Ny & Mbe Real Property

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Three types of concurrent estates

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i. A tenant in common (TC)
ii. A joint tenancy (JT)
iii. A tenancy by the entirely (TE)

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Concurrent estates

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when 2 or more persons hold simultaneous present or future interest in the same real property
i. Each co-tenant has an indivisible right to possess the entire parcel, EVEN THOUGH each owns only a fract interest
1. No one co-ten owns any particular portion of the property
ii. A joint ten or ten in common is free to sell, mortgage or lease his undivided right of possession, BUT he MAY NOT sell, mortgage or lease the entire parcel, OR a specific portion of it to the exclusion of the other co-tenants
1. One co-ten MAY NOT grant an easement WITHOUT the consent of the other co-tenants
iii. CTs who obtain their interest from the same document are fiduciaries of one another
1. THUS, a co-ten who acquires an outstanding superior title by making the highest bid at a tax or mortgage foreclosure sale holds title for the benefit of the other CTs, PROVIDED each contributes their pro-rate share of the purchase price
iv. CTs may sue one another in equity for an accounting, constr trust, or tort wast

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Tenancy in Common

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i. A TC arises where two or more CTs own realty with no right of survivorship
ii. When one TC dies, her interest in that property DOES NOT pass to the other surviving TCs, but passes into that decedent’s estate

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Joint Tenancy

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i. JT creates a right of survivorship in the surviving joint tenant if one JT dies
ii. Upon the death of one JT, that decedent’s interest in the property passes to the surviving JT (100% interest), RATHER than into the decedent’s estate
iii. At CL, there was a presumption that when property passed to 2 or more persons who are not husband and wife, it passed as a JT with the right of survivorship
1. Default Rule: Today, in every state, there is a statutory presumption that absent specific language to the contrary, property passing to 2 or more persons by sale, gift, intestacy, or under a will, passes to tenants in common

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Creation of a JT:

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Today, to create a JT, the survivorship intent must be clearly spelled out in the conveying instrument
1. To create a JT (or a TE), four unities must exist to support the fiction that the co-tenants are holding the property as if they were one, and require PITT:
a. P – unity of possession
i. Each CT has an undivided common right to possess the entire property
b. I – unity of interest
i. Each must have the same identical percentage of interest as to the quality and quantity of title
c. T – unity of time
i. Each must have acquired their interest at the same time
d. T – unity of title
i. The rights of each must have been created from the same deed or will

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Effect of Conveyance:

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During her lifetime, a JT may convey her interest WITHOUT the consent, or even the knowledge of the other JTs
1. The effect of such a conveyance will change that CT’s interest into a TC with respect to the other remaining JTs
vi. Wills Don’t Work: Neither a JT nor a TE may devise by will her interest in the realty because the interest automatically extinguishes upon death and passes by operation of law to the survivor

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JT's interest attached by a judgment creditor.

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vii. A JT’s interest may be attached by a judgment creditor
1. HOWEVER, a judgment creditor who files a judgment against one JT, creating a lien on that JT’s interest DOES NOT effect a severance of the realty and the lien can be defeated if the judgment debtor is the first JT to die
a. The interest would pass to the survivor free of the judgment lien
b. Works the same way with a mortgage
c. Therefore, it’s advisable for creditors to act fast so that they don’t lose the lien, or require that the debtor sever himself out before offering him credit

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Tenancy by the Entirety

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i. At CL, a husband and wife were merged by marriage and it was the marriage entity that held title to the entire parcel
1. That is, neither spouse had a separate interest in the property
ii. In NY, a transfer of realty to H and W automatically creates a TE, UNLESS it otherwise declares a JT or TC

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Creation of a TE

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No words of survivorship need be expressed to create a TE
1. All that is required is that the deed name two parties who are husband and wife
2. The deed does not have to contain the word “survivorship,” or the words, “husband or wife”
iv. The transfers of property to H, W, and X creates a one half interest in H and W as TEs, and a one half interest in X, the third person
v. In MBE, a TE may exist in personal or real property, but in NY, only in real estate or sharers of a coop effected on or after January 1, 1996
1. Ex. In NY, fire insurance proceeds on a TE are treated as personal property because the proceeds are derived from the insurance K
a. If one spouse dies, the other will not collect the entire insurance award, only half of it

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Creation of a TE

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vi. If it is later discovered that the parties were never in fact married, or that the marriage was void, when the couple took the property, then no tenancy by the entirety ever existed
1. Must be married at time entered into?
2. To determine how the parties then hold the property, look to the intent expressed in the deed and apply the general rules concerning JTs and TCs
a. Will apply the default rules, but will apply intent of parties
3. NY Default: On NY deeds executed on or after Sept 1, 1975 that purport to convey to H and W who are not in fact married, NY presumes that a JT with a survivorship interest was intended

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A TE is defeated by the four D’s:

(death/ debotr in bk)

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1. The death of one spouse, whereby 100% of the interest in the land passes to the surviving spouse
a. Simultaneous death of both H and W defeats the survivorship element and property held as JT or TE will be distributed AS IF IT WAS HELD AS A TC
i. Two halves may go in different directions depending on whether one or both had wills directing where property should go
2. When one spouse becomes a debtor in bankruptcy

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A TE is defeated by the four D’s:

(dual transfers/divorce)

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3. Dual transfer, in which both H and W take part
4. In MBE, divorce or annulment; or in NY, a DADS judgment - divorce, annulment, dissolution, or separation judgment
a. A valid NY or bilateral sister state DADS decree converts a NY TE into a TC because a valid marriage is a continuing condition for the existence of a TE
b. Either former spouse may then bring an action for partition
c. HOWEVER, a divorce judgment giving one spouse exclusive possession precludes a partition action
i. The remedy is to move to modify the divorce decree
viii. Prior to entry of a judgment altering the legal relationship between spouses, cts MAY NOT direct the sale of marital property held by spouses as TEs UNLESS the parties have consented
1. If they have consented, the ct MUST respect conditions agreed to by the parties, and MAY NOT impose its own

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Differences between TE and JT

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1. A TE requires an existing valid marriage, INCLUDING a NY same-sex marriage
2. Neither spouse may destroy a TE without the consent of the other
3. A JT’s judgment creditor MAY bring a partition action and have the JT’s interest sold, whereas one TE spouse’s judgment creditor CANNOT
a. A judgment against one spouse is a lien on the property and is enforceable ONLY if the TE is terminated and the debtor spouse survives
b. If the debtor spouse is the first to die, the judgment creditor’s lien is extinguished
4. An MBE spouse lacks the capacity to unilaterally transfer title or encumber the contingent interest in a TE

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Differences between TE and JT

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x. NY allows either spouse to unilaterally mortgage, convey, or encumber the survivorship interest subject to the other spouse’s right of survivorship, which can totally wipe out the transferred interest
1. Creditor will only be able to collect if the debtor survives; if non-debtor survives, debt extinguishes
2. Ex. In NY, if H mortgages or sells his interest in black acre, the buyer, or mortgagee, receives only a contingent interests, i.e. that is contingent on H surviving W. If H dies first, W gets 100% of black acre. If W and H get s divorce, then H’s grantee or mortgagee becomes a TC with W and has the right to share in rents or profits, or can partition for the sale of the TC property.
xi. If a JT or TE improperly conveys more than his half interest, then the grantor is estopped from denying the effectiveness of his earlier deed IF he is the sole survivor
1. Full title immediately vests in the grantee under the doctrine of Estoppel by Deed, aka the after-acquired title theory

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Rights and Liabilities of Concurrent Tenants

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i. CTs are J&S liable to a person injured by a latent dangerous condition that they knew existed, or by a reasonable inspection should have known existed on the property
ii. When a specific bequest of real property is made in a will, or where a decedent dies intestate, title to the realty vests immediately in the legatees named in the will, OR in the decedent’s intestate distributees
1. Thus, any tort claims arising out of the property should be asserted against the individual beneficiaries who now own title, AND NOT against the estate

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Co-Tenant in Possession

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1. Ordinarily, CTs are J&S liable for injuries incurred on the realty, BUT where only one has possession or control, the other is NOT personally liable to the π what if it’s more than one person who has control?
2. A CT voluntarily out of possession has NO RIGHT to demand rent from a tenant in possession, UNLESS the tenant in possession:
a. Agreed to pay rent
b. Wrongfully ousted the other CT, OR
c. Denied the CT access to the property
3. Where the CT in possession wrongfully ousts or denies access, she must account to the other CTs for 50% of the market rental value from the time of denial

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Co-Tenant in Possession

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4. If a tenant in possession paid the tax and mortgage payments and made necessary repairs on the premises, she may recover the other CTs’ share of these payments
a. If the market rental value exceeded the payments, however, the tenant in possession has no right to contribution from the others, who may use the rental value to offset the payments to the possessing CT
i. Will hold the overage in a constructive trust to pay payments
b. A CT is accountable to other CTs for rents collected from a 3d pty because each CT has an equal right to share in income produced by the realty
c. A CT in possession who makes nice but not necessary improvements without the consent of the other CTs is deemed a mere volunteer
i. There is no immediate right to contribution from the other CTs for such improvements UNTIL the final partition and accounting when the property is ultimately partitioned and sold
1. But ONLY TO THE EXTENT the imprvmnts increased the selling price OR cost of the improvem, whichev less

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Partition

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i. TCs and JTs are free to partition the property at any time
ii. Concurrently owned realty may be partitioned by a COW:
1. C – by court decree
a. Equity favors dividing the property in kind IF it is capable of division
b. If it is not practical to partition the property in kind, the ct will order the property sold and equitably divide the proceeds
c. The ct should consider:
i. The separate contributions of each CT for the purchase price,
ii. Who made the mortgage payments, AND
iii. Each CT’s contribution in improving the property
2. O – an oral agreement between 100% of CTs
a. Oral partition agreements are enforceable either on a part-performance or estoppel theory
3. W – a signed writing voluntarily partitioning the property
a. Draft deeds to each other, “Troy owns the eastern side, Kris owns western side”

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Brokers ✪Prob won’t see, just tested on in Feb

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i. In NY, in order to sue for a real estate broker commission, π must plead and prove:
1. She was a duly licensed NY broker when the coa arose and the services were performed by a licensed RE broker or licensed RE salesperson
a. In NY, an atty does NOT need a broker’s license
2. The broker was the procuring cause of the sale
a. Must do something – can’t just be at a party, “I happen to be a broker.”
ii. Absent a statute, a RE broker’s K for a commission need not be in a signed writing because the agreement does not create or effect an interest in real property
1. Broker K merely appoints an agent to find a buyer for the property (not transferring interest in RE, so SOF doesn’t apply)
2. ✪NJ, CT, and NY require a signed writing by statute BUT NY exempts licensed RE brokers and attys from this SOF requirement

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Brokers

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iii. Where a broker’s agreement makes no mention as to when he earns a commission, then it is earned when she produces a RAW buyer who is ready to buy, financially able, and willing to agree to the seller’s terms.
1. The broker DOES NOT impliedly assume the risk of the party’s full performance, and once she procures a RAW buyer who has a meeting of the minds with the seller, she has earned her commission
2. The commission is earned EVEN IF title never passes, or if title is unmarketable

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In NY, there are three types of broker contracts:

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1. The exclusive right to sell, which requires all sales negotiations to pass through the broker
a. Here, S becomes liable for a commission if the realty is sold, EVEN IF it’s the S who found the buyer and brought about the sale
2. Exclusive Agency → deters the S from using the services of another broker
a. If another broker brings about the sale, then the B with the exclusive agency may also seek a commission
b. HOWEVER, this S may sell the property herself and NOT be liable for a commission
3. Non-Exclusive Agency → where the broker earns a commission ONLY if that broker produced a buyer ready, willing, and able to buy least strings attached

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Caveat Emptor

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“buyer beware” before entering K; requires a B to take care and diligently inquire into the structural and environmental condition of the property and neighborhood BEFORE entering the real property contract
i. Leaking roofs, seeping cesspools, ferocious fleas, water and fire damage, and prior crimes on the property have been the subject of caveat emptor, and thus were NOT required to be disclosed by the S
ii. A broker has a duty to disclose known facts materially affecting the property
1. By NY statute, there is no duty for the broker to disclose that a death, homicide, or other crime occurred on the premises, or that a prior occupant had AIDS
iii. CE precludes a claim for rescission for structural defects that were:
1. Open and obvious,
2. Discoverable by reasonable inspection of either the premises or public records and the purchaser had an unimpeded opportunity to inspect, AND/OR
3. Not concealed or hidden by the silent seller

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Caveat Emptor (misreps)

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iv. A S who makes misrepresentations or fraudulently conceals defects MAY NOT rely on caveat emptor
1. “misrepresentation” → conduct or a statement that is not in accord with the facts
a. It’s a misrep if it’s not a clear response, but leads the other party to believe otherwise; misleading/indirect answer to a direct question = sufficient for fraudulent misrep
b. Fialing to mention sex offender next door is classic caveat emptor

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“As is” clause

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in a RP K is another hurdle for a purchaser complaining about the existence of structural defects OR the physical or environmental condition of the property
1. It expressly states that the B is to inspect the quality, fitness, and value of the property before signing the K and that B has NOT RELIED on any representations by S
2. HOWEVER, an “as is clause” will not shield the S from a claim for fraudulent concealment
a. S’s duty to make sure that B is aware that there might be problems, but what to was his hands of the property; B agrees that S never said anything and takes the property as is
3. Protects S if something goes wrong, but doesn’t protect him from fraudulent concealment
4. Fraudulent Concealment → i.e. put furniture on top of hole in the floor; paint over water stains

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Statute of Frauds

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i. To be enforceable, any K affecting an interest in RP MUST BE in a writing, signed by the party to be charged with its breach, OR an authorized agent of that party whose authority is expressed in a signed writing
ii. Exception: part performance of an oral RP K
1. Cts will consider three types of performances by the purchaser, which must unequivocally refer to an agreement to transfer the realty – PIP:
a. P – payment of the purchase price, in whole or in part
b. I – making valuable improvements
c. P – taking possession
2. In NY, it is almost impossible to achieve PIP part-performance sufficient to take the oral RP K out of the SOF
a. The B’s performance alone must unequivocally refer to the sale of realty WITHOUT RESORT to oral testimony – bare evidence of RP K

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Estoppel (SOF)

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another equitable doctrine that may take an oral K out of the SOF
1. The same conduct by the B that invokes the detrimental reliance estoppel theory frequently will support an equitable part-performance theory.

