Property II
Professor B. Kennedy
Spring 2012
I. Transfer of Land
A. Overview of Land Sale & Land Contract
1. Four stages of a land sale
1. Finding the buyer
a. Seller selects real estate broker (Listing Agent (LA)) to represent the seller in the sale.
b. The seller and the LA enter into a listing agreementàTerms:
i. LA agrees to find a buyer willing to pay at stated price acceptable to the seller
ii. Seller agrees to sell
c. Buyer makes an offer to purchase
i. Form of the offer = Written Contract that satisfies the SOF, with Conditions:
1. Physical condition of property (inspection)
2. Financing- Obtaining a loan
3. State of title- Seller must deliver a marketable title to the buyer
*If any conditions fail to be met, then the Buyer may walk away from the contract with his earnest money.
ii. With the contract, Buyer delivers earnest money
iii. The seller signs the contract if he agrees to the sale (acceptance)
2. Negotiating the land contract
a. Agents typically represent both the buyer and the seller
3. Preparing for Closing
a. The time between the contract formation & closing is called the “executor period”
b. The buyer will sign a promissory note & execute a mortgage to secure the repayment of the loan
c. During the executor period, the buyer will evaluate the state of the title
i. Option 1:Attorney Search & certification of title à Certifies what the seller has to convey
ii. Option 2: Attorney reviews the title abstract prepared by a title abstract company (TAC)
iii. Option 3: (in conjunction with 1 or 2) Title Insurance à Buyer receives a policy that covers a defect in titleà This insurance does not transfer to subsequent purchasers
4. Closing the transaction (land contract is then fully performed)
a. The closing is supervised by an attorney or escrow agent
b. Generally, at closing:
i. Title is conveyed from the seller to the buyer by deliver of the deed
ii. A loan is made by the lender & full purchase price is paid by the buyer to the seller
iii. LA and CB are paid their commission
1. LA= Listing Agent
2. CB= Cooperating Broker
iv. The deed and mortgage will both be recorded
2. Three kinds of listing agreements
1. Open listing agreements: Gives no exclusive right to the agent to sell the property (anyone can sell and earn the commission) (nonexclusive)
2. Exclusive Agency Agreement: Only the agency that was agreed upon in the contract can sell the house and receive the commission
Exception: The homeowner/seller can find their own buyer
3. Exclusive right to sell agreement: Forbids anyone other than the LA from selling the property
B. Role of the Broker
1. Legal duties that the broker owes to the buyer & seller
a. Fiduciary duty of loyalty, good faith, competence owed to the seller (NOT the buyer) (duty of both the LA and any subagents)
i. Buyer therefore may be under protected
b. No fraud or conflict of interest
2. When is commission due?
a. CL Rule: Commission is due when the contract is signed (Ohio)
àCommission is earned after the contract is signed – even if the seller or buyer refuses to close on the deal
b. Progressive Rule: Commission is due at closing
àIf Buyer refuses to close NO commission
àIf Seller refuses the broker STILL receives commission
c. Or an expressly agreed upon time between the parties
C. Forming the Land Contract (Deed) (Statute of Frauds)
1. Requirements of the SOF
a. Memorandumà A writing*, containing the essential terms, signed by the party against whom enforcement is sought*
i. Essential Terms
a. Names of the parties*
i. Problem of owner with different names
ii. Problem of the blank deed
b. Description of the property*
i. Metes and bound
1. Metes-defined by a straight line between two points
2. Bounds- defined by natural or artificial monument
ii. Government survey- uses meridians
iii. Reference to Plat (recorded)
c. Words to show Sellers intent to convey property*
i. “S herby conveys…”
d. The purchase price or formula
e. Financing description if applicable
b. Can be evidenced by a single memorandum or a series of related documents… but it MUST contain the final agreement
c. It must be adequate to identify the land with RASONABLE CERTAINTY
i. What if the description is incomplete?
a. It may be cured by parole evidence
ii. What if acreage is inaccurate?
a. May bay fail if substantial inaccuracy
iii. What if the price is not stated?
a. Not necessarily fatal-but probably is unless parties agreed to reach a price later through a formula
iv. What if no closing date is stated?
a. Closing is then at a reasonable time
b. Law: If there is a closing clause a late tender excuses performance by the other party
c. Equity: Closing clause is not an essential term and is not strictly enforced UNLESS it contains a “time is of the essence clause”à this is strictly enforced
– RULEà The SOF will not interfere if the agreement is already performed (The SOF will not undo a fully executed oral agreement)
d. Optional Terms in the Body of the Deed
i. Habendum Clause: (To have and to hold) May function to limit the estate granted in some way
ii. Reddendum Clause: Reserved interes
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b. Buyer has equitable title to the land
2. Two ALTERNATIVES (Minority)
a. Massachusetts Rule: If the loss is SUBSTANTIAL and if the agreement shows that the damaged area constituted an IMPORTANT part of the subject matter of the Contract
i. The buyer can rescind and recover $ paid
ii. The seller bears the loss until legal title passes to buyer
a. Insubstantial = Buyer or Seller can get specific performance with a price abatement
b. The Uniform Vendor & Purchase Act (UVPRA): Party in possession bears the risk of loss (typically the seller)
3. Cases where Equitable Conversion does NOT apply…
a. Where the contract is not fit for specific performance
i. Where the seller cannot tender a Marketable Title
b. Where the buyer and seller have included an express risk of loss clause in their contract
c. Where either party has purchases casualty loss insurance on the property. (Insurance proceeds applied to reduce the purchase price paid by the Buyer to avoid unjust enrichment)
d. Where one of the parties is responsible for causing the property loss
i. Party at fault pays for the loss
4. Example: Property is under contract of sale but closing has not yet taken place, There is NO casualty insurance, and the contract does not expressly assign the risk of loss to one of the parties. The land is damaged in a hurricane.
a. Who bears the burden of loss?
b. The Doctrine of Equitable Conversion says that the Buyer would because he is the Equitable owner of the land
c. The seller can insist the sale close and that the buyer pay the full price of the contract and accept the land
5. Example: Suppose the Seller makes a will that leaves his real property to his son Clarence and all of his personal property to his daughter Daphnis…. What if the seller has a contract for sale to buyer but dies before closing
a. Does the seller die holding real property (to C) or personal property (to D)?
b. Equitable Conversion applies and turns the seller’s assets into personal property (Daughter D gets the assets under the will)
i. Seller is the Equitable owner of the Money
ii. If the Buyer dies the reverse is true (converted to Real)
