this covenant is breached if there is a prior mortgage on the property.
o Similar to Covenant of Future Assurances, but requires more substantive work. Under CAE, the grantor will cure easements, liens, mortgages, etc .. can’t just hire a lawyer and make them go away
 Differences are (1) the nature of the obligation, and (2) the degree of doubt engendered by the title flaw
o Remedy – Damages measured by FMV at time of sale [purchase value at time it was bought NOT current value]

Question 15

Warranties - Future Assurances

Answer 15

 Future Assurances – Liability must be rooted in the events that transpired BEFORE the deed passed.
• Covenant of general warranty – no one will show up with a superior claim of title; if so, the grantor will make the grantee whole
• Covenant of quiet enjoyment – Similar to general warranty
• Covenant of future assurances – eliminates grant on title [procedural flaws]; duty to resolve clouded title
o Promises that the grantor will take all necessary steps to cure title defects at closing, e.g., procedural flaws in the deed, getting a quitclaim from someone who has a rumored claim of title

o Remedy – Damages measured by FMV at time of sale

Question 16

Warranty Deed Typologies

Answer 16

 General warranty deed – Guarantees all six warranties regardless of whether grantor caused the breach
 Special Warranty Deed – Guarantees all six covenants only to the extent that the grantor breached them
• Alternate view – SWD only applies to present covenants (seisin, convey, encumbrances)
 Quitclaim Deed – No guarantees of any kind

o Functionalism v. Formalism

 Functionalism – Favors the equities and whose conduct gave rise to the breach of the covenant should bear the cost
 Formalism – GWD promises that property is free from encumbrances regardless of who created them. Favors clarity over equity.
 Policy Consideration – To what extent can a subsequent titleholder be held liable for conduct of a previous titleholder, when she was not aware of that conduct and did not cause it to happen?

Question 17

Right of Grantee’s Successors

Answer 17

 Almost all courts hold that there is no liability to successors for violations of present covenants
 But most courts hold that there is liability to successors for violations of future covenants

Question 18

Transfer of Mortgages

Answer 18

o By Mortgagee (of security interest)
 Transferee – “Holder in Due Course”
• Requires (1) transfer for value, (2) good faith (i.e., no knowledge of any apparent defect in the instrument nor notice of dishonor nor any defense by the maker)
• Effect – Affirmative defense against all legal claims the debtor may have against the original creditor (mortgagee). HDC does not become responsible for the original creditor’s alleged misdeeds (lack of consideration, fraud, etc) in the original credit transaction
o By Mortgagor (of collateral)
 Transferee takes subject to recorded mortgage
 Liability After Transfer
• Foreclosure: transferee not personally liable but would lose interest in property
• Exception: transferee assumes mortgage

Question 19

Foreclosure

Answer 19

o Debtor still liable for deficiency (value of property < outstanding loan amount), with some limits
 Surplus (rare) used to pay costs and junior creditors, then remainder to debtor
 Limits: no deficiency judgments for owner-occupied residences (CA); no deficiency judgments in cases of nonjudicial foreclosure (MT)
o Effect on other creditors
 Senior creditors: land still subject to their interest
 Junior creditors: interest extinguished, personal liability against debtor
o Surplus – When the foreclosure sale results in a surplus, the money is distributed in the following order:
 1) Expenses of Sale, Attorneys fees and court costs
 2) Accrued Interest on Foreclosed Mortgage
 3) Junior Lienholders
 4) Mortgagor
o Priorities –
 Senior Lienholders & First to Properly Record, First in Right
 Junior Lienholders – interest is extinguished and take personal liability against debtor (i.e., HELOC)

Question 20

Redemption

Answer 20

 Equity of Redemption – Every state allows debtors to stave off foreclosure by paying the full amount of the loan balance;
 Reinstatement, -where the debtor pays off all missed payments quickly they can avoid foreclosure - most states allow
 Statutory Right of Redemption (After Foreclosure) – Some states allow debtors to repurchase property sold via foreclosure within some statutory time limit, if they pay the full sales price plus interest and costs

Question 21

Title Recording
• Purpose
• Recordation v. Ownership

Answer 21

• Purpose
o Create a public record of ownership transfers
o Create priority in the case of conflict/competing interest
o Nemo Dat – cannot convey that which you do not own
• Recordation v. Ownership
o To record means you have added a fact, which anybody can do
o Recordation does not make the fact true
o Proof of ownership

Question 22

Title Recording Exception Statutes

Answer 22

 Race statutes (Minority, only LA and NC) – first to record wins
 Notice statutes – Subsequent BFP (bona fide purchasers) for value can prevail if they weren’t aware of the prior competing interest
 Race-Notice – Must have good faith (no notice/constructive knowledge) and win race to the courthouse

Question 23

Relativity of Grantee Status

Answer 23

BFP can be different with regard to different transactions

 Notice extends to actual & constructive notice

Question 24

Shelter Rule

Answer 24

– The relationship a grantee has with an immediate grantor under a recording statute is transferred to subsequent grantees with respect to that grantor

Question 25

Typology of Notice

Answer 25

 Actual notice – subjective awareness
 Imputed notice – may arise from principal/agent relationship
 Constructive notice
• Record notice
• Inquiry notice – set of circumstances outside the record are sufficient to give the grantee a duty to investigate into the property; Courts apply broad standard
o What facts are sufficient to establish inquiry notice?
 Residence by other than title owner (Waldorff)
• But not where resident is tenant of title owner (cf. Raub)
 Notes in chain of title about preexisting deeds (Harper)
o Deeds outside the chain of title (“wild deeds”) do not give rise to notice
o Policy – But is this kind of inquiry too burdensome and costly?
o Relate to a variety of contexts
 Adverse Possession
 Easements
 Encumbrances
 Title Recording