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Terms of a Real Property Contract

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i. Must contain ALL of the material elements, that is, it must name B and S sufficiently describe the property, and state the purchase price
1. A missing price will nullify the K, EVEN IF it was signed by the party to be charged
a. i.e. “price to be agreed on later” will nullify
ii. A RP K may be recorded in S’s chain of title PROVIDED the signatures are acknowledged by a notary
1. This serves as constructive notice of B’s interest UNTIL the 30th day after the date fixed in the K for the closing

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Mortgage Contingency Clause

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iii. A written RP K MAY include a mortgage contingency clause → may be conditioned, e.g. on B obtaining a $100,000 mortgage at 5% interest (contingency)
1. Because conditions are strictly construed, if B can only obtain a 5.2% mortgage for one at 5%, but for only $95,000, the condition fails and B is excused from the K
2. HOWEVER, B may waive the condition because it is inserted in the K for B’s benefit
iv. The law usually imposes an implied good faith condition when dealing with contingencies
1. i.e. neither party may do anything to prevent full performance of the K
2. HOWEVER, NY makes an exception for RP Ks conditioned on atty approval

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Real Property Description within the Contract

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i. To be enforceable, the K and deed must sufficiently describe a particular parcel to definitively identify the property to the exclusion of all others
ii. A description may be incorporated by reference to another document (generally a formal signed document)

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Marketable Title

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i. A K to sell land is really an agreement to sell good title to the land
ii. If the K makes no mention as to the quality of the title to be conveyed, it is implied in the K (not in the deed) that the S will tender a marketable title at the closing
iii. Marketable title → one free from encumbrances and free from reasonable doubt as to the interest of any third person
1. It is a title that the B WILL NOT have to defend by litigation
iv. Clauses that requires “insurable title” are different
1. Such clauses abrogate the requirement of marketable title
v. A B SHOULD NOT be forced to accept an unmarketable deed or required to purchase a lawsuit

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Unmarketable title

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Unmarketable title arises where a search of the S’s chain of title reveals ownership gaps, recorded judgments or mortgages, or where an inspection of the property reveals an encroachment or adverse possessor
1. Even a K to take a quick claims deed impliedly requires the S to tender a marketable title
2. Cts have held that title is unmarketable where the threat of litigation would lead a reasonable person to believe that the B may be called upon to defend either his possession or title
vii. Covenants, easements, and conditions restricting the use of the land render title unmarketable UNLESS the K expressly made the sale “subject to existing covenants, conditions, or easements of record”
viii. Property owned by an adverse possessor is NOT marketable UNTIL the ct determines title

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Unmarketeable title (building codes/zoning)

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ix. A S’s use of the property that violates a building code does NOT render title unmarketable
1. Such defects relate to the condition of the structure RATHER THAN the quality of the title
2. HOWEVER, if the Building Dept has started litigation, the litigation itself would render the title unmarketable
x. A B takes title subject to existing rent control and zoning laws
1. A change in these laws AFTER K but BEFORE closing WILL NOT excuse the B from the K, and the B bears the risk of any change in the regulation
2. What if these regs had not been disclosed? Caveat emptor?
3. The MBE S’s current use of the property that violates existing zoning laws will render the MBE title unmarketable
4. In NY, existing zoning violations DO NOT render title unmarketable UNLESS litigation has begun, or the K expressly so provides

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Unmarketeable Title

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xi. The implied covenant of marketable title imposes no obligation on S UNTIL the day of closing
1. B has opportunity to establish marketable title up until closing
xii. The requirement that the S tender a marketable title is for the B’s benefit, and the B may waive it and accept an unmarketable title
1. i.e. You have a sweetheart deal, and the blemish is minor

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Merger Doctrine

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the covenant of marketable title merges in the deed when the S delivers the deed to the B at the closing
1. Absent fraud or mutual mistake, when the B accepts the deed, S’s title obligations under the K are discharged
2. Thereafter, a B’s rights are based solely on the warranties, if any, contained in the deed
3. After closing, the only thing that the B has to rely on is the deed; displaces the K
5. Merger DOES NOT apply to S’s collateral contractual obligations that DO NOT RELATE to possession, quality, or quantity of land
a. i.e. S agreed to get rid of dumpster before the closing – this doesn’t go away after closing
b. if it’s not supposed to be in the lease, treated as a separate obligation

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Equitable Conversion

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i. When a RP K is signed, the equity is specific enforced
ii. Equity converts S’s interest into pers prop, and treats B as the title holder the moment the K is executed
iii. This affects the MBE’s party in 3 ways:
1. If the MBE B or S dies, equitable conversion affects a bequest of real prop passing in the will
a. In NY, if a testator enters a K to sell realty, the K does not revoke a prior disposition in T’s will of that property
b. Such RP passes under the will to the named beneficiary subject to the executory K
2. If the MBE S’s judgment creditor files a judg after a S has signed a K of sale, it DOES NOT attach to the S’s interest, which equity not considers only per prop
a. If the judgment is recorded against the B, then the lien attaches to B’s converted RP interest, EVEN THOUGH B has not yet officially taken the deed
3. If the MBE RP is damged, or taken by em dmain, during the extory K period w/o the fault of either party, then absen a contrary stat/ specific k lang ROL on buyr.

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exceptions to the MBE equitable conversion risk of loss rule

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a. There are several exceptions to the MBE equitable conversion risk of loss rule:
i. The destruction was the S’s fault
ii. The S’s title was defective, and S could not have tendered marketable title at the closing
iii. The K is subject to a condition that was not satisfied, thereby excusing B from the K

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exceptions to the MBE equitable conversion risk of loss rule (uniform vendor and purchaser risk act)

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iv. *In the 13 states ( NY) that recognize the Uniform Vendor and Purchaser Risk Act, even though the eq title passes to B when the K is signed, by statute, ROL remains with S, who is in the best position to have insured against the loss or damage
1. Under this Act, ROL does not pass to the B UNTIL:
a. Title passes at closing, OR
b. B takes possession PRIOR to closing
2. If prior to closing, NY RP is materially destroyed through no fault of either party, or material part is take by eminent domain, the S may NOT enforce the RP K, and the B may rescind it
a. However, the B may enforce the K with an abatement in the purchase price
b. If only an immaterial part of the premises is damaged or taken, the then K still is enforceable by EITHER PARTY with an abatement in the purchase price
c. “Abatement in the purchase price” → lessen the price to the extent that it needs fixing
d. “Materiality” → usually amount of money to fix will tell you; the more material, the higher the price to fix

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Property Disclosure Act

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1. NY traditionally abides by caveat emptor
2. HOWEVER, in NY and many states, the S of an existing residential dwelling of 1-4 units SHALL deliver a disclosure statement, answering 48 questions on the condition of the realty based on the S’s actual knowledge
a. Failure to do so affords the NY B and automatic $500 credit at the closing
3. ✪Haven’t yet tested on it; New act

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Implied Warranty of Habitability

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i. New residential construction carries an implied warranty of habitability
ii. In most states, it does NOT extend beyond the first purchaser, who is in privity with the builder
iii. NY extends warranty protections to successors in title during the warranty period

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Time of Closing

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i. Closing → where the deed is executed and delivered by the S, and the B tenders payment
1. Failure to tender the type of payment called for in the K constitutes a material breach of the K
ii. If the closing date is fixed in the K, it is only a tentative or target date
1. Failure of either party to close on that date is NOT a breach
iii. “Time of the Essence”: Both parties are afforded a reasonable time, EVEN beyond the K’s closing date to perform their respective obligations
1. UNLESS the K is expressly made “time of the essence”, a material breach arises if either party is not ready to tender performance when the closing date is time of the essence
iv. The parties to a RP K NEED NOT specify a closing date because the court may infer a reasonable time

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Time of Closing (Extension)

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Where one party requests an extension of the original closing date, the other party may select a new closing date and make it time of the essence.
1. The notice must:
a. Provide a reasonable time to close depends on the circumstances
b. Be clear and unequivocal as to specifically warn the other party that its failure to close will render it IN DEFAULT and liable for damages
2. Merely stating that time is of the essence is insufficient
a. Notice MUST be given that a failure to timely close will put the other party in default
b. In order to hold a party in default, the non=breaching party must be able to demonstrate that it was RAW – ready able and willing – to comply with the K terms

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Seller’s Remedies

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At com law, defaulting buyer cld recover $ deposited to the extent it exceeds the seller’s actual damages sustained as a result of the buyer’s breach.

Under the maj rule, followed in NY, however, the seller may keep the entire deposit, and the defaulting buyer may not, in law or in equity, recover any part of the down payment even if the seller resells the realty for an amount equal to or greater than the original K price.

The seller may alternatively seek specific perf from B.

The seller may also seek out-of-pocket expenditures in reliance on the K (evicting an existing tenant, refurbishing the premises to meet the K’s specs, and the broker’s commission) since such expenses are customary and foreseeable consequences of the breach. Reliance damages do not include, however, the seller’s payment of mortgage interest, taxes or the cost of insuring the realty after the closing date, since these damgs are not deemed w/in the contemplation of the parties when the K was entered. “CAPS”.

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Buyer’s Remedies

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Specific performance-in the ct's discrtn.

Consequential dmges that were foreseeable.

Rescission of K and restitution of any down payment.

Reliance damages (if forseeable/reasonably expected)

Expectation damages (diff btwn K price and market value of land on the date of the breach). In NY, and nearly half the other states, expectation damages are only are only recoverable if the breach occurred in bad faith. In NY, if the breaching seller acted in good faith but could not tender a marketeable title, then buyer's recovery is limited to restitution damages (the return of the deposit) plus reliance damages to compensate the buyer for his or her out-of-pocket expenses.

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Professional Responsibility in Real Property Contracts
(Holding Money)
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i. All client funds held by an atty SHALL be held in a separate escrow account in a NY bank
1. The atty must maintain escrow records for seven years
2. If deposit money paid by the B is embezzled by the escrowee, then ROL of the deposit is on the party who owned the money at the time it was converted
a. When lawyer hires an escrow agent, he’s not acting as your lawyer, but as your fiduciary hired to put your money in escrow

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Professional Responsibility in Real Property Contracts
(Holding Money)

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ii. NY requires that if a B’s deposit is not a substantially large amount, or it is to be held only for a short period of time, so as to generate less than $150 in interest, then it SHALL be deposited by the S’s atty into a NY IOLA account (Interest on Lawyer’s Account), which every NY lawyer who holds clients’ funds must open
1. The interest earned on such accounts is used for funding legal services for indigents (pooled into statewide fund)
2. If a lawyer’s IOLA check bounces for insufficient funds, the bank MUST notify the appellate division grievance committee
iii. Escrow checks MAY NOT be made to “cash”, and ONLY an atty admitted in NY can sign them
b. 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 recovered by the lawyer’s efforts
i. HOWEVER, the lawyer may NOT assert a lien on client money held in escrow

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Professional Responsibility in Real Property Contracts
Conflicts

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i. A lawyer MAY NOT rep a new client whose interests are adverse to a former client IF:
1. The new matter substantially relates to the prior rep, OR
2. The matters are totally unrelated, BUT the atty possesses confidl info obtained from the former rep that could now be used to the disadvantage of the former client, or the adv of the new client
ii. One lawyer may rep both B and S, BUT ONLY in very limited circs where there is little or no actual adversity between the parties
1. Both clients must consent after full discl of the disads and risks involved
2. If a dispute arises between B and S, the lawyer MUST withdraw from further representation of either party
iii. A lawyer is subject to discipline for failing to decline legal important if the exercise of her indepen, profess jdgmnt on behalf of the client is likely to be adversely affected by a conflict of interest
1. Ref Fee Qry: If B’s lawyr rerefers B to a mortgage brkr, may the lawyer accpt ref fee?-Y, w Bs consnt+ it lwrs Bs L fee

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Professional Responsibility in Real Property Contracts
Conflicts

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iv. A lawyer MAY enter a transaction for real or personal property with a client, BUT because the lawyer could profit at the client’s expense,
1. The terms must be fair and reasonable,
2. The terms must be fully disclosed to the client in writing in a manner that can be easily and reasonably understood by the client,
3. The client must be advised to seek the advise 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 in the transaction
d. A lawyer MAY NOT advertise that she can “stop a foreclosure”
i. This is false and misleading
ii. The ad MUST be modified by a disclaimer that prior results do not guarantee a similar outcome
e. A NY lawyer may send a paralegal to conduct a closing if the paralegal’s work is only ministerial, and the atty remains available by phone
f. An atty engaging in ethical misconduct is NOT entitled to any fee

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Real Property Deeds

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a written instrument signed and delivered by a grantor to convey title to RP
g. The S must sign the deed, and the signature must be acknowledged by a notary in order to record the deed with the county clerk
h. An instrument recorded without any acknowledgement, or with a defective acknowledgement is not sufficient to give constructive notice of its content to a subsequent bona fide purchaser

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Forged Deed

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A forged deed is void and conveys no title
i. To lie about the authenticity of the document, which purports the contained signature of another, constitutes the crime of a forgery
ii. If the forgery is successful, and D receives property or money as result, then D commits the crime of larceny by false pretenses
iii. There can be no BFP of a forged deed
1. Any new interest created in the realty after a forgery are a nullity and title remains as it was before the forgery
iv. If the grantee of a forged deed adversely possesses the property for the prescribed period of time, that continuous possession may ripen into title, NOT from the forged deed, but from the adverse possession for the statutory period of time

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Delivery of Deeds
(Valid Delivery)

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

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Gifted Deed:

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If the deed is a gift, the AID gift elements must be established:
1. A – acceptance by donnee
a. Generally implied if conveyance would be beneficial to grantee
2. I – intent to make an immediate gift
3. D – the proper delivery of the deed, which puts the instrument out of the dominion and control of the grantor

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Escrow Delivery:

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When grantor intends to surrender title immediately upon delivery, the law will recognize an escrow delivery to an agent for re-delivery to the donee
1. If the escrow agent is the donor’s agent, then the delivery is not complete until the deed is actually delivered to the donee
2. THUS, if the donor dies, becomes mentally disabled, or changes her mind before delivery to donee, then agent’s authority to deliver is revoked under agency law
a. HOWEVER, if escrow delivery is to an independent contractor, or is made to the donee’s agent, then the gift is affected immediately upon delivery to the agent
3. Death Escrow: Escrow delivery to a third person for delivery upon the grantor’s death (a death escrow) is treated as vesting an immediate interest in the grantee when the third person receives the deed, PROVIDED the grantor surrendered all rights to the deed upon delivery to the escrow agent

