Real Estate Finance
Charlotte School of Law
Spring 2010
Prof. Ginger Rolfes
Book – Real Estate Transfer, Finance, and DevelopmentGrant S. Nelson, Grant S. Nelson (Author)
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Dale A. Whitman , R. Wilson Freyermuth; ISBN 978-0314194466
I. Introduction
a. Key Documents in a Real Estate Transaction
i. Purchase and Sale Agreement
1. Contract of sale for a piece of property entered into between a buyer and seller.
ii. Deed
iii. Note
iv. Deed of Trust / Mortgage
b. Market Context for RE Transactions
c. RE Brokers
i. Listing Agreement
a. Contract by the seller appointing the real estate broker to be his agent in obtaining a buyer. If the broker is successful, the seller will be obligated to pay the broker commission, which is usually computed as a percentage of the actual sales price
1. Types of Listing Agreements
a. Open Listing –
i. under which the property owner agrees to pay the listing broker a commission if that broker effects the sale of the property but retains the right to sell the property himself as well as the right to procure the services of any other broker in the sale of the property
b. Exclusive Agency Listing
ii. Which is for a time certain and authorizes only one broker to sell the property but permits the property owner to sell the property himself without incurring a commission
c. Exclusive Right to Sell
iii. Under which the sale of the property during the contract period, no matter by whom negotiated, obligates the property owner to pay a commission to the listing broker
ii. Broker Commissions
a. The fee earned by a real estate broker according to the listing contract for selling a house.
1. Majority Rule – NC Follows the Majority rule
a. Broker is entitled to a commission when he produces a buyer ready, willing and able to purchase the property on the seller’s terms, even if the sell is not completed
2. Minority Rule
a. A broker does not earn a commission unless the contract of sale is performed. Argument is that the broker has not produced a ready, willing and able buyer if the buyer refuses or is unable to perform at closing. In the absence on any default by the seller to frustrate the purpose of the contract.
II. RE Acquisition and Sale
a. Statute of Frauds and Part Performance
i. Statute of Frauds
1. A contract for the sale of land comes within the statute of frauds and must be in writing to be enforceable
2. A material modification of a contract comes within the statute of frauds and must be in writing in order to be valid and binding
3. Writing must contain: identity of the parties, describe the subject matter, state all essential terms of agreement, and by signed by the party to be charged, probably the price too and terms of payment
ii. Two genuine exceptions to the Statute of Frauds
1. Part Performance (Johnston case)
a. Partial performance of a contract by payment of a part of the purchase price and placing a buyer in possession of land pursuant to an agreement of sale and purchase is sufficient to take the contract of the statute of frauds. Allows enforce with no writing at all.
i. Necessary Acts
1. Payment of part (or all) of the purchase price
2. Going into possession of the property
3. Making substantial improvements
b. Part performance refers to acts performed by the plaintiff in reliance on the performance of the duties imposed on the defendant by the terms of the contract. The plaintiff’s actions must be substantial in order to demonstrate that he actually has relied on the terms of the contract.
c. If there is partial performance: the buyer has taken possession (see Johnston v. Curtis) or if part of the price is paid and/or if buyer makes improvements on the property
i. Not all 3 req’ts must be present BUT payment of only $1 + possession may be insufficient to a court
ii. Thus, the statute of frauds does NOT bar enforcement of a partially performed oral modification to a written contract
2. Equitable estoppels
a. If one party has performed in reliance on an oral contract and will be irreparably harmed if the contract is not enforced, some courts apply the theory of equitable estoppel to prevent the statute of frauds from being employed as a defense. Equitable estoppel holds that if a person has so altered his position that justice demands the enforcement of the contract, the court will enforce the contract even though it fails to comply with the statute
b. Detrimental reliance—party seeking to enforce agreement has changed his position to his detriment on reliance of the contract, AND the person who is opposing enforcement is aware that this reliance has occurred
iii. NC Law Regarding Exceptions to the Statute of Frauds
1. NCGS 25-2-201
Formal requirements; statute of frauds.
(1) Except as otherwise provided in this section a contract for the sale of goods for the price of five hundred dollars ($500.00) or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.
(2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within ten days after it is received.
(3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable
(a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller’s business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or
(b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but th
applies
1. The doctrine of equitable conversion holds that “equitable” title passes to the purchaser as soon as an enforceable contract to sell land is formed, even thouh it is clear that the “legal” title will remain with the seller until closing and delivery of a deed.
iv. NC Statutory Lien Laws (NC Gen Stat §44A-2)
v. Majority Rule
1. In situations where the property is damaged during the executory period of the contract, equitable conversion imposes the loss on the purchaser. She is treated as owner of the property, and hence is subject to a decree of specific performance even though the real estate she receives has been devalued by the loss. Which party had possession at the time of loss is said to be irrelevant.
vi. Minority Rule a/k/a the Massachusetts Rule
1. Risk remains on the seller
2. A few courts have refused to follow equitable conversion in risk-of-loss cases; they usually place the risk on the seller until legal title or possession is transferred, and permit the buyer to rescind in the event of a loss or (at the purchaser’s option) to get specific performance with an abatement of the price to account for the land’s reduced value.
vii. Uniform Vendor and Purchaser Risk Act (North Carolina)
1. If, when neither the legal title nor the possession of the subject matter of the contract has been transferred, all or a material part thereof is destroyed without fault of the purchaser, the vendor cannot enforce the contract, and the purchaser is entitled to recover any portion of the price that he has paid;
2. If, when either the legal title or the possession of the subject matter of the contract has been transferred, all or any part thereof is destroyed without fault of the vendor, the purchaser is not thereby relieved from a duty to pay the price, nor is he entitled to recover any portion thereof that he has paid
e. Physical Condition of the Land / Improvements
i. Duty to disclose
1. Disclose material facts, can’t actively conceal
2. NC has statutory disclosure for residential property transactions
ii. Implied warranty of workmanlike construction
1. What is it
a. Applies to new homes in regards to the quality of construction and materials
b. Judicial doctrine implemented to protect an innocent homebuyer by holding the experienced builder accountable for the quality of construction
c. “reasonably good and workmanlike manner and be reasonably fit for the intended purpose”
2. When does it extend to subsequent purchasers
a. When within the time period allowed by law, 6 years in NC
3. How does a statute of repose (e.g. NC Gen Stat §1-50) effect it
