Real Property

1
Real Property

• Chapter 51

2
Conveyance of Real Property

• Two Step Process
• First, the contract for sale
• At closing, conveyance of the Deed

3
Contract for Sale

• Contract is governed by contact rules
• 1. Statute of Frauds Any contract of sale of an
  interest in property must be ________ _________
  and __________ by the one who is sued.
• Only some kind of signed writing is required
• A ________ of the property
• The ________ of the parties
• The ____________
• One exception Doctrine of part performance
• O orally contracted to sell the farm to A. After
  this oral contract of sale, A took possession and
  immediately started building a barn. Then, before
  closing, O died. Os estate refused to go to
  closing, citing the Statute of Frauds. Who wins,
  when A sues for specific performance of the oral
  contract? _____________

4
Death of Party Before Closing

• Doctrine of Equitable Conversion preserves rights
  as set in the contract, and death of party before
  closing does not affect them.
• If seller dies before closing, buyer closes with
  _________ __________ sellers interest is
  _________________________________.
• A contracted to sell Blackacre to B. A then died
  before closing. In her will A provided that all
  of there real property would go to X and all of
  her personal property would go to Y. If B goes to
  closing with As estate, who would ultimately get
  the money, X or Y? ___ because
  _________________________.
• If Buyer dies before closing, seller closes with
  ___________ buyers interest is _______ _____.
• A contracted to sell Blackacre to B. B then died
  before closing. In his will B provided that all
  of his real property would go to J and all of his
  personal property would go to K. When Bs estate
  closes with A, who will ultimately get title to
  Blackacre, J or K? ____ because
  ___________________

5
Risk of Loss of Property

• If property is damaged or destroyed before
  closing, ___________ loses Once contract is
  signed, title is in the buyer for all practical
  purposes and if the property is destroyed, risk
  of loss is on the buyer, even if the seller
  remains in __________- and control.
• Note This rule applies only if seller is not at
  fault.

6
Marketable Title

• Every land sale contract has an implied warranty
  that at closing, seller will give buyer a
  marketable title not necessarily perfect, just
  one that a reasonable person would accept (minor
  defects, Okay)
• Building encroaches a half inch over the
  neighbors line. Does this half inch encroachment
  make title unmarketable? ____ because it is
  _______ and does not present a significant threat
  of litigation.

7
Marketable Title

• Seller must give Buyer three things
• _____- of ___________ (abstract or copy of all
  deeds recorded in chain of title)
• Title free of _________________ (no easements, no
  liens, restrictive covenants, no mortgages,
  options, etc., that are not mentioned in the
  contract)
• Harry and Leona leased their estate to Donald and
  Maria for five years and in the lease tenants
  were given an option to purchase the estate at
  the end of the lease. Two years into the lease
  Harry and Leona contracted to sell the property
  to Rudy and Donna. The contract does not mention
  the option to purchase given to Donald and Marla.
  Has seller breached the warranty of marketable
  title? _________, because the option is an
  _____________ which makes it _______________.
• Zoning restrictions are not an encumbrance
• Not unmarketable title if encumbrance (i.e.,
  easement, road, sewer, etc.) is open and obvious.

8
Remedies of Buyer if Sellers Title is
Unmarketable

• Buyer must notify Seller and give Seller
  reasonable time to ________ the defect, even if
  that postpones closing.
• If problem not corrected, Buyer has 3 remedies
• ________ - buyer walks
• _______________ - Measure is difference between
  contract price and value of the land on the day
  of breach
• If Buyer breaches, Buyers deposit can be
  forfeited as liquidated damages as long as it is
  not more than _____ of sales price.
• _______________ - buyer takes what seller can
  give and price gets lowered to cover defect in
  title.

9
Seller has Implied Warranty of Habitability

• Common Law - Caveat Emptor, buyer has to inspect
  for defects
• Two exceptions
• Seller must _____ serious defects that the seller
  knows of and are not ________ to the buyer.
  Seller can not actively _______ defects.
• Seller paints roofing tiles to hide holes and
  make roof look new. OK? ____________
• Seller covers termite damage with paint and
  wallpaper. OK? __________
• Implied warranty of __________ for new homes sold
  by a Builder-Seller.

10
Deed

• Execution Deed is subject to the S/F, I.e.,
  ________
• Description of the land must be enough to
• ________ the property. If vague, nothing gets
  transferred.
• Delivery does not always mean ______ transfer.
  Legal test is solely a question of ______ to pass
  title. Delivery is valid if grantor makes
  delivery to a third party in _____ with
  instructions to deliver to grantee when condition
  is satisfied. Once deed goes to _______ agent,
  grantor cannot get deed back

11
Types of Deeds

• If grantor makes no promises regarding title,
  the grantee gets a ____________ grantee gets
  whatever grantor owns and grantor promises
  nothing.
• ______________ - Grantor make promises regarding
  title, called covenants for title
• Title/seisen Seller warrants he has title and
  the right to convey
• Covenant against encumbrances no easements,
  etc.
• Covenant against quiet enjoyment Seller
  promises Buyer no one will show up later and
  claim title.
• ____________ - Grantor merely warrants the title
  so far as his acts/omissions are concerned. He
  does not warrant the title to be free of defects
  caused by the acts/omissions of others.

12
Title Insurance

• Insurance Policy, gives protection to Buyer if
  title is subject to an encumbrance or defect.
• A standard title insurance policy insures the
  holder has good record title at the policys
  date. If the title turns out defective, the title
  insurer will reimburse the insured for its loss.
  

