Lecture 14: Ny And Multistate Real Property Part Ii

Front 1

A buyer takes title subject to existing rent control and zoning laws which limit the use of the land rather than affect the title. A change in these laws after contract, but before closing affects the buyer’s contract how?

Back 1

It will not excuse the buyer from the contract and the buyer bears the risk of any change.

Front 2

If the MBE seller's current use of the property violates existing zoning laws, then the existing zoning violation renders the MBE title unmarketable. How is this different in NY?

Back 2

In NY, existing zoning violations do not render title unmarketable unless litigation has begun or the contract expressly so provides.

Front 3

What does the implied covenant of marketable title impose?

Back 3

The implied covenant of marketable title imposes no obligation on the seller until the day of closing. (Don't let anyone declare an anticipatory breach based on marketable title!!!)

Front 4

What may be waived by the buyer and is in place for the buyers benefit?

Back 4

The requirement that the seller tender a marketable title is for the buyer's benefit, but B may waive it and accept an unmarketable title.

Front 5

What’s covered under the merger doctrine?

Back 5

Under the merger doctrine, the covenant of marketable title merges in the deed when the seller delivers the deed to the buyer at the closing.
Absent fraud or mutual mistake, the seller's title obligations under the contract are discharged. Thereafter, B's rights are based solely on the warranties if any contained in the deed. B's acceptance of the deed is prima facie evidence of S's compliance with the contract requirements as to title and a breach of contract claim cannot stand.
Merger does not apply to S's collateral contractual obligations that do not relate to possession, quality, or quantity of land. (e.g. going to paint, put a new roof on, etc.)

Front 6

What happens at the time of the closing?

Back 6

The closing is where the deed is executed and delivered by S and B tenders payment (e.g. by certified or bank checks). Failure to tender MT or the type of payment called for in the contracting constitutes a material breach.

Front 7

What may the parties need to specify in a real property contract?

Back 7

The parties to a real property contract need not specify a closing date because the court may infer reasonable time.

Front 8

If the closing date is fixed in the contract, it is only a tentative target date. Is failure to close on the tentative target date a breach of contract?

Back 8

Failure of either party to close on that date is not a breach of contract. Both parties are afforded a reasonable time even beyond the contract closing date to perform their respective obligations unless the contract is expressly made "time of the essence". A material breach arises if either party is not ready to tender when time is of the essence.

Front 9

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When one party requests an extension of the original closing date, the other party may unilaterally select a new closing date and make it time of the essence. The notice must include what 2 things?

Back 9

1. provide a reasonable time to close and
2. be clear and unequivocal so as to specifically warn the other party that its failure to close will render it "in default" and thus liable for damages.

Front 10

Is stating “time is of the essence” sufficient?

Back 10

Merely stating “time is of the essence” for the fixed closing date is insufficient. Notice must also be given that failure to close will render it in default.

Front 11

What much be done in order to hold a party in default?

Back 11

In order to hold a party in default, the party claiming that the other is in breach must be able to demonstrate to the court that it was RAW to comply with the contract terms.

Front 12

What is equitable conversion?

Back 12

When a real property contract is signed that equity would specifically enforce, equity immediately converts S's interest into personal property and considers the buyer as the title holder the moment the contract is executed. This affects the party's interest in 3 ways

Front 13

What are the 3 ways in which the parties are affected?

Back 13

1. if the MBE buyer or seller dies equitable conversions affects a bequest of "real property" passing in a will (All my realty to X and all my personal property to Y). In NY, if a testator enters a contract to sell realty, the contract does not revoke a prior disposition in T's will of that property. The property passes under the will to the named beneficiary subject to the executory contract. In class question 8.
2. If the MBE seller's judgment creditor files a judgment in the county where the seller owns realty, after the seller has signed the contract of sale, the lien does not attach to the seller's interest which equity not considers personal property. If the judgment is recorded against the buyer, then the lien attaches to the buyer's converted interest even though the buyer has not yet officially taken the deed. In NY, the judgment creditor simply steps into the shoes of the debtor.
3. Risk of loss. If the MBE real property is damaged during the executory contract period through no fault of either party, then absent a contrary statute or specific contract language, risk of loss is on the MBE buyer.

