V. CONVEYANCING Flashcards
A. CONTRACT OF SALE
A real estate contract is governed by all regular contract rules, plus:
1. Statute of Frauds:
Any contract of sale of an interest in real property must be in writing and signed by the one who is sued (aka, “the one who is charged”).
The writing must contain the essential terms which include:
1. a description of the property.
sufficient certain so as to enable a party familiar with the locality to identify the premises; “two lake front acre” not ok
2. the names of the parties.
3. the price or a means of determining the price (such as “the FMV as determined by the appraisal).
“mutually agreeable price” is not sufficient
One exception to SOF:
Doctrine of part performance which would support an action for specific performance
Most states only require two of the following:
a) possession of the land by the purchaser,
b) Paying all or part of the purchase price,
c) Erecting improvements
because periodic cash payments are just as consistent with a lease as a sale, so part performance doesn’t apply
TEXAS Only: In order to satisfy part performance in Texas, all three of the requirements must be met.
- Physical Condition of the Property; Seller’s Liability
a) Liability of Seller of New Construction
A majority of states now impliedly include a warranty of good workmanship and a warranty of habitability in the sale of a new home. These warranties basically provide that the builder is promising that the quality of construction meets a certain level and that the residence is suitable for human habitation
only cover material latent defect
TEXAS Only: these are two distinct warranties making two different promises. As such, issues with disclaimers and waivers are handled differently. For the warranty of good workmanship a disclaimer is only valid if the builder replaces it with an express warranty for the quality of construction. For the warranty of habitability a waiver or disclaimer is generally invalid
b) Liability of Seller of Existing Land & Buildings (Resale)
1) Seller must disclose serious defects that the seller knows of and are not obvious to the buyer.
TEXAS Only: a statutory seller’s disclosure form that must be completed honestly by the seller and provided to the buyer before entering into the sales contract.
2) Seller can’t actively conceal defects.
3) Seller cannot make a false statement regarding a condition of the property.
- Legal effect of valid contract of sale—The Executory Period
a) Risk of loss: If property is damaged or destroyed before closing, the buyer loses. Once the contract is signed, it is buyer’s land and buyer bears risk because equitable conversion (meaning title is in the buyer for all practical purposes) has taken place, even if the seller remains in possession and control.
Note: This rule applies only if seller not at fault.
***TEXAS Only: The risk of loss is on the person in possession at the time of the loss.
Every land sale contract has implied warranty that at closing, seller will give buyer a
What “defects” make title unmarketable?
- Marketable title
marketable title – not necessarily perfect, just one that a reasonable person would accept. (minor defect like half inch short is ok)
***at the date of closing
1, defects in the record chain of title
variations in the property description, an improperly executed deed or evidence that a prior grantor lacks capacity to convey
2, presence of encumbrances (no easement, no restrictive covenants, no mortgages, no options)
Notes: The presence of zoning ordinances does not make title unmarketable. However, a violation of a zoning ordinance will make title unmarketable. The violation of a housing or building code generally does not cause title to be unmarketable.
*** a mortgage is not an encumbrance if it is to be paid out of the proceeds of the sale
3, Title Acquired by Adverse Possession
may be cured with a judgment of title in the seller or with a quitclaim deed from the party against whom the adverse possession occurred
Remedies of buyer if seller’s title is unmarketable
only if defect still exist at the day of closing
Buyer must notify seller and give seller reasonable time to cure the defect, even if that postpones closing.
If problem is not corrected, buyer has three options as remedies:
1. rescind which allows buyer to walk away.
2. sue for the breach
3, specific performance: which gives the buyer the option to take what seller can give but the price gets lowered to cover defect.
B. Deeds
- Formalities of a Deed: A valid deed must:
This is the document that transfers legal title. The document must comply with the SOF as well as have a proper execution, delivery, and acceptance.
Once the deed is executed, delivered, and accepted, the contract merges into deed and is destroyed, and all contract provisions (e.g., implied warranty of merchantable title) are lost unless included in deed (or contract specifies that they survive).
WDCS:
be in wiring; contain the property description (minor different is ok if property can be identified, meets and bounds always control controls over any other description); include conveyance language (grantor’s word of intent); be signed by the grantor; no consideration is needed
- Delivery of deed
does not always mean physical transfer. Legal test is solely a question of intent to pass title.
If facts show the Grantor’s intent to pass title, the mere safeguarding of the paper by grantor does not show lack of delivery.
However, if grantor dies and still has the deed in grantor’s possession, there is a presumption of no delivery (can be rebutted by grantee).
recording a deed raises the presumption of delivery, even if grantee never sees the deed and knows nothing about it.
- Conditional delivery of the deed
a) The condition is expressly written into the deed.
If deed says it will not become effective until death of grantor, this is a valid delivery of a future interest. The deed is read as if it said “O to O for life, then to A” to give effect to the Grantor’s intent.
b) Oral condition with delivery to the Grantee
If the condition is made orally at the time of delivery of the deed, disregard the oral condition.
c) Making delivery conditional on paying the purchase price
This is valid provided grantor makes delivery to a third party in escrow, with instructions to deliver to grantee when the condition is satisfied (and oral instructions are OK).
Once the deed goes to escrow agent, grantor cannot get deed back; as long as grantee satisfies the condition, grantee gets property no matter what subsequent change of mind grantor has.
C. COVENANTS FOR TITLE & ESTOPPEL BY DEED
Texas Only: if a deed uses the words “grants” or “conveys” there are?
- Covenants of Title
- Damages for Breach of Covenant
Texas Only: if a deed uses the words “grants” or “conveys” there are two present covenants impliedly included—the covenant against encumbrances and covenant of “no prior conveyances.”
If the grantor makes promises regarding title, they are covenants for title. If a deed contains all six traditional covenants, or at the least contains the covenant of general warranty or quiet enjoyment then that deed is called a general warranty deed.
3 present covenants:
These covenants allow the grantee to sue immediately on these, thus they are personal to grantee and do not run with the land.
convenient of seisin = convenient of the right to convey: promise of seller that seller has title and possession and can validly convey both.
Covenant against encumbrances –Grantor promises no easements, no restrictive covenants, no liens, etc.
3 future covenants:
These are not breached immediately, but only later, when grantee is disturbed in possession (true owner shows up).
Because a future covenant is breached only in the future, it runs with the land and can be enforced by all subsequent purchasers.
convenient of quiet enjoyment = covenant of warranty: represent the promise of seller that seller will protect buyer against anyone who later shows up and claims title.
convenient of future assurances: If Seller forgot to do something to pass valid title, Seller promises to do whatever necessary
damage
If there is a breach of warranty, damages are limited to purchase price received by the warrantor himself, plus incidental damages.
