Unit 4 - Conveying Real Property

What occurs during the executory period?

Execute purchase and sale agreement & Closing

Record Title

The title record as accounted for in the county

Legal Title

The legal right to the property title

Deed

How titles are transferred

Purchase Contract phase of conveying real property

The parties negotiate and sign a written purchase contract, and prepare to consummate the transaction

Closing phase of conveying real property

- The contract is fully performed at the closing

- the buyer pays the purchase price, the lender advances the loan funds, AND

- the seller transfers title

Title Protection for Conveying Real Property

The buyer protects her title through title covenants, a title opinion based on a search of public land records, and/or a title insurance policy

What is the Statute of Frauds?

A way to enforce a contract against a party.

Statute of Frauds - Covers?

Covers:

- Contracts for the transfer of an interest in land

- Contracts lasting longer than one year

Statute of Frauds - Requirements

Writing must contain:

1. Contain key terms (parties, property description, price) AND

2. Signed by the party against whom enforcement is sought

Statute of Frauds Exception: Part Performance

An oral contract for the sale of property may be enforced if the buyer:

1. takes possession

2. Pays at least part of the purchase price AND

3. Make improvements to the property

What is the theory behind the Part Performance exception for SoF?

Buyer's actions are evidence enough

Statute of Frauds Exception: Equitable Estoppel

An oral contract may be enforced if:

1. One party acts to his detriment in reasonable reliance on another's oral promise AND

2. Serious injury would result if enforcement is refused

Statute of Frauds Exception: Equitable Estoppel - What does serious injury mean?

Selling another property or refusing offers for the property in disupute

What is the theory behind the Equitable Estoppel exception for SoF?

Attempting to avoid injury to a party who has detrimentally relied on oral contract

Marketable Title *"Merchantable Title") Rule

Title must be reasonably free from doubt as to its validity and from encumbrances

Examples of encumbrances

- a claim against

- limitation on

- Liability against real estate is an encumbrance

When is marketable usually required?

Usually not required until closing or a reasonable time after

Unmarketable if...

1. Seller's interest in less than the one being sold

2. seller's title is subject to a private encumbrance OR

3. Reasonable doubt about 1 or 2.

How can a seller argue against the encumbrance

Seller can argue the encumbrance was visible and gave the buyer actual/inquiry notice

Equitable Conversion: Rule

Under equitable conversion, the buyer is seen as the equitable owner of the property once the contract is signed, while the seller is viewed as the equitable owner of the purchase price

Equitable Conversion: when property is destroyed

The buyer is still obligated to pay the purchase price even if the property is destroyed

Equitable Conversion: if buyer or seller dies?

If the buyer or seller dies before closing, the contract is still valid under the doctrine, and it can be enforced by the heirs and devisees of either party

Equitable Conversion: Bush Grocery Kart

Court embraces a rule: the person who is in possession of the property when the damage occurs is responsible for the damage of the property

Equitable Conversion: Traditional/Majority View when not written

The risk of loss in on the buyer as soon as contract is signed as the bidder is the equitable owner

Equitable Conversion: Massachusetts View when not written

Seller bears the risk as legal owner

Equitable Conversion: Colorado/Modern Trend when not written

The party entitled to possession bears the risk

Duty to Disclose: Majority Rule

Seller of residential real property must disclose defects known about that...

1. materially affect the value of the property OR

2. Are not know to or readily discoverable by a buyer

Duty to Disclose: Stambovsky Rule

If a seller creates a condition that materially impairs the value of a contract and is within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care, nondisclosure of the condition constitutes a basis for rescission of the contract

Implied Warranty of Quality: Rule

Under the implied warranty of quality a developer of newly-constructed residential property impliedly warrants the property as fir for its intended use

Implied Warranty of Quality: Who does it extend to?