Front 14

There are several exceptions to the MBE equitable conversion risk of loss rule. List them. (4 of them)

Back 14

(a) the damage was the seller's fault
(b) the seller's title was defective and S could not have tendered marketable title at the closing
(c) the contract was subject to a condition that was not satisfied t hereby excusing the buyer from the contract
(d) in the 13 states that recognize the Uniform Vendor and Purchaser Risk Act (NY, but not NJ). Even though the equitable title passes to B when the contract is signed, by statute risk of loss remains with S, who is in the best position to have insured against loss or damage to the property. Under this act, risk of loss does not pass to B until 1. title passes at the closing or 2. B takes possession prior to the closing.
Under the Act, if prior to closing, NY property is materially destroyed through no fault of either party or a material part is taken by eminent domain, S may not enforce the real property contract and B may rescind it. B may enforce the contract with an abatement in the purchase price.
If only an immaterial part of the premises is damaged or taken, then the contract still is specifically enforceable by either party with an abatement in the purchase price.

Front 15

In reference to the property disclosure act, what does NY abide by?

Back 15

NY traditionally abides by caveat emptor.

Front 16

In NY and many states, the seller of an existing residential dwelling of 1 to 4 units shall deliver a disclosure statement answering 48 questions on the condition of the realty based on the seller's "actual knowledge". What happens when failure to do so occurs?

Back 16

Failure to do so affords the NY buyer an automatic $500 at the closing.

Front 17

What is the implied warranty of habitability?

Back 17

New residential construction carries an implied warranty of habitability from the builder. In most states, it does not extend beyond the first purchaser who was in privity with the builder, but NY extends warranty protection to successors in title during the warranty periods. These implied warranties survive delivery of the deed and impose on the builder a duty to construct the dwelling in a skillful manner free from material defects.

Front 18

Where are client’s funds for an attorney held?

Back 18

All client funds held by an attorney shall be held in a separate escrow account in a NY bank.

Front 19

How long must the attorney retain detailed escrow records?

Back 19

The attorney must retain detailed escrow records for 7 years.

Front 20

What happens if the deposit money paid by the purchaser is embezzled by the escrowee?

Back 20

If deposit money paid by the purchase is embezzled by the escrowee, the risk of loss of the deposit is on the party who owned the money at the time it was converted.

Front 21

NY requires that if a buyer's deposit is not a substantial amount or it is to be held for only a short period of time so as to generate less $150 in interest, then it shall be deposited by S's attorney into a NY IOLA account which every NY lawyer who holds client funds must open. Where does the interest earned go?

Back 21

The interest earned on such accounts is used to fund legal services for indigents.
Where the interest earned will be substantial, the funds should be placed in an interest bearing account for the benefit of B.

Front 22

What happens if a lawyer's IOLA check bounces for insufficient funds?

Back 22

The bank must notify the appellate division grievance committee.

Front 23

Who can write escrow checks and can they be made to cash?

Back 23

Escrow checks may not be made to "cash" and only an attorney admitted in NY may sign them.

Front 24

What happens if a lawyer’s fee is not paid?

Back 24

If a lawyer's fee is not paid, the lawyer has a retaining lien on the client's file and a charging lien on any amounts obtained by the lawyer's efforts. However, the lawyer may not assert a lien on client money held in escrow because the lawyer holds the funds in a fiduciary capacity on behalf of the client.

Front 25

When may a lawyer not represent a client whose interests are adverse to a former client?

Back 25

1. the new matter "substantially relates" to the prior representation of the old client or
2. the matters are totally unrelated, but the attorney possesses confidential information obtained in the former representation that could now be used to the disadvantage of the former client or to the advantage of the new client.

Front 26

When can one lawyer represent both B and S?

Back 26

Only in very limited circumstances where there is little or no actual adversity between the parties. Both clients must consent after full disclosure of the disadvantages and risks involved. If a dispute arises between B and S, the lawyer must withdraw from any further representation of either client.

Front 27

If B's lawyer refers B to a mortgage broker or title insurer, may B's attorney accept a referral fee?

Back 27

Yes, but only with B's informed consent and only if the fee is used to reduce B's legal fee.

Front 28

A lawyer may not advertise that she can "stop a foreclosure" without doing what?

Back 28

Including a disclaimer that prior results do not guarantee a similar outcome.

Front 29

A lawyer may conduct her law practice and real estate brokerage business from the same office, but what is the stipulation?

Back 29

She may not act as both on the same transaction.

Front 30

When may a NY lawyer may send a paralegal to conduct a closing?

