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Property II
John Marshall Law School, Chicago
Lewis, Paul B.

Property II
A. Statute of Frauds: is applies to any contract for the sale of land, or for the sale of any interest in land.
1. Memorandum satisfying: Contract MSUT state the following: (1) the names of the parties; (2) the description of the land to be conveyed; (3) normally, the purchase price; and (4) the signature of the party to be charged (i.e., the party against whom enforcement is sought).
2. Part performance exception: There is one major exception to the Statute of Frauds for land sale contracts: under the doctrine of part performance, a party (either buyer or seller) who has taken action in reliance on the contract may be able to gain at least limited enforcement of it.
a. Acts by vendor: If the vendor makes a conveyance under the contract, he will then be able to sue for the agreed-upon price, even if the agreement to pay that price was only oral.
b. Acts by purchaser: Courts are split as to what acts by the purchaser constitute part performance entitling him to specific performance.
i. Possession plus payment: this will be sufficient part performance that the S will be required to convey the property.
ii. Improvements: In many states, a B who takes possession and then either makes permanent improvements, or changes his position in reliance, can require the S to convey.
iii. “Unequivocally referable” requirement: Most courts say that the buyer’s part performance must be “unequivocally referable” to the alleged contract. Thus the buyer must show that the part performance was clearly in response to the oral contract, and not explainable by some other aspect of the parties’ relationship. (Example: D orally promises to convey Blackacre to P if P will move in with D and care for D in his old age. P does so. P is distantly related to D. D dies without ever having made the conveyance. If P sues D’s estate to enforce the alleged oral agreement, P will probably lose because P’s part performance (moving in and caring for P) is not “unequivocally referable” to the oral contract, since P may have been doing it out of affection for a relative.)
B. Time for performance: In a suit for damages, the time stated in the contract will be deemed to be of the essence, unless the parties are shown to have intended otherwise. (Ex: Seller refuses to close on the date specified in the contract. Buyer may bring a suit for damages for the delay, even if it is only a few days.)
1. Equity: But in a suit in equity (i.e., a suit for specific performance), the general rule is that time is not of the essence. Therefore, even if the contract specifies a particular closing date, either party may obtain specific performance though he is unable to close on the appointed day (so long as he is ready to perform within a reasonable time after the scheduled day).
C. Marketable title: Nearly all land sale contracts require conveyance of a marketable title.
1. Definition: A marketable title is one that is free from reasonable doubt about whether the seller can convey the rights he purports to convey. Thus it is not sufficient that a court would probably hold the title good in a litigation. Instead, the title must be free from reasonable doubt so that the buyer will be able to resell in the future. The purchaser is not required to “buy a lawsuit”. HAS NO IMPACT ON VALUE OF PROPERTY. Recent cases show title by adverse possession is marketable.
2. Defects making title unmarketable: 319
a. Record chain: 1st, anything in the prior chain of title indicating that the vendor does not have the full interest which he purports to convey, may be a defect.
Variation of names
Not suitable for recordation: if a deed was defectively executed
Lack of capacity
Adverse Possession: Vendor will bear burden of showing beyond a reasonable doubt that all elements of adverse possession were met
b. Encumbrances: (Even if the vendor has valid title to the property)
i. Mortgage or lien: The vendor has the right to pay off the mortgage at the closing, out of the sale proceeds.) Similarly, liens (e.g., a lien for unpaid taxes, or a lien gotten by a judgment creditor) are defects.
ii. Easement: will be a defect if it reduces the “full enjoyment” of the premises.
iii. Use restrictions: (e.g., a covenant whose burden runs with the land, to the effect that only residential structures will be built) can be a defect.
iv. Land-use and zoning violations: Most courts hold that violations of building codes are not encumbrances on title. But a violation of a zoning ordinance usually is treated as an encumbrance.
v. Waiver: any of the above can be waived by the buyer.
3. Agreement and notice: But the parties may agree that certain kinds of defects will not constitute unmarketable title. Also, the buyer may be held to be on notice of certain defects, and therefore held to have implicitly agreed to take subject to them.
4. Time for measuring marketability: Unless the contract specifies otherwise, the vendor’s title is not required to be marketable until the date set for the closing.
D. Remedies for failure to perform: 1) a suit for damages and 2) a suit for specific performance.
1. Damages: P recovers the difference between the market price and the contract price (benefit of bargain)
2. Specific performance
3. Deposit: If B is unable to close on the appointed date, most courts do not allow him to recover his deposit
E. Equitable conversion: B has equitable ownership of the land and S is held as trustee.
1. Risk of loss: The risk of loss immediately shifts to B (equitable owner) even if the vendee never takes possession. Minority view: Loss is on S until legal title is conveyed.
a. Exceptions: (1) the vendor bears any loss resulting from his own negligence; and (2) the vendor bears the loss if at the time it occurred, he could not have conveyed title (e.g., because his title was unmarketable).
b. Insurance: But very importantly, courts who place the risk of loss on P give him the benefit of the vendor’s ins.
