Real Estate Transactions
Hume
Fall 2011
I. Housing Products
a. Generally
i. Goal of marketplace is to enhance opportunity for all people and to continue to expand the types of products that are available
ii. Honorable v. Easy Life Real Estate System: what is required to make out an exploitation theory of liability for racial discrimination in real estate
iii. Prof: two ways to establish discrimination: intentional targeting a group and disparate impact
iv. To establish exploitation, plaintiffs must show: (1) as a result of racial segregation, dual markets exist, (2) D sellers took advantage of this situation by demanding prices and terms reasonably in excess of prices and terms available to white citizens for comparable housing
v. Here, Ds were engaged in “reverse redlining,” practice of extending credit on unfair terms to minority communities
b. The Single-Family Home
i. Generally
1. Planned unit development (PUD): developer places restrictions on entire property, then divides it into lots for individual housing units
a. Traditional subdivision: generally governed by property law related to covenants and servitudes, traditionally less open space than a PUD
b. PUD: restrictions, plans, and a map of the PUD (or equivalent) go through review and approval process conducted by the local government to ensure that community meets minimum standards of zoning, etc. in community
c. Home owners’ association: found in most planned communities with a significant number of restrictions
i. Organized as nonprofit corporation and exists to enforce the various rules and regulations
ii. Can take action in court, seek injunctions against nonconforming behavior, charge for actions taken and place a lien against a nonconforming member who fails to pay
iii. BUT: look out for laches, estoppel problems
ii. Evergreen Highlands Ass’n v. West
1. Planned subdivision had park which was used by all residents and maintained by voluntary does of residents
2. HOA amended covenant to require maintenance dues
3. CO Supreme Court: although the bylaws allowed a HOA to “change” existing covenants, the court read this language broadly as to add additional covenants: courts should read covenant language in favor of free and unrestricted use of property
4. Change was permitted because it wasn’t unreasonable and affected all owners equally
5. Property law also allows HOAs implicit power to levy assessments against lot owners for the purpose of maintaining the common area of the subdivision and, thus, a lot owner has an implied duty to pay proportionate share of the cost
c. Condominiums
i. Generally: single unit in a multiunit project together with an undivided interest in common areas and facilities of the project
ii. Owner generally has fee simple title to the unit and owns a percentage share of the common property as a tenant in common
iii. Form of ownership, not architectural style
iv. Local state statutory law enables the creation of this ownership form
v. Primary legal document of creation: declaration of condominium, filed in local property records
1. Must spell out: must meet statutory requirements of description, generally the identification of each ownership unit and common property
2. The declaration establishes the condo unit owners association and authorizes assessments against each unit owner to pay for condo expenses
vi. Types of ownership: buyers exclusive fee usually extends only to the interior space and surfaces of the unit (“from the paint in”); common elements usually include: land, building systems, and project amenities
1. Common elements: all of those portions of the condo property that are not defined in the declaration as part of a unit
2. Limited common elements: those common elements defined in the declaration as being for the limited or exclusive use of a particular unit while not in themselves being part of the described unit (patios, balconies, window flower boxes, parking spaces)
vii. Right of first refusal: some condos give association the right of first refusal as to any unit that goes on market subsequent to initial sale (applies to resale market)
viii. Regulations: those established in the declaration are given more deference than those promulgated by the association and its board
1. Declaration: usually establishes covenants running with the land, unless they violate a statute, public policy, etc
2. Association items: lesser status items. Enforced so long as, (1) they comply with the procedures established for their promulgation, (2) reasonably relate to the promotion of health, happiness, and welfare of unit owners
ix. Cedar Cove Condo Ass’n v. Cedar Cove Properties: court interpreted the meaning of “common elements” described in condo declaration. Court determined that the COA was responsible for exterior improvements/repairs
d. Cooperative Housing
i. Title to all of the real estate is held by a corporation , with each shareholder having the right do a dwelling unit pursuant to a long-term lease for the corporation (no deeds in coop housing)
ii. Why popular: homeowners exercise a great deal of control over their neighbors, so long as limitations on transfer do not impose an unreasonable limit on alienation of the interest
iii. Two legal approaches. In all instances, purchase of a unit involves the acquisition of stock in the coop entity. This is treated as a personal property interest
1. Many jurisdictions: coop is viewed as a personal property (stock) and real property (lease) component—and must comply with laws in each of these areas
2. Other jurisdictions: coop form of ownership is considered to be a transaction involving stock and lease is ancillary—the entire interest is governed by rules applicable to stock as personal property