Back 30

If the paralegal's work is only ministerial and the attorney remains available by phone.

Front 31

A lawyer may enter into a transaction for real or personal property with a client, but because the lawyer could profit at the client's expense there are 4 stipulations, what are they?

Back 31

1. the terms must be fair and reasonable
2. the terms must be fully disclosed to the client in writing in a manner that the client can reasonably understand
3. the client must be advised to seek the advice of independent counsel and
4. the client must consent in a signed writing to the fully disclosed terms and to the lawyer's inherent conflict of interest in the transaction.

Front 32

If an attorney engages in ethical misconduct are they entitled to a fee?

Back 32

No, an attorney engaged in ethical misconduct is not entitled to any fee.

Front 33

What is real property deeds?

Back 33

A deed is a written instrument signed and delivered by a grantor to convey title to real property.

Front 34

What are the special terms that apply to the signature of the grantor on a deed?

Back 34

The signature of the grantor of any real property interest must be acknowledged by a notary in order to be accepted for recording by the county clerk. The acknowledgement is not necessary to transfer title and its absence does not affect the grantee's interest as to the grantor, but the inability to record may affect the grantee's interest as to a 3rd party.

Front 35

Does an instrument recorded give constructive notice?

Back 35

No, an instrument recorded without any acknowledgment or with a defective acknowledgment is not sufficient to give constructive notice of its content to subsequent purchasers.

Front 36

What happens in cases of a forged deed?

Back 36

A forged deed is void and conveys no title. There can be no bona fide purchaser (BFP) of a forged deed and any new interest created after the forgery is void. Title remains as it was before the forgery.

Front 37

What is considered valid delivery of a deed?

Back 37

For valid delivery of a deed, the grantor must intend to pass title immediately to the grantee and the grantor must give up dominion and control over the deed.
A deed not properly delivered is a nullity even if it is recorded by the grantee.

Front 38

What is a gift causa mortis of realty?

Back 38

There may be no gift causa mortis of realty. A deed delivered directly to the grantee, which is orally conditioned on the grantor's death is void because the deed is testamentary in intent and does not satisfy the statute of wills.

Front 39

What’s needed for a proper death escrow?

Back 39

For a proper death escrow, the donor must effectively relinquish dominion and control over the deed.

Front 40

What can happen that still won’t revest title in the grantior?

Back 40

Once a deed has been effectively delivered and accepted, its subsequent oral cancellation, deliberate destruction, or even its redelivery back to the grantor will not revest title in the grantor.

Front 41

What are the 4 Types of Deeds?

Back 41

1. Corrective Deed
2. The Quitclaim Deed (Release Deed)
3. A Special Warranty Deed (NY calls a Bargain and Sale Deed)
4. Full Warranty Deed

Front 42

Explain what a corrective deed is.

Back 42

The customary method of correcting an error in a delivered deed is for the grantor to execute and deliver to the grantee, a new corrective deed in the form originally intended.
The seller's refusal to issue a corrective deed breaches the covenant of further assurances if such a covenant was given in the first deed. The grantee's remedy is to sue for reformation.
If a grantee is omitted on a deed, or the extent of his interest is misstated, all grantees otherwise adversely affected by the new corrective deed must join in its execution.

Front 43

Explain what a Quitclaim Deed (Release Deed) is.

Back 43

A quitclaim deed is the simplest of all deeds. The grantor covenants only to convey whatever interest he may have. He simply states that he is quitting any claim he has to the land. These are often used by an adverse possessor to tack his years together to satisfy the statutory time requirement.
If the contract calls only for a quitclaim deed, S’s title still must be marketable. However, if the buyer accepts the deed, then under the merger doctrine, the grantee thereafter may only look to the deed for the remedy.
If a contract makes no mention as to the type of deed to be delivered at closing, then only a quit claim deed need be tendered.

Front 44

Explain what a Special Warranty Deed (NY calls a Bargain and Sale Deed) is.

Back 44

Covenants only that the grantor has not encumbered the marketability during his ownership period.

Front 45

Explain what a Full Warranty Deed is.

Back 45

A general covenant and warranty deed is the most complete deed because it includes the following covenants. SEC FEW.

Front 46

What des SEC FEW under a full warranty deed stand for?

Back 46

S - the covenant of season.
E - the covenant against encumbrances.
C - the covenant of the right to convey.
F - the covenant of further assurances.
E - the covenant of quiet enjoyment
W - the covenant of warranty

Front 47

What does S - the covenant of season from SEC FEW stand for?

