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77 Cards in this Set
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A NY court cannot set aside a foreclosure sale on the basis that the price paid was inadequate. Only when? |
Only if the Court finds the price "shocks the conscience of the court", will it order a new sale. For example, $5,000 for an $80,000 shocked the conscience of the court.
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M bank foreclosed on a $150,000 mortgage. The property was sold at the foreclosure sale for $100,000. Can M seek a deficiency judgment for $50,000 in a subsequent law action? |
In most jurisdictions (NY) M can recover only that amount of the mortgage debt that exceeded the "fair market value" of the property. (e.g. the property is "under water"). The Court disregards the price paid at the foreclosure sale. The mortgagee (bank) has the burden of proving FMV.
To determine if a deficiency exists, the court reduces the amount of the mortgage debt by the FMV of the realty, which in a majority of foreclosures (67%) cancels the debt owed to the lender. |
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If the value of the property has decreased ($125,000), then a $25,000 deficiency judgment can be obtained by M, but in NY, what following procedure must be followed? |
The bank must bring an order to show cause signed by the judge AND served on the borrower within 90 days from when the NY foreclosure deed was delivered to the foreclosure purchaser. NYAA pg. 674 and 675. If the 90 day s/l expires, then the proceeds from the foreclosure sale are deemed by law to fully satisfy the mortgage debt. If the property is sold at foreclosure for more than the mortgage debt and the expenses of the foreclosure, then the "surplus" is used to pay off any subordinate mortgages or judgments that were filed on the realty after the first mortgage was recorded and any money leftover is paid to the mortgagor (borrower). The purchaser at the foreclosure sale gets the exact same title that existed on the date the mortgage was first recorded. The foreclosure of that mortgage wipes out any subsequent interests that were filed in the chain of title such as subsequent easements, commercial leases, judgments against the owner, or any other encumbrances filed against the property provided those subsequent interests were properly named in the foreclosure action as defendants and were served (MOP) with foreclosure process. They are necessary parties to the foreclosure action. Otherwise, the foreclosure judgment does not affect their interest. |
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Subsequent interests in the chain of title will survive a foreclosure sale if what 2 things exist? |
1. the interest was recorded prior to the foreclosed mortgage being recorded or 2. it arose after the mortgage was recorded, but no MOP notice was given to that subsequent interest. Either, it was not named as a defendant or it was not properly served with process. |
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Who can be evicted in NY? |
In NY and federal law, bona fide residential tenants other than the mortgagor, whose rent is not substantially less than FMV can’t be evicted after the foreclosure sale as long as the tenant is paying rent. A NY foreclosure buyer has always taken title subject to NYC’s rent stabilized and rent controlled laws.
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In attempting to circumvent the mortgagor's equity of redemption as well as to avoid the huge waste of time and expense of a foreclosure sale, lenders or sellers of real property who ordinarily would take back a mortgage have created "mortgage substitutes" in an attempt to CLOG equity of redemption in the event of a default. What does the clogging doctrine entail? |
The clogging doctrine renders unenforceable any document intended to prevent the borrower's equity of redemption. Thus, a deed given by the borrower or a contract of sale executed to secure a loan will be treated by equity as a mortgage, which first must be foreclosed.
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What is an equitable mortgage? |
An equitable mortgage is a transaction that has the intent, but not the form of a mortgage, but which equity will enforce as if it was a mortgage, which first must be foreclosed.
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When realty is leased to a tenant, real property law treats the lease as the equivalent of what? |
Of a sale for the term of the lease. At c/l, if the premises were destroyed, the tenant was obligated to pay rent for the balance of the lease term. Today, by statute, this hard remedy is altered by allowing a residential or commercial tenant to cancel the lease.
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Which NY lease is not recorded in the property’s chain of title? |
A NY lease longer than 3 years that is not recorded in the property’s chain of title is void against a subsequent BFP who was the first to record.
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What about a lease with a period longer than 1 year? |
A lease period for longer than 1 year must be in writing and signed by the party to be charged with its breach or signed by her agent whose authority to sign must be in a signed writing (usually a power of attorney). If it is not, the statute of frauds will prevent enforcement of the lease.
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If the lease is required to be in a signed writing, the agent's authority to sign the lease must also be in a signed writing. But what is different if the lease is oral? |
However, if the enforceable lease can be oral (1 year or less), then the agent's authority from the principal can be oral.
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There are 3 types of tenancy periods, explain them. |
1. A tenancy for years in which the lease fixes the beginning and ending dates of the lease. "This lease starts on March 18, 2010 and expires on March 17, 2017." No termination notice is necessary to terminate such a lease because the lease itself fixes the termination date. At common law, but no longer followed in NY, a tenant holding over even for one day after the expiration date gave the landlord the option to renew the lease for a similar term even though it was contrary to the tenant's intent. This differs from a periodic tenancy in which the lease is automatically renewed unless notice of termination is given. 2. A periodic tenancy, which is a lease for a repeated similar period of one year or less (month to month), which period is automatically renewed unless 1 party gives notice of termination. The minimum time for a termination notice is the time period for which the rent is paid (i.e. 1 month) unless the rent is paid yearly where only 6 months notice is required. In NY, a notice of termination is not 30 days, but it must be given at least 30 days prior to the expiration of the lease term (i.e. NY measures back from the end of the lease period to ensure at least 30 days was given from that date. If not, the lease doesn’t expire until the end of the next month measuring period. 3. A tenancy at will, which has no fixed duration and is terminable by either party or by death of either party or where it automatically terminates if 1 party attempts to assign such a lease. At common law, no minimum termination notice was required, but by statute NY requires 30 days notice. |
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What is an exception of the tenancy rule? |
In a tenancy of indefinite duration such as a life estate, a tenancy at will, or a periodic tenancy, which is freely terminable by the landlord, the law gives the tenant "the right of emblements" when the tenancy is terminated to go back onto the land and to harvest the annual crops planted by the tenant. This is an exception to the general rule that perennial crops that continue to produce from year to year pass with the realty at the end of the tenancy.