Extends to the first buyer, some cases may extend beyond the first owner

Duty to Disclose: Strawn Rule

A professional seller of residential real estate or a broker representing that seller has a duty to disclose to a prospective buyer off-site conditions that materially affect the value or desirability

3 title assurance methods

1. Title Covenants

2. Title opinion based on search of public records

3. Title Insurance

Title Covenants: Define

The grantor promises in the deed that he has goof title convey

Title opinion based on search of public records: define

An attorney or other professional renders an opinion about the state of title after searching the public land records

Title insurance: define

A title insurance company issues a policy that insures the grantee's title

Title covenants: protections pre-closing

- contract (express condition of marketable title) OR

- implied covenant of marketable title

Title Covenants: Protections post-closing

Doctrine of merger

Doctrine of merger

pre-closing promises are extinguished, and buyer can now only rely on title covenants

What are the three types of deeds?

1. General warranty/statutory warranty deed

2. Special warranty deed

3. Quitclaim deed

General Warranty/Statutory Warranty Deed

the grantor warrants title against all defects, whether they arose before or after he obtained title

Special Warranty Deed

the grantor warrants title against all defects that arose after he obtained title

Quitclaim Deed

The grantor makes no warranties about title, so the grantee receives only what the grantor has, if anything

Estoppel by Deed

If the grantor purports to convey an estate that she does not then own, her subsequent acquisition of the estate will automatically inure to the benefit of the grantee

Where does estoppel by deed apply?

Applies where the conveyance was by a warranty deed, or where the deed purported to convey a particular estate

Which wins over which? estoppel by deed or BFP status?

BFP status wins over estoppel by deed

General vs Special Warranty Deed

Covenants in the special warranty deed only extend to breaches that occurred during the time the grantor owned the property

What covers present covenants?

general + special warranty deeds

List the present covenants

Covenant...

1. of Seisin

2. against Encumbrances

3. of right to Convey

Covenant of Seisin

- type of covenant

- what is it?

- Present covenant

- a promise that the grantor owns the estate he purports to convey

Covenant against encumbrances

- type of covenant

- what is it?

- Present Covenant

- a promise that there are no encumbrances on the title, other than those expressly listed in the deed

Covenant of Right to Convey

- type of covenant

- what is it?

- Present Covenant

- a promise that the grantor has the right to convey title

Present Covenants: When are they breached

They are breached, if at.all, at the moment the deed is delivered.

List the future covenants

Covenant of...

1. Further Assurances

2. Quiet Enjoyment

3. Warranty

What deeds cover future covenants?

Covered by general and specialty warranty deed

Covenant of further assurances

- type of covenant

- what is it?

- Future covenant

- a promise that the grantor will take all future steps reasonably necessary to cure title defects that existed at closing

Covenant of Quiet Enjoyment

- type of covenant

- what is it?

- future covenant

- a promise that the grantee's possession of the property will not be disturbed by anyone holding superior title

Covenant of Warranty

- type of covenant

- what is it?

- future covenant

- a promise that the grantor will defend the grantee against any claim of superior title

Covenant of Quiet Enjoyment: Brown v. Lober Rule

Mere existence of superior title is not a breach of quiet enjoyment

Bone Fide Purchaser: define

A good faith purchaser is one who gives valuable consideration for value without knowledge of adverse claims

Actual Notice: Define

Direct knowledge of prior interest in seller's interest

Constructive Notice: Define

The subsequent purchaser is deemed to have notice of any facts that a reasonable physical inspection of the property or a reasonable title search of the public real estate records would have revealed.

Record Notice: Define

notice of any prior interest that would be discovered by a standard search of the public land records.

- can be actual or constructive

Inquiry Notice: Define

Notice of any prior interest that would have been obtained by investigating suspicious circumstances

Mother Hubbard Conveyances (Luthi v. Evans Rule)

A mother hubbard clause does not provide constructive notice to subsequent purchasers that the unspecified interest was conveyed

Mother Hubbard clause

- what is it?

- how is it typically conveyed?

