VIII. Conveyancing

Question 1

Conveyancing Generally

Answer 1

Two Step Process

1) contract of sale
2) at closing comes the actual conveyance

Question 2

Contract of Sale and the Escrow Period Background

Answer 2

• The contract of sale exists from the moment it is signed until the deed is transferred at closing.
  
  • governed by concepts of contract law
• This time period is generally referred to as the escrow period – and during escrow period, contract law principles control.

Question 3

Statute of Frauds and Contract of Sale

Answer 3

• Any contract for sale of any interest in real property must be in WRITING and signed by the one who is sued.
• Must include:
  
  1. Descritpion of Property
  2. Names of Property
  3. Price

Question 4

DOCTRINE of PART PERFORMANCE: An EXCEPTION to STATUTE of FRAUDS

Answer 4

1. The oral contract must be CERTAIN & CLEAR; and
2. The acts of partial performance must clearly PROVE UP the existence of a contract.

To satisfy Prove up at Common Law

1. Buyer takes possesion of property AND
2. Buyer paid full (or close to full) price OR
3. Buyer built improvements on property OR
4. In general, look to see that the Buyer took possession of the property and then took some further action (in partial performance of the contract) that clearly proves up the existence of a contract

To Satisfy in GA:

1. Payment of the full purchase price;
2. Possession of the property along with partial payment of the purchase price; OR
3. Possession of the property along with substantial improvements to the property.

Question 5

Risk of Loss: Doctrine of Equitable Conversion

Answer 5

• At Common Law: risk is borne by the buyer
  
  • once K is signed, equity treats the property as buyers land and the buyer bears the risk of loss even if seller still in possession
  • Applies ONLY WHEN SELLER NOT AT FAULT

Question 6

Death of Party Before Close of ESCROW

Answer 6

• Because of the Doctrine of Equitable Conversion, if either party to the contract dies before closing, equity will still order specific performance of the contract if necessary. The death of either party generally will not affect the rights of the parties as set out in the contract.
• Deliver property or price to estate of the decedent

Question 7

Marketable Title: implied covenant

Answer 7

• Every land sale contract contains an Implied covenant that the Seller will deliver marketable title to the Buyer at close of escrow – may also be referred to as “implied warranty of marketable title.”
• MARKETABLE TITLE is title that a reasonably prudent buyer would accept, which means minor defects do not matter (since they do not present significant threat of litigation).

Question 8

REquirements to Satisfy IMplied COvenenant of Marketability

Answer 8

1. PROOF OF TITLE: give buyer some tangible evidence of title
2. TITLE FREE OF ENCUMBERANCES: Seller must give buyer title free of encumbrances—that is, no easements, no restrictive covenants, no mortgages, no options, etc.— other than those that have been previously disclosed to the buyer.
   
   • Valid Option is an encumbrance
   • Zoning is not
   • mortgages satsified out of the sale proceeds not encumberance
3. VALID LEGAL TITLE AS OF DATE OF CLOSING: Seller must give buyer valid legal title on the day of closing

Question 9

if Buyer determines that Seller’s TITLE is NOT MARKETABLE

Answer 9

• Buyer must NOTIFY the Seller of any defect in title AND allow the Seller a reasonable time to cure the defect—even if that means postponing the day for closing.

Question 10

Buyer’s Remedies for Seller’s Failure to Deliver Marketable Title

Answer 10

1. Recission of Contract
2. Damages
3. Specific Performance–which will be coupled with a reduction in purchase price to reflected defects in title

but if buyer was aware of defects and accepted the property without problems being cured, than they have waived unless there is specific statement to cure in K

Question 11

Time of Performance of Contract for Sale

Answer 11

• Generally will specify date of performance
• If one partie fails to perform, no problem as long as performance is rendered within a reasonble time (2 months late for bar exam)
• Time is NOT OF THE ESSENCE in land sale contracts UNLESS
  
  • the K says otherwise
  • facts make clear the parties intended that time is of the essence
• What if time of essence clause is vioalted: party who failed to act is in total breach