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Do tenants that breach the lease or terminate have the right of emblements? |
A tenant for years that has a fixed ending date or a holdover tenant as sufferance or a tenant who breached the lease or who terminated the lease has no right of emblements.
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What is a tenancy at sufferance? |
A tenancy at sufferance is really not a tenancy at all. It refers to that period of time after a lease has expired where the holdover tenant continues to wrongfully remain in possession. The only difference between a trespasser and a tenant at sufferance, is that the tenant's original entry was lawful.
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What happens if a landlord accepts rent from a holdover tenant at sufferance? |
If a landlord accepts rent from a holdover tenant at sufferance, it creates a periodic tenancy.
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What happens if a landlord refuses to accept the holdover tenant’s rent? |
If the landlord refuses to accept the holdover tenant's rent, then that tenant at sufferance is liable for the fair market rental value of the property for the tenant's time in possession after the lease has expired. This amount may be far greater than the rent being paid by the tenant under the expired lease.
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What is a holdover tenant liable for? |
A holdover tenant is also liable for the L’s consequential damages for its lost rental income from a new tenant as a result of the tenant’s wrongful holding over. The holdover tenant may also be liable to the L’s new tenant for tortious interference with a contract.
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The lease of an entire premises is viewed as a sale of the realty to the tenant for the term fixed in the lease. Thus, an out of possession landlord is not liable in tort for injuries on the premises except for POLICE. (disjunctive) What does POLICE stand for? |
P - Where the lease is for a public purpose, then the landlord must inspect and repair any dangerous conditions before surrendering the property to the tenant. O - For injuries that arise outside the premises proximately caused by a dangerous defect on the leasehold of which the landlord was aware or should have been aware at the time the leasehold was surrendered to the tenant. (i.e. a hanging gutter falling onto the sidewalk or a sign that was defectively attached to the building, which fell onto the street). L - Injuries caused by latent defects of which the landlord knew or should've known existed and where the tenant has not had a reasonable time to discover and repair it. I - Where the tenant's intended use created an unreasonable risk of harm to others and the landlord (L) was aware of T's intended dangerous use when the property was turned over to the tenant. C - Where L has multiple leases in the same building, then L is liable for injuries arising on common passageways such as the lobby, the stairs, the elevator, or the hallways. E - Where L expressly covenants in the lease to make repairs, but does not and the disrepair proximately causes personal injury. In order to hold L liable, L must've had actual notice of the defect (T told him) or L had constructive notice where the dangerous condition was visible and apparent and had existed for a long enough time period that a reasonable landlord should've known of its existence. |
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What are implied covenants in a lease? |
Even though the lease is silent, implied covenants are written in invisible ink on the lease, which a landlord HEARS.
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What is the common law of implied covenants? |
There is a common law implied covenant that the tenant will keep the premises in good repair to prevent waste from the elements (wind, water, or snow). This implied covenant does not imply that T will make every repair, but only those repairs necessary to prevent personal injury and to prevent permissive waste (i.e. to prevent the elements from invading the interior and to keep the utilities functional).
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In NY, a commercial tenant's express covenant to repair does not impliedly require T to make structural repairs or repairs of an unusual character. Thus, a landlord must pay for removal of contaminated soil, asbestos removal, a leaking underground oil tank, or the cost of removing contamination from the leasehold. What does HSE stand for? |
H - In a NY RESIDENTIAL lease, including co-ops, but not condominiums (because in condominiums there is no landlord/tenant relationship), there is an implied in law covenant of habitability that the landlord will maintain the premises in a habitable condition and L will repair all conditions that are dangerous or that threaten the safety or health of the tenants (i.e. rodents, bedbugs, mold, secondhand smoke, insufficient heat, or dangerous electrical wiring, or excessive smells, bright lights, or noise). Any attempt by the lease to exclude this covenant of habitability is against public policy, but L has a defense to this charge if L was prevented from maintaining the premises by a labor dispute. L's breach of the habitability requirement is a defense to T in an eviction proceeding for T's nonpayment of rent. Expert testimony is not required to prove the uninhabitable condition and the court will readjust the prior rent based on its uninhabitable condition. A residential landlord's breach of habitability cannot be successful asserted if it was the tenant who caused the uninhabitable condition. L is liable if caused by nature or the acts of a third person. In jurisdictions that do not have the implied covenant of habitability or in NY commercial leases where the landlord expressly agrees to make repairs, but neglects to do so, then the tenant's remedy is to sue for breach of contract or to make the repair and then sue the landlord for the cost. The tenant cannot offset the cost of these repairs from the monthly rent because the covenant to repair and the covenant to pay rent are independent covenants. S - Although not expressly stated in the lease, landlords have an implied, but limited duty to provide security to prevent foreseeable crimes by doing something as simple as installing a peep hole in the front door, locks on the outside door, or lighting a dark entryway to protect tenants against foreseeable criminal acts. To be foreseeable, prior similar crimes must've occurred in that building. Thus, in a neighborhood with drug activity, the plaintiff’s sexual assault in an elevator was not “foreseeable”. Thus, L was not liable. The court said it was “conceivable”, which was not the equivalent to foreseeability. E - Every landlord impliedly covenants quiet enjoyment. (e.g. That neither the landlord nor someone with a superior title will interfere with the tenant's exclusive right of possession during the leasehold.). However, for this implied covenant to be breached, the tenant must be actually or contrustedly evicted from the leasehold. |
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What are the 2 things that can cause eviction?