A. Nature of deed: The deed is the document which acts to pass title from the grantor to the grantee.
1. Merger: Under the doctrine of merger, most obligations imposed by the contract of sale are discharged unless they are repeated in the deed. (Ex: The contract calls for merchantable title, in the form of a warranty deed. Buyer carelessly accepts a “quitclaim” deed which makes no warranties. Buyer will not be able to sue Seller on the contractual provision if the title turns out to be defective – the contractual provisions are extinguished and replaced by whatever provisions are contained in the deed, under the merger doctrine.)
2. Two main types of deeds: (1) the quitclaim deed, in which the S warrants nothing. S just transfers title. and (2) the general warranty deed, in which the S warrants title against all defects in title whether they arose before or after grantor took title.3) special warranty deed contains warranties only against the S’s own acts.
B. Description of the property: 3 main ways of describing land in a deed. Their use varies by region and type of land: [337] a. Metes and bounds: b. Government survey: c. Plat:
2. Interpretation: the court attempts to ascertain the intent of the parties.
a. Construction in grantee’s favor: Courts tend to interpret the deed in a way which is most favorable to the grantee (i.e., the document is construed against the grantor, since the grantor usually drafts the deed).
C. Formalities: Deeds must meet certain formalities, which vary from state to state.
1. Signature: The grantor must sign the deed. The signature of the grantee is not necessary.
2. Attestation or acknowledgment: In most states, statutes require the deed either to be “attested” to (i.e., witnessed by one or more persons not parties to the transaction) or to be notarized.
D. Delivery of deed: For a deed to be valid, it must not only be executed, but also “delivered.” But this “delivery” requirement does not necessarily refer to physical delivery; what is required is that the grantor use words or conduct evidencing his intention to make the deed presently operative to vest title in the grantee. [342] 1. Not revocable: If the delivery occurs, title passes immediately to the grantee. Thereafter, return of the deed to the grantor has no effect either to cancel the prior delivery or to reconvey the title to him. The only way the title can get back to the g

yer does not make the payments. But the mortgagee may not sue the buyer for any balance still remaining on the loan after foreclosure; that is, the mortgagee may not get a deficiency judgment against the purchaser. (But the mortgagee may in this instance sue the original mortgagor for this balance.)
b. Assumption: If the new buyer assumes payment of the mortgage, he is liable, both to the original mortgagor and to the mortgagee, for re-payment of the mortgage loan. Thus the mortgagee can get a deficiency judgment against the assuming purchaser.
3. Foreclosure: Foreclosure is the process by which the mortgagee may reach the land to satisfy the mortgage debt, if the mortgagor defaults. 333
a. Judicial foreclosure: The foreclosing mortgagee must institute a lawsuit, and the actual foreclosure sale takes place under supervision of a government official (usually a sheriff).
b. Private foreclosure sale: Some states allow the mortgage lender to use a document called a “deed of trust” rather than a “mortgage.” The deed of trust allows the lender (or a 3rd person) to hold the property as “trustee,” and to sell it in a private sale if the borrower defaults. However, the private sale must be held in a commercially reasonable manner so as to bring the highest price possible – if the lender does not do this, he will owe damages to the borrower in the amount that the borrower might have gotten back (representing the borrower’s equity above the mortgage amount) had the sale been a commercially reasonable one.
c. Strict foreclosure: (alternative) Sale not required. Prop. is strictly foreclosed
d. §7.21 pg 653. Inadequacy of the sale price is an insufficient ground unless it is so gross as to shock the conscience of the court, warranting an inference of fraud or imposition. (Fair market value has no meaning in foreclosure concept bfp v Resolution Trust)
e. bankruptcy; Foreclosure and garnishments top reasons people file. Title 11 §362. If one has defaulted on mortgage, lender cannot start or continue to proceed w/foreclosure. Instead it will be dealt w/ bankruptcy. Exceptions: alimony, criminal actions.
B. Installment contracts: Purchaser takes possession and the seller, NOT the lender, contracts to convey title to the purchaser when purchaser pays purchase price in regular installments over a fixed period of time. Here, the buyer does not receive his deed until after he has paid all (or, sometimes, a substantial portion) of the purchase price.
1. Forfeiture: If the installment buyer defaults, the seller does not need to go through complex foreclosure proceedings – he can just exercise his contractual right to declare the contract forfeited (in which case the seller theoretically gets to keep whatever has been paid on account). But modern courts often hold that if the buyer has paid a substantial portion of the purchase price, and the seller would be unjustly enriched by a complete forfeiture, ordinary foreclosure proceedings (applicable to mortgages) must be used.
Contract: to buy property.
Security Agreement: Document w/bank to agree to pay. Bank has a lien on property so if buyer defaults, buyer has right to foreclose.
Promissory Note: Promise to pay.
Foreclosure pertains to ownership NOT property. Property sold at foreclosure gets sold for less because:
Transferred by quitclaim NOT warranty.
Hard to inspect property sold at foreclosure