Property II Outline – Emerson Spring 2011
I. Real Property Transfer
A. Land K’s
1. Brokers: and the agents under them owe their clients a fiduciary duty.
a) A listings broker is the seller’s agent and owes a duty of loyalty, fair dealing, and good faith to the seller. The broker must diligently pursue a good faith purchaser.
b) A broker may have a duty to disclose latent defects, that is, a duty to disclose facts that would materially alter the property’s value or desirability, when the broker, using reasonable diligence and making a reasonable inspection, discovered them, even though the purchaser did neither of those things.
(1) Caveat Emptor: “let the buyer beware.” Still the rule in many states. However, even in these states, a broker can be held liable for intentional misrepresentation (affirmative acts to mislead the buyer), negligent misrepresentation (knows or should know of matters underlying a false statement), and in a few states for innocent misrepresentations.
(2) If caveat emptor is not the rule, a broker owes a duty to disclose latent (those not discoverable by buyer upon reasonable inspection) and material defects (one that significantly affects the value)
(3) The above is for residential property. The broker owes fewer duties to commercial property.
2. Contract For Sale: must identify the parties, sale price, describe the property to be conveyed, set the closing date, arrange payment.
a) Four General Steps to selling real estate. (1) Listing, (2) Negotiation and offer (3) Transaction Process, and (4) Closing
b) Statute of Frauds: Statute of Frauds sought to make people more secure in their property and their contracts by making deceitful claims unenforceable.
(1) Elements: (1) Must be in writing, (2) signed by the party to be bound, (3) describe, or at least identify the property, (4) state a price. However, some states will infer a reasonable price if none is added. Some states require all material terms be listed.
(a) Uniform Land Act 2-203: The parties may enter into a binding contract without having agreed on the price. However, for it to be enforceable the parties must refer to a way to determine the price. eg: fair market price.
(2) Exceptions: the moving party must convince the court that an oral contract exists and must persuade the court to excuse the party’s failure to produce a writing.
(a) Part Performance: allows for the specific enforcement of oral agreements when a particular act or acts has been performed by one of the contracting parties. eg: taking possession after payment, or making substantial improvements. This satisfies the SoF because it gives clear intent of the parties and prevents irreparable injury.
(b) Estoppel: when unconscionable injury would result from denying enforcement of the oral K after one party has been induced by the other, to change his position in reliance on the contract. Also check for unjust enrichment. This theory prevents unconscionable results in law or equity.
i) Elements: (1) a certain and definite oral K, (2) acts that refer to, result from, or are made in pursuance of the agreement, and (2) a refusal to execute the K would operate as a fraud on, and place the moving party in, a situation not remediable at law.
ii) Negative Benefit: One party should not be able to induce another to alter their position in reliance, but then back out b/c the agreement was not written
iii) Affirmative Benefit: One party should not be able to unjustly enrich themselves by backing out of an agreement b/c it wasn’t in writing
c) Marketable Title: a title free from reasonable doubt as to the titles reliability. A reasonable person, knowing all the facts, and the legal consequences flowing from those facts, would be willing to accept title. Generally, unmarketable title would be one that would subject the person to real risk of litigation.
(1) If the seller does not insure that the title is marketable before the closing date the purchaser may rescind (only allowed before closing). Minor encumbrances or unlikely occurrences do not make a title unmarketable. Examples of typical disclosed encumbrances: concurrent or future estates, easements, real covenants or equitable servitudes, leases, mineral rights, options, flaws in the deed records, erroneous acreage designations, of adverse possession. The purchaser can usually rescind if any of these are not disclosed. Not an exhaustive list. Failure to disclose zoning laws, building codes, and other government regulations usually will not make a title unmarketable.
(2) Adverse Possession can equal marketable title.
(3) “Landlocked” property is usually unmarketable.
(4) To render title unmarketable, a defect must be of substantial character and one may suffer injury. Mere possibility of a defect is insufficient
(5) Merchantable title cannot be conveyed when there are violations of restrictive covenants and city zoning ordinances.
(6) Equitable Conversion: the purchaser is, as majority rule, the equitable owner of the property. The risk of loss during the executory period is on the purchaser. Minority rule is the opposite. The ownership interest retained by the seller is in the sales contract itself (which is considered to be personal property), while the purchaser holds ownership interest in the actual property.
d) Duty to Disclose Defects
(1) If a condition is created by the seller, known by the seller, is unlikely to be discovered by a careful and prudent buyer, and impairs the value of the contract, then nondisclosure of this condition represents a basis for rescission under equity.
