Transfers of Land
A. Claims involving Listing Agreements
Step One – If the seller executed a listing agreement for the property look for issues
1. Whether a commission is owed by the seller to the listing broker and real estate agents involved in the sales transaction.
· Terms of the listing agreement determine if a commission is due UNLESS silent
o Majority Rule if silent – commission due if broker/agent brings an able and willing buyer to the seller…even if the sale fails.Person is not considered to have been able if the person fails to be able to get the financing
o Minority Rule if silent – no commission until sale closes.
2. Claims against the listing broker or agents
· Default Rule – absent an agreement to the contrary the listing broker’s agents and any other real estate agents who show the property owe fiduciary duties of loyalty and prudence to the seller alone.
· Seller can sue for a breach of these duties – example – broker fails to disclose information that would be relevant to the seller in obtaining the maximum price for the property, or self deals or there are conflicts of interest in the representation by the broker.
B. Real Estate Sales Contracts
Step Two – Is there an enforceable sales contract? If not got to C – If there is then determine the claims and remedies of the buyer and the seller that arise after the execution of the sales contract and before the closing.
1. Is the Sales Contract Enforceable under the Statute of Frauds?
· To be enforceable must be in writing that satisfies SOF.
o Describe the real estate to be sold, price and be signed by the party to be bound.
o Signature can be electronic – under E-sing….must not be a single writing but can be a series of e-mails.
· Equitable exceptions to the SOF – if writing is not satisfied determine if an exception can be satisfied.
o If ∏ presents unequivocal evidence that a contract existed and that the ∏ relied on the contract.
§ Unequivocal – buyer paid all or part of the purchase price PLUS either (1) took possession or (2) made improvement of the property.
§ Or under R2K 129 – ∏ proves contract existed and relied on it and failure to enforce would result in unjust injury to the ∏.
o If the ∆ admits the contract existed.
2. Can the Buyer Rescind and Recover the Deposit?
Determine if a basis for rescission of the sales contract exists due to (1) the seller’s inability to convey marketable title, (2) the seller’s misrepresentation or nondisclosure concerning the physical condition of the property, or (3) the failure of a contractual precondition to the buyer’s performance.
(1) Every sales contract contains an implied covenant that the seller will convey marketable title to the property to the buyer at closing – seller must not have marketable title at the time the sales contract is executed.
o Marketable title is – (a) free of all encumbrances (unless waived in the contract) and (b) not subject to such reasonable doubt as would create a just apprehension of its validity in the mind of a reasonable prudent person who guided by competent legal advice would pay fair value.
(a) Encumbrances that make unmarketable
i. Unpaid mortgages and Liens – unless contract says that seller will pay off with the proceeds of the sale
ii. Current easements burdening the property – abandoned or terminated do not count.
iii. Real Covenants and Equitable Servitudes burdening the Property
iv. No Access DOES NOT make unmarketable…buyer can try easement by necessity or bring a private condemnation action and pay for it.
v. Property in current violation of federal, state or local law – unmarketable unless seller can cure before closing date.
· If the buyer signs a subject to clause then the buyer has waived the right to object to the encumbrances described in the clause
o For example – subject to all easements and covenants of record – cant object if it is recorded OR if an unrecorded easement was clearly visible or beneficial to the property then court may rule that the buyer has waive the right to object on marketable title grounds.
(2) Rescission Based on Seller’s Misrepresentation Or Nondisclosure (including Sellers listing broker or Agent)
· Did the seller knowingly make a false statement about the condition of the property – if so then the buyer who find out of the fraud prior to the closing is entitled to rescind the contract and recover the deposit.
· Failure to disclose a hidden defect? –
o CL – caveat emptor – no duty to disclose hidden defects and is not grounds for rescission.
o Modern Rule – must disclose known defects that are not discoverable to the buyer upon a reasonable inspection.
§ If discovered before closing can rescind and get deposit if proof can be shown of
· 1. The seller had actual knowledge and 2. Defect is material.
§ If defect is OBVIOUS or discoverable by a reasonable pre-closing inspection then the seller had no duty to disclose the defect
· To rescind buyer must show that this violated a precondition in the contract and the contract is void…typically done through inspection clause.
· If there is an as is clause then cant rescind for obvious BUT as is clause does not relieve the seller of disclosing hidden known defects.
· CL – No duty to disclose circumstances or conditions that are not on the property itself that may affect market value of property.
o Modern trend – requires such disclosure…of conditions that are difficult to detect by casual observation.
(3) Failure of a Contractual precondition
· If a precondition is not met by the seller the buyer is entitled to rescind and receive deposit back if the condition was express.
· If inspection clause is present and property fails to meet the clause then buyer may rescind.
· If performance is contingent on obtaining financing then buyer may rescind after a reasonable good faith effort takes place.
3. Who bears the loss if the Property is destroyed prior to Closing?
Majority Rule – Buyer bears the risk of loss. Apply doctrine of equitable conversion whereby buyer is deemed to hold equitable title at the moment the sales contract is signed. Under this doctrine destruction of property is not a reason for rescission and the buyer can seek specific performance and compel the buyer the purchase the destroyed property.
o Insurance proceeds from the destruction of property if seller had insurance go to the buyer to offset the loss and because the seller holds the insurance proceeds subject to a constructive trust for the benefit of the buyer.
