Real Property II – Professor Reilly, Fall 2009
I. Real Estate Brokers and Agents
A. Three types of listing agreements:
1. open listing – commission for the broker only if the broker can prove that his efforts led to the sale
2. exclusive listing – only one broker, but the seller can also sell the property himself
3. exclusive right to sell listing – no matter how the property is sold, the broker gets commission
B. Drake v. Hosley (1986) – a broker is due commission if he finds a buyer willing and able to perform in accord with the terms set by the seller, despite the seller’s “frustrating conduct” by selling to a third party
C. Easton v. Strassburger (1984) – agents have a duty to conduct a reasonably competent inspection of the residential property listed for sale and to disclose material defects known to the broker but unknown or unobservable to the buyer.
II. The statute of frauds & part performance
A. Two types of purchase agreements:
1. short term / earnest money contract – the buyer puts down a deposit which allows the parties to prepare for the transactional closing
2. real estate installment contract – the buyer goes into possession immediately and makes payments to the seller on a regular basis; the buyers receives the deed once the final installment is paid
B. Johnston v. Curtis (2000) – oral modifications to purchase agreements are subject to the statute of frauds and must be written in order to be valid and binding. They must contain certain information such as names, property ID, and “essential terms.”
1. Exceptions to the statute of frauds:
a) completed transactions (full performance)
b) oral agreements and part performance by clear and convincing evidence
(1) evidence of part performance includes payment, possession, and permanent improvements
2. Statute of Frauds Summary
a) applies to all residential real estate transactions
(1) must identify the parties, identify the property, state the essential terms, and be in writing and signed by the person to be charged (usually the defendant challenging enforcement of the contract)
b) oral modifications are also subject to the statute of frauds
c) full performance or clear and convincing evidence of part performance negate the statute of frauds
(1) the part performance doctrine simply takes the contract out of the statute of frauds, permitting enforcement in equity despite the absence of a suitable writing; it is not a substitute for the contract itself, the contract must still be proven, even though it is oral.
C. Rosenfeld v. Zerneck (2004) – emails and other transactions that contain e-signatures are valid if all of the other contract requirements are satisfied. The writing or transmission must demonstrate the sender’s specific intent to authenticate it. The text of the transmission must also lay out all of the essential terms of the agreement (still need to display specific intent or a meeting of the minds).
III.Remedies for real estate transactions
A. Three remedies for breaches of real estate contracts:
1. Restitution – buyer gets put back to their status before the breach (earnest money + expenses = restitution damages) when the seller’s breach is a non-curable defect.
2. Compensation – affected party gets the “benefit of the bargain” (contract price or FMV + consequential damages = compensation damages). If the seller breaches and the FMV is less than the contract price, the buyer does not get compensatory damages. If the FMV is higher than the contract price and the buyer breaches, the seller does not get compensatory damages.
3. Specific performance (available at equity) – enforces the contract (used especially when the real estate is unique).
B. Donovan v. Bachstadt (1982) – in order to gain the benefit of the bargain (compensatory damages) the buyer must mitigate their damages by entering into a separate contract soon after the seller’s breach. Damages must be reasonably foreseeable as a proximate result of defendant’s breach.
1. buyer’s consequential/incidental damages:
a) expenditures for inspections, surveys, attorney fees, etc.
b) additional rent, taxes, mortgage interest, etc. incurred while purchasing substitute property
c) loss of favorable financing
d) travel expenses for contract negotiation
2. seller’s consequential/incidental damages:
a) carrying costs of the property until it is resold
b) interest in existing mortgage loans
c) interest income expected to earn on the purchase price
d) cost of multiple broker commissions if additional brokers are entitled to commissions
e) increased tax liability if tax laws change before the property
C. Wright v. Bryan (1984) – titles do not need to be marketable until the time of closing.
D. Dansie v. Hi-Country (1999) – merger of title covenants: if the buyer objects to the title on the basis of the implied covenant of marketable title, he must raise the objection prior to accepting delivery of the deed. If the buyer accepts the deed, he is assumed to be satisfied and any future objection must be raised on the covenants of title in the deed itself.
VI.Conditions in contracts/deeds
A. Contract provisions:
1. covenant – a promise which one who enters into is obligated to perform
2. condition – (also called “subject to”) not a promise, merely a statement that a party’s obligation to perform some promise is dependent upon the happening of some event or occurrence
B. Barber v. Jacobs (2000) – a buyer must make a good faith effort to get alternative financing where possible (absent special circumstances or extraordinary problems) if the previous financing that was secured is rescinded.
1. good faith can be shown by attempting at least two other financiers
C. Merger doctrine – real estate contracts merge into the deed at closing. All necessary language in the contract must be placed in the deed.
VII. Equitable conversion
A. During the executory period (the period between signing of the contract and closing) the seller holds legal title in trust for the buyer and the buyer holds equitable title.
B. Fulton v. Duro (1984) – judgment liens are liens that usually stem from separate issues which the court has attached to the party’s real property. Equitable titles on record are certain and fit the meaning of “real property,” therefore, a buyer’s equitable title interest can be subject to a judgment lien.
C. Death of a party during the executory period
1. Seller’s death
with a will – legal title descends as personal