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Gift Causa Mortis

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iv. There can be no gift cause of mortus: A deed delivered directly to the grantee, whcih is orally conditioned on the grantor’s death is VOID because the deed is then testamentary in intent, and DOES NOT satisfy the statute of wills

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Re-vesting

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Once there has been effective delivery and acceptance, its subsequent oral cancellation, delivered destruction, or even re-delivery back to the grantor will NOT re-vest legal title in the grantor
1. Once it’s been accepted, can’t give it back
2. But could still quick claim it back to the grantor

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Four Types of Deeds

1. corrective

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i. Corrective Deed
1. The customary method of correcting a method of a delivered deed is for the grantor to execute and deliver a new corrective deed in the form originally intended
2. S’s refusal to issue a corrective deed breaches the covenant of further assurances if such a covenant was given in the first deed
a. Remedy = sue for reformation
3. If a grantee is omitted on a deed, or the extent of his interest is misstated, ALL grantees otherwise adversely affected by the corrective deed must join in its execution

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Four Types of Deeds

Quit-claim

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ii. Quick Claim Deed, aka Release Deed
1. Simplest of all deeds; the grantor covenants only to convey whatever interest he may have
a. He simply states that he is quitting any claim he has to the land
b. Grantee accepts the interest as is, i.e. if grantor’s interest is caught up in an ongoing lawsuit and might be lost to other party; grantee doesn’t really have any recourse
i. Generally don’t pay as much for quick claim because having promises is preferable
2. Default Deed: If a K makes no mention as to the type of deed, then only a quick claim deed need be delivered
3. If the K calls only for a quick claim deed, S’s title must nevertheless be marketable
a. HOWEVER, if B accepts the deed without objecting to the title, then under the Merger Doctrine, the grantee thereafter may only look to the deed for a remedy
b. Since a QCD contains no warranties, the grantee could no longer object to the title defect

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4 types of Deeds

Special Warranty Deed

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(aka a Bargain and Sale Deed) → contains a covenant against the grantor’s acts during the grantor’s period of ownership, which covenants ONLY that the grantor has not encumbered the marketability during his ownership period

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4 types of Deeds

General Covenant and Warranty Deed

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(aka Warranty Deed/Full Warranty Deed)
1. Most complete deed because it includes the following covenants – SEC FEW

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SECFEW

SEC

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a. S – covenant of seisin
i. Grantor possesses the quality and quantity of land he purports to convey
ii. Ex. He owns 2 acres, not just one; he holds a fee simple, and not just a life estate; and he is not a co-tenant with an unnamed third person
b. E – covenant against encumbrances
i. Covs that no third person has any interest that would diminish the property’s value EXCEPT as expressly stated in the deed
ii. i.e. no mortgages or easements you’re not aware of
c. C – covenant of the right to convey
i. Covenants that the grantor has the right and authority to convey title
2. The SEC covenants are present covenants, which are breached, if at all, when the deed is delivered
a. SOL for their breach = runs from when deed is delivered
b. SEC Covenants are made ONLY to grantor’s immediate grantee, and are NOT intended to run with the land to future grantees

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SECFEW

FEW

1/2

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d. F – covenant of further assurances
i. Covenants that the grantor will execute any documents needed to clear up the title for subsequent grantees
e. E – covenant of quiet enjoyment
i. Promises that grantee’s possession will not be disturbed, and if it is, the grantor will pay damages for the disturbance
ii. Tis covenant is breached ONLY when any future grantee is actually ejected from the property by a third person with superior title
f. W – covenant of warranty
i. Covenants that the grantor forever warrants and will defend from legal attack the title as it is described in the deed

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SECFEW

FEW

2/2

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3. FEW grantee may recover atty’s fees expended in a third party suit, BUT ONLY if she loses title or pays to remove the title flaw
a. If she wins, she cannot recover because the FEW covenant of quiet enjoyment was never breached, as the grantee was never ejected
b. Under the doctrine of Horizontal Privity, these FEW real covenants extend to all subsequent grantees
i. i.e. they run with the land whenever it is re-conveyed, and the new owners may sue the original grantor of the full warranty deed
c. FEW SOL runs only when a grantee’s right is first interfered with

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SECFEW-liability

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4. Liability for breach of an SEC FEW covenant is limited to actual out-of-pocket restitution damages, which CANNOT exceed the purchase price received by the grantor of the warranty deed
a. Measure of damages = difference in land’s value as described in the deed AND reduced value of the land as encumbered
b. Subsequent improvements made on the realty, as well as any appreciation in the land’s value, are NOT recoverable

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Estoppel by Deed

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i. 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
1. HOWEVER, if she later acquires part of all of that title, she is estopped from asserting any subsequent rights to the title
2. Most courts hold that no action is necessary by the grantee, and treat the title as automatically passing
3. This is also refererd as the after-acquired title theory
a. Ex. H and W own blackacre as TEs. H forged W’s signature and conveyed blackacre to B. What is B’s interest?
i. If H dies before W, B gets nothing. But if W dies first, then B gets 100% of blackacre under the estoppel by deed theory
ii. Estoppel by deed does NOT apply if the grantor’s first deed was simply a quick claim deed

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Recording Statutes

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

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Recording Statutes/ Early Common Law v. Today

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b. At early common law, there were no recording statutes
i. The governing rule was that the grantee whose interest was created first in time prevailed over subsequently created interests on the theory that when the grantor conveyed to the first grantee, the grantor had nothing left to convey to the second grantee
ii. Today, the CL rule still applies if the subsequently created interest does not qualify as a BFP
c. Recording the deed is not required for the deed to be effective, BUT if the grantee fails to record, the grantee may lose her interest to a subsequent BFP
i. In order to prevail over a prior unrecorded interest, the subsequent purchaser MUST:
1. Act in good faith in acquiring the subsequent interest,
2. Pay some new consideration or part with some value or right, AND
3. Receive her interest without CIA notice: constructive, inquiry, or actual notice

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Recording Statutes/ BFPs & Mortgagees

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d. Only for protection of BFPs & mortgagees: The recording act can be relied upon ONLY by subsequent purchasers and mortgagees, NOT by subsequent judgment creditors who recorded their judgments as a lien on the realty and paid no new consideration for their interest
i. An antecedent death generally is NOT value under the recording act (past consideration)
ii. Thus, a creditor who records a judgment against the debtor’s realty or a mortgage to secure an old loan executed by the debtor on his property has not given new consideration to obtain its interest, and thus will NOT prevail over a prior unrecorded interest in the debtor’s realty
1. Ex. S conveyed blackacre to B, and B neglected to record the deed. In August, J recovered a judgment against S and filed it as a lien against blackacre. Even though J was the first to record, J does NOT prevail over B’s prior unrecorded interest because J is not a BFP.

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Creditor Priorities:

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A judg once recrded will prevail over a sub created interest in the realty because the new grantee will be on construct notice of the prior recorded judgment, and thus not qualify as a BFP
i. Ex. J records a judg against P. 8 months later, P purchases real prop in Bloom cnty by taking out a $90k mortgage from B bank. When title closes on blackacre, who has priority, J or B? B.
1. If a judgment is recorded when debtor owns no real prop, but he subsequently buys realty in the cnty, then the recorded judg automatically attaches to that realty.
2. HOWEVER, if debtor financed the purchase of the property with a purchase money mortgage (PMM), then the PMM prevails over the prior recorded judg, EVEN THOUGH the mortgagee took with construct notice of the prior judgment, BUT ONLY to the extent that the mortgage proceeds were used to purchase the property
a. *one of the rare instances where 2nd-in-time prevails over 1st-in-time- only the PMM is able to jump ahead of the pre-existin judg credtr

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municipal tax foreclosure

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of the realty for non-payment of real taxes extinguishes all prior recorded deeds, liens, and leases and mortgages on the realty PROVIDED notice of the foreclosure action was given to each recorded interest

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Notices

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CIA

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Constructive Notice →

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notice provided by all prior recorded documents in the property’s chain of title
1. Purchasers have a duty to search the chain of title for any prior recorded interest and are deemed to have constructive notice of any documents previously recorded

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Inquiry Notice →

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arises where facts exist that would excite the suspicion of an RPP – reasonably prudent person – and cause the RPP to further investigate and inquire as to a third person’s possible interest in that realty
1. Includes judgment creditors?
2. Failure to make reasonable inquiry is negligent and will defeat BFP status
3. i.e. examine property in person to find out whether there is some other interest or easement or something
4. Ex. Look at property and find farm equipment on side of house. Turns out neighbor had an easement on the property, or had adversely possessed. Buyer is screwed. Does’t apply if easement/interest is not obvious – doesn’t “excite”.

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Actual Notice

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either orally or in a document at the closing
1. Ex. O an owner took out a $100,000 mortgage on purpleacre from his sister S. S neglected to record it in O’s chain of title. B contracted to buy purpleacre, did a title search, and did not find any notice of the mortgage. At the closing, O’s deed, which B did not read, stated that the property was sold “subject to the $100,000 mortgage.”
a. Here, B takes subject to the mortgage because he had actual notice in the deed.

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Subsequent BFP (and superior interests)

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g. 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.
i. 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

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Notice Statute

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gives priority to a subsequent BFP over a prior unrecorded instrument PROVIDED that at the moment of taking the second instrument the BFP had no CIA notice of earlier interest
1. Thus, even if the first grantee is the first to record, but she records only AFTER the BFP took his subsequent interest for value, without notice and in good faith, then the subsequent BFP will nevertheless prevail under the Notice Statute

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Race Notice

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✪NY & maj follows → priority is given to a subsequent BFP who at the time she took the instrument had no CIA notice of the prior unrecorded interest AND is the first to record

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Race Statute

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Neither CIA notice nor good faith are relev b/c priority is based solely on who was the 1st to record
1. A subsequent purchaser for value who was the first to record prevails EVEN THOUGH there was inquiry or actual notice of the earlier recorded interest
2. The term “chain of title” describes the history of all the recorded docs which can be found by searching back in the history of the property in the cnty clerk’s office
a. These documents recorded in the property’s chain of title provide constructive notice to any subsequent purchasers
3. Under the collateral document rule, a purchaser is charged with constructive notice of instrmnts recorded in any adjacent prop’s chain of title where contiguous props were formerly held by a common owner
a. ✪HOWEVER, in about half of jds, including NY, there is no duty to search the chain of title to any adjoining lands formerly owned by a common owner
b. i.e. may be some restrictive cov on the prop put in place by former owner upon subdivision

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Two types of indexes:

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i. Grantor-Grantee Index → uses names of parties as an indexing method
1. Recording clerk alphabetically files documents for each type of land transaction according to its nature
ii. Tract or Parcel Index → records and traces in sequence of time the history of all the transactions on that parcel of land

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Adverse Possession

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permits a trespassor’s possession to ripen into ownership through the passage of time
a. In the overwhelming majority of states, the AP’s state of mind is irrelevant, and the AP need not possess the land under a claim of right
i. ✪THUS, a mere squatter may obtain MBE title, though he has no claim of right, and no subjective belief in ownership
ii. ✪NY now requires an objective good faith claim of right

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Adv Possession SOL

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b. SOL: Each jurisdiction has its own statute of limitations for ejectment, after which time the actual owner’s cause of action will be barred if the trespasser can establish title by AP
i. ✪MBE will most likely tell you what the SOL in that jurisdiction is

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AP frequently benefits a possessor who lacks title or who has defective title because:

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i. The deed was forged or never signed
ii. The deed was improperly delivered
iii. There was a mistake in taking possession
iv. A neighbor who intentionally or mistakenly encroached on the property
v. The delivered deed was lost and never recorded (deeding to the AP)

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The title gained by AP

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d. The title gained by AP usually is the same interest held by the former owner
i. Eg. life estate or fee interest
e. An AP takes the property subject to existing easements, mortgages, future interests, and covenants that burden the land
i. An existing easement, covenant or profit may be extinguished by the AP’s possession, BUT ONLY if it was in fact hostile to those interests

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Contesting AP

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f. Merely ordering the AP to get off the land DOES NOT interrupt his period of AP
i. The owner must commence an ejectment action within the AP SOL
g. Because the acquisition of title by AP is not favored by the law, the following elements must be established by clear and convincing evidence – EUNUCH:

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E

EUNUCH

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i. E – exclusive possession, not shared with the owner
1. i.e. the AP alone must care for the disputed property as if it were his own
2. HOWEVER the AP will be credited with time his tenants or others who occupy the land at his behest
a. This doesn’t foreclose the “exclusive” ownership required to find AP

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1st U

EUNUCH

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ii. U – the owner was under no disability (infancy or mental disability) when the AP began AND the owner could have sued to eject the trestpassor
1. Can’t take advantage of a disability to possess
2. If disability kicks in after on property, irrelevant

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N

EUNUCH

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iii. N – notorious and open possession that would put the owner and neighbor on notice that there is a trespasser on the land and that the owner has a coa for ejectment
1. Eg. possessing, cultivating, enclosing, or improving the land

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2ND U

EUNUCH

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iv. ✪U only in NY – und a gd faith clm of right
1.For all NY AP claims commncd on/after 7/7/08, the AP must demstrate he tk poss with an objctve, gd fth blief ownd the ld
a.NY tested this after 2008, due to test it agn
b.i.e. a rsonable basis for the belief that prop blnged to him
c.Thus, if the evid introdd at trial doesnt supt the AP’s belief that ld blnged to him OR facts state he knew land wsnt his, he CANT estblsh AP in NY UNLESS the tru ownr’s id cldnt be ided in land’s chain of titl
2.NY AP clms may NT be based on dimin nonstruc encrch, i.e. shds, fences, bird hses,shrubs
a.NY provides that lwn mowing, plnting shrubbry, lndscaping, and other acts of mntenance on another’s ld are now deemd permissive and NOT advrs
i.Very diff than MBE
b.BUT cld still have old claims allowing such encrchmts to warrant finding of AP if done prior 08
3.If the NY AP began prior to 7/7/98, and titled by AP, vstd prior 7/7/08, thn new law wouldNT retroactively revoke vested title = AP wld have poss

