Part 4: Land Transactions

What is required for a land transaction purchase contract?

It must meet the statute of frauds.

What needs to be contained in a purchase contract to meet the statute of frauds?

1. 3 P’S (essential terms - parties, price, property description).

2. In a writing

3. Signature of the party whom enforcement is sought

What are some exceptions to the writing requirement for the purchase contract?

1. Part Performance

2. Estoppel

Part Performance Exception to a Purchase Contract

i. Buyer takes possession of the property and

ii. Buyer pays part of the purchase price OR

iii. Buyer makes improvements on the property

Estoppel Exception to Purchase Contract Writing Requirement

1. One party relies to their detriment on the oral promise of another.

2. Serious injury would occur if enforcement was refused.

Marketable Title

Title is free from serious defects or doubts that would expose the purchaser to litigation or interfere with resale or mortgaging of the property.

** Every real estate contract has an implied obligation to provide marketable. However, this obligation may be superseded by “Subject to” clauses.

Unmarketable Title

• May expose purchaser to litigation or interfere with the resale or mortgaging of the property.

Occurs 2 ways…

1. Seller has less interest in the property than they purport to convey.

2. Encumbrances

Encumbrance

Some other right, burden, or claim affecting the land that reduces its value, restricts its use, or creates legal risk.

• Leases

• Easements

• Mortgages

• Liens

• Restrictive Covenants

• Seller’s title is based on adverse possession.

What do title problems affect?

Ownership rights and legal claims against the land

What is not something that makes the title unmarketable?

Physical conditions

Housing or building codes

Zoning Ordinances

What happens if a title is considered unmarketable?

1. The unmarketable title is discovered.

2. The seller has a reasonable time to cure.

• They can cure the defect in title before the closing date OR

• Rescission may occur before closing date if it’s clear the seller can’t clear closing defects by then.

3. Buyer’s choice of remedy if not cured.

What are a buyer’s remedies if they discover unmarketable title?

1. Rescission & Restitution (terminate the contract & recover the deposit).

2. Specific Performance (compel conveyance with a reduction in price).

3. Damages at law (recover the difference between the value of the contract & market value + consequential damages).

Insurable Title

A title company is willing to insure it. That does not necessarily mean it’s marketable.

Record Title

Title appears good from the public land records. But record title can still be flawed, such as when a forged deed appears in the chain.

Equitable Conversion - Who takes the Risk of Investment when a purchase contract is formed? (remember, the deed hasn’t been passed on at this point) (who has to pay for property damage?)

Majority Rule. Equitable title passes the purchaser as soon as an enforceable contract to sell land is formed, even though the ‘legal’ title will remain with the sell until the closing.

Minority 1. Seller maintains risk of loss absent agreement.

Minority 2. Risk is on the party in possession.

Majority of Equitable Conversion Explained…

The risk of investment passes to the buyer after contract formation, and the buyer must go through with the contract and bear the full agreed upon cost.

• The buyer: Equitable Owner

• Seller: Legal Interest

Minority 1: Massachusetts Rule

Unless the buyer has agreed, the seller has the risk of loss.

Minority 2

Risk of loss is on the party in possession

Duty to Disclose Defects: Traditional Approach

Caveat Emptor - Seller has no duty to disclose defects… (unless - exceptions)

• Affirmatively misrepresents the facts.

• Actively conceals defects, or

• Owes a fiduciary duty to the buyer

Modern Approach: Duty to Disclose Defects

Where the seller of a home…

• knows of facts materially affecting the value of the property

• which are not readily observable and are not known to the buyer.

Seller has a duty to voluntarily disclose the defects to the buyer.

Doctrine of Merger

Once the closing occurs, you can’t sue for rescission, but you have to sue in torts for “duty to disclose.”