Property Unit 4 - Conveying Real Property

Record title

Title that is in grantor/grantee index

Legal title

Right to something, but it’s not written down

Deed

Written document that describes the ownership of property (describes property)

Timeline for Land Transactions

1. Budget and Pre-Approval

2. Contact agent

3. View properties

4. Negotiate purchase and sale agreement

5. Execute purchase and sale agreement (Exec period)

6. Closing (Exec. period)

7. Recordation

Partial Performance

Exception to Statute of Frauds

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

1. Takes possession

2. Pays at least part of the purchase price; and

3. Makes improvements to the property

*Some jurisdictions require only two of these

Equitable Estoppel

Exception to Statute of Frauds

An oral contract for the sale of real property 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

Hickey v. Green

Facts: Hickeys sold their house in reliance on oral agreement that Green would sell her house to them. Also paid $500 deposit. Check was missing description of property, no signature from Green - doesn’t qualify as a writing. Green knew about Hickey’s reliance and agreed about oral contract.

Holding: Oral contract was enforceable by equitable estoppel.

Marketable Title

Title must be reasonably free from doubt as to its validity (no one claiming superior title) and from encumbrances (a claim against, limitation on, or liability against real estate); The buyer should be able to purchase property without fear of litigation about the title

• express or implied condition of the purchase and sale agreement

• parties can contract around covenant of marketable title

• usually not required until closing or reasonable time after

• unless there is verbiage in the contract about closing quickly, the seller is allowed to fix the problem.

• can only bring action for marketable title prior to accepting the deed

Generally, a title is unmarketable if:

1. The seller’s interest is less than the one they purport to sell

2. The seller’s title is subject to an encubrance, or

3. There is doubt about either (1) or (2)

• A title is not rendered unmarketable by the physical condition of the property

• Sometimes not unmarketable by the property being burdened by a visible encumbrance or an encumbrance the buyer actually knows about

• Generally, public encumbrances (like zoning) are not going to make a title unmarketable (but private encumbrances generally do)

Encumbrance

A claim or restriction on a property that limits how it can be used or transferred

Ex. liens, easements, deed restrictions, and mortgages, which can affect the property's value and the owner's rights

Lohmeyer v. Bower

Facts: Lohmeyer contracted to purchase property but then tried to rescind contract on premise that title was unmarketable. House violated two local ordinances, one public too close to property line), one private (not two stories).

Holding: the violation exposes the purchaser to hazard of litigation, and fixing marketable title, so title was not marketable and Lohmeyer could rescind contract.

Rule: Public encumbrances don’t make title unmarketable even if they severely restrict property use.

Rule: existence of private encumbrances don’t make title unmarketable, but violations do (b/c they expose buyer to liability)

Marketable Title Hypo: After signing the contract, B learns that the property is worth less than the purchase price because it is located in a flood zone. Does B have marketable title?

Yes - physical condition of being located in a flood zone is not marketable title problem

Marketable Title Hypo: Before signing the contract, B sees electric lines crossing part of the land. After signing, B learns that the local electric company has an easement across the property for these lines. Does B have marketable title?

Yes - while an easement could normally make a title unmarketable - the electric lines would be easily visibly, so presumably B would be on notice.

Equitable Conversion

Equitable conversion is a doctrine that determines buyer’s and seller’s rights and responsibilities during the time between signing contract for sale and closing the sale.

• We focus on the part that pertains to risk of loss and who is responsible for damages should the property incur them during this time period.

Traditional Majority Rule: Buyer is equitable owner of the property, while seller is owner of purchase price, after contract is signed. Buyer is therefore responsible for damages incurred after contract is signed. (buyer bears risk)

Massachusetts Rule: Seller bears risk until actual transfer of title. (seller bears risk)

Colorado Rule/Modern Trend: The vendee under contract, being regarded as the equitable owner, assumes risk of destruction or injury to property where he is in possession, and destruction is not caused by negligence of vendor.

Brush Grocery Kart v. Sure Fine Market

Facts: During executory period (between contract and sale), grocery store building was severely damaged by hailstorm.

Holding: Court adopts modern trend and finds Brush was not in possession of building, so Sure Fine is responsible for damages.

Court says that purchase price should be reduced by cost of damages.

Inheritance (during purchase)

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

Duty to Disclose - Common Law

Buyer beware/caveat emptor.

Seller has no duty to disclose defects to buyer unless the seller:

1. Affirmatively misrepresents the facts

2. Actively conceals defects (painting over mold) ; OR

3. Owes a fiduciary duty to the buyer

Duty to Disclose - Majority

A seller is obligated to disclose any defects they know about that:

1. Materially affect the value of the property; AND

2. are not known or readily discoverable by a buyer (readily discoverable is determined by an objective reasonable personable standard)

**use this on exam, but mention common law

Strawn v. Canuso

Facts: 150 families bought residences near a hazardous waste dump, didn’t find out until later. Brought suit for failure to disclose.

Holding: building developer is liable for nondisclosure of off site physical conditions known to them and unknown and not readily observable by the buyer if the conditions would be sufficient to materially affect the habitability, use, or enjoyment of the property.

Implied Warranty of Quality

Developer of newly-constructed residential property implied warrants the property as fit for its intended use.

NY Standard / Stambovsky Rule

Duty to disclose if

1. a condition has been created by the seller and materially impairs the value of the contract AND

• is peculiarly within the knowledge of the seller; OR

• are unlikely to be discovered by a prudent purchaser exercising due care

Facts: Stambovsky entered contract to purchase home. Unbeknownst to Stambovsky, the house was held out as haunted and in Reader’s Digest. Ackley did not disclose that fact. Stambovsky brought action rescind contract.

Holding: Court held it was haunted as a matter of law because owner purported it to be haunted. Ackley could have right to disclose if the fact that it was haunted would impair the value of the home. Remanded it.

Closing

At a typical closing:

1. the buyer pays the purchase price to the seller, and executes a mortgage and promissory note for the lender;

2. the lender advances the loan funds; and

3. the seller transfers title to the buyer by delivering a deed.

Title Assurance

• Title covenant

• Title opinion

• Title insurance