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1. Actual eviction occurs when T is totally or partially physically deprived of possession by the landlord's actions. (i.e. L changed the locks, L partitioned off part of the leasehold, L took away T's parking spot, or took away the use of the freight elevator). Where there is a total or partial actual eviction, then T's obligation to pay any rent immediately ceases because the court will not apportion the rent of a wrongdoer unless the landlord’s taking was de minimus. If a NY tenant or co-tenant (t/c, j/t, or t/e) is dispossessed or locked out by the other who does not bother to go to court, then the dispossessed person can seek to recover treble damages. A NY COMMERCIAL lease can expressly give the landlord a self-help remedy to evict a tenant provided it is done without a breach of the peace. Under the "English rule", a landlord impliedly promises to give a new tenant actual exclusive possession on the first day of the lease. Under the "American rule", the landlord only agrees to turn over the "right of possession", which puts the burden on the new tenant to evict a holdover tenant. NY follows the English rule, but MBE follows the American rule. 2. A constructive eviction where the lease benefits are substantially impaired by the landlord's acts rendering the premises unbearable (i.e. no heat in the winter, no air conditioning in the summer in a building with sealed windows, no running water, no electricity, or no running elevator in a high rise building). A NY residential tenant does not have to rely on constructive eviction and thus can stay in the premises, refuse to pay rent, and when sued by L for eviction, the residential tenant can assert breach of the implied warranty of habitability. |
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The elements for a constructive eviction are what 2 things?
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1. L was given notice of the condition and a reasonable time to correct it and 2. the tenant must vacate the leasehold because a tenant in possession cannot assert constructive eviction and T remains fully liable for the rent as long as T stays in possession. |
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Why would a landlord hold a security deposit? |
A landlord holds a tenant's security deposit as a trustee and must deposit that money into an escrow account. If L commingles that deposit with her personal account, she commits the tort of conversion entitling T to the immediate return of the deposit and L cannot use the commingled funds to offset unpaid rent or repairs to the apartment. |
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A NY tenant’s security deposit is considered the personal liability and indebtedness of the original landlord except in residential buildings with 6 or more apartments where L’s duty to repay the security deposit “runs with the land” and becomes the obligation of the new landlord if building was sold. What is A - Assigning and subletting the lease? |
Absent contrary language in the lease, it is implied (HEARS) that the lease is freely assignable. Thus, a lease is divisible by a will, descendable by intestacy, alienable by sublet or assignment, and it can even be mortgaged unless expressly prohibited in the lease. A lease may prohibit subletting or assigning the lease "without the landlord's consent", which language allows the landlord to arbitrarily withhold consent. A prohibition against just one, but not both does not impliedly prohibit the other. (subletting and assigning). When a lease prohibits only assigning the lease, T can sublet the lease. Likewise, where subleasing is prohibited, but not assigning, the T is free to assign the lease. If a landlord consent's to a tenant's ASSIGNMENT of the lease without expressly restricting any further future assignments of the lease, then under the rule in Dumper's case, then a subsequent reassignment of that lease may be made without the landlord's consent. This rule does not apply to a landlord's consent to a sublease. When a lease is assigned or sublet, then the conveyance in the lease that "run with the land" are imposed on the new tenant while she is in possession of the leasehold. |
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Under A – assigning and subletting the lease, a lease assignment is what?
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A lease ASSIGNMENT is where the tenant conveys the entire time remaining in the lease and retains no reversionary interest of any sort. |
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Under A – assigning and subletting the lease, what is a sublease?
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A sublease is where the tenant conveys only part of the remaining lease term and the tenant retains some reversionary interest even if it is only for the last month, week, or day. |
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Under A – assigning and subletting the lease, what is a waiver of the no assignment?
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Where a landlord knowingly accepts rent from a new subtenant or assignee, then it is deemed a waiver of the no assignment clause and it implies approval of the assignment or the sublease. See waiver lecture 7 following conditions and just before TPBs. A “waiver” is a voluntary abandonment or relinquishment of a known contractual right. (e.g. accepting late payments of rent, accepting rent from an assignee even though L didn’t consent to assignment, or if L knew T violated the no pet provision, but still accepted rent from T.) |
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Under A – assigning and subletting the lease, what can occur in which further liability is relieved?
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If a NY landlord of a residential building having 4 or more apartments arbitrarily refuses to consent to a residential assignment, this relieves the tenant from further liability and the tenant can terminate the lease. If such a landlord unreasonably refuses to consent to a residential sublease, then the tenant may go ahead and sublet without the landlord's consent and this is not considered a breach of the lease. |
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Where does privity come into play under A – assigning and subletting the lease?
