Property Ii

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Property TImeline

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2. Contract executed
a. Known as executory period
b. Split in title = legal title to the seller (more like a promissory note) and equitable title to the buyer.
c. Then the buyer gets financing
d. Title review period
e. Closing period
f. Closing date

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Broker/Salesperson

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anyone who directly, or indirectly for another person, with the expectation of receiving consideration offers, attempts or agrees to perform, or performs, any of the following acts:
-selling
-offering to sell
-negotiating
-Listing
-Appraising
-Auctioning
-Procuring of prospects

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Exceptions to licensure

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o An attorney licensed in any state (cannot sponsor salespeople though)
o An attorney in fact under a power of attorney to conduct real estate transactions
o A public official engaged in official duties
o A person acting per court order or under the authority of a will or a trust

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The Listing Agreement:

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oKey Provisions:
-Compensation?
-Term – 6 mon? 12 Mon? Longer?
- Properties Included?
-Commission Earned?
-Typical Commission Agreements – 6%/3%

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Contract of Sale

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•The contract of sale is the document by which the parties express their agreement the transfer of property from Seller to Buyer.

This is generally done through an Earnest money contract.

Contracts for the sale of real property in Texas must comply with the Statute of Frauds.

Section 26.01 of the Texas Business & Commerce Code requires all contracts for the sale of real property to be in writing.

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Earnest Money

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• A good faith deposit that says you intend to purchase the property paid the purchaser and usually forfeited if the purchaser backs out. Applied to the purchase price or is the basis of the sellers damages if the buyer breaches. Amount usually depends on the value of the property. Of course, a seller wants a higher amount and the buyer wants a lower amount.

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Ernest Money Contract (EMC)

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• A contract for earnest money. The buyer wants it both ways, to take the property off of the market and decide if he wants to buy it.

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Common provisions of the EMC

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1. Earnest Money
2. Feasibility Period – time to get inspections, etc.
a. Residential – usually 10-14 days
b. Commercial – usually 90-120 days
i. As Is Requirements;
ii. Unenforceable Options
3. Title Review Period
a. TREC 1-4 Family Contract
b. Commercial Contracts
4. Financing;
5. Sales Price
a. Stated?
b. Per Square Foot?
6. Taxes
a. Prorations – usually a % for the amount of time the seller owned the property
b. Roll Back Tax Issues – who pays difference in taxes when the purpose of the land changes and the amount of taxes change (ex. when land goes from agricultural to commercial). – can be negotiated, but sellers usually dig their heels in.
i. Are provisions in a contract enforceable after close, if all we have is a deed? – 2 options
1. In the K it is written that the provisions will survive the K
2. Write into deed -In the event of change in use, seller agrees to pay half of the rollback taxes.

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Taxes

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a. Prorations – usually a % for the amount of time the seller owned the property
b. Roll Back Tax Issues – who pays difference in taxes when the purpose of the land changes and the amount of taxes change (ex. when land goes from agricultural to commercial). – can be negotiated, but sellers usually dig their heels in.
i. Are provisions in a contract enforceable after close, if all we have is a deed? – 2 options
1. In the K it is written that the provisions will survive the K
2. Write into deed -In the event of change in use, seller agrees to pay half of the rollback taxes.

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Effect of EMC Execution

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Seller holds bare legal title
Buyer holds equitable title

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Statue of Frauds

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Contracts for the sale of real property and leases for real estate for a term longer than one year are governed by the statute of frauds.

The written promise or agreement must:
1. Complete within itself in every material detail
2. Signed by the party to be charged or his lawfully authorized representative; and
3. Contain all of the essential elements of the agreement so that contract can be ascertained from the writing itself without resort to oral testimony.

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Essential Elements of an Agreement

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1. Identification of Seller and promise to sell
2. Identification of Buyer and promise to buy
3. Consideration
4. Legally sufficient property description

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Legally sufficient property description

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a. No part of a contract is more essential

It must be identified with:
reasonable certainty,
without resort to oral testimony.

The writing must furnish within itself, or by reference to some other existing writing( ex. point to a prior deed or subdivision plot etc.), the means or data by which the particular land involved can be identified with reasonable certainty.
b. Parole evidence- PE may not be used generally, but only in certain limitations. Essential elements cannot be given by parole evidence, only details. – PAROLE EVIDENCE CANNOT BE USED FOR THE DESCRIPTION of the land – only for the details.
c. Reformation as a remedy – what if you screw up and don’t identify the property properly? Not out of luck if both parties agree to which property was sold.