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C

EUNUCH

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v. C – continuous and uninterrupted actual possession
1. Seasonal use of a vacation property is sufficient to meet the AP elements SO LONG AS the use would put the true owner on notice of that use
2. It is NOT necessary that this same person be in possession for the entire AP period
a. Tacking allows one AP to tack on the time of a previous AP PROVIDED there was privity of estate between the two
b. ✪Every time tested on AP, test on tacking or seasonal use
3. Under the doctrine of constructive possession, a possessor who has a written colorable title or deed to an entire parcel BUT ONLY occupies part of it is regarded as being in possession of the whole parcel
4. If an AP’s claim is NOT based on a written instrument, then under the Footprint Doctrine, ONLY that portion actually occupied is adversely possessed

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H

EUNUCH

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vi. H – hostile possession
1. Hostile towards the owner’s title, and NOT necessarily the owner
2. Hostility may be presumed if the other elements are satisfied
a. But this presumption does not arise where the parties have a close or familial relationship
3. Hostility exists where the possessor openly occupies the land WITHOUT: OPA these factors foreclose a finding of AP
a. O - Offering to buy the land from O,
b. P - Asking O’s permission to use the land, and
c. A - Acknowledging to anyone that the title is in O
4. Any kind of possession undertaken with an owner’s permission will defeat AP
a. Hostile possession does not begin to run until such permission has been repudiated, and the possession assumes open hostility to any right of the true owner

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Effects of AP

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i. Once AP satisfies EUNUCH for the statutory period, title vests in the AP by operation of law
1. This title is no longer dependent on continued EUNUCH and CANNOT be lost by abandonment or OPA
ii. When two or more people, even H and W, adversely possess, they take as tenants in common with no right of survivorship

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Remedies Problem: (ap)

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7 years ago, D built a hotel. Because of an erroneously drawn survey, the building mistakenly encroached onto P’s adjoining land. P commenced a NY action demanding possession.
1. The ct here noted that D had NOT established AP for 10 years, HOWEVER, where an AP’s trespass was not intentional, the ct MAY balance the equities and relative hardship to both parties and order money damages where it would be inequitable to require removal of the encroachment
2. The ct in its equitable discretion may award $ damages in the amount of the difference in P’s land value before the encroachment, and the value after.
3. Where the encroachment is 6 inches or less, the affected landowner has one year from completion of the building extension wall to sue for an injunction
a. Thereafter, only money damages may be sought

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Easements

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a right to use another’s property for a specific purpose, e.g. to gain access to a public road or a body of water
a. An easement is considered a unique real property interest that may be protected by an injunction
b. Distinguish from license: that is a personal, non-assignable use, revocable at the grantor’s whim; can sue for $ damages with license; less powerful than easement; doesn’t run with land; owner can revoke at whim
c. Easements consist of both a dominant estate, which is the land benefitted, and a servient estate, which is the land burdened
d. Most easements are affirmative easements → grant a privilege for someone to affirmatively use someone’s land for a specific purpose

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Negative Easements

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prevent the servient estate from using the land in a particular way are limited to LAWS: limits what owner can do with these things
i. L - light
ii. A - air
iii. W – water use
iv. S – support

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Affirmative Easement

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→ may be created by PIGS:
i. ✪When writing essay on easement, define AP, negative easement, affirmative easement, then law out the PIGS elements

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P

PIGS

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ii. P – easement by prescription
1. Similar to AP, but to establish an easement by prescription, one merely uses another’s property for the statutory period without the owner’s permission
a. The use does not have to be exclusive, as it does for AP
2. ✪NY also requires a good faith objective belief in the right to use the land

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I

PIGS

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iii. I – easement by implication
1. Get an implied easement if you have a CRAB
2. An easement implied from a prior common owner’s apparent pre-existing use of the dominant and servient estates – implied that you can use the property the same way previous owner did
a. It arises when the prior common owner of the estates previously made an open, permanent, and reasonably necessary use of one part of his land for the benefit of another (a quasi easement)
3. By dividing the land into two parts and selling one, the seller impliedly creates and easement over the retained parcel for the benefit of the conveyed parcel

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G

PIGS

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iv. G - easement by grant
1. Easement created in a signed writing
2. So long as it’s in writing, it’s valid
3. ✪When comes up, have to distinguish easement by grant and a license
4. A co-tenant may not create an easement by grant without the other co-tenant’s signature
5. The fact that an easement by grant does NOT provide a precise location will NOT invalidate the intended easement
a. A ct can fix the location

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S

PIGS

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v. S – easement by strict necessity
1. Arises when a common owner sub-divides the land, leaving one parcel landlocked without any access to the public way
2. The purchaser of the land-locked parcel is entitled to an easement by strict necessity across the common owner’s parcel to reach the public way
3. Difference from easement by implication: ease by strict necessity does nOT rely on an apparent pre-existing use, and the necessity required is an absolute strict necessity, NOT just the reasonable necessity required for easement by implication
4. If there’s an old abandoned road, then it’s not strict necessity; examiners will make it clear that can’t pass; something that simply needs repair doesn’t meet this standard

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A profit

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g. A profit is an easement that permits the holder to sever and remove something from the land, e.g. the right to fish, hunt, or remove sand, foil, or minerals
i. RP law considers the right to take water that belongs to nobody an easement, rather than a profit
ii. If the K calls for the seller to sever minerals from the land, then it is considered a sale of goods, governed by UCC Art 2

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Duty of Maintenance:

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The dominant estate has the duty of maintaining, repairing, or rebuilding the easement
i. Where there is an easement in common, the burden of maintenance or repair is imposed on all users

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Apertinent and In Gross Easements

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i. An easemnt that benefits the dom estate is called an apertinent easement
1. An IE runs with the land whenever the land is conveyed
2. An appertinent easement may ONLY be used to serve the dom estate it was intended to benefit
a. It may not be used for any purpose not connected with the enjoyment of the dom estate, nor can the easement be assigned to a stranger to the land
b. It cannot be expanded by the dom owner for use by other nearby lands
ii. An easement that does NOT benefit one’s land, but personally benefits the easement holder is an easement in gross, i.e. teleph cables
1. At CL, easements in gross could not be assigned
2. Today, commercial easements in gross are freely assignable
iii. If the dom estate is subdivided, the subdivision MAY NOT increase the burden on the servient land beyond that burden originally contemplated, or beyond a reasnbl use
1. Ex. Subdivide land into 40 parcels to set up development. Now have 40 times the peple using the easement on servient prop.

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A subsequent purchaser of a servient estate takes the realty subject to

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j. A subsequent purchaser of a servient estate takes the realty subject to ANY easements over that land of which there was CIA notice
i. So make sure you record your interest on both the dominant and servient estates

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An easement, profit, or covenant running with the land MAY BE extinguished by A CRAM:

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i. A – abandonment, clearly indicating the intent to surrender the easement
1. Mere non-use alone is NOT abandonment
2. Usually doesn’t happen; probably more common with an easement in gross (co goes out of business)
ii. C – condemnation of the servient estate by the state’s eminent domain power
1. i.e. State comes in and takes the land, will pay the owner plus the easement owner
iii. R – signed writing releasing the easement
iv. A – adverse possession of the servient estate in a hostile manner that prevents the easement’s use
v. *M – merger by common ownership 100% of the dominant and servient estate
1. re-subdivision of the property DOES NOT revive the easement
2. HOWEVER, an easement may be independently established as an easement by strict necessity or by implication

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Zoning

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a. Zoning laws exist under the state’s police power
b. They permit municipalities to restrict the development, size, and use of the land to promote safety, health, and the general welfare of the community
c. In CPLR Art 78 special proceedings, cts give great deference to the decisions of zoning boards
i. As long as the decision is rational, and NOT arbitrary and capricious, the ct will NOT disturb the zoning board determination
d. Even if a landowner complies with zoning laws, she may still be liable for:
i. The tort of nuisance, OR
ii. Violating an existing covenant or condition restricting the land’s use

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Variances:

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If a landowner faces “unreasonable hardships” because of existing zoning laws, a variance may be requested to use the property in a manner that conflicts with the zoning laws.
i. Two Types of Variances:

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Use Variance →

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requires landowner to show: conjunctive
a. The zoning law imposes an undue financial hardship on the owner so that the entire land as zoned CANNOT yield a reasonable economic return if it has to comply with the zoning law
b. The applicant’s problems are due to the unique circumstances of the property
i. Show that you’re not similarly situated to everyone else
c. Granting the variance will not substantially alter the character of the neighborhood

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Area Variance

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does not seek to change the use of the property, but seeks to decrease the area required by the zoning law
a. e.g. allowing a building to be built closer to a neighbor’s boundary line, or to be built higher than the zoning laws will allow

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Factors a Zoning Board Balances

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ii. The zoning board balances the benefits to the land owner against the detriment to the neighborhood
1. It will consider the following factors:
a. The alternatives for accomplishing the goal without a variance
b. Whether the variance will alter the character of the neighborhood
c. Would it adversely affect the environment
d. Was it self created?
i. E.g. did the owner buy with notice of the problem, or sub-divide the property, creating the problem
e. Is the variance substantial or insubstantial?
iii. When a variance is denied, the owner seeking the variance has standing to challenge the denial
iv. When the variance is granted, an unhappy neighbor must show an injury different from the rest of the public at large

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Spot Zoning:

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A frequent challenge by neighboring landowners arises when the zoning law is amended to single out and favorably re-zone just one parcel for a different use than the surrounding lands
1. This is referred to as “spot zoning” and may be held to be arbitrary and illegal

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Non-Conforming Use

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the use of land which was lawful prior to the zoning law being enacted
1. It permits the owner of that land to continue that use, EVEN THOUGH it is not in compliance with the zoning law
2. It cannot be expanded without a variance, and if it is substantially destroyed, it cannot be rebuilt without a variance
a. Likewise, non-use of the property will constitute and abandonment of the non-conforming use. NYAA 695.
3. They can be eliminated by an amendment to the zoning law, BUT under the amortization doctrine, the owner MUST be given a reasonable time to recoup the original investment, at which time they MUST conform to the zoning law

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Covenants Running with the Land (CRLs)

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Essay 1 Feb 2009, NYBE 619, MLO RP55-61
a. ✪If tested, will be with housing development; just apply the elements

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Two General Categories of Covenants

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i. Covenant that is personal between the two parties, which is enforceable only between them based on privity of K
ii. Covenants (servitudes) that run with the land, which bind and benefit subsequent owners, EVEN THOUGH they were not the original K’ing parties
1. CRLs are annexed to the land and CANNOT be separated from the land when it is transferred
2. CRLs benefit, burden, and bind all successors in interest to that realty
c. A subsequent purchaser is bound by a CRL, provided there was CIA notice of its existence

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✪Elements for a CRL

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i. P – privity of estate, which traces the land of π and D back to a common owner who imposed the restriction (vertical privity)
ii. I – intent by the original K’ing parties that the covenant attach to land and run to all future assignees of that property (horizontal privity)
iii. N – CIA notice of the CRL
iv. T – covenant must touch and concern the land
1. That is, the burden and the benefit of enforcing the covenant must relate to the land (as opposed to the owners)
2. Most affirmative covenants are NOT binding on subsequent grantees because of this factor (covenants that personally benefit the owner, not the land)
v. S – statute of frauds, which is easily satisfied under the deed poll doctrine if the original covenant was in a document, signed either by the grantor or the grantee

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Real Covenants v Equitable Servitudes

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e. CRLs can either be real covenants (PINTS), or equitable servitudes, which do NOT require privity of estate back to a common owner
i. Thus, to satisfy a CRL as an equitable servitude, the π need only satisfy TINS, which is PINTS without privity of estate
1. Today, the only difference between the two doctrines is that privity of estate is required for to recover $ damages for breach of the CRL

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If a covenant does not fall within one of the 4 CANS classes, then generally it does NOT run with the land:

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1. C – cov imposed by a com owner upon part of her land conveyed away for the bene and protect of the land she retained a.Subsequent owners can enforce this type of cov PROVIDED PINTS is satisfd
2. A – cov was entrd into btwn adjoining lndownrs for their mutual bnft a.BUT since there is NO privity of estate, tracing the land back to a com owner, this restriction CAN be enforced ONLY as an eqtable servtude by way of an injun
b. $ damges cant be sought!
3. N – a grantor’s restrictive cov on conveyed land for the benefit of neighboring lands, which the neighbors can enforce as third-party beneficiaries of the cov, DESPITE the absence of privity of estate btwn the grantor and the neighbors
4. ✪S – a cov to carryout a common plan or scheme for the future benefit of all owners in a hsing developmt
a. Once recorded in the orig chain of title to all the lots, it’s enforceable against all subsq grantees
b. Its enforceable in equity (injc) OR at law ($ damgs) by subsqnt owners b/c PINTS exists

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PINTS can come in CANS:

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1. Even if a developer’s covenants were not recorded in the chain of title (no constructive notice), cts have held that an existing common plan or scheme in a development puts subsequent purchasers on inquiry notice (CIA) as to existing restrictive covenants
iv. ✪If there is any conflict between a CRL and the zoning law, then the stricter restriction will be enforced

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CRLs in a housing developments

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v. CRLs in a housing developments are enforceable by earlier purchasers against the developer and against subsequent buyers in the development on the basis of an “implied reciprocal servitude”
1. That is, it is implied that the developer who sold the first parcels with restrictions imposed would impose the same restrictions on subsequent parcels sold in the project
2. Likewise, if a developer set aside acreage to build a school or a golf course, but subsequently attempts to sell the acreage to a fast food restaurant, then the prior owners in the development can sue on the basis of an implied reciprocal servitude
3. Do ques #16 at home

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vi. Equity will not enforce a CRL (no injunction) where:

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1. Enforcement would be worthless,
a. Here the court uses the LIE comparative hardship test
2. Π unreasonably delayed in seeking to enforce the servitude (laches), OR
3. Enforcement would violate PP
a. Ex. equity would not enforce a restrictive covenant limiting the property to single-family homes where the government sought to establish community residences for the mentally challenged
vii. PINTS running with the land, as well as conditions imposed on fee interest are NOT limited by the rule against perpetuities (CROUP)
1. Thus, they can run indefinitely with the land

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Eminent Domain (1/2)

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a. The US Constitution’s 5A and every state’s constitution has a taking clause → gives the government power of eminent domain to “take” private property for a public purpose PROVIDED just compensation is paid to those having a present or future interest in the real property
i. The government is given broad discretion and the judiciary is given an extremely narrow scope of judicial review in defining what is for “public use”
ii. It does NOT literally mean “used by the public”, BUT is a taking for an overall public purpose, and all of the land taken does NOT have to suffer from blight
iii. “Public purpose” permits taking to revitalize an economically distressed neighborhood and for development by private developers

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Eminent Domain (2/2)

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b. The ED clause prevents the government from forcing some people alone to bear the public’s burden when in fairness it should be born by the public as a whole
i. This clause is violated when a municipality requires a landowner to use part of her property for public use as a condition to obtaining a building permit or a zoning variance UNLESS the government can show a rough proportionality connecting the landowner’s intended use and the public’s need for part of that land
1. Ex. Want to build a parking lot next to your inn, and government says will grant so long as you build a playground. USSC says no – no connection between parking lot and playground.

