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Real Estate Transactions
Rutgers University, Newark School of Law
Slover, William A.

 
Rutgers Law-Newark – Slover –  Real Estate Transaction 2013
 
Definition
 
Loaner
–          Lender, mortgagee, creditor
 
Loanee
–          Borrower, mortgagor, debtor
 
A fraud
·         A marital misrepresentation,
·         The lie has to be the past or present fact. It is not a lie for future promise
·         Except: uniform fraudulent transaction act nj: the transaction for consideration is fradulent to creditor (or subsequent creditor)  
·         The reasonable detrimental reliance
 
Doctrine of lis pendent:
 put a notice of a pending suit. But not changer a property owner's right to transfer interest.
In the mortgage context, the doctrine operates to bind a necessary party who acquires an interest in the mortgaged real estate after the commencement of a foreclosure proceeding. Because of this doctrine it is unnecessary for a foreclosing mortgagee to serve such parties with process in the foreclosure action.
o    Junior has no redeem right cut off by the Lis pendent
Here the interest arise after the foreclosure so the doctrine of lis pendens means that the holders of the interests are bund by the decree of foreclosure and their interest were foreclosed along with those of the buyer and the lien creditors who were joined tin the suit, so the statutory right of redemption came into existence
 
Pendente lite
–          a Latin term meaning “awaiting the litigation” or “pending the litigation” which applies to court orders which are in effect while a matter (such as a divorce) is pending.
–          In divorce a pendente lite order is often used to provide for the support of the lower income spouse while the legal process moves ahead.
–          Pendente lite should not be confused with lis pendens. Lis pendens also means “a pending lawsuit.” But lis pendens is a document filed in the public records of the county where particular real property is located stating that a pending lawsuit may affect the title to the property. Because nobody wants to buy real estate if its ownership is in dispute, a lis pendens notice effectively ties up the property until the case is resolved. Lis pendens notices are often filed in divorce actions when there is disagreement about selling or dividing the family home
Part 1 The Transfer of ownership
Chapter 1. Contract for the sale of Land
A.        Real Estate Broker
Concept
Open Listing Agreement
–          Property owner agrees to pay to 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.
 
Exclusive Agency Listing
–          This listing agreement is for a certain time and authorizes only one broker to sell the property, but permits the property owner to sell the property himself without incurring a commission.
 
Exclusive Right to Sell Listing
–          most popular
–          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.
 
Traditional Full Service Broker
–          Market the home; Review contracts; Negotiate with potential home buyers and sellers; Locate properties for potential buyers; Arrange inspections; Provide potential buyers with information about the community; Apprise potential buyers about financing alternatives; Assist in the formation and negotiation of offers, counter offers, and acceptances; Assist with the closing of the transaction.
 
Fee for Service Broker
–          Brokers willing to sell a subset of real estate brokerage services.
 
Minimum Service Laws
–          Laws or regulations that dictate the services that a consumer must purchase when entering into a relationship with a real estate broker – whether the consumer wants to buy them or not.
 
Duty to disclose
·         Seller's agent has the duty to disclose to buyer material defects known to the seller's agent even seller’s agent is not buyer’s agent
·         Easton rule (only CA)
o    The seller's agent has the duty to conduct an inspection; therefore, the seller is liable for the material defect that a inspection will reveal
·         But exclude the areas that a reasonably and normally inaccessible to such inspection
 
Seller’s Right to Commission
–          If a valid listing agreement exists between a seller of real estate and a real estate broker, the agent earns his commission only after the parties close in accordance with the contract. 
o   But if the seller default the sale when the buyer is ready to close the sale, the broker is entitled to receive the commission even the sale did not go through.
o   But if after signing a contract to purchase, the buyer backs out and no closing occurs, the seller will owe no commission.
 
Conflicts of Interest of dual agent
–          traditional rule – selling agent is a subagent of the seller. (a broker who contracts with a seller is the primary broker, and if another broker finds a buyer, then the two brokers split the commission 50-50.  However, since the broker who found the buyer, has some fiduciary responsibility to both parties, it is a conflict of interest.
–          Unless agreed to by all parties after full disclosure, conflicts of interest by brokers can give rise to private liability, as well as public discipline by the state licensing body. The agent who causes loss to the principal by virtue of the conflict may loose the commission and be subject to a judgment for damages.
 
Buyer gets home inspection 14 days after lawyer review
Seller get 7 days to response
Buyer get 7 days to reply seller's response
·         Buyer has the right to inspection (not the as-in, if as-in there is no inspection)
·         The nuyer's response must be reasonable to back out.
 