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SOF additional pointers

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• Acknowledgments – a K for the sale of real property does not have to be acknowledged - notarized or witnessed by a third party but a deed does.
• The broker or agent is not given the authority to contract on behalf of a party simply because they have a leasing agreement.
• Agent authority to contract may be given orally – see notes, but agent must???

• Void vs. Voidable –
o Void –something is void when it is invalid on its face as in a matter of public policy.
o Voidable –if asserted as a defense, may be unenforceable. Something is voidable when the issue must be raised in order to void the contract. If you say nothing, the K is still valid.

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• Part performance (Texas Standard) - standard for oral contracts of sale of land

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to Relieve a parole sale of land from the operation of the statute of frauds, three things are necessary:
1. Payment of the consideration whether it be money or services;
2. Possession by the vendee; and
3. The making by the vendee of valuable and permanent improvements upon the land with the consent of the vendor;
**Each of these elements must be present unless there is a presence of fraud.

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. Contract for Deed

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when one party makes an agreement to make payments and when the other party pays in full, they will transfer the deed. Rarely done anymore.

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• Consideration –

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Courts have different interpretations of how much money needs to be paid to satisfy the consideration element of Partial performance of equitable estoppel.
• Some say partial payment is not enough
• Some say all or nearly all, some more than 1/3...

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• Hickey vs. Green – Green made an oral agreement to sell to sell a lot. Buyers gave her, essentially a blank check for a deposit. She backed out of the sale and sold it to someone else for more money. Does the SOF apply?

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Yes, the court held that the check did not satisfy the requirements of a writing but made an exception because HICKEY SOLD HIS HOUSE. The agreement was enforced under equitable estoppel –

this would not fly in texas

• “a contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply with the statute of frauds if it is established that the party seeking enforcement in a reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought has so changed his position that injustice can be avoided only by specific performance” – This would not fly in Texas.

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Equitable estoppel:

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This theory is applicable where:
1. The oral agreement is admitted to exist or is clearly proved; AND
2. One party has induced the other to substantially change position in justifiable reliance on an oral contract; AND
3. Serious or irreparable injury would result from refusing specific performance.

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Marketable title and Equitable Conversion

• Lohmer v. Bower - a buyer enters into a contract for a house and then learns that the house is in violation for two reasons: a city ordinance requires more setback room on the lot and a neighborhood covenant requires that all houses on the lot be two-story and the house he has entered into the contract for is a one story house.

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o The restrictions are not an issue, the violations are. The buyer has agreed to buy a house with restrictions but has not agreed to buy a house that is in violation and will subject him to suit.

o Buyer only has a suit because he is in the contract stage. If he would have complete the contract, the restrictions in the deed would have merged into the deed and the buyer would be stuck

o IMPLIED WARRANTY APPLIES TO THE CONTRACT STAGE?
o Even though the contract gives the seller a right to cure, the sellers would have to build a two-story house and the court will not force the buyer to buy a house he did not intend to.

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• Marketable Title

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a marketable title to real estate is one which is free from reasonable doubt and a title is doubtful and unmarketable if it exposes the party holding it to the hazard of litigation.

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Lund v. Emerson

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a buyer entered into a K to buy 40 feet of a lot, but once he discovered that the property had an old lien on it, he backed out despite the fact that his attorney was sure that the SOF on the lien had passed.

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Under Texas law, a Marketable Title is defined as one that:

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1. Is free from reasonable doubts as to matters of law and fact;
2. Will not expose the purchaser to a reasonable probability of litigation, with the least chance of defeat;
3. Is free from any outstanding contract, covenant, interest, lien, or mortgage sufficient to form a basis of litigation;
4. Does not depend on an estopple in pais, on a question of presumption of fact, or extrinsic or parol evidence, unless this evidence is of great probative force and readily available; and
5. A prudent person advised of the facts and their legal significance would willingly accept.

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Examples of Unmerchantable Title:

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Examples of Unmerchantable Title:
• Title encumbered by mortgage or tax liens is not marketable. O’Meara v. Saunders, 199 SW2d 689
• Property subject to contract to convey deeds of trust and judgment liensrenders title unmerchantable. Giles v. Union Land Co.
• A limitation title is not “good,” “marketable” or “merchantable” as between buyer and seller in an EMC scenario. Alexander v. Glasscock 271SW2d 333
• Title acquired by accretion or avulsion is not merchantable title. Sweet v. Berry 236 SW 531
• An outstanding mineral lease renders title unmerchantable.
• Unreleased liens renders a title unmerchantable – Crutcher v. Aiken 252 SW 844
• Lis Pendens renders a title unmerchantable – King v. Trubb 551 SW2d 436

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Equitable Conversion

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upon the execution of a sales contract, titel splits into bare legal title (seller) and equitable title (buyer). The purchaser's interest becomes an interest in real property while the seller's interst becomes an interest in personal property. in most jurisdicions, the buyer bares the burden of a risk of loss during the contract period.