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Compensable Takings:

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A reg or restric becomes compensable taking:
i.When it is an actual, physical tkng or possessing priv prop for a pub purp
1. I.e: Blding crthouse/highway on π’s land; law permitting all cable TV companies to install its cable on priv land;the perm flooding of O’s land when the gov constructed a dam
i. Likewise, seasonal flooding for 6 years is a taking
ii. A regulatory taking, where the government permanently, or for a prolonged period (10 yrs) restricts ALL USE of the land, leaving it economically idle, and depriving the owner of all econ value of the prop
1. A temp ban on all bldng permits for 3 yrs was NOT a taking
a. It was imposed to give the local gov time to design a comprehensive blding and zoning plan
d. Regulation is NOT a Taking: Taking is distinguished from gov regulation of land, SUCH AS zoning, rent control, or landmark preservation of property, which is valid so long as the owner can obtain a “reasonable financial return” from the affected prop. Grand Cent case.

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Fixtures

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✪NY doesn’t generally test; MBE does → chattel, which by being annexed to the realty, becomes part of the realty
a. If chattel becomes a fixture, it passes with the real property whenever the realty is conveyed by deed, through the owner’s estate, by adverse possession, or by a mortgage foreclosure
b. Any personal property that is essential for the functional utility of a fixture cannot be removed from the property
i. Ex. A garage door opener, the hose and attachments to a central vacuum system
c. Whether a chattel becomes a fixture is determined by TIP:
i. T – the type of chattel that generally becomes part of the realty, i.e. chandelier, awnings, storm windows
ii. I – intent of the person installing the chattel
1. If the land and chattel had a common owner, there is a presumption that it was intended as a fixture
iii. P – parties’ relationship
1. i.e. landlord-tenant, or life tenant remaindermen

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Trade Fixtures

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chattel installed by a commercial tenant for a business purpose
i. CAN be removed by the tenant at the end of the lease, BUT they MUST be removed prior to termination of the lease
1. OTHERWISE, the fixture reverts to the landlord
ii. Any damage done in removing the fixture must be repaired by the tenant
iii. Removal is prohibited if it would cause substantial damage to the realty
iv. Creditor Exception: Under UCC Art 9, a creditor having a perfected security interest in fixtures MAY remove the fixture EVEN IF substantial damage would be caused PROVIDED the creditor post a bond to repair any damage

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Lateral Support

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a. Land is entitled to lateral support from neighboring land
i. When adjacent land is excavated, weakening the lateral support to a neighbor’s land, absolute liability is imposed in MBE if the adjoining land in its natural state would have collapsed because of the excavation
ii. HOWEVER if the collapsed land contained an artificial structure, increasing the pressure on the land, and that land would not have collapsed except for the extra weight of the structure, then the injured land is required to prove negligence in the excavation
c. If non-adjacent land also collapses, it can recover from the excavator on a negligence theory, BUT NOT absolute liability for the collapse of noncontiguous land
d. In NY, as soon as the excavation exceeds 10 feet, NY imposes strict liability REGARDLESS of whether the land was in its natural state or it was encumbered with an artificial structure

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Lateral Support (Problem)

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A structure fell into B’s excavation. If A’s land would not have fallen if no building was on it, then B is NOT strictly liable, and A must prove B was negligent in the excavation
i. HOWEVER, if A’s land would have fallen if there was no building on it, B is strictly liable

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Water Rights

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✪NY doesn’t test; MBE does
a. A landowner’s use of a flowing waterway (brook, river, or stream) MUST be reasonable
b. If it flows through several parcels, then the upstream owner can reasonably use the water supply, even if it decreases the water supply to downstream owners UNLESS the upstream owner’s purpose was malicious or the water was wasted
c. Most cts interpret “reasonable use” as giving each land on a stream or river some benefit from the water requiring the water to be apportioned so that owners on the downstream portion have a right to some portion of the water
i. Under this reasonable use theory, cts look at SPUD to determine reasonableness:
1. S – size of the waterway
2. P – purpose for using the water and the resulting harm to others
3. U – the amount of the water used
4. D – the duration of that use (how long has owner been using the water?)

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Water Rights ( commercial use)

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ii. Commercial use generally is NOT reasonable if it deprives surrounding residential lands of the water
iii. If water is removed from the land to be used elsewhere to the detriment of downstream owners, it is an unreasonable use
iv. If B constructs a dam, causing water to backup and damage A’s upstream property, A’s remedy is a cause of action for trespass
1. HOWEVER, if it was a beaver that built the dam, then B has NO DUTY to abate a condition that is purely natural in origin

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Riperian Rights

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give a landowner on the border of a defined waterway (on the ocean or the Great Lakes that have tides) ownership down to the high water mark, and an easement below the high water mark to gain access and to reasonably use that water
i. On rivers, streams, and brooks, the property owner on the border of that waterway owns out to the middle of the waterway UNLESS that property owner’s deed states otherwise
ii. The conveyance of land located on an in-land stream or pond impliedly conveys the land under the water, and NOT JUST to the water’s edge, and it includes the land under the water to the middle of the stream or pond

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e. Diffuse Surface Waters

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those waters from rain, melting snow, or underground springs that surface onto the land BUT DO NOT form part of a defined waterway
i. Three theories for such waters:

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The civil law theory, aka natural flow theory,

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1. The civil law theory, aka natural flow theory, imposing strict liability on a landowner who alters the natural drainage flow, causing damage to neighboring property
a. All landowners are subject to an easement of flowing surface waters

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common enemy doctrine

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2. The common enemy doctrine, which is the opposite of civil law
a. Treats unwanted surface waters as an enemy, allowing the landowner to do anything to prevent the water’s entry onto the land
b. A landowner is free to impound (dam up) diffuse surface waters, but it CANNOT then discharge the water all at once onto a neighbor’s land

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reasonable use theory

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3. The reasonable use theory, allowing owner to reasonably alter the flow of surface waters in good faith in order to reasonably use her land
a. UNLESS the alteration unreasonably interferes with a neighbor’s property
b. Here, cts look at the necessity for the change, whether it was done with care, whether a better method could have been used, and how much harm was caused to the neighbor’s land
c. ✪A NY landowner is NOT liable, provided the improvements were made in good faith for a reasonable use AND the water was NOT channeled onto the other property by artificial means, such as pipes or ditches, in which case NY imposes strict liability for water damage. NYAA 691.
ii. Restatement of Torts treats surface waters under the rules for the tort of nuisance
1. Thus, interfering with the flow of surface waters is permissible UNLESS it unreasonably interferes with a neighbor’s use and enjoyment of her land

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Mortgages

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a. When a buyer of realty finances the purchase price (almost all the time) 2 separate docs are executed by the buyer:
i. A note promising repayment of the loan
ii. A mortgage to secure repayment of the loan
b. Mortgage is then recorded by the bank in the chain of title to the realty
d. Once a mortgage and note are executed, then the MGEE (bank) is free to assign to sell both instruments together
i. The mortgage always follows the note when it is assigned
1. It is similar in concept to an option to buy contained in a lease where the option cannot be assigned without also assigning the entire lease **

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A mortgage on new construction

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c. A mortgage on new construction frequently is given for future advances (progress payments) ✪MBE tests on this
i. The bank does not turn over the full amount of the loan immediately but spreads the payments out into the future as the building progresses.
ii. If the advances are mandatory, then the full amt of the mortgage has priority over ALL subsequent interests in the realty.
iii. If however, the advances are optional with the bank, then the bank has priority in the realty over subsequent parties but ONLY to the extent the advances were made before the bank received “actual notice” that subsequent liens or mortgages had attached to the realty

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Foreclosures

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i. A π in a foreclosure action has standing to commence the action BUT ONLY if it is the holder (the assignee) of both the mortgage and the note
1. An assignment of just the mortgage without an assignment of the note is a nullity, and the assignee lacks standing to commence a foreclosure action
2. A mortgage is merely security for a debt and it CANNOT exist independently of the debt
ii. Upon a debtor’s default in paying the note, the creditor may EITHER:
1. Sue the mortgagor personally for a money judgment, OR
2. Sue in equity to foreclose the mortgage
a. And once a foreclosure judgment is obtained, the court will appoint a referee to sell the realty at a foreclosure sale and to pay off the note from the foreclosure proceeds
3. A mortgagee CANNOT simultaneously pursue both remedies!

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In a foreclosure of NY commercial property

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iii. In a foreclosure of NY commercial property, the mortgagee can move for an appointment of a LIAR receiver to preserve the property during foreclosure

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right to pre-pay the mortgage prior to its expiration

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iv. ✪All MBE borrowers, and in NY commercial borrowers, have no right to pre-pay the mortgage prior to its expiration UNLESS the mortgage instrument expressly allows prepayment. NYAA 681.
v. ✪A NY residential borrower who owns and resides in a 1-6 family residence has the right to pre-pay the mortgage EXCEPT during the first year and ONLY if the bank expressly imposes a 12-month pre-payment penalty

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Mortgage title rights v lien

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vi. Any interest in realty can be mortgaged BUT the execution of a mortgage conveys no title; it merely creates a lien on the realty to secure repayment of the debt
vii. A minority of jurisdictions (CT and MA) recognize a title mortgage (as compared to a lien mortgage) → title to the property passes to the mortgagee as security for the debt
1. Thus if a joint tenant mortgages her interest in one of these states, it converts the JT into a TC, extinguishing the right of survivorship EVEN THOUGH the mortgagee has NO RIGHT to immediate possession of the realty
2. A title mortgage has the same effect as an absolute conveyance and the subsequent satisfaction of the mortgage does not revive the JT

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Mortgage Problem

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In 1999, O executed a will leaving blackacre to Y. In 2000, O sold blackacre to B, but B neglected to record that deed. When O died in 2003, O’s estate signed a deed to Y, which Y immediately recorded.
a. However, Y is NOT a subsequent BFP who will prevail over B’s unrecorded deed because Y paid no value for his title.
b. In 2006, Y borrowed $50,000, and M recorded a mortgage, and that jurisdiction recognized a title mortgage. In 2010, B finally recorded his deed. (bank is a bfp)
c. In 2013, Y paid off the mortgage, and M (mortgager) deed the property back to Y, who recorded M’s deed. Under the Real Property Shelter Doctrine, can M pass its BFP status onto Y?
i. NO → just like in UCC Art 3, the Shelter Doctrine CANNOT be applied to a former party in the chain of title who is not allowed to enhance his position under the shelter doctrine

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Transfer of Property Subject to Mortgage:

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If real prop w/ a recorded mortgage is transferred (by sale, gift, or through the deceased owner’s estate), then the prop impliedly passes subject to the existing mortgage
1. BUT the grantee of that property who does not expressly assume the debt is NOT personally liable for its repayment OR for any deficiency judgment if the mortgage is foreclosed
2. The original mortgagor who signed the note and mortgage remains liable if the debt is not paid
3. In a minority of jurisdictions, if mortgaged land passes to a third person by will or by intestacy, then the beneficiary receiving the property has the right of equitable exoneration to compel the estate to pay off the mortgage
4. Today in most jurisdictions (NY) UNELSS the will expressly provides otherwise, the party inheriting the realty takes it subject to existing mortgages
a. A gen provision in a NY will directing the payment of all decedent’s debts will NOT impliedly give rise to equitable exoneration
i. Can only be done expressly

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liability of grantee of a deed containing a mortgage assumption clause

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5. ✪The grantee of a multistate deed containing a mortgage assumption clause becomes personally liable for the mortgage debt EVEN THOUGH the grantee did not sign the deed
a. The express assumption clause is considered part of the consideration supporting the RP transaction
6. ✪HOWEVER, the NY grantee is NOT personally liable for an assumed mortgage UNLESS seller’s deed fully informs the buyer of TIPS:
a. T – time remaining on the mortgage
b. I – interest rate
c. P – the principal amount of the debt assumed
d. S – deed must be signed by the grantee

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Due on Sale Clause:

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: Mortgaged RP is freely transferable, BUT if the mortgage contains a due on sale clause, it gives the bank an option to accelerate the mortgage debt IF all or any part of the property is sold without the lender’s prior written consent
a. Do ques #20 at home
b. *NYAA 676 – discusses new rules on residential foreclosures in NY

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Mortgage Default

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i. A mortgage default for nonpayment can be cured simply by tendering the unpaid arrears plus interest at any time before the mortgage debt is formally accelerated under the note’s acceleration clause by the bank declaring the entire balance due
1. Prior to acceleration, can simply pay the debt in arrears and its fine

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Equity of Redemption

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ii. ✪MBE Even after the mortgage debt has been accelerated, the mortgagor ALWAYS has the right under the doctrine of ✪equity of redemption to pay the mortgage referee the full balance of the loan before the referee’s hammer falls at the foreclosure auction (acceptance)
1. This payment discharges the debt, requiring the mortgagee to issue a satisfaction of mortgage to be recorded in the chain of title
2. This saves the mortgagor’s equity (profit) in the realty
3. ✪33 states (not NY) have enacted a statutory right of redemption, allowing the debtor to redeem the property AFTER the foreclosure sale takes place (from 3 months up to 18 months after sale) by paying the amount that was bid at the foreclosure sale
a. Makes this much easier for the borrower
b. Buying the property back from the buyer
4. ✪NY cts will NOT set aside a foreclosure sale based on an inadequate selling price UNLESS the price shocks the court’s conscience
a. Ex. $5,000 for an $85,000 farm = shocked. NYAA 675.

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Mortgage Default Query: If the proceeds from the foreclosure sale are not enough to pay off the existing mortgage debt, can the mortgagee (bank) sue the mortgagor (borrower) for the deficicency?
1. Ex. M foreclosed on a $150,000 mortgage. The property was sold at foreclosure for $75,000. Can M seek a deficiency judgment for $80,000 (difference) in a subsequent law action?