Question 12

Remedies for Breach of K for Sale of Real Property

Answer 12

1. DAMAGES
   
   • DIfference between the contract price and the value of the property at the date of breach
   • Liquidated Damages: liquidated damages clause is a provision that says Buyer’s deposit can be forfeited in the event of Buyer’s breach. For purposes of the Bar Exam, a liquidated damages clause will be enforced so long as the amount is reasonable, which means that it should not exceed 10% of the contract price.
2. SPecific Perofrmance–> available to either party–land is unique

Question 13

Defects on the Property as of the Date of closing

Answer 13

• Common Law: caveat emptor
  
  • No duty to disclose but could not actively conceal defects
  • Trend: Duty to dislcose serious defects which known and which are not obvious to buyer–majority rule
  • Implied Warranty of Fitness: Majority says implied warranty of fitness that applies only to the sale of NEW RESIDENTIAL HOUSE BY BUILDER-SELLER. (GA requires concealment–active or passive). Otherwise caveapt emptor applies

Question 14

When is K extinguished?

Answer 14

When the deed has been accepted at closing UNLESS

1) Contract specifies they survive closing OR
2) they are included in the deed itself

Question 15

Requirements for a deed to pass title

Answer 15

1. Execution AND
2. Delivery

Question 16

Execution of the Deed

Answer 16

• SofF: subject to sof.
  
  • Needs to be a writing signed by the seller
  • GA: deed must be properly attsted in order to be recored (two witness and one being a notary)
• The deed must describe the land with sufficient accuracy in order to pass title:
  
  • must enable you to id prop being transferred
  • If you can’t, void for vaugness and nothing transferred
  • minor discrepacny is okay
  • Parol Evidence may be used to clarify
  • Land description using metes and bounds will control over descption by acreage etc
    *

Question 17

Delivery of the Deed

Answer 17

The legal test for delivery is solely a question of whether the Grantor had the necessary INTENT to pass title.

• No physical transfer of deed is required.
• Recording a properly executed deed raises a presumption of delivery, even if the Grantee knows nothing about the deed.
• Once DELIVERY occurs, title passes. Returning the deed to the Grantor has no effect on title
• In showing the intent of the Grantor regarding delivery, parol evidence may be used.
• If Grantor dies and the deed is still in Grantor’s possession, there is a presumption of no delivery, which may be rebutted by Grantee.

Question 18

Conditional Delivery Problems

Answer 18

Grantor attempts to give deed but there are conditional deliver issues

1. DELIVERY OF A FUTURE INTEREST: where deed reads “To A but not until I die” courts generally treat physical transfer as valid delivery
2. ORAL CONDITIONS: ignore the condition and consider complete
3. DELIVERY CONDITIONED ON GRANTEE’S PAYMENT OF PUCHASE PRICE: generally valid provided
   
   1. Grantor makes delivery of deed to a 3p in escorw:
   2. Grantor instructs escrow agent to deliver deed to Grantee when the condition is satisfied (oral instructions are sufficient for Bar Exam purposes); and
   3. Once the Grantor delivers the deed to the escrow agent, the Grantor cannot get the deed back; as long as the Grantee satisfies the condition, the Grantee gets the property

Question 19

Delivery Must be accepted

Answer 19

Delivery of a deed is valid only if the deed is accepted

• Acceptance will be implied—unless the facts show otherwise.
• Consideration is not necessary for the deed to be valid

Question 20

Quitclaim deeds

Answer 20

• Grantor makes no promises regarding title

Question 21

Covenants for Title

Answer 21

• If grantor makes any promises regarding title.
• Deeds that include the six traditional forms of covenants for title are called general warranty deeds

Question 22

Three Present Covenants

Answer 22

A present covenant is breached, if at all, the moment the conveyance is made; buyer can sue on a present covenant immediately

Three present covenants are presonal to the grantee and do not run with the land (GA allows all three to run w/ the land)

1. Covenant of seisin
2. Covenant of Right to Convey: These first two present covenants (used interchangeably on the Bar Exam) represent seller’s promise that seller has title and possession and can validly convey both.
3. Covenant against encumberances: seller promises that there are no encumbrances, other than those that have been previously disclosed to the Buyer.

