Real Estate Transactions Outline

I) Contracts for the Sale of Land
A) Real Estate Brokers
1) Commissions
a) Two rules depending on jurisdiction:
i) 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 sale is not completed. (Sowash v. Garrett)
ii) A broker is not entitled to a commission unless the contract of sale is performed.
(A)Dobbs v. Johnson – Public policy requires that rule because people expect that commissions will be paid from the proceeds of the sale. Also, the brokers are in a better position to evaluate the financial situation of a potential buyer.
(1) However, even under the Dobbs rule, a broker is entitled to a commission if improper or frustrating conduct by the property owner prevents title to the property from passing.
(a) Drake v. Hosley – Drake had an exclusive listing agreement with Hosley. Hosley found buyers for the property and the sales contract indicated that closing would be within 10 days of clear title. Drake wanted to push the closing to 4/11/84 as his ex-wife agreed to accept a payoff on her lien at closing. That created clear title on 4/3/84. For some reason, Hosley became concerned that the buyers would not be able to close. Drake sold the property to somebody else with a different broker. The original buyers showed up on 4/12/84 to pay, but the property was already sold. Hosley sued for his commission. The court said that the Dobbs rule applied. Public policy requires that rule because people expect that commissions will be paid from the proceeds of the sale. Also, the brokers are in a better position to evaluate the financial situation of a potential buyer. However, there is an exception if the seller is at fault. Here, the closing didn’t occur even though there was clear title (4/3), and the buyers came to close within 10 days of that (4/12), because the seller had already sold the property. Therefore, Hosley is entitled to his commission.
B) Breaching Real Estate Contracts
1) Time of Performance and Tender
a) A buyer or seller breaches if he refuses or fails to close
i) Unless time was not of the essence, or
(A)If a real estate contract says that “time is of the essence,” the one who is late cannot enforce the contract, the delay is treated as a material breach, and the innocent party is entitled to rescission, damages, and the buyer’s earnest money, if the innocent party is the seller (Grace v. Nappa).
(1) If a seller grants an adjournment, he can unilaterally make “time of the essence,” but must allow for a reasonable time to close.
(i) Miller v. Almquist – Miller agreed to sell his shares and lease in a co-op apartment building to Almquist for $544,000 with a down payment of $54,500. There was no “time of the essence” clause in the contract. The closing was supposed to be on April 1st. The closing was delayed because there was a tax lien against the buyers when they were trying to get a loan. Almquist asked for an extension to April 16th and Miller agreed but said that “time is of the essence” in exchange. However, the closing did not occur and Miller kept the down payment. The court said a seller can insert a “time of the essence” clause unilaterally when granting an extension. However, the time must be reasonable. There are six factors to determine whether the time was reasonable. Those factors are 1) the nature and object of the contract, 2) the previous conduct of the parties, 3) the presence or absence of good faith, 4) the experience of the parties, 5) the possibility of hardship of prejudice to either one, and 6) the specific number of days provided for the performance. Here, there were only a few days allowed. Also, there was no bad faith by the buyers. The buyers were inexperienced and the sellers were not harmed by the delay. Therefore, the amount of time was unreasonable.
(B) If time is not “of the essence” the late party may tender performance within a reasonable time after the closing date
(1) Courts routinely find delays of 30 to 90 days reasonable
ii) Unless the other party repudiates
(A)If it is not explicit, it may not be a repudiation
2) Title to be Conveyed
a) Every contract for the sale of real estate is deemed to contain an implied covenant that title will be “marketable” [UTLA § 2-304(b)] i) Where a purchaser agrees to take title subject to easements and restrictive covenants of record that are not violated, he cannot refuse it if that is what is offered.
(A)Laba v. Carey – Carey agreed to sell property to Laba. Laba gave a down payment of $5,700. The contract said that the purchase had to accept a title that any reputable title company would approve and insure. Also, conveyance was subject to covenants, restrictions, utility agreement and easement of record.” Further, it was subject to “any state of facts shown by a survey that does not make the title unmarketable.” A title search found that there was a telephone easement and a survey found that the sidewalk grade violated an ordinance. Laba refused title and wanted his deposit back. The court said that the language concerning title that “any reputable title company would insure usually means that it insure the title unconditionally and without exception. However, this contract said that it was “subject to” easements and the ordinance violation did not make the title unmarketable because the town waived it.
(1) Note: Courts are split as to whether ordinance violations make title unmarketable.
3) Conditions in Contracts
a) Financing conditions
i) If a real estate contract has a financing condition, the purchaser must make “reasonable efforts” to obtain fina