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When a landlord and tenant enter a lease, there is direct privity of contract and there is also privity of estate (passing the keys to the premises). Where there is an assignment by the tenant, then privity of estate between the landlord and the original tenant is extinguished, but the original tenant remains liable for any breaches of the lease under privity of contract as a surety for the rent payments for the balance of the term. The assignee of the lease is not liable to the original landlord under privity of contract because they have never directly contracted. However, the assignee is liable to the landlord under privity of estate, but only for breaches that occur while the assignee is in possession of the leasehold. If the assignee reassigns that lease and moves out, then he will no longer be liable to the original landlord for any subsequent breaches of the lease because there no longer exists privity of estate. When the original tenant subleases, there is neither privity of contract nor privity of estate between a subtenant and the original landlord. Thus, the original landlord cannot recover a money judgment against a subtenant for unpaid rent. There exists privity of estate between a tenant and subtenant (they pass the keys) and there is also privity of contract under either an express contract or an implied in fact contract that the subtenant would pay the rent to the original tenant for the period of time in the sublease. |
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Under A – assigning and subletting the lease, who can the original landlord sue if an assignee or subtenant expressly assumes the lease terms?
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If an assignee or subtenant expressly assumes the lease terms, then the original landlord can sue that assignee or subtenant as a 3rd party beneficiary to the assumption agreement. |
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How does tenant in possession come into play? |
If a lease gives T an option to renew the lease for a stated date, then in NY, but not in MBE, the tenant's late exercise of the option by a TENANT IN POSSESSION may be excused if that tenant has made substantial improvements with the intent to renew the lease and the delay in exercising the option was brief and the tenant's inadvertence was excusable and the landlord was not prejudiced by the late renewal, then the court can excuse the late exercise of that option.
Generally, L drafts the lease. Thus, any ambiguities are construed against L and decided in T’s favor. |
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A lease can expressly provide what? |
1. to limit the tenant's use of the premises to a stated purpose only. It is a material breach of the lease for T to use the leasehold other than for the stated purpose. If T unilaterally alters the use, it is considered a material breach of the lease. 1. to require the tenant to obtain insurance (e.g. fire, liability, or insurance from a terrorist attack). 2. to provide for rent acceleration if there is a material breach of the lease. This requires T to immediately pay 100% of all future lease payments remaining on the lease. Such a clause is neither unconscionable nor punitive in nature, especially in commercial leases where T is represented by an attorney. 3. Allowing a tenant a specified period of time from service on the tenant of a notice to cure a material breach. (i.e. A notice that T has illegally sublet the premises, violated a no pet provision, made alterations on the leasehold without L's consent, or T has created a nuisance like smells from a restaurant). If the cure period expires, this terminates the lease if the court subsequently finds T was in material breach and the Court is powerless to reinstate the lease because T failed to cure the violation during the cure period. T becomes a holdover tenant on the terminated lease. The tenant's remedy in NY is to commence a declaratory action in the Supreme Court that T is not in breach and ask the Court for a TRO to stay the cure period. This "Yellowstone stay" allows the tenant to preserve the cure period and to litigate the landlord's breach of contract claim without a lease forfeiture, but T's application for the TRO must be made before the cure period expires and the application must show the tenant's willingness and ability to cure the breach. On NYC residential leases, the tenant does not have to seek a Yellowstone Stay because NY law gives those tenants an automatic 10 days to cure the breach before the court can issue an eviction order after it finds a breach. In NY, a notice to cure or a notice to terminate the lease must be signed by the landlord and not by the landlord's agent or attorney unless (disjunctive) 1. the lease expressly gave the agent or the attorney authority to do so 2. the notice was accompanied by proof of the authority to sign (an attached affidavit signed by the landlord) or 3. the tenant's prior dealings with the agent or the attorney gave the tenant reason to know of the agent's authority to act for the landlord, but not if the person signing the notice was a complete stranger to the tenant. 4. To allow the “prevailing” landlord to recover reasonable attorney’s fees when a tenant breaches the lease. The L must totally prevail (90% held not prevailing). If NY L inserts such a clause in residential leases, there is implied in law, a reciprocal right to attorney’s fees if T prevails. This levels the playing field between residential landlords and tenants, providing an incentive to resolve disputes quickly. |
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When a tenant abandons the leasehold prior to its expiration lease term, the landlord has 3 options, what are they? |
1. (NY) Do nothing and sue the tenant for the unpaid rent due under the lease because a landlord has no duty to mitigate damages. The majority view (and NJ) is that the landlord has a duty to mitigate a RESIDENTIAL TENANT'S DAMAGES. 2. Accept the tenant's surrender and lease the premises for the landlord's benefit thereby releasing T from further rent liability. L will do this where rents have increased and L can make more money on a new lease. 3. Lease the premises for the tenant's benefit and then sue the tenant for any different in the rents, but only if the lease expressly gives L this authority. |
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What occurs when a written lease has longer than 1 year? And what’s the exception to the rule? |
When a written lease has longer than 1 year remaining, then in order to validly surrender the lease, there must exist a signed writing.
An exception to this rule is when there is a surrender by operation of law (SOL) arising from the landlord's acts, which are inconsistent with a continuation of the existing tenancy. |
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What are estates? |
Estates (interests) in land are either present possessory estates or are future estates and are categorized as either freehold estates or "non-freehold estates" (leases).
