Real Property
Chapter 51
Conveyance of Real Property
• Two Step Process
– First, the contract for sale
– At closing, conveyance of the Deed
Contract for Sale
• Contract is governed by contact rules
• 1. Statute of Frauds – Any contract of sale of an
interest in property must be ________ _________
and __________ by the one who is sued.
• Only some kind of signed writing is required
– A ________ of the property
– The ________ of the parties
– The ____________
• One exception – Doctrine of part performance
– O orally contracted to sell the farm to A. After this oral
contract of sale, A took possession and immediately
started building a barn. Then, before closing, O died.
O’s estate refused to go to closing, citing the Statute of
Frauds. Who wins, when A sues for specific
performance of the oral contract? _____________
Death of Party Before Closing
• Doctrine of Equitable Conversion preserves rights as set in the
contract, and death of party before closing does not affect them.
• If seller dies before closing, buyer closes with _________
__________; seller’s interest is
_________________________________.
– A contracted to sell Blackacre to B. A then died before
closing. In her will A provided that all of there real property
would go to X and all of her personal property would go to
Y. If B goes to closing with A’s estate, who would ultimately
get the money, X or Y? ___ because
_________________________.
• If Buyer dies before closing, seller closes with ___________;
buyer’s interest is _______ _____.
– A contracted to sell Blackacre to B. B then died before
closing. In his will B provided that all of his real property
would go to J and all of his personal property would go to K.
When B’s estate closes with A, who will ultimately get title
to Blackacre, J or K? ____ because ___________________
Risk of Loss of Property
• If property is damaged or destroyed before
closing, ___________ loses: Once contract
is signed, title is in the buyer for all
practical purposes and if the property is
destroyed, risk of loss is on the buyer, even
if the seller remains in __________- and
control.
– Note: This rule applies only if seller is not at
fault.
Marketable Title
• Every land sale contract has an implied warranty
that at closing, seller will give buyer a marketable
title – not necessarily perfect, just one that a
reasonable person would accept (minor defects,
Okay)
– Building encroaches a half inch over the neighbor’s
line. Does this half inch encroachment make title
unmarketable? ____ because it is _______ and does not
present a significant threat of litigation.
Marketable Title
• Seller must give Buyer three things:
– _____- of ___________ (abstract or copy of all deeds
recorded in chain of title)
– Title free of _________________ (no easements, no
liens, restrictive covenants, no mortgages, options, etc.,
that are not mentioned in the contract)
• Harry and Leona leased their estate to Donald and Maria for
five years and in the lease tenants were given an option to
purchase the estate at the end of the lease. Two years into the
lease Harry and Leona contracted to sell the property to Rudy
and Donna. The contract does not mention the option to
purchase given to Donald and Marla. Has seller breached the
warranty of marketable title? _________, because the option
is an _____________ which makes it _______________.
• Zoning restrictions are not an encumbrance
• Not unmarketable title if encumbrance (i.e.,
easement, road, sewer, etc.) is open and obvious.
Remedies of Buyer if Seller’s
Title is Unmarketable
• Buyer must notify Seller and give Seller
reasonable time to ________ the defect, even if
that postpones closing.
• If problem not corrected, Buyer has 3 remedies
– ________ - buyer walks
– _______________ - Measure is difference between
contract price and value of the land on the day of
breach
• If Buyer breaches, Buyer’s deposit can be forfeited as
liquidated damages as long as it is not more than _____ of
sales price.
– _______________ - buyer takes what seller can give
and price gets lowered to cover defect in title.
Seller has Implied Warranty of
Habitability
• Common Law - Caveat Emptor, buyer has to
inspect for defects
• Two exceptions
– Seller must _____ serious defects that the seller knows
of and are not ________ to the buyer. Seller can not
actively _______ defects.
• Seller paints roofing tiles to hide holes and make
roof look new. OK? ____________
• Seller covers termite damage with paint and
wallpaper. OK? __________
• Implied warranty of __________ for new homes
sold by a Builder-Seller.
Deed
• Execution – Deed is subject to the S/F, I.e.,
________
• Description of the land must be enough to
________ the property. If vague, nothing gets
transferred.
Delivery – does not always mean ______ transfer.
Legal test is solely a question of ______ to pass
title. Delivery is valid if grantor makes delivery to
a third party in _____ with instructions to deliver
to grantee when condition is satisfied. Once deed
goes to _______ agent, grantor cannot get deed
back
Types of Deeds
• If grantor makes no promises regarding title, the
grantee gets a ____________; grantee gets
whatever grantor owns and grantor promises
nothing.
• ______________ - Grantor make promises
regarding title, called “covenants for title”
– Title/seisen – Seller warrants he has title and the right
to convey
– Covenant against encumbrances – no easements, etc.
– Covenant against quiet enjoyment – Seller promises
Buyer no one will show up later and claim title.
• ____________ - Grantor merely warrants the title
so far as his acts/omissions are concerned. He
does not warrant the title to be free of defects
caused by the acts/omissions of others.
Title Insurance
• Insurance Policy, gives protection to Buyer
if title is subject to an encumbrance or
defect.
• A standard title insurance policy insures the
holder has good record title at the policy’s
date. If the title turns out defective, the title
insurer will reimburse the insured for its
loss.
Recording of Interests
• At recording office, clerk files copy of deed in
book of deeds.