If the seller to repair, the buyer has to live with it until it get right; therefore, it is better buyer to get $ to repair by himself
 
Mortgage
·         If yo cannot get mortgage, you have to tell the seller timely
 
Title recording statute
·         Every interest in property must be record in the county court house (and able to be found) or not affected against subsequent purchase's interest
 
 
Bone fide buyer
·         Pay value
·         No knowledge of the fact
 
Buyer pays the closing fee
Case
Drake v. Hosley
–          Drake signed an exclusive listing agreement with Hosley, a broker to sell some land. The agreement provided for a 10% commission, if during the period of the listing agreement: (1) Hosley located a buyer “willing and able to purchase at the terms set by the seller,” or (2) the seller entered into a “binding sale” during the term set by the seller. Hosley found some buyers, and all the parties signed a purchase and sale agreement. However, while Hosley’s client went to find a mortgage, Drake suddenly wished to have the sale close by April 11 (to satisfy a debt he owed his wife) and so Drake’s lawyer called Hosely and let him know. When the deal did not close on April 11, Hosley sold to another buyer on April 12 and refused to give Hosley his commission.
–          The court followed Ellsworth Dobbs, Inc. v. Johnson that a real estate broker does not normally earn a commission unless the contract of sale is performed. This is because it is understand that the commission normally comes from the sale proceeds.
o   Exception:  The seller has to pay commission to the broker if the seller default the sale. (but if the buyer breach, then the broker cannot receive the commission)
–          Slover’s Holding:
o   If a valid listing agreement exists between a seller of real estate and a real estate broker, the agent earns his commission if the seller accepts the purchaser’s offer, and the purchaser closes in accordance with the contract.
o   If the seller breaches the agreement, the commission is earned by demonstrating that the buyer was, ready, willing, and able to close.
 
Ellsworth Dobbs, Inc. v. Johnson
–          Cited in Drake to show real estate broker does not normally earn a commission unless the contract of sale is performed.
–          Defendant purchaser entered a land purchase contract with defendant sellers but defendant purchaser failed to obtain financing and did not close. The plaintiff broker sued seller and purchaser.
o   The purchaser wished the plaintiff Dobbs to assist him in finding property to build developments. The purchase fails to secure financing support.
–          The court held that although plaintiff real estate broker had a right to commission when he found willing and able purchaser who entered into a contract, defendant sellers reasonably expected an ″able″ purchaser would have consummated the deal and the risk of financial inability was on plaintiff.
–          The court reversed the lower court and held that defendant sellers were not liable for the commission because the deal failed due to defendant purchaser’s financial inability, and contrary language in the brokerage agreement was unconscionable and unenforceable. Defendant sellers were not liable for having sued for specific performance and accepted releases because defendant sellers had a responsibility to sue, and the releases were not the substantial equivalent of performance. The court held that defendant purchaser could have been liable for an implied promise to have paid plaintiff’s commission, but the case was remanded on the issue of whether plaintiff knew that the closing and commission were contignent upon h

lding:
o    The requirement that a contract for the purchase and sale of real estate be in writing will not be enforced if there is clear & convincing evidence of:
§   (a) an oral agreement containing all material terms; and
§  (b) part performance by the party seeking to enforce the oral agreement.
 
 
Rosenfield v. Zerneck
–          Buyers made an all cash offer to purchase the Seller’s house. Seller responded in an email, in which he accepted the buyer’s offer, set a date by which the sale must close, and stated that the offer was not subject to any financing contingencies. At the foot of the email, the seller typed his name. When the seller failed to close the transaction, the buyers brought suit for specific performance.
–          The Court held that the Seller’s act of typing his name at the bottom of the email manifested his intention to authenticate the transmission for the Statute of Frauds purposes and the copy of the email in question submitted as evidence constitutes a sufficient demonstration of same.
–          However, the court held that the seller’s email failed to contain several essential terms, including the
o   amount of the down payment, and
o   treatment of a commercial lease encumbering the property.
–          The Court distinguished this from Parma Title v. Estate of Short, which held that the automatic printing, by a fax machine, of the senders name at the top of each page transmitted, did not constitute a signing authenticating the contents of the document for statute of frauds purposes.
–          Slover’s Holding:
o    An email “signature” can satisfy the Statute of Frauds requirement, but the agreement must still contain all the essential terms.
 
Centex Homes Corp. v. Boag
–          Fact
o   Plaintiff vendor and defendant buyers executed a purchase agreement for an apartment in plaintiff’s condominium project.
o   Upon defendants’ breach of the agreement, plaintiff (seller) instituted an action for specific performance or, in the alternative, for liquidated damages.
–          The court held that
o   No specific performance
§  Plaintiff failed to show any compelling reasons for specific performance to be granted because the damages sustained by plaintiff resulting from defendants’ breach were readily measurable and the damage remedy at law was wholly adequate.
§  The court concluded that the condominium apartment units, regardless of their realty label, shared the same characteristics as personal property. (the condo is among 600+ condos in the development)
o   Damages is limited to defendant buyer’s initial deposit (NOT the down pavement) because the liquidated damage clause in the agreement limited plaintiff to amounts paid by defendants at the time the default occurred.
–          Note:
o   In NJ, 10% of price is the down payment, the liquidated damages NOW CANNOT be the down payment. (it is favorite for the buyer)
o   When the specific performance can be granted
§  Specific performance relief is no longer automatically available to a vendor of real estate, but is confined to those special instances
·         where a vendor will otherwise suffer an economic injury for which his damage remedy at law will not be adequate, or
·         where other equitable considerations require that the relief be granted.
 
 
C.         Remedies and Real Estate Contracts
 
Concept
 
When the specific performance can be granted
–          Specific performance relief is no longer automatically available to a vendor of real estate, but is confined to those special instances
o   where a vendor will otherwise suffer an economic injury for which his damage remedy at law will not be adequate, OR
o   where other equitable considerations require that the relief be granted. (like the property is unique, the buyer has possession and improvement)