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There are 3 types of freehold present estates. LEFTS. Define LEFTS. |
LE - life estates FT - fee tails S - fee simple |
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Further explain LE – life states. |
A life estate is measured by 1 or more lives. There is no longer any limitation on the number of successive life estates, but the lives used cannot 1. violate the rule against perpetuities or 2. be so numerous as to make it unreasonably difficult for a court to determine when the future estate finally vests and becomes possessory. A life estate is more than a simple right to occupy the land. It is tantamount to ownership of the property for life with all of its burdens and benefits of ownership. The descriptive words indicating a life estate are to give someone "use and occupancy" of the land for life contrasted with just the right to occupy. |
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Under LE from LEFTS, a life tenant who is given "use and occupancy" for life is permitted to what 6 things? |
1. transfer the property (by sale or gift) 2. lease it to a tenant 3. grant an easement over the property 4. lose it to a judgment creditor 5. mortgage it or 6. lose it to an adverse possessor Any new interest created in the realty (1 to 6 above) during the life estate cannot diminish or defeat the future interest following the life estate. All of these interests (1 to 6 above) terminate by operation of law upon the death of the life tenant and the future estate takes the realty free from these interests. |
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Under LE from LEFTS, in NY what special circumstances may arise to cause objection of future estate? |
Under special circumstances (the life tenant has to go into a nursing home), the life tenant can even have the property sold over the objection of the future estate. She will then be paid the value of the life estate and the balance will paid to the person holding the future estate.
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Under LE from LEFTS, in NY what happens is the measuring life of the life estate cannot be found?
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In NY, if the measuring life of the life estate cannot be found and has been absent for a continuous period of 3 years, the surrogate’s court can determine her dead. Death can be determined earlier fi the life tenant was exposed to a known peril. |
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Under LE from LEFTS, what can a life tenant use the natural resources for?
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A life tenant may use the natural resources of the property for homesteading and farming, but cannot use the property for commercial profit unless the land previously was used commercially. Open mines and existing oil wells can be continued, but new ones cannot be opened during the life estate. The same rules apply to the removal of soil, gravel, or minerals. If this rule is violated, then the party having the future estate can sue the life tenant for the tort of waste to recover money damages and an injunction. |
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Under LE from LEFTS, what must the life tenant pay? |
The life tenant must pay 1. the current real property taxes, but not those taxes that exceed the property's fair market rental value or 2. interest only on an existing mortgage. Any principal owed on that mortgage must be paid by the future interest.
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Under LE from LEFTS, what happens when the life tenant dies?
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When the life tenant dies, her estate may remove fixtures that she attached to the realty and her estate can also harvest those crops that were planted by the life tenant under the law of emblements. |
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Under LE from LEFTS, what is the Doctrine of Worthier Title Involves a Life Estate? |
At futile law, the king received a tax whenever the real property owner died. To avoid this tax, the owner would make an inter vivos gift of a life estate to a 3rd person and then create a remainder to the "GRANTOR'S HEIRS". Under the doctrine of worthier title, the remainder interest to the grantor's heirs was extinguished an upon the grantor's death, the fee would revert back to the grantor's estate and then be taxed. In most jurisdictions, this doctrine has been statutorily abolished, but in NY it still remains a rule of construction whenever the creator of an inter vivos trust seeks to revoke the trust and whether permission is required from the trust's remainder interest. Distinguish a life estate from a fee simple interest. "To A, her heirs and assigns, but if A dies and is not survived by children, then the property is to pass to X and his heirs." This does not create a life estate, but creates a SAD vested fee simple interest subject to a condition subsequent. |
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Under LE from LEFTS, what is The Tort of Waste? |
This tort arises where ownership of land is 1. divided into a present estate and future estate (a life estate and a remainder interest) 2. shared simultaneously (concurrent estates, t/c, j/t and t/e) or 3. is mortgaged which allows the mortgagee (bank) to sue the mortgagor (borrower) for waste. The tort of waste is any act or omission that diminishes the land's value. Waste can be committed only by a person lawfully in possession of the land. If the person was not on the land lawfully, then the tort claim would be trespass, not waste. A waste action is commenced to protect the interest of another who has privity of estate in the same land. It can seek money damages for past waste as well as an injunction for future waste. Money damages can be sought by a concurrent tenant, a mortgagee (bank), or someone with a vested reversion or remainder in the fee simple, but money damages cannot be sought by 1. a contingent remainder interest 2. a possibility of reverter or 3. a right of entry because it is too uncertain whether these future interests will ever become present possessory estates. These uncertain future interests (1, 2, or 3 above) can only seek an injunction against a life estate or the person holding the conditional fee and only if they can prove a reasonable likelihood that their future interest will become a present possessory interest. The measure of damages for the tort of waste is the cost to repair it or the decrease in the property's value, whichever amount is less. The common law doctrine of "ameliorating waste" prohibited a tenant or life tenant from substantially altering or demolishing a structure even though it would be replaced with something more valuable. Today, by statute most jurisdictions allow the tenant or life tenant with a number of years remaining to tear down the old structure and replace it provided the alteration would increase the value of the future interest. NY allows the future interest to demand that a bond be posted to ensure the new structure is completed. |
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Further explain FT - fee tails from LEFTS. |
The fee tail kept the real estate in the grantee's family. It was a conveyance to the grantee of a fee interest and "to the heirs of his body". This restriction required that all future transfers of the property be restricted to the grantee's lineal descendants. It impliedly created only a life estate in the grantee and a contingent remainder in his descendants and a reversion to the grantor who created the fee estate if the grantee’s issues died out. The property reverted back to the grantor who established the fee tail. 40 states (NY) have abolished the fee tail and simply treat it as a fee simple to the grantee. The 10 states that have no abolished it provide that only the 1st grantee has a life estate, but upon his death, an unrestricted fee simple absolute passes to his heirs, thereby defeating the fee tail and the grantor's reversionary interest. |