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2. In NY by statute, an action for a deficiency judgment allows M to recover only that amount of the mortgaged debt which exceeded the FMV of the property (only where the property was “under water”)
a. Rule: The ct disregards the price paid at the foreclosure sale and the bank has the burden of demonstrating the market value of the property
b. Rule: To determine if a deficiency exists, the ct reduces the amount of the mortgaged debt by the market value of the realty, which in the majority (67%) of foreclosures will cancel the debt owed to the lender
3. If the ct found the property was valued at $175,000, then even though it was sold for only $70,000 at the foreclosure sale, since the mortgage debt was $150,000 (FMV exceeds debt), the ct would NOT permit a deficiency judgment because the FMV exceeded the amount of the mortgaged debt
a. See hypo on p. 35 in RP handout
b. This rule gets the bank involved and protects the borrower

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NY Deficiency Judgment

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iv. ✪In nY a deficiency (money) judgment can be obtained ONLY with the ct’s permission by way of an order to show cause, which MSUT be signed by a judge and served on the mortgagor (debtor) within 90 days from when the foreclosure deed was delivered ot eh foreclosure buyer. NYAA 674 & 675.

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If the mortgagee does not timely commence and served the deficiency papers

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v. If the mortgagee does not timely commence and served the deficiency papers, then by law the mortgage sale proceeds are deemed to fully satisfy the mortgage debt

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title of purchaser at foreclosure sale

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vi. The purchaser at a foreclosure sale gets the same title that existed at the moment the mortgage was first recorded
1. The foreclosure wipes out any subsequent interests filed in the chain of title after that mortgage was filed
2. Ex. A second mortgage, liens, easements, commercial leases, $ judgments, or other encumbrances, PROVIDED the holders of those subsequent interests were properly named as Ds in the foreclosure action AND were served (MOP) in the foreclosure action
a. They are necessary parties to the foreclosure action, otherwise the foreclosure judgment does NOT affect their interest
vii. Interest in the chain of title will survive a mortgage foreclosure sale IF:
1. The interest was recorded PRIOR to the foreclosed mortgage being recorded
a. Ex. Any pre-existing recorded easement on the property
2. The interest arose AFTER the mortgage was recorded, but no MOP notice was given to the subsequent interest. NYAA 676-79.

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bona fide residential tenant

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viii. Under federal and state law, a bona fide residential tenant (other than the owner mortgagor) whose rent is not substantially less than FMV when the property is sold is protected from eviction by the foreclosure purchaser SO LONG AS that tenant continues to pay rent

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Equitable Mortgages

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three types – see numbers
i. ✪MBE will test on this
ii. in attempting to circumvent the mortgagor’s equity of redemption, and to avoid the huge time and expense of a foreclosure sale, lenders or sellers of RP who ordinarily would take back a mortgage have created “mortgage substitutes” in an attempt to clog equity of redemption in the even of a default
iii. Where equity finds the scheme to be a mortgage, then the debtor WILL NOT be deprived of the equitable right to redeem the property BEFORE it is lost at a foreclosure sale
1. THUS, a deed or a K of sale, if given to secure a loan, will be treated by equity as a mortgage, which first must be foreclosed
iv. An EM is a transaction that has the intent, BUT NOT the form, of a mortgage, but that equity will enforce as if it was a mortgage

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Equitable Mortgages Problem

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M was desperate to borrow $50k to bail his son out of jail. M went to H, a neighbor, and H proposed 1 of the following 2 arrangmnts to secure the loan:
1. M would execute a $50k note and simultan give H an opt to buy M’s blackacre for a substantially reduced price if he defaulted.
a. Thus, if M's blackacre was worth $150k and H lent M $50k for a 10-yr period, H would obtain an opt to buy blackacre for $25k if M defaulted.
b. 1) Equity treats this arrangement as an EM, requiring H to first foreclose in order to wipe out M's equity of redempt.
2. M wld give H a deed to blackacre to hold or to record as security for M's repayment.
a. 2) This is referred to as an EM security deed OR a deed in trust IF it is held in escrow by a 3rd pers who is authorzd to record it if M defaults
b. Uslly the deed makes no mention of the indebtedness OR the retransfer of the land back to M whn the debt is fuly paid
3. NEITHER the SOF nor the PER prevents oral proof of an EM!
4. See OF MICE Lec 10

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EM-installment sales contract

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A third equitable mortgage arises when a buyer of RP finances the purchase price with the seller by entering an installment sales contract for 10 or 20 years, allowing the Buyer to take possession while paying off the total purchase price
1. The Seller agrees to execute a deed ONLY when the price is fully paid
2. The installment sales K usually contains a forfeiture clause in the even of the buyer’s default terminating the K and allowing the seller to retain all prior payments EITHER as rent or as liquidated damages
3. Here, the seller has legal title BUT the buyer has equitable title
a. THUS, if the buyer defaults under the K terms, then the seller MUST foreclose the equitable mortgage and extinguish the buyer’s equitable title and extinguish equity of redemption

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Landlord Tenant Law

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✪Frequently tested on essays, know this!
a. When realty is leased to a tenant, RP law treats the lease as the equivalent of a sale for the term of the lease
b. At CL, once a tenant entered a lease, the tenant was obligated to pay rent for the entire lease term, EVEN IF the premises was destroyed, or the tenant vacated the premises, or the tenant died
i. TODAY, this harsh remedy is altered by statute, allowing residential tenants to cancel the lease
ii. Ques #25 at home
c. A lease period for longer than one year MUST BE in writing, signed by the party to be charged with its breach, OR by her agent whose authority to sign must be in a signed writing (usually a power of atty)
i. If not, the SOF will prevent its enforcement
ii. If the lease is required to be in a signed writing, then the agent’s authority to sign the lease must also be in a signed writing
1. HOWEVER, if the enforceable lease can be oral (1 year or less), then the agent’s authority from the owner can be oral

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d. Three Types of Tenancy Periods

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1. Tenancy for Years
2. Periodic Tenancy
3. Tenancy at Will

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Tenancy for Years

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the lease fixes the beginning and ending dates of a lease
1. “This lease starts on March 18, 2008, and expires on March 17, 2014.”
2. NO termination notice is necessary to terminate a TFY because the lease fixes the termination date
a. This differs from a periodic tenancy, in which the lease is automatically renewed UNLESS a notice of termination is given
3. ✪At CL (and no longer followed in NY), a tenant holding over even for 1 day after the expiration of a TFY gave the LL an option to renew the lease for another term EVEN THOUGH it was clearly contrary to the T’s intent

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Periodic Tenancy

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a lease for a repeated similar period of one year or less (month-to-month), which period is automatically renewed UNLESS one party gives notice of termination
1. The minimum time for a termination notice is the time period for which rent is paid (i.e. one month) UNLESS rent is paid annually where only six months notice is required
2. ✪In NY, notice of termination MUST be given at least 30 days PRIOR TO the expiration of the lease term
a. That is, NY measures back from the end of the agreed periodic period to ensure at least 30 days was given from that date
b. Ex. T pays rent on the first of the month. On June 15, either L or T serves a termination notice. Here, the earliest termination date is July 31. Essay 1 Feb 2011.

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Tenancy at Will

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no fixed duration and is terminable by EITHER party OR by the death of either party OR upon an attempted lease assignment
1. ✪At CL, no minimum termination notice was required, but NY requires 30 days notice
2. Right of Emblements: In a tenancy of indefinite duration, such as a life tenant’s life estate, a tenancy at will, or a periodic tenancy, which is freely terminable by the LL, a T has a right of emblements after the tenancy has ended to go back onto the land and to harvest annual crops planted by the tenant
a. This is an exception to the rule that perennial crops (apples, grapes, or peaches) that continue to live from year-to-year are part of the realty and pass with the realty when a tenancy is terminated
b. The RoE does NOT apply to a tenancy for years where there is a fixed ending, to a tenant at sufferance who has overstayed the lease, or to a tenant who has breached or terminated the lease
c. Do quest #27 at home

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Tenancy at Sufferance

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iv. A Tenancy at Sufferance is really not a tenancy at all; it refers to the period of time AFTER a lease has expired where the holdover tenant continues in possession, and that possession is wrongful
1. The ONLY difference between a trespasser and a tenant at sufferance is that the tenant’s original entry was lawful
2. If a LL accepts rent from a TAS, it creates a periodic tenancy
a. Essay #1 Feb 2011
3. If a LL refuses to accept the holdover tenant’s rent checks, then that TAS is liable for the fair market rental value for the T’s time in possession after the least has expired
a. This amount may be far greater than the rent being paid under the expired lease

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Landlord’s Tort Liability ✪NY loves to test on this!

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i. A lease of an entire premises is viewed as a sale of the realty to the tenant for the lease term
ii. An out-of-possession LL is NOT liable in tort for injuries on the premises EXCEPT for ✪POLICE: disjunctive

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P

POLICE

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1. P – where the lease is for a public purpose, then the LL must inspect and repair any dangerous condition before surrendering the property to the T

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O

POLICE

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2. O – for injuries that arose outside the premises proximately caused by a dangerous condition on the leasehold, of which the LL knew or should have known existed when the leasehold was surrendered to the T
a. Ex. A hanging gutter falling onto a sidewalk or a sign defectively attached to the building that falls into the street

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L

POLICE

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3. L – injuries caused by latent defects that the LL knew or should have known existed and where the T has not had a reasonable time to discover and repair

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I

POLICE

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4. I – where the T’s intended use created an unreasonable risk of harm to others AND the LL was aware of T’s intended dangerous use when the LL turned the property over to the T. NYAA 784.
a. Ex. T’s keeping a vicious dog on the premises and LL knew about it.
b. Must be at time he turned possession over to T!
i. If finds out afterwards, LL is NOT liable

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C

POLICE

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5. C – LL has multiple leases in the same building, the LL is liable for injuries arising on common passageways (in the halls, the lobby, stairs, or the elevator)

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E

POLICE

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6. E – where the LL expressly covenants to make repairs and the disrepair causes personal injury
a. To hold LL liable for breach of his duty, LL must have had actual notice of the defect, or constructive notice where the condition was visible and apparent and it had existed long enough that a reasonable LL would have known of its existence
b. Essay 3 July 2008

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Implied Covenants in a Lease

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i. EVEN THOUGH the lease is silent, a LL HEARS implied covenants in a lease
ii. A lease is divisible by will, descendible by intestacy, alienable by sublet or assignment, and a lease can be mortgaged UNLESS expressly prohibited in the lease
iii. There is a CL implied covenant that the T will keep the premises in good repair to prevent waste from wind, water, or weather
1. This DOES NOT imply the T must make every repair, BUT ONLY those repairs necessary to prevent personal injury and to prevent permissive waste
a. Ex. To keep the utilities functional and to prevent the elements from invading the interior
iv. In NY commercial tenant’s express covenant to repair DOES NOT impliedly require the T to make structural repairs of a permanent substantial or unusual character
1. Ex. Removing asbestos or removing a leaking underground oil tank. NYAA 659.

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Implied Covenants in a lease (NY Residential)

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v. In a NY residential lease (including coops, but not condos because of the absence of a LL-T relationship), there is an implied in law covenant of habitability that the LL will maintain the premises in a manner fit for human habitability and will repair all conditions that are dangerous or that threaten the safety or health of tenants
1. Ex. Rodents, bed bugs, mold, insufficient heat, or dangerous electrical wiring
2. It is a basic minimum objective standard applying equally to luxurious or meager residential apartments
3. Any attempt by the LL to exclude this covenant is against PP, BUT the LL has a defense if he was prevented from making repairs by a labor strike
4. The LL is responsible EVEN IF the uninhabitable condition was caused by acts of nature or third parties

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H (1/

HEARS

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is a def for an eviction proceeding for T’s non-payment of rent
1. Here, the court will adjust the monthly rental during the period of unhabitability
2. In jds that don’t have the implied covenant of habitability, or in NY commercial leases, if a LL expressly agrees to make repairs and neglects to do so, T’s remedy is to sue for breach of K OR to repair the condition and sue LL for the cost
3. A T CANNOT offset the cost of these repairs from the monthly rental because the covenant to repair and the covenant to pay rent are independent
a. Exception: breach of residential implied covenant of habitability
4. Although not expressly state in a lease, LLs have a limited duty to provide security to prevent foreseeable crimes
b. “foreseeable” → prior similar crimes must have occurred in the same bldg
i. simply establishing that there was drug activity in the neighborhood DID NOT make a sexual assault in the elevator foreseeable
ii. Such crime was “conceivable” BUT NOT foreseeable.

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E

HEARS

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5. Every LL impliedly covenants quiet enjoyment that neither the LL nor someone with superior title will interfere will T’s exclusive right of poss during the leasehold
a. HOWEVER, in order for the QE covenant to be breached, the T must EITHER be evicted from leasehold, actually or constructively
b. Actual eviction → occurs when a tenant is totally or partially physically deprived (ousted) of possession by LL’s actions
i. Ex. LL changes locks on door, partitions off part of LH, takes away T’s parking space, or denies T use of freight elevator
ii. If a total or partial actual eviction occurs, T’s obligto pay rent immediately ceases because the ct will NOT apportion the rent of a wrongdoer
iv. If a NY T is dispossessed or locked out by LL (or by co-T, TE, JT, TC) who does not bother to go to ct, then T can recover treble dmgs
v. A NY commercial lease can expressly give a LL a self-help remdy to evict a T PROVIDED it is done w/o a breach of the peace (no violence or threats of violence)

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E (MBE Rule vs. NY Rule-quiet enjoyment/eviction)

HEARS

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1. Under the “English Rule”, LL impliedly promises to give new T actual exclusive possession on the first date of the lease
2. Under the “American Rule”, LL only agrees to turn over the right of possession, which puts the burden on the new T to evict a holdover T
3. ✪NY follows the English rule, but MBE follows the American rule!

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E (Constructive Eviction)

HEARS

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occurs when lease benefits are substantially impaired by LL’s acts, rendering the premises unbearable
1. Ex. No heat in the winter, no a/c in the summer in a building with sealed windows, no running water, or no running elevator in a high-rise building
2. Elements for Constructive Eviction:
a. LL was given notice of the condition and a reasonable time to correct it, AND
b. T must move out because a T in possession CANNOT assert constructive eviction and remains fully liable for the rent as long as the T stays on the premises
3. A NY residential tenant does nOT have to rely on constructive eviction and can stay in the premises and refuse to pay rent, and when sued for eviction by LL can assert breach of implied warranty of habitability
4. A LL holds a T’s security deposit as a trustee, and deposit must be placed in an escrow account
a. If the LL comingles the security with his personal funds, LL commits the tort of conversion, entitling T to its immediate return.