Back 47

The covenant of season covenants that the grantor possesses the quality and quantity of the land purported to be conveyed. (e.g. He owns 2 acres, not 1. He holds a fee simple and not merely a life estate. He is not a co-tenant with an unnamed 3rd person.)

Front 48

What does E - the covenant against encumbrances from SEC FEW stand for?

Back 48

It promises that no 3rd person has any interest that would diminish the property's value except as expressly stated in the deed.

Front 49

What does C - the covenant of the right to convey from SEC FEW stand for?

Back 49

It covenants that the grantor has the right and authority to convey title.
The SEC covenants are present covenants and are breached and the s/l begins to run if at all when the deed is delivered. The SEC covenants are made only to the grantor's immediate grantee and are not intended to run with the land to future grantees.

Front 50

What does F - the covenant of further assurances from SEC FEW stand for?

Back 50

It covenants that the grantor will execute any documents needed to clear up title for any subsequent grantees.

Front 51

What does E - the covenant of quiet enjoyment from SEC FEW stand for?

Back 51

It promises that the grantee's possession will not be disturbed and if it is, the grantor will pay damages for the disturbance. This covenant is breached only when any future grantee is actually ejected from the property.

Front 52

What does W - the covenant of warranty from SEC FEW stand for?

Back 52

It covenants that the grantor forever warrants and will defend from legal attack, the title as it is described in the deed.
The FEW grantee may recover attorney's fees expended in a 3rd party suit, but only if she loses title or pays to remove the title flaw. If she wins, she may not recover from the grantor because the FEW covenant of quiet enjoyment was never actually breached.
Under the doctrine of horizontal privity, the FEW real covenants extend to all subsequent grantees (e.g. They run with the land whenever it is reconveyed.), and the new owners can sue for breach of an FEW warranty. The s/l begins to run only when the grantee’s right is first interfered with.

Front 53

What is the liability of breach for SEC FEW limited to?

Back 53

Liability for breach of an SEC FEW covenant is limited to actual out of pocket restitution, which may not exceed the purchase price received by the grantor of the warranty deed.

Front 54

What is the measure of damages?

Back 54

The difference in the land’s value as in the deed and the reduced value in the land as encumbered.

Front 55

Are subsequent improvements made on the realty as well as the appreciation on the land’s value recoverable?

Back 55

No, they are not recoverable as reliance damages against the grantor of the warranty deed.

Front 56

What is estoppel by deed?

Back 56

Where a grantor who does not have full title signs a deed purporting to convey more than she owns, she is liable for breach of the covenants contained in the deed. If she later acquires part or all of that title, she is estopped from asserting any subsequent rights to the title. This is also referred to as the “after acquired title theory”. It can be applied to mortgages, leases, realty contracts, and transfers of other property interest.

Front 57

What does estoppel by deed not apply?

Back 57

Estoppel by deed does not apply if the grantor's first deed was simply a quit claim deed.

Front 58

What are the recording statutes?

Back 58

Once an instrument effecting an interest in real property has been signed, the signatures have been acknowledged by a notary and the document has been delivered, the grantee should immediately record it in the county clerk's recording office to put the world on constructive notice of that interest. This protects the grantee where the grantor subsequently attempts to convey away or encumber the same property. Recording the instrument provides constructive notice and warns subsequent persons of the grantees existing interest in the realty. Once the interest is recorded, any subsequently created interest in the realty takes subject to the earlier recorded interest.

Front 59

Is recording the deed required?

Back 59

Recording the deed is not required for the deed to be effective between the two parties, but if a grantee fails to record that interest, the grantee may lose it if the subsequent purchaser qualifies as a BFP.

Front 60

In order to qualify as a BFP and prevail over a prior unrecorded interest, the subsequent purchaser must do what 3 things?

Back 60

1. act in good faith in acquiring her interest
2. pay some new consideration or part with some value or right
3. The subsequent purchaser must receive its interest in the realty without CIA notice.

Front 61

Can you explain further what number 2 - pay some new consideration or part with some value or right means.