Question 23

Three Future Covenants

Answer 23

A FUTURE Covenant is NOT breached immediately, i.e., at the time the conveyance is made. A future covenant is breached, if at all, at some later date when the Grantee is DISTURBED in POSSESSION. Future covenants do run with the land and therefore can be enforced by all subsequent purchasers.

1. Covenant of Quiet Enjoyment
2. Covenant of Warranty: These first two future covenants (used interchangeably by the Bar Examiners) represent the Seller’s promise to protect the Buyer against anyone who comes along later and claims paramount title to the property.
3. Covenant of Further Assurances: If Seller omitted something required to pass valid title, Seller promises to do whatever is necessary to pass title to buyer.

Question 24

Breach of a Covenant of Title

Answer 24

• Where there is a breach of warranty,
  plaintiff’s damages will be limited to the amount of purchase price received by the warrantor plus incidental damages.

Question 25

Estoppel by Deed

Answer 25

• Under this equitable doctrine, the courts say that the Grantor gave an implied covenant that title will be conveyed to the Grantee.
  
  • Therefore, that Grantee can sue to compel the transfer of title from the Grantor.
• Subsequent Sale to a Bona Fide Purchaser: Sale to a BFP will cut off the rights of an earlier Grantee and therefore will cut off that Grantee’s right to rely on the Estoppel by Deed Doctrine.
• (e.g. A who does not own sells to B with warranty of title; C (true owner) then sells to A. Expectation he will give title to B unless he sells to D, a bfp, who gets title but B may sue A in estoppel

Question 26

Conveyancing by Will

Answer 26

• Ademption
• Exoneration
• AntiLapse

Question 27

Ademption

Answer 27

• If the will purports to devise a specific parcel of land, but testator does not own the land at time of her death, the gift is adeemed
  
  • This means that the testamentary gift fails —and it will not be replaced by other property.
  • Ademption doctrine generally does NOT apply to a gift of property that was subject to an executory contract of sale (“in escrow”) at the time of the testator’s death;; instead, the devisee will receive the proceeds from the sale of the property.

Question 28

Exoneration

Answer 28

• If the devised property is subject to a mortgage or other lien, that lien must be exonerated from the testator’s estate.
• That is, the devisee is entitled to have the lien paid off from the testator’s residuary estate. The property will pass to the devisee free of the lien.
• Growing trend is to abolish doctrine, which means that devisee will take the property subject to the mortgage.
• GA has rebuttable presmption

Question 29

Lapse and Anti Lapse

Answer 29

• At COMMON LAW, if the beneficiary died BEFORE the testator, the gift in the will LAPSED—that is, the gift was void
• MODERN RULE: Today, the overwhelming majority of states have adopted anti- lapse statutes that prevent lapse by allowing the gift to pass to certain relatives of the predeceasing beneficiary.

Question 30

Ownership Interests in Trust: What is a Trust?

Answer 30

• An express private trust is created, in writing, by a settlor who transfers title to real property to a trustee, who holds and manages the property subject to a fiduciary duty to use the highest care and skill for the benefit of the beneficiaries of the trust.

Question 31

Creation of Trust

Answer 31

Either by inter vivos or by a will at death

Question 32

Trustees

Answer 32

• Trustee holds legal title to real property.
• Trustee must act in accordance with the Settlor’s written instructions (if any).
• Trustee is subject to strict fiduciary duty.
• If the trustee dies, court can appoint a substitute.

Question 33

Trusts & RAP

Answer 33

• A Trust is subject to the Rule Against Perpetuities.
• With respect to the vesting of equitable interests, the Rule operates in exactly the same manner as it did earlier when we discussed the application of the Rule Against Perpetuities to transfers by deed.

Question 34

Charitable Trust s

Answer 34

• Unlike express private trusts, charitable trusts do not have named individuals as beneficiaries. Instead, the beneficiaries of charitable trusts are either established charities or large groups of persons (e.g. victims of Hurricane Andrew).
• Cy Pres Doctrine: A court may alter the terms of a charitable trust in order to further the Settlor’s intent, (i.e., “cy pres” meaning “as near as can be.”)
• charity- to-charity exception to the Rule Against Perpetuities (see Hypo No. 30).