Property interests are conveyed in general terms, rather than each interest being separately described

- all interests within the country

Process of searching title via grantor-grantee index

1. Go back in time following the grantee until you get to a sovereign

2. From sovereign work forward in time in the grantor index

Deed is checked at each stage

Process of searching title via tract index

Examining the documents under the tract's parcel identification number/unique identifier to assess the state of title

Race Act: Who wins?

Whoever records first gets the property first regardless of notice

No Recording Act: Who wins?

First in time, first in right

Notice Recording Act:

- Who wins?

- Need to record?

- Subsequent BFP gets the property. Last BFP wins

- Not required to record to gain priority,but if fail may lose interest to subsequent BFP

Race-Notice Act: Who wins?

Subsequent BFP who records first gets the property

Race Jurisidiction

Priority is given to the person who wins the race to the recorder's office

Notice Jurisdiction

A notice statute provides that a subsequent purchaser for value prevails if he takes without notice of a prior interest

What states still have race statutes that apply to all deeds and other intruments?

Delaware, Louisiana, and North Carolina

Shelter Rule

Under the shelter rule, a BFP can clear the way for later purchasers who are not BFPs

Shelter Rule Jusitification

Want BFPs to be able to sell property

Messersmith Rule on recording of a title

The recording of a title instrument that does not meet the recording act's statutory requirements does not provide constructive notice of the transfer to subsequent buyers.

Void Deed

forged, never delivered, issued to a nonexistent grantee, or obtained by fraud in the factum (i.e., the grantor was deceived and did not realize that she was executing a deed)

Voidable Deed

executed by minors or incapacitated persons, and those obtained through fraud in the inducement duress, undue influence, mistake, and breach of fiduciary duty

How does the court treat Void Deed?

Void Deed will be set aside by the court even if the property has passed to a bona fide purchaser

How does the court treat a Voidable Deed?

a voidable deed will be set aside only if the property has not passed to a bona fide purchaser

Common Recording Problems: Wild deed

- what is it?

- who wins?

- a prior deed that was not recorded which makes the new deed unable to be captured by a reasonable inquirer

- does not provide notice so subsequent buyer owns the property

Common Recording Problems: deed recorded early

- who wins?

Does not provide notice → the subsequent buyer owns the property

Common Recording Problems: deed recorded late

- who wins?

Does not provide notice → the subsequent buyer owns the property

Common Recording Problems: Deed from common grantor

- Who wins?

- How is reasonable inquiry related?

- Conveyance on another property affects the deed but the purchaser won't discover it

- 50% jxd require buyer to expand search to include all properties deed by common grantor (reasonable inquiry)

Title Insurance compared to other title insurance options

- Primary method used today

- Generally better protection than title search

Four keys parts of a real property finance transaction

- Obligation

- Security

- Foreclosure

- Rights after foreclosure

Obligation: Define

The borrower's duty to repay a loan, evidenced by a written promissory note, or to perform other duties called the obligation

Security: Define

The borrower will provide security to the lender through a mortgage, a deed of trust, or a similar encumbrance on the property

What is an unsecured loan?

A loan without security, which may never be repaid

What is a secured laon?

A loan made, where the lender requires the borrower to provide collateral

What is the most common form of security

Interest in real property

Foreclosure: Define

If the borrower defaults on the obligation, the lender will have the property sold at a judicial foreclosure sale or a nonjudicial foreclosure sale and use the sales proceeds to satisfy the loan.

Promissory Note

- what is it?

- how does it work?

- a contract promising to repay debt

- repayments over time

- Negotiable instrument (can be sold)

Acceleration clause

Allows mortgagee to demand payment of full loan and interest in case of missed payment

Due-on-sale clause

The lender can demand full payment if the borrower sells the property

- fully enforceable pursuant to federal law

"Assuming a loan"

New buyer personally responsible for paying old loan

"Taking subject to"

New buyer not personally liable, but property still encumbered and could be taken

Examples of other obligations

1 - keeping the property in good repair

2 - avoiding waste

3 - maintaining adequate property insurance, AND

4 - Defending his title to the property in litigation with third parties.