iv. Buying in requires approval of the coop board (absolute right of approval): boards can reject an individual without giving a reason (you’re fine, so long as you don’t give a discriminatory reason for denial)
v. Shareholders are joint and severally liable on the debts of the corporation—they are financially responsible for a shared debt
vi. 40 West 67th Street v. Pullman: business judgment rule is proper standard of judicial review when evaluating decisions made by residential coop corporations (so long as it is made in good faith and within the scope of its own authority)
1. To trigger scrutiny: (1) must be outside of board’s authority, (2) made in a way that did not legitimately further the corporate purpose, or (3) bad faith
vii. Business judgment standard best balances the individual and collective interests at stake in the residential coop setting
e. Time-Share Housing
i. Generally
1. Takes condo idea one step further: divides unit’s air space into blocks of time
2. Can enjoy equity appreciation
3. Legally like condos in that they involve rights to a unit together with shared or common elements and expenses
4. Two way buyer can get fee simple interest (both are transferable by deed0
a. Seller may convey undivided interests in the fee to all buyers of time-share units as tenants in common, with a recorded instrument setting forth their rights to possess their designated intervals
b. Seller can convey a separate and distinct “interval estate” including a as part of its definition the agreed-upon time parameters
ii. Royal Aloha Partners v. Real Estate Division
1. Issue was whether Oregon Real Estate Division had had authority to promulgate rules regarding “right to use” memberships in condo time-sharing plans. Court held that legislature did not to intend non-fee time-sharing interests in legislative scheme
f. Housing Accessibility
i. United States v. Edward Rose and Sons
1. At issue was whether apartments with inaccessible (to handicap persons) front door—but with accessible back door—met FHA standards. Court found that because the stair landing was shared by two entrances to two different apartments the front entrance was a common area that must be accessible
II. Possession and Use of Mortgaged Property
a. Generally
i. Strict foreclosure title th
. Most also follow 36% rule, whereby debtors total debt payments may not exceed 36% of gross
v. Home Mortgage Disclosure Act requires lenders to report annually mortgage information
vi. Malus v. Hager
1. Facts: purchase of home; k provided that if buyer failed to obtain mortgage commitment seller could back out of agreement; Ps applied for, and received, loan. P was fired from employment. Ds, who did not know this, and expected deal to close, moved out of home. Bank mortgage contained changed financial situation clause, so bank cancelled mortgage. Ps sought seven thousand dollar deposit returned, forming basis of lawsuit. K also had “failure to settle clause,” whereby if buyer backed out any payments made on account would be awarded to seller as damages.
2. Court: cannot place parties in “state of eternal limbo” before deal is actually closed—cannot extend mortgage contingency clause until the date of closing
3. Ds could not resell their home for four months—had to pay taxes, mortgage, maintenance, etc. Court held that “failure of buyer or seller to settle” clause covered the issue at bar. Sellers were entitled to keep deposit.
vii. United Lending Companies Lending Corp. .v Sargeant
1. Facts: United sells first lien residential mortgages, used for debt consolidation, home improvement, major household improvement—operates in subprime market (subprimes are more costly to lender to originate, sell, and service than traditional “A credit” loans). Sargeant lives in three story building—rents out two floors. She desired to make improvements, sought loan from United. She was classified as a “C’ borrower. 135,000 loan with adjustable interest rate. She fell behind in payments and United initiated foreclosure. Sargeant filed consumer complaint with consumer protection and Mass AG. Mass cited law invalidating mortgage loan origination fees or “points,” and state issued preliminary injunction.
2. In subprime market, lenders evaluate credit-worthiness of borrowers by establishing various risk classifications with associated pricing parameters. Usually look at borrower’s credit history, household debt to income ratio if loan is approved, combined loan to value ratio for home equity loan and other mortgage debt on the property. Loans have higher securitization costs associated with loan sale on private secondary market.
3. Subprime loans have higher APR to borrower
4. Holdings: the AG regulations may proscribe even good faith business practices that could be unfair or deceptive: the AG regulation is consistent with federal law, infra. Rise in these sorts of practices: rising home values, individuals with little equity and no alternatives from which to seek loans. Redlining and reverse redlining by lenders impedes the self-correcting elements of the market. AG regulation upheld, and middle man who introduced United to Sargeant was not entitled to fee, as there was no disclosure, which constitutes unfair and deceptive practice
5. FTC test for determining whether a given practice unfair or deceptive: (1) does cause substantial injury to customers (not speculative, monetary harm usually, injury not outweighed by other benefits to consumer or competitive benefits, not easily avoidable by consumer), (2) does violate established public policy, (3) is immoral, unethical, oppressive, or unscrupulous
