CHAPTER 1 – CONTRACTS FOR THE SALE OF LAND
REAL ESTATE BROKERS
Fiduciary duties à act in good faith
Can represent buyer or seller (or both à Dual Agency)
i. Must disclose who they represent
Agreement (pg 3)
TYPES OF LISTINGS
Open Listing: the property owner agrees to pay the listing broker a commission if that broker effects the sale of the property but retains the right to sell the property himself as well as the right to procure the services of any other broker in the sale of that property.
Exclusive Agency Listing: authorizes only one broker to sell the property but permits the property owner to sell the property himself without incurring a commission.
Exclusive Right to Sell Listing: the sale of the property during the contract period, no matter by whom negotiated, obligates the property owner to pay a commission to the listing broker.
Generally, the broker’s authority is to market the property, but is not a power of attorney, unless stated in the contract.
WHEN IS COMMISSION EARNED?
Drake v. Hosley: The traditional rule is that a broker is entitled to a commission when produces a buyer ready, willing and able to purchase the property on the seller’s terms, even if the sale is not completed.
i. Some courts have held that “willing and able” = closing.
THE SOF AND PART PERFORMANCE
TYPES OF CONTRACTS
Short term, earnest-money, deposit receipt, or marketing contract
Real estate installment contract, or contract for deed
CONTRACT FOR THE PURCHASE AND SALE OF REAL ESTATE (PG 24)
Johnston v. Curtis:
To remove an oral agreement from the SOF, it is necessary to prove both (by clear and convincing evidence):
i. The making of an oral agreement; and
ii. Its part performance
Part performance of a contract by payment of a part of the purchase price and placing a buyer in possession of land pursuant to an agreement of sale and purchase is sufficient to take the contract out of the SOF.
The measure of damages for a vendee’s breach of an executory contract for the sale of land is the difference between the contract price of the land and its market value at the time of the breach, less the portion of the purchase price already paid.
SUFFICIENT WRITING FOR THE SOF
Any memorandum, which contains the necessary information about the contract and is properly signed is sufficient; it does not have to be the contract itself. (i.e. letter, check, or other document, even if not drawn for the purpose of memorializing the contract)
Rosenfeld v. Zerneck: Typing your name in an email is sufficient writing.
Essential elements required in the writing
i. Adequate description of the property
iv. Whatever else is relevant to the transaction
ACTS NECESSARY TO COMPRISE PART PERFORMANCE (BEFORE CLOSING) (MOST COMMONLY SEEN)
Payment of part (or all) of the purchase price
Going into possession of the realty
Making substantial improvements
INTRODUCTION TO MORTGAGE FINANCING
Most common financing
A loan from a third party (bank) lender to the buyer.
The “taking over” by the buyer of the payments on an existing loan, which the seller or some former owner obtained from a third party lender.
Financing provided by the seller himself, in the form of a deferral of receipt of some protion of the purchase price.
Transfer by a debtor/obligator/mortgagor to a creditor/obligatee/mortgagee, a real estate interest, to be held as security for the performance of an obligation, normally the payment of a debt evidenced by a promissory note.
A mortgage is not valid/enforceable if there is not a debt/obligation.
Monthly payment depends on: 1) the amount you borrow; 2) the term of the loan; and 3) the interest rate.
Sources of loans: 1) Banks; 2) Savings and loans; 3) Mortgage companies.
Creative Financing Techniques
i. All cash sale
ii. Assumption or taking subject to existing mortgage
iii. Seller financing:
1. Installment land contract
2. Purchase money mortgage
iv. Combination of assumption/subject to and seller financing
v. Wrap-around financing:
1. Seller does not pay off existing mortgage at transfer.
2. Buyer makes payments at a higher interest rate than seller’s mortgage.
3. Does not work if seller’s mortgage has a “due on sale clause”.
Shrader v. Benton: Wrap-around installment contract. However, seller’s mortgage had a “due on sale clause”. Therefore, the parties needed the consent of the mortgage company to do the wrap-around installment contract.
i. When a loan goes into default, the mortgagee normally has the right to accelerate the debt.
ii. The lender can decide not to foreclose on the mortgage and instead sue based on the promissory note.
iii. Two main types of foreclosure sale:
1. Judicial foreclosure where a public sale results after a full judicial proceeding in which all interested persons must be made parties.
2. Foreclosure by power of sale (sheriff sale)
a. No judicial proceeding required.
Equity of Redemption
i. Prohibition against clogging the mortgagor’s equity of redemption: Even thought the mortgage is in substantial result default, normally no agreement of the parties in the mortgage, or contemporaneous with it, can cut off a recalcitrant mortgagor’s rights in the mortgaged property without the mortga
en escrow instructions may supply the requisite memorandum to satisfy the SOF.
Duties of Escrow Agents
i. Occupy a fiduciary position with respect to the parties à Will be held liable for negligence or breach of instructions.
ii. An escrow agent who discovers fraud, or facts, which suggest fraud, by one party has a duty to disclose them to the other party.
iii. An escrow agent may not exculpate himself in the printed instructions from liability for negligence or failure to follow instructions.
A title insurance policy is the insurer’s promise that, if the title is not in the condition described by the policy on its effective date, the insurer will indemnify the insured for resulting losses.
Applies to both parties
Abstract: Series of documents recorded
Every time ownership is transferred, more documents recorded
This system replaced by insurance
Kinds of policies:
Owner’s policy à insures that the insured is the owner of the property
i. Not assignable
Lender’s policy à insures that the lender has lien of certain priority
How the title insurance company operates
Go through the records to analyze the chain of title
i. Is there an appropriate chain of title?
ii. Are there exceptions?
1. Liens, easements…
Sample Policy (pg 237)
Most courts hold that the insurer must cure the defect, not just compensate the insured.
Common claims covered (pg 246)
CHAPTER 3 – THE USE OF MORTGAGE SUBSTITUTES
THE ABSOLUTE DEED, THE CONDITIONAL SALE, AND RELATED TRANSACTIONS
Anti-clogging rule: For centuries it has been a rule that a mortgagor’s equity of redemption cannot be clogged and that he cannot, as a part of the original mortgage transaction, cut off or surrender his right to redeem. Any agreement that does so is void and unenforceable as against public policy.
There are several decisions upholding the enforceability of options against clogging attacks, finding that the option in question was not being used to circumvent foreclosure.
Option with the right to repurchase
Lease with an option to repurchase