• Clerk indexes deed in two indexes: In the grantor
index, the clerk lists transaction alphabetically by
grantor, notes the grantee, gives a description of
the property, and cites the volume and page of the
book where the copy can be found.
• Same info put in grantee index, filed
alphabetically by grantee.
Recording Acts–Earlier Purchasers vs. Subsequent
Purchasers
• _________ acts – protects subsequent Bona Fide
Purchasers. Recording is Irrelevant!
• ______ - ________ acts – protect BFP’s who take
without __________ and are first to _________.
– Teddy sold the Palm Beach mansion to will on January
1st for $800,000; Will did not record. Then on March 1st
Teddy sold the same house to Patrick for $600,000.
Patrick knew nothing of the earlier sale to Willy;
Patrick did not record. Then on April 1st Willy recorded
and on May 1st Patrick recorded.
– If notice statute,who wins?____________________
– If race-notice? __________________________
• _______ race - _______ is irrelevant, whoever records first
wins. The subsequent purchaser can know about the earlier
sale and still win.
Bona Fide Purchaser
• One who purports to take property as an
heir, donee, or devisee cannot be a BFP and
can never defeat the claim of someone who
has a prior conveyance from O.
• BFP’s – those who give value and who take
without notice of the earlier transaction.
Mortgages – RESPA Reg’s
• A mortgage is a voluntary lien on real property arising
from a contract; it is a security interest in real property,
typically conveyed by a written instrument to secure
payment of a debt.
• Underlying debt evidenced by a promissory note, lender
has alternative remedies if a default.
• Debtor – mortgagor, has an affirmative duty not to commit
waste, and to preserve the property at least to the amount
of the debt; pay taxes and assessments
• Creditor – mortgagee; right to obtain insurance to protect
his interest.
• Formal requirements
– Writing
– Mortgage must be delivered to mortgagee.
– Proper recording gives public constructive notice of
security interest, but it is optional
Foreclosure
• Right to foreclosure arises upon default.
• Mortgagee (or assignee) takes property away from
mortgagor to pay debt.
• Must initiate a judicial proceeding to secure order
of sale. The debt is then satisfied with the
proceeds, debtor gets excess monies. If the sale
proceeds are insufficient to cover the debt (plus
costs and interests), mortgagee may usually obtain
a judgment for deficiency. (Some jurisdictions do
not allow deficiency judgments when property is
over-mortgaged).
• First mortgages have priority and must be paid in
full before the second;PMM’s (mortgages taken
out to buy the property) are given priority over
other mortgages secured interests have priority
over unsecured..
Prior to Foreclosure
• Mortgagor may exercise her equitable right of
redemption; prior to foreclosure sale, she may
refinance with another lender and regain rights by
paying off the full amount of the mortgage.
• Some states have a “statutory right of
redemption”; provides that mortgagor may
repurchase the property AFTER the judicial
foreclosure sale, for a certain period generally not
exceeding 1 year.
– This would create an unmarketable title
Trust Deed
• A debtor transfers title to a disinterested third
party (the trustee) to be held in trust as security for
the performance of an obligation.
• The trustee is typically given the power to sell the
property if the debtor (mortgagor) defaults.
• Trustee holds bare legal title, not a true ownership
interest.
• Trust deed is treated as a lien (mortgage) on the
real property.
• When the obligation is satisfied, the trustee
reconveys legal title to the debtor.
Mechanics and Materialman’s Liens
• Statutory liens against real property.
• Preliminary notice to the property owner of intent
to file the lien is generally required, identifying
the labor/materials furnished.
• The liens secure unpaid debts that arise from
contracts for labor, materials or services to
improve real property. These liens prevent
transferring real property with a clear title.
• Lien must be recorded with public records within
a specified statutory period after performing the
work.
• Liens may be enforced by foreclosure and sale of
property.
Eminent Domain
• State takes property by its power of condemnation.
– Phil and Marlo moved to New York City from
Chicago. A few months after they moved, the
State of New York decided to build a new
freeway out to Long Island. The state may take
by powers of eminent domain.
• “Just compensation” must be made to owners of
the property, equal to fair market value of the
property at the time of taking.
Restrictive Covenants
• May bind original parties, and future owners, if covenant
“runs with the land” (touches and concerns the land), and
successive owner had notice.
– O owned lots one and two and operated a gas station on
lot one. O sold lot two to A with a covenant in the deed
that neither the buyer nor his heirs would compete by
operating a gas station on lot two. A later sold lot two to
B with no such covenant in the deed. B knew that the
covenant was in the deed from O to A but was delighted
that it was not in his deed. However, the covenant not
to compete runs with the land and is enforceable.
• Restrictive covenants often found in subdivisions
(i,e., 100 lots, single family residence restriction.
One buyer wants to put up gas station, any
plaintiff in subdivision can seek injunction).
• Termination – by changed circumstances
Zoning
• States, and local authorities) may enact statutes or
ordinances to reasonably control the use of the
land. Zoning power based on a state’s police
powers.
• Nonconforming Use – A use that exists at the time
of passage of a zoning act that does not conform to
the statute cannot be eliminated at once (gets
grandfathered in, or may continue for a time).
• Special Use permit – Must be obtained even
though the zoning is proper for its intended use
(hospitals, funeral homes, drive-in businesses)
• Variance – A variance is a departure from the
literal zoning restrictions, if there are special
circumstances or it would be an “undue hardship”
to deny.