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Further explain S - fee simple from LEFTS. |
A fee simple, which is the most frequently conveyed realty interest. At common law, to create a fee simple in real property, the conveyance had to contain the phrase, "and his heirs" or "and his heirs and assigns". If this phrase was omitted, the grantee received only a life estate. This requirement has been abolished by statute in 47 states. |
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Under the S in LEFTS, there are 3 types of fee simple estates. SAD. What does SAD stand for? |
S - a fee simple subject to a condition subsequent (BOP) A - a fee simple absolute D - a fee simple determinable. |
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Under the S in LEFTS and under the S in SAD please explain further what the S stands for. |
A deed containing a fee simple subject to a condition subsequent immediately conveys a fee interest to the grantee, but it restricts the use of the land or the duration of the land and it also gives the grantor and his heirs or assigns a future interest called a right of entry if that restriction is violated. If the condition is violated, the grantor or his heirs may terminate the grantee's fee interest and "BOP" the current fee interest with an ejectment claim. At common law, the following 3 BOP words indicated and intended fee simple subject to a condition subsequent. (i.e. To X and his heirs and assigns B - but if liquor is sold on Blackacre, the property shall revert to G or his heirs O - on condition that the land be used only for religious purposes or P - provided the land is not used for commercial purposes.) A fee simple subject to a condition PRECEDENT is different than a fee simple subject to a condition subsequent because the fee interest is not transferred to the grantee until the condition precedent is satisfied. |
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Under the S in LEFTS and under the A in SAD please explain further what the A stands for. |
Most property sold today is sold as a fee simple absolute without any conditions imposed on the future use of the land and the grantor retains no reversionary interest of any sort.
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Under the S in LEFTS and under the D in SAD please explain further what the D stands for. |
A fee simple determinable passes to a grantee a fee interest, but it usually restricts the use of the land. If that condition is violated, the grantee's fee interest is AUTOMATICALLY terminated and it reverts back to the grantor who imposed the limitation on the property. Such a fee interest creates a future interest called a "possibility of a reverter". At common law, SUD language indicates a fee simple determinable. (i.e. "To X and his heirs and assigns" "so long as" "until" or "during" the period, the land is only used for religious purposes.")
The existence of any possibility of forfeiture (BOP or SUD) in the realty's chain of title, renders that title unmarketable to any future contract vendee. Today, language more specific than just BOP or SUD must be used to create a forfeitable conditional fee because the law does not favor forfeiture of title. Thus, if there is any ambiguity as to what was intended, courts attempt to construe a restriction on the use of the land as a covenant (CRL) rather than a condition because breach of a covenant results only in money damages or an injunction whereas breach of a condition results in forfeiture of title. If the court does find that a condition was created, then it will attempt to construe the condition as a condition subsequent rather than a determinable condition (SUD) because breach of a condition subsequent (BOP) does not result in AUTOMATIC forfeiture. |
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There are 6 general types of future estates classified according to whether the real property is to return to the grantor who created the future interest or whether it is to pass to a 3rd person. The first 3 future interests can only be possessed by the grantor, his heirs, or assigns. Explain what the 6 general types of future estate classifications are. |
1. a reversionary interest (aka a reversion) 2. a possibility of a reverter in which SUD language is used and 3. a right of entry in which BOP language is used. 1, 2, and 3 above can last forever and are not subject to the Rule Against Perpetuities (RAP). 4, 5, and 6 do not revert back to the grantor who created the FI, but instead the future estate passes over to some 3rd party. 4. a vested remainder which usually follows a life estate (i.e. "To A for life and then to B and his heirs."). It is a "vested" future interest because it satisfies the ABC rule. 5. a contingent remainder, which also usually follows a life estate. 6. A remainder interest following a fee simple determinable (SUD language) or a fee simple subject to a condition subsequent (BOP language) that does not revert back to the creator of that future interest, but passes to a 3rd party. This is referred to as an "executory future interest". 4 and 5 above are remainder interests that follow life estates, but #6 is a remainder interest that follows a BOP or SUD conditional fee. 4, 5, and 6 are limited by and may violate RAP. |
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Problem: T's will gave Blackacre to A for Z's life and upon Z's death, to X. What interests (what estates) has T created? |
A has a present life estate during Z's life, and X has a vested remainder future interest.
X's remainder interest is not contingent, but is vested because of the ABC rule. A - X is ascertainable within the RAP period (when Z's life ends) B - X is in being (or must be conceived) within the RAP period and C - X's future interest is certain to happen (Z's death) Problem: “To A for life, then to the children of A”. A has one child. A has a present interest (a life estate) and B has an ABC vested remainder interest, which is “subject to opwn” because B’s vested future interest is subject to partial defeasance if A has more children during A’s life. B’s remainder interest is vested because it satisfies ABC. Problem: “To A for life and then to B and his hairs, but if B dies without children (a condition subsequent), then to X.” This is a vested remainder in B subject to a condition subsequent. |
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What is reversionary interests? |
A reversion is a future interest that will or may revert back to the original grantor who created the future interest upon the happening of some future event. |
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Problem: In her will, G, a widow conveyed Blackacre to A for life, remainder to B if B survives A. |
1. A has a present possessory life estate 2. B has a future interest (not capable of present enjoyment), which is a contingent remainder because B's interest is subject to a condition precedent that is not certain to happen (B must outlive A) and 3. G has impliedly created a reversion (it is not a possibility of a reverter) because if B dies before A, the property will revert to G's estate when A dies. Here, the creating instrument does not expressly state this reversionary interest, but the law implies a reversion whenever a grantor transfers away less than what she owns. |
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What are trusts and how are they set up? What about a NY trust? |
Trusts can be set up during the creator's lifetime (inter vivos trust) or they can be set up at the creator's death (testamentary trust).