Back 61

The Recording Act may be relied upon only by subsequent purchasers and mortgagees. Subsequent judgment creditors who record their judgments as a lien and paid no new consideration for their interest are not protected.
A judgment once recorded, will however prevail over a subsequently created interest in the realty because the new grantee will be on constructive notice of the prior recorded judgment and thus not qualify as a BFP.
If a judgment is recorded in a county where the debtor owns no real property, if the debtor subsequently acquires title in that county, then the recorded judgment automatically attaches to it. If however, the debtor financed the purchase with a purchase money mortgage, then the PMM prevails over the prior recorded judgment even though the mortgagee took the mortgage with constructive notice of the prior judgment, but only to the extent the mortgage proceeds were used to purchase the property.
A municipal foreclosure for nonpayment or realty taxes extinguishes ALL prior recorded interests provided MOP notice of the foreclosure was given to each recorded interest.
A subsequent conveyance received as a gift through intestacy or under a will is not for value and thus that interest will not cut off a prior unrecorded interest.
When a buyer finances the purchase price with both the seller's PMM and a bank's PMM, the seller's prevails over the bank's.

Front 62

What does CIA stand for?

Back 62

C - constructive notice
I - Inquiry notice
A - Actual Notice to the subsequent purchaser either orally or in a document at the closing.

Front 63

Explain C – constrictive notice from CIA further.

Back 63

It refers to the notice provided by all prior recorded documents in the property's chain of title. Purchasers have a duty to search the chain of title for any prior created interest and are deemed to have constructive notice of any previously recorded in the chain of title (e.g. a prior lis pendens, a judgment, longterm lease, easement, a deed, or a mortgage).

Front 64

Explain I - Inquiry notice from CIA further.

Back 64

It arises where facts exist that would excite the suspicion of a reasonably prudent person (RPP) and cause the RPP to further investigate and inquire as to the 3rd person's possible interest in the realty. Failure to make reasonable inquiry is negligence and will defeat BFP status and the law charges that person with knowledge of a prior unrecorded interest that a reasonable inquiry would have revealed. For example, if there is a 3rd person in possession of the land and inquiry is required to determine the basis of her right to possess.

Front 65

When may transfers occur when a subsequent BFP has a superior interest over a prior unrecorded interest?

Back 65

A subsequent BFP that has a superior interest over a prior unrecorded interest may transfer that BFP status to future grantees, who otherwise would not qualify as BFPs. Under the "shelter doctrine", these future grantees prevail over the prior unrecorded interest even if they took without value, or with notice of the prior unrecorded interest even though the future grantee did not pay value or took with notice of the unrecorded interest.

Front 66

What are the 3 Types of Recording Statutes?

Back 66

1. The Notice Statute
The notice statute only requires that a subsequent purchase be a BFP when acquiring her interest, but in a Race Notice jurisdiction, he must also be the first to record. The notice statute gives priority to the subsequent BFP over a prior unrecorded instrument provided that at the time of taking the 2nd instrument, the BFP had no CIA notice of the earlier interest. Thus, even if the first grantee is actually the first to record, but she records after the BFP took his interest, then the subsequent BFP nevertheless prevails under the Notice Statute.
2. The Race Notice Statute (NY and about half of the states)
Here, priority is given to a subsequent BFP, who at the time she takes the instrument has no CIA notice of the prior unrecorded interest and is the first to record.
3. Race Statute
Neither CIA notice of a prior unrecorded interest nor good faith are relevant because priority is based solely on who was first to record. A subsequent purchaser for value who was the first to record prevails even though there was inquiry or actual notice of the earlier unrecorded interest.

Front 67

What does “chain of title” describe?

Back 67

“Chain of title” describes the history of all recorded instruments that can be found by simply searching the chain of title in the county clerk’s office.

Front 68

What is required to search the property’s chain of title?

Back 68

A BFP is required to search the property's chain of title. Under the "collateral document rule", a purchaser is charged with constructive notice of instruments recorded in any adjacent property's chain of title where contiguous properties were formally held by a common owner. However, in about half the states including NY, there is no duty to search the chain of title to any adjoining lands formally owned by a common owner.

Front 69

What are the 2 Basic Methods for Indexing?

Back 69

1. Grantor Grantee Index
The GGI uses names of the parties as the indexing method. The recording clerk alphabetically files documents for each type of land transaction according to its nature (e.g. deeds, mortgages, or judgments).
If a document misspells the grantor’s name, then subsequent grantees are not on constructive notice of that earlier recorded deed or mortgage.
2. Track or Parcel Index
The track or parcel index uses each parcel as the indexing method to trace in sequence of time all of the transactions on that parcel in one index.