13
Recording of Interests

• At recording office, clerk files copy of deed in
  book of deeds.
• Clerk indexes deed in two indexes In the grantor
  index, the clerk lists transaction alphabetically
  by grantor, notes the grantee, gives a
  description of the property, and cites the volume
  and page of the book where the copy can be found.
• Same info put in grantee index, filed
  alphabetically by grantee.

14
Recording ActsEarlier Purchasers vs. Subsequent
Purchasers

• _________ acts protects subsequent Bona Fide
  Purchasers. Recording is Irrelevant!
• ______ - ________ acts protect BFPs who take
  without __________ and are first to _________.
• Teddy sold the Palm Beach mansion to will on
  January 1st for 800,000 Will did not record.
  Then on March 1st Teddy sold the same house to
  Patrick for 600,000. Patrick knew nothing of the
  earlier sale to Willy Patrick did not record.
  Then on April 1st Willy recorded and on May 1st
  Patrick recorded.
• If notice statute,who wins?____________________
• If race-notice? __________________________
• _______ race - _______ is irrelevant, whoever
  records first wins. The subsequent purchaser can
  know about the earlier sale and still win.

15
Bona Fide Purchaser

• One who purports to take property as an heir,
  donee, or devisee cannot be a BFP and can never
  defeat the claim of someone who has a prior
  conveyance from O.
• BFPs those who give value and who take without
  notice of the earlier transaction.

16
Mortgages RESPA Regs

• A mortgage is a voluntary lien on real property
  arising from a contract it is a security
  interest in real property, typically conveyed by
  a written instrument to secure payment of a debt.
• Underlying debt evidenced by a promissory note,
  lender has alternative remedies if a default.
• Debtor mortgagor, has an affirmative duty not
  to commit waste, and to preserve the property at
  least to the amount of the debt pay taxes and
  assessments
• Creditor mortgagee right to obtain insurance
  to protect his interest.
• Formal requirements
• Writing
• Mortgage must be delivered to mortgagee.
• Proper recording gives public constructive
  notice of security interest, but it is optional

17
Foreclosure

• Right to foreclosure arises upon default.
• Mortgagee (or assignee) takes property away from
  mortgagor to pay debt.
• Must initiate a judicial proceeding to secure
  order of sale. The debt is then satisfied with
  the proceeds, debtor gets excess monies. If the
  sale proceeds are insufficient to cover the debt
  (plus costs and interests), mortgagee may usually
  obtain a judgment for deficiency. (Some
  jurisdictions do not allow deficiency judgments
  when property is over-mortgaged).
• First mortgages have priority and must be paid in
  full before the secondPMMs (mortgages taken out
  to buy the property) are given priority over
  other mortgages secured interests have priority
  over unsecured..

18
Prior to Foreclosure

• Mortgagor may exercise her equitable right of
  redemption prior to foreclosure sale, she may
  refinance with another lender and regain rights
  by paying off the full amount of the mortgage.
• Some states have a statutory right of
  redemption provides that mortgagor may
  repurchase the property AFTER the judicial
  foreclosure sale, for a certain period generally
  not exceeding 1 year.
• This would create an unmarketable title

19
Trust Deed

• A debtor transfers title to a disinterested third
  party (the trustee) to be held in trust as
  security for the performance of an obligation.
• The trustee is typically given the power to sell
  the property if the debtor (mortgagor) defaults.
• Trustee holds bare legal title, not a true
  ownership interest.
• Trust deed is treated as a lien (mortgage) on the
  real property.
• When the obligation is satisfied, the trustee
  reconveys legal title to the debtor.

20
Mechanics and Materialmans Liens

• Statutory liens against real property.
• Preliminary notice to the property owner of
  intent to file the lien is generally required,
  identifying the labor/materials furnished.
• The liens secure unpaid debts that arise from
  contracts for labor, materials or services to
  improve real property. These liens prevent
  transferring real property with a clear title.
• Lien must be recorded with public records within
  a specified statutory period after performing the
  work.
• Liens may be enforced by foreclosure and sale of
  property.

21
Eminent Domain

• State takes property by its power of
  condemnation.
• Phil and Marlo moved to New York City from
  Chicago. A few months after they moved, the State
  of New York decided to build a new freeway out to
  Long Island. The state may take by powers of
  eminent domain.
• Just compensation must be made to owners of the
  property, equal to fair market value of the
  property at the time of taking.

22
Restrictive Covenants

• May bind original parties, and future owners, if
  covenant runs with the land (touches and
  concerns the land), and successive owner had
  notice.
• O owned lots one and two and operated a gas
  station on lot one. O sold lot two to A with a
  covenant in the deed that neither the buyer nor
  his heirs would compete by operating a gas
  station on lot two. A later sold lot two to B
  with no such covenant in the deed. B knew that
  the covenant was in the deed from O to A but was
  delighted that it was not in his deed. However,
  the covenant not to compete runs with the land
  and is enforceable.
• Restrictive covenants often found in subdivisions
  (i,e., 100 lots, single family residence
  restriction. One buyer wants to put up gas
  station, any plaintiff in subdivision can seek
  injunction).
• Termination by changed circumstances

23
Zoning

• States, and local authorities) may enact statutes
  or ordinances to reasonably control the use of
  the land. Zoning power based on a states police
  powers.
• Nonconforming Use A use that exists at the time
  of passage of a zoning act that does not conform
  to the statute cannot be eliminated at once (gets
  grandfathered in, or may continue for a time).
• Special Use permit Must be obtained even though
  the zoning is proper for its intended use
  (hospitals, funeral homes, drive-in businesses)
• Variance A variance is a departure from the
  literal zoning restrictions, if there are special
  circumstances or it would be an undue hardship
  to deny.