Property II Outline UT Law
I. Big Picture
A. Price of Property determined by the price of land( Contract itself), and transaction costs (inspection, lawyer fees, realtor fees).
B. Land Contract Steps
1) Money Down
i. 10 – 20% cash down needed; poorer people 5-6%
ii. 90s-00s: No $ down
iii. Today: 20% down payment seen as a risk
2) Search For Property
3) Negotiate Purchase Sale Agreement
4) Form Contract- Reduces fraud and transaction costs. Multistage process including: 1) Buyer conducting title search(to make sure the seller has alehal right to sell) 2) Mortgage contingency clause- Which is built by a buyer to exit a contract if a mortgage can’t be obtained 3) Inspection Clause
5) Closing Transfer of Title
6) Lender fives proceeds of the loan to the seller, along w/ down payment from buyer.
o Seller pays off own mortgage
o Gives Broker commission
o Legal fees + title insurance
o Pocket proceeds of transaction, OR pays $
7) Transfer of Title from Seller to Buyer. Tile doesn’t have to be perfect, just good title.
8) Buyer signs promissory Note, executes mortgage or a deed of trust to the lender
9) Buyer pays fee
10) Title insurance co. records the deed mortgage at city clerk’s office
11) Title company issues a policy of title insurance. Allows owner of title insurance to: 1) Defend title in court, and 2) Get $ if title is flawed or unmarketable
The Land Transaction
Real Estate Brokers
A. Types of Brokers
i. Listing-Works with sellers; just gets list of buyers together. Sign contract.
ii. Selling- Owes fiduciary duty to Seller, but works with buyer. ¾ of buyers think a Selling Broker is their agent. Sign contract.
iii. Buyer-Duty to Buyer.
B. Dual Agency: Listing or Selling Broker for Seller, and Buyer Broker for Buyer. Broker owes fiduciary duty to both parties. However, DA Broker has to reveal dual agency to both parties, and both parties have to agree to it.
C. Broker’s Duties
i. Fiduciary Duty is the duty to find a buyer of property at the best price to the Seller or Buyer (Determined by what type of broker). Cannot be in a position antagonistic to this principal.
ii. Other Duties: Good faith and fidelity. Prompt disclosure to his employer of all facts to his employer which are or may be material.
i. Some states require Selling Broker to disclose to Buyer that they are not their broker; thus owe no fiduciary duty to Buyer.
o Some states impose this duty on Buyer Broker
ii. Disclose material defects known to Seller, and unknown to Buyer
o Ex- Buyer has leaky basement. Doesn’t tell Seller that basement floods. Under disclosure duty, if Broker finds out the Broker will have to disclose defects to potential Buyer.
i. 6% commission divided between Selling/Listing Broker and Buyer Broker
ii. Can’t undercut. Broker’s Organizations will give demerits/sanctions.
iii. When does a Broker get commission?
o Broker gets commission when Broker provides a Buyer that is ready, willing, and able to buy at the specified price or a price the Buyer finds acceptable.
o Traditional Rule: Even with no closing, Broker owed commission. UNLESS not ready, willing, and able. In practice,however, doesn’t occur. Creates a bad reputation
o Minority Rule: No commission until closing, UNLESS Buyer backs out.
o To avoid rules, put in K!
The Contract of Sale
I. Statute of Frauds-Land Contract
i. General Information
o Statute of Frauds is inconsistent. Jurisdictions have varying degrees of SoF; some strict, and others don’t adhere to it at all.
ii. Essential terms + In Writing
1) Signed by party to be bound (Key)
2) Describes real estate
3) States the Price.
o ‘Fair Market Value’ of land where price has been agreed to; has to be in the contract. OTHERWISE, if price is not agreed to price is considered not an essential term to be written down.
o Ex: O to A. A gives same deed back to O. O tears up deed. No instrument to show A gave new deed to O.
o Ex: O to O+A as Joint Tenants. A to B, white out A’ signature..
ty Rule: Buyer bears risk of loss between K and closing
o Minority Rule: Loss accrues to Seller
o Contract around this.
IV. Duty to Disclose Defects
-Timeline: Changes occurred because of brokers. Brokers were being held responsible for fraud, intentionally misrepresenting, or restating what seller said (innocent misrep).
i. Caveat Emptor-Buyer beware
o Ex: Stambovsky: Seller goes out of the way to promote that his house is haunted. Buyer finds out between K and closing and wants to rescind. Seller under caveat emptor has no duty to disclose latent defects. Patents defects are open and obvious. Thus on notice of patent defects. New rule unclear- Where defect so obscure, Seller is required to disclose. How far should this rule go though?
ii. No affirmative misrepresentation
o Ex: Johnson: Seller knew roof leaked, but affirmatively represented to Buyers that the roof was fine. After Buyer bough house, water started gushing through roof. Court reasons that the Buyers are permitted to rescind. Under old law affirmative misrepsenation(misfeasance) is grounds for recission, while nonfeasance(nonaction) is not. New law formed-Anything that materially affects value of home and not disclosed is grounds for recission.
o Argument: Weather lie or withholding.
iii. Materially affecting property
o New law: Where the Seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the Seller is under a duty to disclose them to the Buyer.
o Argument: What is material?
iv. Courts have varied in what flaws must be disclosed.. For example, in CA the seller must disclose neighborhood noise problems or other nuisances. Some states have laws against stigmatized property. For example. In the ‘80s people dint want to live inhouse where person with aids died. Hazardous waste- Strict liability for current/past owners, with the Bonafide Purchaser Defense a sonly recourse.