Property II Outline
The Land Transaction
Anatomy of a land sale
1. Finding a Buyer
a. Seller (S) ownes a 3 bedroom home, blackacre, and wants to sell it for $350,000.
b. S finds a broker, listing agent (LA), and they enter into agreement.
i. LA agrees to find a buyer willing and able to pay $350,000 or a price acceptable to S
ii. S agrees to pay LA a 6% commission upon sale
c. Another real estate agent, the cooperating broker (CB), tells his client, buyer (B), that he likes blackacre.
i. CB is a subagent of S, and must split the commission with LA.
2. Negotiating the Contract
a. B decides to make an offer, a written contract, which is conditional one:
i. physical condition of property – i.e. inspection by licensed builder
ii. financing – i.e. B must obtain loan from a lender
iii. state of title – i.e. S must deliver a “marketable title” to the property.
b. B delivers earnest money (check for $ 3,000).
c. S makes counter-offer, $325,000, in which B signs. Closing is set for 60 days.
3. Preparing for Closing
a. B evaluates physical condition of premises. He selects a house inspector who prepares a written report.
b. B arranges financing. He applies for a $300,000 loan from M Bank. M Bank will then evaluate B’s credit and appraise property, then issue a letter of commitment. M Bank requires B to sign a promissory note evidencing the debt and execute a mortgage on the home to secure repayment of the loan.
c. B will evaluate the state of title to blackacre. This can be done 1 of 3 ways:
i. attorney search and certification of title
1. S may retain an attorney to perform an examination of public land records and render a legal opinion – a certificate of title – on the state of title to OH-acre.
2. Certificate and supporting papers will be reviewed by B’s attorney.
ii. attorney review of title abstract
1. S commissions a Title Abstract Company (TAC) to prepare an abstract (report) summarizing state of title to OH-acre. TAC examines the state of the title by conducting a title search of a private database of public land records aka a title plant. The TAC does 4 things:
a. assembles documents
b. reviews them and prepares a synopsis of each documents then
c. certifies that the abstract analyzes all records pertinent to the title of OH-acre, then
d. sells the abstract to documents to S.
2. S gives abstract to S’s attorney who examines abstract and certifies title to his client in same manner as a direct title examination. B’s attorney then reviews the documents.
iii. B applies for title insurance from a title insurance company (TIC), (which supplements options 1 and 2 and is usually done in addition to):
1. TIC examines the state of the title by conducting a title search of a private database of public land records aka a title plant. Or T may commission an attorney/abstractor to perform a manual title search of public land records.
2. T Insurance Company 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.
a. land contract is fully performed at closing.
i. Closing supervised by attorney (eastern practice) or an escrow agent (western practice).
1. Escrow agent is a neutral party who holds documents and then delivers them to the proper parties per written & signed instructions from B and S.
b. title is conveyed from S to B by delivery of deed
c. loan is made from lender to B- $300,000
d. full purchase price is paid from B to S: $325,000
i. $3,000 earnest money- cash
ii. + $22,000 down payment- cash
iii. + $300,000 loan proceeds = $325,000
e. From purchase price, LA and CB are paid their commissions.
i. $ 325,000 x 6% = $ 19,500
f. B receives an owner’s title insurance policy from T Company insuring his title in Blackacre
g. M Bank receives a lender’s title insurance policy from T Company
h. The deed and mortgage will both be recorded.
Parties of the Sal
the parties, that practice must be limited to attorneys.
ii. most states have come up with a list of activities that must be done by attorneys:
1. if a conveyance seeks to convey a life estate, a remainder, or a determinable fee, that must be done by an attorney.
e. When does the listing agent earn commission?
i. Illustration: S owns blackacre and wants to sell it for $400,000. S enters standard listing agreement with listing agent. The LA finds a buyer who can pay the asking price. A title search reveals a flaw in title- unreleased dower. As a result, S cannot convey marketable title. Can broker still get commission?
1. Common law: commission is earned when the contract is signed
2. Modern rule: commission is earned at closing.
3. TWISTS & EXCEPTIONS:
a. The parties can contract for a different point at which commission can be earned.
b. If the seller willfully breaches the contract, then the broker has earned the commission when the contract is signed.
a. What they do:
i. prepare title report
ii. draft and report a deed
iii. provide legal advise in case of emergency
The Contract of Sale
Statute of Frauds
1. When is a Writing Required?
a. leases that can’t be performed within some short time period:
i. Common law time period was 3 years, the modern rule is 1 year.
b. contracts for the sale of any interest in land
i. Anything that concerns an interest in land which can create or extinguish an interest that a person did not have before the transfer is a transaction in land. This includes:
a. NOTE: a deed works only once