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Equitable Conversion

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• Split in Legal & Equitable Title b/wn Buyer and Seller;
• Equity views Buyer as owner

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Equitable Conversion Majority Rule

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(MAJORITY RULE) – Effect on Casualty
• Once the sales contract is signed and equitable title is held by the buyer, the buyer is considered the owner in equity while the seller merely holds bare legal title as a means of ensuring he will receive the negotiated upon purchase price.
• Any injury or destruction to the property by fire, flood, hurricane, earthquake or other disaster AFTER THE DATE OF THE CONTRACT is assumed by the equitable owner of the property (i.e., the Buyer)

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RISK OF LOSS: The common law rule is the majority and has been
heavily criticized by modern scholars because:

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1. Fundamentally inconsistent with expectations of both buyer & seller.
2. In most instances the seller retains possession until closing and is in a better position to protect the property and thus be responsible for it.
3. There is a moral hazard issue posed because if the seller is entitled to the sale no matter what, seller has little incentive to preserve the property from injury.
4. Seller normally has casualty insurance until closing and would not need the protection the rule affords while the buyer rarely insures the property prior to closing and thus would not have that protection available.

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Texas is in the minority of states that has adopted the Uniform Vendor and Purchaser Act (UVPA).

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What it really means:
If either legal title or possession has transferred, seller may enforce the contract and buyer is not entitled to recover any portion of the price already paid.


1. if when neither legal title or possession has been transferred, all or material part of the property has been destroyed w/o fault the vendor may not enforce the K and the seller is entitle to reocver any portion of the K price paid
2. If when EITHER the legal title or the possession of the property has been transfered the purchaser is not relieved from duty to pay the contract price nor is the purchaser entitled to recover any portion of the price already paid

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How woud that hapen in Texas?

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• Contract for deed [possession transferred, not legal title]
• Seller finance [possession & legal title transferred but not all $ paid]
• Seller rents from buyer after closing [legal title transferred, not possession

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• TREC Form Residential Real Estate Contract includes a “casualty loss” provision:

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o Applies to losses during executory period & works with Property Code
o Seller shall restore property to previous condition as soon as reasonably possible but by Closing Date at the latest
o If seller cannot restore by Closing Date for reasons beyond seller’s control, Buyer may:
• (1) terminate contract and earnest $ refunded (same as statute);
• (2) extend time for performance up to 15 days and closing date extended as necessary; or
• (3) accept property in damaged condition with an assignment of insurance proceeds and credit for the amount of the deductible under the insurance policy at time of closing.

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Additional Encumbrances – can a seller encumber a property after a K for sale has been drafted?

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No. all you have is legal title once a K has been signed.

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Seller's Duty to Disclose

Caveat Emptor - Common Law

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• At common law (caveat emptor), buyer had virtually no remedy for defective property conditions whether discovered before or after closing
• Law presumed a reasonable buyer would conduct a pre-purchase investigation and protect himself by negotiating for an express warranty or other terms in the contract
• Only potential liability of the seller arose from
o (1) intentional misrepresentation of property condition or
o (2) fraudulently concealing a defective condition on the property

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Hypos

• Bates enters into a contract to sell his home to Underwood. Bates is aware that is home is perched over a huge underground cavern but he does not disclose this to Underwood. The day after closing, the earth gives way under the home, it tumbles into the cavern and is a total loss. Under the rule of caveat emptor, Underwood had no remedy against Bates.

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• What if Bates had told Underwood during contract negotiations, “Don‟t ever worry about his house. It‟s built on solid rock!”
o Even absent any duty of Bates to disclose information, he has made himself liable to Underwood under a theory of fraudulent misrepresentation

• What if Bates filled in a few foundation cracks caused by the cavern and covered the patched areas with fresh paint and says nothing at all about the cavern or the filled cracks caused by the cavern?
o Even at common law, Bates has made himself liable to Underwood. His acts amount to fraudulent concealment which is seen as an equivalent of an affirmative misrepresentation where relied upon.