A NY trust is created and signed by the creator and the signature must be formally acknowledged like a deed before a notary unless the creator is the sole trustee of the trust, then the trust document must also be signed by at least one of the trustees. |
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What is a NY trust subject to? |
NY trusts are subject to RAP, but in 24 states (NJ) RAP has been shoved aside in favor of dynasty trusts or perpetual trusts.
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What must find a trust? |
A trust must be funded with property, cash, shares of stock, or a deed, but a trust cannot exist until the trustee actually possesses delivered assets.
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The trustee cannot sell to or buy from the trust unless 1 of 2 things exist, what are they? |
1. expressly authorized by the trust document or 2. the surrogate first approves the transaction upon notice to trust beneficiaries. Absent 1 or 2 above, such a transaction can be rescinded by a beneficiary of the trust and under the "no further inquiry rule", the surrogate automatically rescinds it and will not inquire into its fairness. Compare this with the FF Rule of interested directors. |
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A trustee's investments must be prudent, but generally no single trust investment is prudent or imprudent and instead the surrogate evaluates the overall investment strategy of the entire trust portfolio, based on TIN DAD factors. What does TIN DAD stand for? |
T - trust terms and whether they restricted trustee in safe investments. I - inflation N - needs of beneficiaries D - diversification A - total amount of the trust D - its duration |
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Who can a trustee delegate the investment strategy to? |
A trustee may delegate the investment strategy to an investment expert, both are liable if the overall investment strategy is imprudent and the surrogate will impose a surcharge for any resulting loss.
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Explain spendthrift and NY trusts. |
All trusts in NY are presumed spendthrift, which shields the trust assets from the beneficiary's creditors. A trust beneficiary cannot sign away trust income before it is received and when it is paid out by the trustee to the beneficiary, a judgment creditor can cease only 10% of that amount.
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Even though NY trusts are spendthrift, that rule is subject to 10^2 SENATE. Explain what 10^2 SENATE stands for. |
10 – 10% of distributed trust income can be seized by the trust beneficiary’s judgment creditor 10 – trust income in excess of $10,000 can be gifted away by beneficiary prior to its receipt, but only to a close family relative (not more distant than aunt, uncle, niece, or nephew) S – self-settled trusts where settlor and beneficiary are the same person (or revocable trust) because spendthrift protection is given only where 3rd party sets up the trust. E - trusts that are expressly made non-spendthrift N - if necessaries are furnished to a beneficiary A - alimony and child support obligations T - federal income taxes owed by the beneficiary E - excess trust income that is not reasonably needed for maintenance & education of beneficiary or his family |
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Where does trust litigation arise? |
Trust litigation arises most frequently when a beneficiary tries to TIP a NY trust. |
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Explain what the T in TIP is.
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T - where an income beneficiary or the settlor of an inter-vivos trust seeks to terminate that trust, generally court approval is required. There is a presumption that an inter vivos trust is irrevocable unless it expressly provides otherwise. If the settlor of an inter vivos trust did not expressly reserve the right to revoke it, then the only way for the settlor to terminate the trust is to obtain the consent of all other beneficiaries who have a present or future interest in the trust (income beneficiaries and the remaindermen of the trust). However, if one of them is an infant or is mentally incompetent, then since they are legally incapable of consenting, such a trust cannot be terminated. When the remainder interest of an inter vivos trust is created for the settlor's heirs, next of kin, "distributees", or similar language, then under the doctrine of worthier title, these heirs are not deemed sufficiently interested in the trust and the settlor can revoke it without their consent. Although EPTL 6-5.9 abolishes the doctrine of worthier title, EPTL 7-1.9 revives it and applies it as a rule of construction whenever a settlor of an inter vivos trust wishes to revoke it without the consent of beneficiaries who are described in the trust document as his heirs or distributees, by using the worthier title doctrine, these heirs are not given a beneficial interest in the trust and their consent is not required to revoke it. Their remainder interest reverts back to the settlor who is then free to revoke the trust. In NY, there is a strong public policy against terminating trusts. Thus, when the settlor has died (for either a testamentary trust or inter vivos trust), then all beneficiaries must consent to its termination and the trust must serve no further purpose. NY courts will attempt to find a purpose to prevent the termination and courts have found the spendthrift purpose is a valid purpose for continuing the trust. The surrogate can now terminate a "non-economical trust". |
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Explain what the I in TIP is.
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I - Where the income beneficiary prematurely seeks distribution of a cumulated trust income, she must petition the surrogate's court for such permission. For example, T's will provided "$100,000 in trust and accumulate the income and pay it to B when B reaches age 45. However, if B dies sooner, then pay it to X." When trust income is to be accumulated for a beneficiary who is without sufficient means to educate or support herself, then the court may order the withdrawal of a suitable sum from the accumulated income or as an advancement of income which is to be accumulated. Even though X's contingent interest may be defeated by the early withdrawal of income, the court may nevertheless do so and can also order withdrawal from the corpus for B's support or education. |
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Explain what the P in TIP is.
