Chapter 7- The Transfer of Land
Four basic stages
1. Locate the buyer
a. Can select a real estate broker to help- gets commission (usually about 6%)
2. Negotiating the contract
3. Preparing for the closing
a. Buyer needs to obtain a title search
b. Mortgage contingency- if purchaser can’t get a mortgage loan within a given time she can rescind the contract and get deposit back
c. Clause allowing buyer to obtain an inspection of the property
4. After signed by both parties:
a. Either orders a title search
b. buyer has inspector visit the property
c. Buyer applies for mortgage loan
d. Title company or attorney provides an abstract of title that lists encumbrances and a list of previous owners of the property
e. If buyer application for mortgage is approved- they get a mortgage commitment
f. If all other contingencies are met- move to closing
5. Closing the transaction
a. In Eastern US- takes place with all parties present
b. Other states- handled by a escrow agent
c. Title is conveyed to the buyer
d. Purchase loan is made by the lender
e. The sales price is paid to the seller
f. The commission is distributed to the brokers
Selling Land v. Selling Chattel
§ Need to check if buyer has real ownership
· What is going to be the sale price
· More complicated to sell house
· Have other steps after the contract
· Contract of Sale + Closing (2 step process)
A Typical Sales Contract (See p. 454)
o Usually preprinted
o Primarily governed by state law
o Usually focus on economic terms
o Non-economic terms
· Title, financing, inspection and other contingencies that must be satisfied before the buyer is obligated to purchase
· Provisions governing the mechanics of the closing (time, place, type of deed)
· Provisions dealing with breach of contract
· Miscellaneous “boilerplate” provisions (integration clause)
· Before Contract of Sale is signed:
· Buyers and Sellers Names
· Describes land- address, county etc.
· What is included/not included
· Purchase price
· After Contract of Sale is signed:
· Mortgage contingency- contract is contingent on buyer getting a mortgage
o If buyer can’t get mortgage (or doesn’t do so in the specified time) then contract is null and void- buyer can back out of the deal
o buyer has to apply for mortgage
o Government does things to encourage this and for low interest rates
· If buyer just doesn’t want to buy- finds a better houseà they are stuck in the contract
· Buyer will have the house inspected (by a licensed home inspector- so ok to do after contract of sale is signed)
o If inspector finds significant issues- if no written agreement to resolve issue is reached within 10 days then either party can back out- usually seller has stuff fixed- can put in contract that they won’t fix certain things- negotiate who will pay for what needs to be fixed
· Survey done by seller
· Title search (seller)- make sure seller has fee simple absolute
o Records of who owned house and who has claims to it (any future interests)
o Are there any encumbrances (e.g. easements; promises; liens)
o Seller has to agree to provide a good and merchantable title by recordable deed- title is kind that you would expect- easily buyable and sellable
§ After all steps are accomplished: Closing
· Buyer gets mortgage loan- puts down payment down
· Taxes paid- forms to be filled out- homestead exemption
§ Deed is transferred to buyer from seller
Role of the Attorney
· Role is diminishing because of high attorney’s fees
Real Estate Brokers
· Hired by sellers to attract buyers: (can also be hired by buyers)
· Market property
· Listing property on a multiple listing service
· Negotiate purchase agreements
· Serve as an intermediary between buyer and seller
· Participate in physical inspection of property
· Assist in arranging financing
· Duties
o Certain fiduciary duties- can only think about client’s interest
o Loyalty
o Good faith
o Care
o Skill
o Diligence
o Actions can’t diverge from client’s interest
o Follow principal’s directives
o Maximize the sale price
Alternatives and supplements to traditional brokerage arrangements
· Buyer’s brokers
o Prospective buyers hire their own agents
o Duties
§ Narrow searches to areas and price ranges
§ Review past sales records and current property on the market
§ Show buyers property that fits their criteria
§ Help arrange for physical inspection of the property
§ Prepare offers and counteroffers
§ Facilitate buyer consultations with other experts and assist with escrow
o Share commission with listing agent- not compelled to share
· Dual Agent
o Buyer and seller hire the same person
o Owes both the buyer and seller the same duty of loyalty and good faith
· Multiple Listing Service, Price Fixing, Antitrust issues
l estate broker authorized to procure buyers; entitled to a commission if any broker produces a buyer, but not if the seller produces a buyer
· Exclusive Right to Sell: the broker receives commission if anyone, including the seller, produces a buyer
When a commission is due
· When he produces a ready, willing and able buyer- someone who expresses a desire to buy the property by making an offer of the asking price and has sufficient assets to proceed with the purchase
· Increasing number of courts hold that the broker doesn’t get commission unless the sale is actually completed (exception: sale fails due to a wrongful act of the seller)
The Statute of Frauds- applies to any kind of transfer of landà must be in writing
· 3 requirements:
o The essential terms of the sales contract
§ Identify the parties
§ Include words showing an intent to buy or sell
§ Specify the purchase price
· If no agreed price, still enforceable if writing establishes a procedure for establishing the price in the future
§ Adequately describe the property
§ Specific enough to identify the land with reasonable certainty
o Must be contained in a memorandum or other writing
§ Can be the contract itself
§ If oral contractà writing (a) need not be intended by the parties as an agreement (b) may be prepared after the agreement (c) may consist of more than one document and (d) may be informal
§ Letter, check, note, escrow instruction
o Signed by the party against whom the contract is enforced (usually the seller)
§ Exceptions (applies only with specific performance)
o Part Performance
§ Take possession
§ Paying all or part of the purchase price
§ Making improvements to the property
o Reliance/Estoppel(Hickey v. Green)
§ Applicable where (a) one party has been induced by the other to substantially change position in justifiable reliance on an oral contract (detrimental reliance- not always clear) and (b) serious or irreparable injury would result from refusing specific performance