(2) Fraudulent Misrepresentation: Elements: (1) a representation of a material fact (2) made falsely, (3) with the intent to mislead the purchaser into reliance on the misrepresentation, (4) which the purchaser relies on and (5) is harmed.
(3) Public Policy – the rule of Caveat Emptor (buyer beware) applies unless the defect would not be found by reasonable, prudent person.-otherwise is unjust enrichment
(4) If the seller of a house knows of facts materially affecting the value of the property which are not readily observable and are not known by the buyer, the seller is under a duty to disclose them to the buyer.
(5) Misfeasance: false statement or omission; Nonfeasance: failure to tell.
e) Implied Warranty of Quality: permits a purchaser to recover from the contractor, developer, or other commercial vendor for defective construction not done in a workmanlike quality. This is an exception to caveat emptor. Does not apply to used houses, only new or substantially remodeled houses.
(1) Purchasers of new homes or developments are said to be in privity with the original owners, and thus allowed relief.
f) Remedies for Breach of the Sales Contract
(1) Specific Performance of the sale and purchase
(2) Nominal Damages of out of pocket expenses
(3) Actual Damages of the difference between the fair market value of the property at the time of the breach and the K’s sale price.
(4) Foreseeable Consequential Damages
(5) Liquidated Damages: prevailing party may receive this if the amount of damages proves too hard to calculate and the award is reasonable. Most of the time this will equal the earnest money deposit.
3. The Deed: Deeds v. Property= conceptually, title is not a piece of paper, whereas a deed is. A deed transfers title from one party to another. -Warranty= guarantee of promise. Chain of title: proves that what you are getting is the actual title, that is unbroken.
a) Warranties on Title
(1) Types of deeds:
(a) General warranty deed- warrants title against all defects in title, whether they arose before or after the grantor took title.
(b) Special warranty deed- contains warranties only against the grantor’s own acts but not the acts of others.
(c) Quitcla
il the grantor repays a loan. The trustee is given the power to sell the land without going to court if the borrower defaults.
(2) Two theories of title under mortgages: (1) Title Theory: mortgagor holds tile. (2) Lien Theory: mortgagee holds legal title while the mortgagor holds equitable title (majority).
B. Title Assurance
1. The Recording Systems: Do not affect the validity of a deed, establishes a public record of land titles, preserves in a secure place important documents, and protects purchasers for value and lien creditors against prior unrecorded interests. As a general rule, record title holders prevail over legal title holders.
a) Types of Constructive notice:
(1) Actual- notice which has been expressly given by which knowledge of a fact or been brought home to a party directly; it is opposed to constructive notice.
(2) Record- Recorded
(3) Inquiry- A purchaser will be required by law to make reasonable inquiries under specified situations. The requirement for reasonable inquiry may be generated from quitclaim deeds, possession, from the neighborhood, or from unrecorded instruments.
(a) Wild deeds- A recorded deed that is not in the chain of title.
b) Indexes
(1) Tract index- indexing documents by a parcel identification number assigned to a particular tract. Not used in most states.
(2) Grantor-grantee index- a bilateral index for both the grantor and grantee to which one could follow the conveyance of land by either name.
(3) Rules:
(a) An instrument, which describes the property to be conveyed, as “all of the grantor’s property in a certain property” is not effective against subsequent purchasers and mortgagees, unless they have actual knowledge of the transfer.
(b) Mother Hubbard clause- “all of my land in X.”
(c) “The rule appears to be well established that in the absence of statutory provision to that effect, an index is not an essential part of the record. In other words, a purchaser is charged with constructive notice of a record even though there is no official index which will direct him to it.”
(d) Idem sonans- a legal doctrine preventing a variant spelling of a name in a document from voiding the document if the misspelling is pronounced the same way as the true spelling.
c) Types of Recording Acts: Recording statutes- Set up to protect the bona fide purchaser. Purchasers and mortgagees are covered under these statutes.
(1) Race- “First in time, first in right” by recorded deed. Priority between successive grantees is determined solely by who records first. Notice is irrelevant under a race statute. The party that records first prevails over a party who has not recorded or who subsequently records. However, this can lead to inequitable results.
(2) Notice- A subsequent bona fide purchase prevails over a prior grantee who fails to record. However, the subsequent purchaser wins under a notice statute if he has no actual or constructive notice or a prior claim at the time of conveyance.
Race/Notice- operate just like notice statutes except they protect a subsequent bona fide purchaser only if he records before the prior
