Land Transactions Outline

I. General Information
A. Abstract of title—summary of who has owned the land
B. Types of transactions (3 basic types)
1. Contract of Sale
a. This is 90 to 95 percent of all sales
b. S and B have a K of sell
c. At closing the S gives the B a deed (document that transfers ownership of property)
d. B gives S money
e. B usually needs a lender to provide the money (B gives a note and a mortgage to lender)
i. Lender = mortgagee
ii. Debtor = mortgagor
f. 4 Written Documents
i. Deed
ii. Contract
iii. Note = promise to pay
iv. Mortgage = a legal property interest in the real property, that includes the right to look to the land, right to foreclose and go after the land
1. Deed and Mortgage are filed of record
g. Between the K and the closing: S has to prove good title to the B and B has to get the money
h. Broker (BR) person who helps B and S hook up (BR has a K w/ B or S)
i. Listing K or BR K, normally get a % of sale (normally 5 to 7 percent)
i. B is the record Title holder after purchase
2. Installment Land Sale Contract
a. K between the S and B where the S is going to finance the deal
i. S is going to take a note
b. B pays slowly over time in installment—normally 10 to 15 years
i. When B pays for the 10 or 15 years, S will give deed when final payment is made
c. Escrow Agent: this is the third party that the B makes the payments to. They hold the signed deed until the last payment is made, and then turn it over to B
d. 2 Closing Dates
i. When they sign the deal and begin the payments
ii. When the payments and completed and deed is transferred
e. The K is not filed, and this can create problems w/ the title
i. The S is still on the public records as the one who owns the property, not the B
f. S is the legal title holder
g. B is the equitable owner
h. Uncommon type of transaction, normally only done in rural deals
i. Advantage: this is done for tax reasons, lower capital gains in year, not a huge gain in year 1
3. Hybrid: Seller Kickback Contract or Purchase Money Mortgage
a. S and B sign a K
b. S finances the deal with a mortgage
c. K provides that S will finance and S gives a deed to the B at closing and the B gives a mortgage and a note to the S
d. Record title holder is B
e. S is the holder of the mortgage
f. Advantage over Installment K – the B becomes the legal title holder
g. This will occur when interest rates are high
C. Other ways land is transferred:
1. Death: by will (devise in a will), intestate succession
2. Foreclosure- tax lien, mortgage, judgment lien
3. Adverse Possession
4. Divorce
5. Condemnation—gov. wants to take the land
a. Eminent domain: the power of gov. to take property when it needs the property—must pay land owner
b. Condemnation is the procedure to take it
6. Gift / donation
7. Tax free exchange §1031 – like kind exchange
D. Timeline of Typical Sales Transaction:
1. S wants to sell or B wants to buy
a. Option Contract: right to purchase land at a specified price
i. An option is a K: so must have consideration to keep it open, otherwise the S can revoke the offer at any time
ii. Unless you pay consideration for the option, S can revoke even if he promised to keep it open
b. Put: Right to Force a Sell
i. Right for S to force someone to buy
ii. Must have a K
iii. This is the opposite of an option
1. Sellers right to force a buyer to buy.
iv. Seller must pay money to buyer to force the sale of land at a certain price
c. Right of 1st Refusal
i. Right of a B to match the offer of someone else first if the S is thinking of selling
ii. B has more power with an option
iii. S must offer property to B first, if B refuses, then S can sale to anyone he wants to
2. S engages a BR (K signed = a listing agreement)
3. K is negotiated between S and B
4. Format of the K:
a. Names of parties, date and recitals (must make sure S is the owner)
i. Recitals = background facts, so other parties understand that context
b. Land description: description of the property
c. Buy and Sell Agreement
i. Price (and earnest money payment [this can serve as liquidated damages] = 5 to 10%, balance at closing)
d. Contingencies – or conditions. Typical are the following:
i. B has to be able to get financing
ii. Inspection of property
iii. Lawyer look at K
iv. B able to sell current house
v. Marketable Title
e. Title
i. B wants Title w/o any problems
ii. The way S proves title depends on the K. Methods of proving marketable title:
1. Abstract of Title—certified to date
a. Title / abstract company provides an abstract to the B
b. Start with US then to first person, has all easement, mortgages and everything through the years
2. Title Insurance
a. Commitment by title company that S has good title
b. Followed by a policy
3. Lawyer’s original title search: B’s lawyer goes to public records and makes determination that S has good title. à Uncommon
f. Closing Date
g. Signature of Parties (must have all signatures)
5. Period between K and Closing
a. B finds financing
b. S gets the title insurance company to show good title, or abstract of title
6. Closing
a. When documents are signed and finalized and money and deed are transferred
7. Period after Closing
a. Normally nothing occurs unless there is a problem w/ the property or title
b. Title problems, etc. terminates
c. B tries to find