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P - The court may allow a beneficiary to evade trust principal if the trust document expressly creates a standard for the trustee to invade principal. It is implied from the standard that if trust income is insufficient for a beneficiary's care that the trustee can invade corpus and pay it out. Where nothing is said in the trust document about invading principal, then the surrogate may nevertheless permit it where an income beneficiary is not being adequately provided for and the court does not need the consent of a vested remainder, but due process requires that notice of this proceeding must be given to any vested remainders. |
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What are Revocable Lifetime Trusts (RLT)? |
To avoid the expense and time of probating a will, an adult can execute a revocable lifetime trust during her lifetime. It transfers all of her property to her RLT and she is given a life estate, she is named as trustee, and the trust instrument expressly gives her the right to amend or revoke the trust at any time during her life or in her will by specifically referring to the trust. She can freely use trust assets for her benefit during her lifetime. Upon her death, the trust property passes according to the trust terms without having to probate a will in the surrogate's court. The RLT document must be signed and witnessed by 2 disinterested witnesses (like a will) or with no witness, but her signature must be acknowledged like a deed. If the property transferred to the trust requires a registration (stocks on an exchange, title to a car, a deed to realty, or bank accounts), then the registration must be in the name of the RLT. Otherwise, it passes at death into the probate estate or the intestate estate of the decedent. RLTs do not have spendthrift protection from the settlors creditors. |
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What is Rule Against Perpetuities (RAP)? |
RAP is a social policy restricting the ability of someone to perpetually limit and control the future disposition of property. It generally deals with trusts and remainder interests of real property that may vest too far in the future and which RAP will void at its creation. Half the states have abolished RAP for perpetual trusts and dynasty trusts, allowing a trust to continue for 100s of years. Under RAP, a future remainder interest is invalid unless it must vest "if at all" not later than 21 years after measuring lives in being when the RAP period began to run. If there is any possibility that the remainder interest will remain contingent after the RAP period expires, then that future interest is void from its creation. A "measuring life" is a life that measures when a future interest will become a present possessory interest. If someone's life is used to measure when a future interest is to vest (e.g. a life estate), then the "measuring life" has to be "in being" or conceived when the RAP period started to run. A future interest is validly vested if it is not subject to any condition precedent after the death of the measuring lives in bean plus 21 years. ABC vesting of the future interest does not have to exist at the start of the RAP measuring period. Vesting must occur "if at all" within the RAP period. For example, "To A for life and then to her children." A has no children. Thus A's children are not in being and A is not certain to have any children (it is a contingent remainder), but this future interest must ABC vest if it is going to vest at all within the RAP period (i.e. within A's lifetime). If there is no measuring life (no life estate) to measure when the future interest is to vest, then the future interest must certain to vest within 21 years from its creation. Otherwise, it reverts back to the grantor because the future interest violates RAP. |
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When faced with an RAP problem, determine 3 things. What are they? |
1. when did the RAP period begin to run 2. who, if any are the "measuring lives" and whether they were in being at the start of the RAP period. If no measuring lives are used (no life estates), then the future interest must vest within 21 years from its creation. At common law, measuring lives had to be human lives and could not be an animal’s life. Today, under the Uniform Probate Code, NY, NJ and 38 other states now allow a pet to be a measuring life and the trust doesn’t have to best within 21 years. and 3. at what future time will the future interest ABC vest or fail to vest. |
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According to common law what is measuring lives? |
At common law, measuring lives had to be human lives and not a pet or a corporation.
A measuring life is a life that measures when a future interest becomes possessory. All measuring lives must be in being when the RAP period starts to run. |
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RAP does not apply to an FI that has the CCROUP. Explain what CCROUP stands for. |
C - covenant running with the land (PINTS and CANS). C - a future interest passing from one charity to another charity. R - a reversionary interest retained by a grantor (e.g. a possibility of a reverter (SUD language) or a right of entry (BOP language) or a reversionary interest following a longterm lease.) O - a tenant's option to renew a lease or a tenant's option to buy contained in a longterm lease (e.g. a 25 year lease with 4 10 year options to renew). U - a future interest benefitting the US government P - MBE preemptive rights of first refusal to buy land, but in NY only commercial first refusal rights are exempt from RAP. However, on NY residential realty, the preemptive right must be fully and finally exercisable within the RAP period. |
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RAP applies to CORE future interests. Explain what CORE stands for. |
C - contingent remainders O - options to repurchase the realty retained by a grantor in a delivered deed that could possibly be exercisable beyond the RAP period R - remainder interest (following a life estate) E - executory interests, which are remainder interests that follow a SUD or BOP conditional fee. |
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Statutory Exceptions to RAP (aka common law doesn't apply to these). Under the modern approach, an FI may be saved from an RAP violation by the NY and MBE statutory exceptions. A FURS. Explain what A FURS stands for. |
A - the estate administration exception F - the fertile octogenarian There was a common law conclusive presumption of fertility regardless of age, gender, or physical condition. U - unborn widow exception R - age reduction contingency (this is the one to know!) S - the RAP savings clause |
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How can the creator of any future interest avoid a RAP violation? |
The creator of any future interest may avoid an RAP violation by adding a perpetuities savings clause in a will, a trust document, or in a deed. This permits the court to reform the document's language to avoid an RAP violation.
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