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A (assigning and subletting)

HEARS

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1. Default: Absnt contrry lang in the lease, it is implied that lease is freely assignable or sub-leasable
a. Lease MAY prohib subletting or assigning W/O LL’s consent, which allows the LL to arbitrarily withhold consent for no reason
2. A prohib against just 1 (but not both) assigning and subletting does NOT impliedly prohibit the other
3. If a LL consents to a T’s assignment w/o expressly restricting further future assignments of the lease, then under the rule in Dumpor’s Case, a subsequent reassignment CAN be made w/o LL’s consent
a. Dumpor’s does NOT apply to a LL’s consent to subleasing
b. See assignment of Ks
4. When a lease is assigned or sublet, then the covs in that lease that “run with land” are imposed upon the new tenant while in poss
a. Ex. A covenant to:
i. Make repairs
ii. Pay rent or taxes
iii. An opt to renew the lease or an option to buy the prop
5. A lease assignment is when the T conveys the entire time remaining in the lease term retaining no reversonary interest

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Sublease

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6. A sublease is when the T retains only part of the remaining lease term and T retains some reversionary interest even if is only the last month, week or day

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If a NY L of a residential building having 4 or more apartments arbitrarily refuses consent to a residential assignment

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7. If a NY L of a residential building having 4 or more apartments arbitrarily refuses consent to a residential assignment, then this permits the residential T to terminate the lease without liability
a. If such a L unreasonably refuses to consent to a residential sublease, then the T can go ahead and sublet without the L consent and this is not a breach of the breach

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Privity (leases)

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8. When L and T enter a lease there is direct privity of K and also privity of estate (passing of the keys to the premises)
9. Where there is an assignment by the T then privity of estate between the L and the original T is extinguished, but the original T remains liable for any breach of the lease, under privity of K as a sirety by operation of law
a. The assignee is nOT liable to the original L under privity of K because they NEVER directly Ktd, however the assignee is liable to the L for covenants in the lease that run with the land (to pay rent) under privity of estate but only for breaches that occur while the assignee is in possession of the leasehold
b. If the assignee reassigns the lease and moves out she will not be liable to the original L for any subsequent breaches because there no longer exists privity of estate

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Privity (sublease)

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10. When the org T subleases there is neither privity of K nor privity of estate between a subT and the org L
a. Thus org L cannot recover money judgment against subT for unpaid rent
b. There is priviy of estate between T and subT (they pass the keys) and there is also privity of K either under an express K or an implied in fact K that the subT would pay the rent to the original T for the period of the sublease
c. If an assignee or a subT expressly “assumea” the lease terms then the L can sue either for any braches during the lease period as an intended third party beneficiary of the assumption agreement

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Express terms in a lease

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1. A L’s acceptance of rent with knowledge of a T’s violation of a lease term constitutes the L’s waiver of the T’s default
2. Its essentially a matter of intent to waive (relax) a lease term,
a. for example, accepting late rent payments, not obtaining consent to assignment, T violating no pet provision in the lease or a breach of the use clause in the lease SEE LECTURE 8/9 WAIVER
3. If a lease gives a T an option to renew the lease by a stated date, then IN NEW YORK ONLY a late exercise of the option by the T in possession may be excused if the T has made substantial improvesments to the leasehold, the delay in exercising the option was brief and the L was not prejudiced by the late renewal.

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A lease can expressly:

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a. 1) limit the T’s use of the premises to only a stated purp and it is a material breach of the lease for the T to use the leasehold beyond the stated purp
b. 2) Require the T to obtain insurance
i. Ie
1. Fire
2. Liability or
3. Insurance for a terrorist attack
ii. T’s failure to obtain insurance is a material breach of the lease
c. 3) provide for rent acceleration if there is a material breach of the lease requiring the T to pay 100% of the rent of the future rent payments immediately
i. such clauses are neither punitive nor unconscionable especially in commercial leases where the T was represented by an atty
d. 4) allowing prevailing L to recover reasonable atty’s fees if the T breaches the lease, but the L must substantially (totally) prevail
i. if the NY L inserts such a clause IN A RESID LEASE, then there's implied in law reciprocal rt to attys fees if the T substantially prevails
1. this law levels the playing field, providing both parties to quickly resolve their dispute

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A lease can expressly (5):

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allowing a T a specified period of time from the L’s service of the notice of breach to cure the breach,
i. for example
1. common material breaches are an illegal sublet
2. violating the no pet provision
3. performing alterations on the leasehold without the L’s consent or
4. creating a nuisance
ii. If the cure period expires (the lease is terminated), and ct subsequently finds T is in breach, the ct is powerless to reinstate the lease
1. T becomes a holdover on the terminated lease
iii. T’s NY remedy is to commence a declaratory judgment action in the Supreme Ct and see k a TRO to stay (stop) the cure period (cant get this in the civil ct) (listen to lecture 1 hr)

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Surrender of the lease

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1. When a T abandons the leasehold prior to its expiration date, the L has 3 options
a. 1) in NY and MA (minority view) do NOTHING and sue the T for the unpaid rent as it becomes due because in these states there is no duty to mitigate damages of a tenant
i. in multistate and a Maj of states there is a duty to mitigate a residential T’s damages NYAA 658
b. 2) accept the T’s surrender and then lease the premises for the L’s own account, thereby releasing the T from further rent liability
i. L will use this option when rents have increased and L can make more money on new lease
c. 3) lease the premises for the T’s benefit and then sue the old T for any difference in rents but only if the lease expressly gives the L this authority

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Surrender of the lease
(When a written lease has longer than 1 year remaining)

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2. When a written lease has longer than 1 year remaining, then to validly surrender that lease, the surrender must exist in a signed writing NYAA 669
a. An exception where there is a surrender by operation of law arising from an act of the L which is inconsistent with the continuation of T’s tenancy.
b. Problem: IN a written lease, L leased a store to T for $4000 a month for 2 years. T paid the rent for 8 months and then left. L immediately leased the store for X for $3000/month
i. Query: Can L sue T for the difference in the 2 rents?
ii. Answer: No, because there existed a surrender by operation of law when L leased store to X
1. This created a NEW L-T relationship inconsistent with a continuation of T’s original tenancy
2. Note: If lease expressly stated that L can relet the premises on the T’s behalf and act as agent then can sue for the difference in the 2 rents

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Lease Problem

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c. Problem: L sued T and obtained a warrant of eviction after T had not paid rent for 4 months. T was evicted. L relet the leasehold for $3000
i. Query: Is T liable for the difference in the 2 rents?
1. Answer: No, because L’s eviction ended the tenancy, cancelling the lease, and discharging the T from all liability for rents accruing after the eviction and annulling the L-T relationship unless the lease expressly contained a “survival clause” providing that the T remain liable for rents after an eviction
ii. Query: what if T left after 3 months and the premises burned down the following month through no fault of the T
1. T would owe only 1 month rent because in most states (NY) BY STATUTE when the leasehold is substantially destroyed, the T has the option of cancelling the lease
d. See NYAA 627-698
e. NYBA 35-39
f. Essay 12 & 13
g. NYO Distinctions 903-915

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Present estates

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i. Estates (interests) in land are either present possessory interest or future interests and
ii. Xategorized as freehold estates or nonfreehold estates (leases)
iii. 3 types of freehold present estates. LEFTS
1. LE Life estates (will be in MBE)
2. FT. Fee tail
3. S. Fee simple

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Life estate

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Life estate
1. Measured by 1 or more lives
a. Ex. Leave Blackacre for daughter and son for their lives
2. A life estate is more than a simple rt to occupy the land
3. It is tantamount to ownership of the property for LIFE with all the burdens and benefits of ownership
4. The descriptive words indicating a life estate is to give someone “use and occupancy” of the land for life and not just the rt to occupy

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A life T who is given the “use and occupancy” of Redacre for life is permitted to 1-7

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i. 1) transfer it (sale or gift)
ii. 2) lease it to a T
iii. 3) grant an easement over it
iv. 4) lose it to a judgment creditor
v. 5) mortgage it
vi. 6) lose it to an adverse possessor but when the LT dies the adverse possessor must adversely posses the land for another 10 year period against the person who had the future interest after the life estate
vii. Note
1. any new interest created in the realty (1-6 above) during the life estate cannot diminish or defeat the future interest following the life estate
2. the interest under 1-6 above terminate by operation of law when LT dies
viii. 7) IN NY under “expeiant circumstances”
1. for example, LT have to go into a nursing home, then she can sell the realty over the objection of the future interest and then collect the value of her life estate with the balance going to the person holding the future interest

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LT use

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5. A LT may use the natural resources of the property for homesteading and farming but not for commercial profit unless the land was previously used commercially
a. Open mines and exisitng oil wells can be continued, but no new mines or oil wells can be opened during a life estate
b. Same rules apply to removing soil or gravel
c. If the LT violates this rule and uses the property for commercial purposes, then the person having the future interest in that land can sue the LT for the tort of waste and can seek an injunction and money damages

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A LT must pay 1 and 2

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a. 1) current real property taxes but not to the extent they exceed the land’s fair market rental income for the year
b. 2) interest only on an existing mortgage

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Doctrine of Worthier Title

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a. Involves LE
b. At futile law the king received a tax whenever real property passes theough the owner’s estate at death
i. To avoid the tax the owner would maek a intervivos (during lifetime) gift of a LE and then create a class gift remainder interest to the “grantor’s heirs”
c. Under the Doctirne of Worthier title the remainder interest to the GOR’s heirs was extinguished and upon the GOR’s death the land would revert back to the GOR’s estate and be taxes
d. In NY and most jurisdictions, this doctrine has statutorily been abolished, but it remains a rule of construction today whenever the creator of a intervivos trust seeks to revoke the trust and whether permission is required from the trusts remainder interest ESSAY 5 JULY 2009. NYBE

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Distinguish a LE form a fee simple interest

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a. “to A and his heirs and assigns but if A dies and is NOT survived by children then to X and his heirs”
i. this DOES NOT CREATE A LE IN A, but rather a FEE SIMPLE subject to a condition subsequent

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FT. Fee tail

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1. This kept the real estate in GrantEE family
2. It was a conveyance ot the GEE and “to the heirs of his body”
3. This restricted future transfers of the property to only GEE’s lineal descendants
4. Create LE in the GEE and a contingent remainder in his descendants and a reversion back to the GOR if the GEE issues died out
5. 40 states (NY) have ABOLISHED the fee tail and treat it as a fee simple to the GEE
6. other 10 states hold that the GEE has a LE but upon his death a fee simple absolute passes to his heirs defeating the fee tail

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Fee simple

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1. At CL, to create any FS in real property, the conveyance to the GEE had to contain the phrase, “and his heirs” or “and his heirs and assigns”
a. If this phrase was missing in the deed, the GEE received only a LE

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3 types of FS estates. SAD

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SAD

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S (precedent)

SAD

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a. S. Fee simple subject to a condition precedent or to a condition subsequent
i. Problem: O conveyed redacre to D, O’s daughter upon the condition precedent that the daughter pass the bar otherwise the property would pass to S, O’s son. D recorded the deed in the chain of title.
1. Query: Who owns Redacre?
a. Until D passes the bar, O continues to own the land subject to the condition precedent in the deed for the daughter’s ownership
ii. FS SUBJECT TO CONDITION PRECEDENT. In a FS subject to a condition precedent, the fee interest is not transferred to the GEE until the condition precedent occurs

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S (subsequent)

SAD

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iii. FS SUBJECT TO CONDITION SUBSEQUENT. this is contrasted to a deed containing a fee simple subject to a condition subsequent which immediately conveys a fee interest to a GEE but that condition restricts the use of the land
1. if the restriction is breached then it gives the GOR his heirs or assigns, a “right of entry” which allows the GOR or his heirs to go onto the land BOP the current fee interest with an ejectment claim
2. At common law the following 3 BOP words indicated a FS subject to a condition subsequent
a. For example. TO X and his heirs, 1,2,3
i. 1) BUT If liquor is sold on Blackacee then ti reverts to GOR and his heirs or
ii. 2) On condition the land is used only for religious purposes
iii. 3) Provided the land is not used for commercial purposes

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A

SAD

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b. A. Fee simple absolute
i. Today most property is sold as a FS absolute without any restrictions or condition imposed on the future use of the land and the GOR retains NO reversionary interest of any sort

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D

SAD

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c. D. Fee simple determinable (FSD)
i. This passes to the GEE a fee interest but it also restricts the use of the land.
ii. Violation of that restriction will cause the GEE’s fee to AUTOMATICALLY TERMINATE AND REVERT BACK TO THE GOR
iii. When a FSD is created it also creates a future interest called a possibility of a reverter
iv. At CL, SUD language indicated a FSD
1. Fo example. To X and his heirs
a. S. “so long as,”
b. U. “until”
c. D “during the period” the land is used for religious purposes
v. Any possibility of forfeiture of title (BOP or SUD) renders the title to the land unmarketable to any future K vendee
vi. Today, something more specific than just BOP or SUD language has to be used to create a forfeitable conditional fee
1. if there is any ambiguity in the language then cts will attempt to construe it as a covenant and NOT a condition
a. because breach of a cov results in $ damages or an injunction
b. where as breach of a condition results in fofeiture of title

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Future Estates in land

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i. A future interest can be created in real property, personal property or by establishing a trust
ii. There are 6 general types of future estates in real property.
1. They are classified according to whether the property is to return to the GOR OR
2. Whether it is to pass to a 3rd person

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The 1st 3 future interest

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3. The 1st 3 future interest can only be possessed by the GOR, his heirs or assigns
a. 1) a reversion
b. 2) a possibility of a reverter preceded by a fee simple determinable having automatic forfeiture (SUD) if the condition is violated or
c. 3) rt of entry preceded by a FS subject to a condition subsequent BOP
d. These 1st 3 future interests ARE NOT subject to the rule against perpetuities and can LAST FOREVER

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The 2nd 3 future interest

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a. 4) vested remainder that usually follows a LE
b. 5) a contingent remainder usually following a LE
i. Example. To A for life and then to B’s children, but B has no children
c. 6) A remainder interest following a FSD or a FS subject to a condition subsequent that does not revert back to the creator, but passes to a 3rd person (called an executory shifting interest)
d. #4 and #5 above are remainders that follow a LE, but #6 is a remainder interst that follows a SUD or BOP conditional fee
e. Future interest passing to someone other than the GOR, 4,5,6 are limited by and may violate RAP

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Remainder interest (problem1)

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1. Problem: T’s will gave Blackacre to A for Z’s life and upon Z’s death, to X
a. Query: What interests (estate) has T create? A has a present LE during Z’s life, and X has a “vested remainder.” X’s remainder interest is ABC vested (not contingent) because
i. A. X ascertainable within the RAP period (When Z’s life ends)
ii. B. X is in being or must be in being within the RAP period and
iii. C. X’s future interest is certain to happen (Z’s death)

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Remainder interest (problem2)

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2. Problem: To A for life and then to the children of A. A has 1 child, B. Here A has a present interest (life estate) and B has an ABC vested remainder which is “subject to open” because B’s vested future interest is subject to partial defeasance if A has more children. B’s remainder interest is vested because the ABC rule is satisfied. The future interest will become a present possessory interest upon an event certain to happen (A’s death) and the future interest will pass to someone (B) who is easily ascertainable and in being
a. If A had NO children, then the future interest created would be a contingent remainder, no ABC

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Reversionary interest

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1. A reversion is a future interest which will or may revert back to the original GOR or his estate upon the happening of some future event
2. Problem: In her will, G, a widow, conveyed Blackacre to A for life, remainder to B, if B survives A.
a. 1) A has a present possessory life estate
b. 2) B has a future interest (not capable of present enjoyment) which is a contingent remainder because it is subject to a condition precedent that is NOT certain to happen. (B must outlive A)
c. 3) G has impliedly created a reversion because if B dies BEFORE A, the property will revert to G’s estate when A dies. Here
i. Here the creating instrument did not expressly set forth the reversionary interest but the law will imply one whenever a GOR transfers away less than she owns

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Trusts NYLO 716-723; NYA 855-858.