Minority Rule – if the destruction was substantial then rescission is allowed and even if the loss is insubstantial the buyer is still entitled to a reduction in the purchase price for the damage it did. Some jurisdictions also look to see who was in possession if the seller is still in possession he bears the loss as the least cost avoider because he was best able to insure…the buyer can rescind.
4. Remedies for Breach of a Sales Contract?
Both seller and buyer can seek (1) rescission of the sales contract (2) Damages or (3) specific performance as remedies for breach of the sales contract.
· Is there a time is of the essence Clause?
o If Yes – any delay is deemed material and a party is not required to give an extension of time.
o If NO – then the seller or the buyer can request a reasonable extension of time without being in breach
(1) Rescission – equitable remedy restores parties to pre-contractual positions – must refund deposit.
(2) Sellers Remedy if Buyer Breaches – typically will just be forfeiture of the buyers deposit as liquidated damages – can technically get loss of bargain damages and damages based on forfeiture of the buyers deposit but because of difficulty of determining actual damages and because sometimes there is an express clause – typically only forfeiture of the deposit.
a. Loss of Bargain damages – contract price more than value of property now? If yes seller is entitled to difference.
b. Other foreseeable damages – expenses incurred as a result of the breach such as the duplicate costs associated with second subsequent sale of the property.
c. Is there a liquidated damages clause?
i. If NO –
1. Majority Rule – seller entitled to keep deposit even if the forfeiture of the deposit exceeds the seller’s loss of bargain damages. In general 10% of the purchase price is upheld.
2. Minority Rule – forfeiture amount cannot exceed the seller’s actual damages. Excess deposit is refunded to encourage efficient breaches.
If Yes –
1. Buyer forfeits the deposit as liquidated damages if the amount bears a reasonable relationship to the sellers foreseeable actual damages…can be more than 10% of the purchase price.
Buyers Remedy if Seller Breaches – Is the contract price less than the value of the property at the time of the seller’s breach? If yes – buyer is entitled to the difference – also include reasonably foreseeable expenses incurred as a result of the seller’s breach.
(3) Specific Performance – equitable remedy in lieu of damages – weight and evaluate equitable merits of each party.
a. Unlikely to award to seller if breaching buyer cannot pay
b. Unlikely to award to buyer if breach was because seller wants to sell to another for much more $
Additionally if seller breaches the broker who has listed the property can sue the seller for the lost commission in a ju
ause that says you waive…if it says subject to all encumbrances of record….waives only recorded encumbrances….but there is also subject to clauses that state – subject to all easements and private restrictions…waives both recorded and unrecorded easements and equitable servitudes.
· Title defect based on superior title via adverse possession – breaches covenant of seisin. Title defect based on a prescriptive easement breaches the covenant against encumbrances (unless waived).
Breach of Future Covenants – Immediate Grantor
· Future deed covenants of quiet enjoyment and warranty are breached when the grantee is actually or constructively evicted or disturbed in possession of the property by another person who has superior title.
o Not breached if just threatened to take but has to be actually or constructively evicted or disturbed in possession of the property by the other holding superior title.
§ Constructive – occurs if the grantee must pay off the claimant to avoid eviction.
§ Disturbance of possession – occurs if a court enjoins the grantee from using the property as the grantee desires due to the competing claimant’s enforcement of a restrictive covenant or an easement right held by the claimant.
§ Grantor is not required to defend title from competing claim when claim is for future covenants. Grantee must pay legal costs to defend – if wins not breached if loses only then are they breached and can recover legal expenses as damages of the covenants.
· Majority Rule – can recover price of deed – from immediate grantor.
· Some also award interest…measure by some from date the deed was delivered or by other as the date the disturbance happened.
Claims against more remote grantors
If the remote grantor gave a special warranty deed – can only be sued if title defects arose when remote grantor owned the property.
If the remote grantor gave a general warranty deed – can be sued for defects that arose before or while the grantor owned the property – but not for defects that arose after he conveyed to someone else.
1. A general warranty deed – warrants title against all defects in title, whether they arose before or after grantor took title.
2. A special warranty deed – contains warranties only against the grantor’s own acts but not against the acts of others.
3. A quitclaim deed – contains no warranties of any kind. It merely conveys whatever title the grantor has, if any, and if the grantee of a quitclaim deed takes nothing by the deed, the grantee cannot sue the grantor.
Future covenants – always run to more remote grantees…must determine if SOL barred or wiaved?
Remote grantors for Present covenants
Majority Rule – cannot be sued for breach of present covenants of seisin, right to convey, and the covenant against encumbrances
Minority Rule – impliedly assigned as title is conveyed- can be sued for breach of the present covenants in the more remote grantor’s deed (which is not the same deed as the deed received by the grantee who is suing).
· SOL – begins to run when the more remote grantor’s deed was delivered
· Not breached if it was waived by the immediate grantor.
· Amount Recoverable – Majority rule – can recover from a remote grantor the purchase price the remote grantor received for the remote grantor’s deed…some will give interest….either by date of delivery of date the grantee was evicted or disturbed in possession.
Claims based on Physical Condition of Property
Merger does not apply to physical defects. Post- Closing the buyer can recover damages for
a. If the seller knowingly made a false statement concerning the condition of the property – sue for damage for fraudulent misrepresentation.
b. Fail to disclose Hidden defect?
i. CL – caveat emptor – not liability