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Property II
University of Toledo School of Law
Kennedy, Bruce M.

Property II- Professor Kennedy Spring 2011
 
                        I.            Anatomy of a Sale of Residential Land
A.      Four Stages
1.       Finding the Buyer
2.       Negotiating the Land Contract
3.       Preparing for Closing
4.       Closing the Transaction
B.      Scenario: S owns a Three Bedroom in Ottawa Hills (OH-Acre); She wishes to sell it for $350,000.
C.      Stage 1: Finding the Buyer
1.       Seller (S) selects a real estate broker (LA) to represent S in the Sale
2.       S and LA enter into a listing agreement-Terms:
a.       LA agrees to find a buyer willing and able to pay 350K or a price acceptable to S
b.      S agrees to pay LA a 6% commission upon sale
3.       LA markets OH-acre to prospective buyers:
a.       Conducts open houses
b.      Networks with real estate agents
c.       Posts house on multiple listing service
4.       Another real  estate agent (CB) learns that OH-acre is available. CB tells his client B; B sees and Likes OH-acre
a.       CB is a cooperating broker
a.       Technically CB is a subagent of LA. Meaning, if B purchases OH-acre,CB shares LA's commission
D.      Stage 2: Negotiating the Contract
1.       B decides to make offer to purchase OH-acre for $300,000
a.       Form of Offer: written contract (satisfies S/F) with conditions
b.      With contract, B delivers earnest money (check for $3,000)
c.       Form of Acceptance: S signs contract
2.       B's Offer is Conditional re:
a.       Physical condition of property: inspection by licensed builder
b.      Financing: B must obtain loan from a lender
c.       State of Title: S's must deliver a “marketable title” to the property
d.      Failure of any of the conditions = no deal
3.       S decides to make c/o to sell OH-acre to B for $325,000
a.       Form of C/O: S delivers a new K or written modification of B's K (reflecting essential terms and conditions)
b.      Form of Acceptance: B Signs K
a.       Valid K formed: usually parties specify a date to close the transaction-typically 60 days after signing the land K
E.       Stage 3: Preparing for Closing
1.       Between K formation and closing the “gap” or “executory period”
a.       S and B prepare for closing by undertaking activities that resolve conditions in the K     
b.      B evaluates the physical condition of the house
a.       B selects a house inspector who prepares a written report of physical condition of premises
b.      State law may require S, or LA or even the CB to complete disclosure documents that reveal information that adversely impacts upon the value of OH-acre
c.       B and Hired help evaluate the state of title to OH-acre
a.       Option 1: Attorney Search & Certification of Title:
1.       S's attorney examines the public county land records and renders a legal opinion- a certificate of title- on the state of title to OH-acre
2.       B's attorney reviews the certificate and supporting papers and objects if necessary before closing
b.      Option 2: Title Abstract & Attorney Certification
1.       S hires a Title Abstract Company (TAC) to prepare an abstract that concisely summarized the state of title to OH-acre
2.       Title Abstractor does this by:
a.       Searching its own private library of public land records
b.      Assembling documents
c.       Carefully reading them & summarizing each relevant documents
d.      Certifying that the abstract analyzes all records pertinent to the title of OH-acre
3.       S gives the abstract to S's attorney who examines abstract and certifies to his client in same manner as Option 1
4.       B's attorney then reviews the documents
c.       Option 3: Title Insurance (In Addition To 1 OR 2)
1.       B applies for title insurance from T Insurance Company (TIC)
2.       TIC explores the state of the title by conducting a title search of a private database of public land records
3.       Sometimes TIC commissions an attorney/abstractor to perform a manual title search of public land records
4.       TIC will issue a title report to B that indicates
a.       If the company will insure title to the property and
b.      State the terms of policy coverage which will exclude certain discovered title defects
F.       Stage 4: Closing
1.       Land K is fully performed at closing
2.       Closing supervised by attorney (eastern practice) or an escrow agent (western practice)
3.       Generally At Closing:
a.       Title is conveyed from S to B (by delivering of deed)
b.      Loan is made from lender to B
c.       Full purchase price is paid by B to S
d.      From purchase price LA and CB are paid their commissions
e.      Ancillary tasks are performed
4.       Specifically at Closing:
a.       S executes & delivers a deed conveying OH-acre to B
b.      M banks lends $300,000 to B
c.       B executes promissory note to repay debt (+ interest) to M bank
d.      B also executes and delivers a valid first mortgage on OH-acre to secure repayment of loan to M bank
e.      B pays full purchase price ($325,000) to S
a.       $3,000 earnest money-cash
b.      $22,000 down payment-cash
c.       $300,000 loan proceeds
d.      TOTAL= $325,000
f.        S pays commission to LA and CB (purchase price * %)
g.       B receives an owner's title insurance policy from T company insuring his title in OH-acre
h.      M Banks receives a lender's title insurance policy from T company
i.         The deed and mortgage will both be recorded (by the bank)
                      II.            Brokers
A.      Formation of the seller-broker relationship duties
1.       Open (non-exclusive) Listing agreement: anyone can sell home and earns commission
2.       Exclusive Agency Agreement: listing agent is the only broker to sell home, but S can also sell home
3.       Exclusive Right to Sell Agreement: listing agent is the only person to sell home (seller cannot)
B.      Traditional Brokerage Arrangement (Licari)
1.       Listing agent & sub-agent are fiduciaries of S
2. 

performance/Estoppel
a.       Estoppel: Party 1 makes representation, Party 2 in reasonable reliance change their position, unconscionable injury to party 2 unless party 1 is held to the bargain (P1 gets unjust enrichment but not always)
b.      Full payment, buyer takes possession, improvements (all must unequivocally referable to the K)
c.       Reliance on oral K + hardship if not enforced + possession
b.      Restatement K's 129 (hickey)
B.      Standard Land K
1.       Ps: 1, 2, 4, 5 & end of doc: recite the parties, land, S's words of conveyance, price, financing terms & signatures “essential terms” to comply with S/F
2.       Real Estate:
a.       States Seller's intent to convey
b.      Approximate acreage promised
c.       Describes land by common address
d.      Identifies satellite interests-parking spaces
3.       Fixtures/Personality Transferred in Sale
4.       Price:
a.       States total price: not always recited in deed
b.      Orchestrates B's flow of funds
c.       Lists acceptable form of final payment
a.       No personal checks please!!
5.       Mortgage Contingency: Defines financing
a.       Requires: “unconditional mortgage commitment”
b.      Specifies: loan details-amount, max. interest rate, min loan term
c.       Specifies who pays loan fees
d.      Prescribes conduct- B to make loan app w/in 5 days or default
e.      Prescribes conflict process if B fails to obtain loan commitment-B serves S with notice of same-K is null & earnest money returned to B
6.       Closing: When and Where
7.       Possession for B: When
8.       Acknowledgement of lead paint disclosure
9.       Prorations: tax payments etc.
10.   Professional Inspections:
a.       B may- at B's expense has premises inspected for radon, termites, etc.
b.      If defect discovered B must notify S w/in 5 days
c.       Then B and S attempt to reach a written agreement re defect
d.      If no agreement w/ 10 days, K is null & earnest money is returned
11.   Attorney Review: w/in 5 days all terms but price modifiable by consent
12.   Deed: Specifics
a.       Type of deed to be delivered to B
a.       'recordable general warranty deed'
b.      Quality of Title to Be conveyed to B
a.       'good merchantable title'
c.       Inventories title defects-acceptable to B
a.       'subject to only…covenants of records and easements'