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i. Trusts can either be testamentary trusts (created in a will) or intervivos trusts created before the settlor dies
ii. NY trusts are subject to RAP but in 24 states (NJ) they recognize perpetual trusts, not limited by RAP
iii. Trust must be funded with delivered property
1. For example
a. Cash,
b. Stock,
c. Chattel, or
d. Deed to real property
2. A trust cannot exist unless it actually possess assets delivered to the trustee

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A Trustee is a fiduciary and the trustee cannot sell to or buy from the trust unless
1 or 2

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a. 1) Expressly authorized by the trust or
b. 2) With the surrogate’s approval
2. Absent 1 or 2 such transactions can be rescinded by a trust beneficiary and under the “no further inquiry rule” the surrogate will automatically rescind the transaction and will not even inquire into its fairness

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v. A trustee’s investments must be prudent generally, no single investment is prudent or imprudent.
1. Instead the usrrogate evaluates the overall investment strategy of the entire trust portfolio based on TIN DAD

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a. T. The trust terms, for example, does the trust restrict investing to only safe investments
b. I. Inflation
c. N. Needs of the beneficiaries
d. D. Diversification of investments
e. A. Total amount of the trust
f. D. Duration (how long is it going to be around)

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Spendthrift

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All trsts in NY are spndthrift which shield trusts assts from bene's credtor’s
1. Bene of spendthrift trust Cant assign away trust income before its received and creds cant seize trst corpus or income, EXCEPT FOR 10^2 SENATE
10. Only 10% of trust income can be attached by a judg cred of a trust bene.
10. Trust income that is in excessive of 10k per year can be given by the bene prior to receipt, only only to a close family rel not more distant than aunt, uncle, nephew or niece of the bene
S. Self settled trust. Spendthrift protection is given only whre 3rd party established a trust. whre the trust settlor and bene are the same person then the spend thrift rules don’t apply
E. Expressly made nonspendthift
N. Necessaries furnished to a trust bene
A. Alimony and child support arrears can pierce the spndthift shield andnot limited to 10% of incme
T. Fed incme txes owed by the bene
E. Excess trust income that is not reoasnably necessary for maint and eduction of the bene or her fam

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Trust litigation

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1. Litigation arises most frequently when a trust beneficiary attempts to TIP a NY trust
a. T. Terminate the trust
b. I. Invade accumulated trust income
c. P. Invade the principle of the corpus

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T. Terminate the trust.

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a. Where any income beneficiary or the settlor of an intervivos trust seeks to terminate that trust generally ct approval is required
b. There is a presumption that an intervivos trust is irrevocable unless it expressly states it is revocable. Essay 5 July 2009 pg 655
c. If the settlor (creator) of an intervivos trust does not expressly reserve the rt to revoke the trust, then the only way for the settlor to terminate the trust is to obtain the consent of ALL OTHERS who have a present or future interest in the trust.
i. If however, 1 of those beneficiaries is either an infant or is mentally incompetent, then because they are legally incapable of consenting the trust cannot be terminated

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Terminate the trust (worthier title)

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d. Where an intervivos trust remainder interest was created for the settlor’s “heirs,” “next of kin “or “distirbutees,” then under the doctrine of worthier title, the law does not deem the settlors heirs to have a sufficient interest in that trust, thus the settlor can revoke the trust without their consent (2 hours in)
e. Although the EPTL (Estates powers and Trust Law) 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 a intervivos trust wishes to revoke trust without the consent of beneficiaries who were described as the settlors heirs or distirbutees.
i. Their remainder interest reverts back to the settlors who is then free to revoke the trust
ii. For example
1. H established intervivos trust, with income payable to W for life with a remainder interest to H’s heirs. If H wishes to amend or terminate the trust the only consent required would be from H and W

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terminate the trust (NY, PP)

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f. In NY, there is a strong public policy against terminating trust, thus when the settlor has died, all beneficiaries must consent to the termination AND THE TRUST MUST SERVE NO FURTHER PURPOSE
i. The surrogate will geenrally try to find a purpose to prevent the trust termination
ii. It has held, the spendthrift purpose is a valid purpose for continuing a trust, but the surrogate can allow termination of a noneconomical trust

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I. Invade accumulated income.

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a. Where the income beneficiaries prematurely seeks distribution of accumulated trust income, she must petition the surrogate’s ct for such permission
b. Problem: $100k in trust and accumulate the income and pay it to B when B reaches age 45. If B dies before reaching age 40, pay it to X
c. Where trust income is to be accumulated for a beneficiary who is without sufficient means to support or educate herself then the ct may order a withdrawl of a sufficient sum for mthe income accumulated or as an advancement of income to be accumulated
d. Even tho X’s contingent interest may be defeated by an early withdrawl of income, the ct may nevertheless do so for B’s support in education

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P. Invade trust principal

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a. Cts allow the income beneficiary to invade trust principal when the trust expressly creates a standard for the trustee to invade principal
i. For example. I give discretion to my trustee to invade the corpus for B’s support, education, and welfare
b. It is implied from this std, that if income is insufficient for the beneficiary’s care that trust principal could be invaded
c. Note: Start special proceeding whether trust is to be invaded
d. Where nothing is said about invasion, then invasion of the corpus is allowed by the ct whenever an income beneficiary is not being adequately provided for
i. The ct does not need the consent of the vested remainder but notice to the remainderment must be given

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Revocable lifetime trust

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1. To avoid the expense and time of probate, an adult can execute a revocable lifetime trust transferring all of her property to the trust and giving herself a LE in the trust, naming herself as trustee and expressly giving her the rt to amend or revoke the trust at any time or in her will
2. When she dies, the trust passes the property directly to the remainder beneficiaries without having to probate a will in the surrogates ct
3. The trust document must be signed with 2 witnesses (like a will) or the settlor’s signature must be acknowledged like a deed
4. Any property requiring registration must be registered in the name of the RLT (revocable lifetime trust) otherwise it passes into the probate or intestate estate of the decedent

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Rule Against Perpetuities (RAP)

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i. RAP is a social policy that restricts the ability to perpetually limit and control the future disposition of property
ii. RAP generally deals with trusts and remainder interest that may vest too remotely in the future and which RAP will void such future interests
iii. 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 (IN BEAM?) when the RAP period began to run
1. If there is any possibility that the remainder interest will remain contingent after the perpetuities period expires, then that future interest is declared void from its creation

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A Measuring Life

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iv. A “measuring life” is a life that measures when a future interest will become a present possessory interest
1. If someones life is used to measure when a future interest is to vest (a LE), then the measuring life has to be in being or conceived at the moment the RAP period first starts to run
2. A future interest is VALIDLY vested if it is not subject to any condition precedent after the deaths of the measuring lives in being PLUS 21 years
a. For example. To A for life and then to B and C. 21 years after A dies

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ABC vesting

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v. ABC vesting of the future interest does NOT have to exist at the start of the RAP measuring period.
1. Vesting must occur if at all within the RAP period,
a. For example. To A for life and then to her children. A has no children, thius the future interest to the children is a contingent remainder, but that future interest must ABC vest if it is going to vest at all within the RAP period (within A’s lifetime)
2. If there is NO measuring life used to measure when the future interest is to vest, then the future interest must by its language be certain to vest no later than 21 years from its creation, otherwise it reverts back to the GOR who created the future interest

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When faced with an RAP problem determine:
1, 2, AND 3

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a. 1) When did the RAP period begin to run?
b. 2) Who if any is the measuring lives for the future interests and Whether they were all in being at the start of the period
i. However, if no measuring life is used then the future interest must vest within 21 years from its creation
c. 3) At what future date will the future interest ABC vest or fail to vest ?

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Measuring Life

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2. Measuring life is a life that measures when a future interst becomes possessory
a. All measuring lives must be in being when the RAP period starts to run

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Problem: H set up a trust. 1) To my wife W for her life; 2) then to my children for their lives; and 3) the balance to my grandchildren (none of whom were in being)
a. Query: Does H’s trust violate RAP?

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b. If it was a testamentary instrument (H’s will) then all of the future interests created (to H’s children and then to his grandchildren) would not violate RAP because all the measuring lives (H’s children) would have to be in being when the RAP period started to run (when H died)
c. However, if it was an intervivos trust created during H’s lifetime, then the future interest to H’s grandchildren would violate RAP because H is presumed capable of having more children after the trust was created and thus H’s afterborn children could be measuring lives for the grandchildren’s future interest and those children were not in being at the start of the RAP period
d. Under the modern statutory approach, if this was a intervivos trust, then medical testimony could be introduced to show that at the time the RAP measuring period began, H was incapable of having more children which would avoid a RAP violation (in class question 31)

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RAP does NOT APPLY TO A FUTURE INTEREST that has the CROUP

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1. C. Covenants running with the land (PINTS and CANS)
2. C. A remainder future interest passing form one charity to another charity
3. R. A reversionary interest retained by a GOR (a possibility of reverter, a rt of entry BOP, or al ong term 99 year lease
4. O. Tenants Option to renew the lease or an option to buy the property contained in the long term lease,
a. for example, a 25 year lease w/ 3 10 year options to renew NYAA 609
5. U. A future interest beenfiting the US govt
6. P. MBE preemptive rts of first refusal to buy land, but in NY only commercial first refusal rts are extempt form RAP
a. However, on residential realty, the preemptive rt must be fully and finally exercisable within the RAP period

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RAP APPLES to CORE future interests

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1. C. Contingent remainders
2. O. Options to purchase retained by a GOR in a DEED that possibly could be exercised beyond the RAP period
3. R. Remainder interest
a. For example. Following a LE
4. E. Executory interests which are remainder interests following a conditional fee (a fee simple determinable or a fee simple subject to a condition subsequent)

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Statutory Exceptions to RAP

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1. Under the modern approach, a future interest may be saved from a RAP violation, by a statutory exception. A FURS. MLO 163-166

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A

AFURS

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2. A. Estate Administration exception
a. Where vesting is contingent on a probate of a will, locating distributes, selling all estate assets or a final settlement of the estate, then even tho these events are not certain to occur within 21 years it shall be presumed the event will occur within 21 years

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F

AFURS

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Fertile Octogenarian rule -There was a CL conclusive presump of fertility regardless of gender, age, or physical condition
Prob: T’s will left his estate in trust, “to pay the income” to S, his 86 year old sister for her life, and then to S’s children for their lives, and then outright to S’s grandchdrn. Here, the measuring lives for the grandchrn’s fut interst, are S + S’s children. T’s bequest to S + S’s children will pass to them because the fut interest to S’s chldrn must vest w/in the measuring life in being (S’s life)
i. However, the bequest to S’s grandchldrn violates RAP, b/c under CL S could bear another mricle child after T’s death who would be measuring life not in being at the start of the RAP measring perd
c. The mod approach permits medical testmny to establish S was incapable + child
i. A NY female is presumed incapable of having children after age 55. With a male there is NO AGE limit. THE CT WILL ADMIT MEDICAL TESTMNY TO SHOW THE MALE WAS Incapable of procreation

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U

AFURS

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4. U. Unborn widow excecption
a. Problem: T’s will created a testamentary trust “to A for life and then to A’s widow for her life and then to A’s issue (descendents) who survived A’s widow”
i. Query: Who are the measuring lives?
ii. Answer: A and A’s widow
1. A’s descendents are contingent remainderment in whom the future interest will ultimately vest. They are not measuring lives.
2. T’s bequest violates RAP because A’s widow cannot be determined until A’s death.
3. The bequest to her does NOT violate RAP since the measuring life for that future interest was A’s life
4. Howeve,r because A could marry a much younger woman who was not in being at the start of the RAP measuring period (when T died) thus the future interest following her life estate (A’s issue) is void because of the RAP violation
b. Under the modern approach, the bequest to A’s descendants would be saved by the unborn widow exception that presumes A would marry someone who was alive at T’s death

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R

AFURS

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5. R. Age reduction contingency
a. Problem: T’s will left a trust with income to F for life, that upon F’s death the income was to accumulate until F’s youngest child reached age 25 at which time the principal should be paid equally to F’s children
i. This violated RAP because the future interest is not certain to vest within F’s measuring life plus 21 years because F could die and one of his children might be 3 years old and thus the future interest would not vest within 21 years
b. Under the age reduction statute, F children would get their shares whenever F’s youngest child reached age 21 and there would be no RAP violation

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S

AFURS

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6. S. RAP savings clause
a. The creator of a future interest may avoid an RAP violation by adding a “perpetuity savings clause” in a will, a trust, or a deed
b. This permits the ct to reform the document and to pass the property outright in the event of an RAP violation
7. Wait and see. Many states have adopted the Resatement of property “wait and see” approach on any possible RAP violation by allowing the surrogate to wait 90 years form when the future interest was created to see if it actually vests within the RAP period