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Common Law Fraud

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To recover for common law fraud, the Plaintiff must establish that:
1. The defendant made a material representation;
2. that was false;
3. which the defendant knew was false or which the defendant made recklessly, as a positive assertion, without knowledge of its truth;
4. which the plaintiff relied upon; and
5. where the representation cause harm.

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Duty to Disclose – Generally

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• Duty to Disclose: A failure to disclose information does NOT constitute fraud unless there is a duty to disclose. Nelson v. Najm 127 SW3d 170.

• Latent Defects: In Texas, a seller of real estate is under a duty of disclosing material facts which would not be discoverable by the exercise of ordinary care on the part of the purchaser, or which a reasonable investigation and inquiry would not uncover.” Royce Homes v. Dyck, 2006 Tex. App. Lexis 9484

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Deceptive Trade Practices Act

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• “The failure to disclose information concerning goods or services which was known at the time of the transaction if such failure to disclose such information was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed”

• DTPA Limitations:
1. Transactions over $100K if by contract; represented by legal counsel; and not involving the consumer’s residence;
2. Any transaction of more than $500,000 except for a residence;
3. Must qualify as a “consumer” under the act;
4. Consumer does not include a business with assets of $25 Million +

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Texas, along with a MAJORITY of states today, requires sellers to disclose latent, material defects to the buyer.

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latent, material defects to the buyer.

Remedies: If seller breaches the duty to disclose, buyer can
• rescind the contract (even after closing) OR
• recover compensatory damages.

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Duty to Disclose – elements

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1. knows of facts
2. materially affecting the value of the property
3. which are not readily observable and
4. are not known to the buyer,
the seller is under a duty to disclose them to the buyer.

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Texas Residential Disclosure requirements

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Residential Disclosure requirements –
Texas Property Code § 5.008 requires the statutory form to be filled out by sellers of a residential real property with not more than one dwelling unit.

Conveyances not requiring this form?
Exempt Transfers:
• Under court order or foreclosure sale;
• by abankruptcy trustee;
• from a mortgagor to a mortgagee;
• by fiduciaries in the course of administration;
• from one co-owner to another;
• to spouses or other persons in the lineal line of consanguinity;
• between spouses per a divorce or separation decree;
• to/from any governmental entity;
• of new residences of not more than one dwelling unit which have not been
• occupied;
• and real property when the dwelling does not exceed 5% of the property value.

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WHAT must be disclosed in residential sales?

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Residential Disclosure Requirements
• Seller must complete the disclosure form honestly and to the best of their knowledge on the date it is completed.

• Seller has no ongoing duty to disclose. Complete the form when provided by realtor and you’re done

• Timing -Completed form must be provided to buyer BEFORE entering into the contract. If received AFTER the contract, buyer has the right to cancel the contract within 7 days of receipt of the form.

What else?
1. Seller has no duty to volunteer any additional information outside of the form unless it would be a material latent defect that the buyer wouldn’t otherwise know about.
2. If seller is asked specific questions by the buyer, seller has a duty to answer honestly.
3. Seller may not fraudulently conceal conditions of the property whichm materially relate to the property.
4. Seller must disclose any defect fully and cannot leave a false impression with the buyer as to the property’s condition.

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As-Is Clauses

The Prudential Rule –

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The Prudential Rule –
• A purchaser that takes a property “as is” agrees to make his own appraisal of the bargain and to accept the risk that he may be wrong;
• The seller gives no assurances, express or implied, concerning the value or condition of the thing sold.
• The “as is” agreement negates causation b/c the sole cause of the buyer’s injury in such circumstances, by his own admission, is the buyer himself.
• In making this choice, the buyer removes the possibility that the seller’s conduct will cause him damage.

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Limitations and Enforceability

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Limitations: A buyer is not bound by an agreement to purchase something “as is” that he is induced to make b/c of fraudulent representation or concealment of
information by the Seller. No false assurances or impairment of inspections.

Enforceability : Determined by the nature of the transaction and the totality of circumstances.

The as is agreement will be given effect where
1. an important part of the benefit of the bargain,
2. not an incidental or boilerplate provision; and
3. entered into by parties of relatively equal bargaining position.

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Duties of the Seller

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• A seller has NO duty to disclose facts that he does not know; nor is a seller liable for failing to disclose that which he only should have known.
• Even under the DTPA, a seller is not liable for failing to disclose information he did not actually know. The Seller had no duty to investigate or disclose any “general concerns”. Absent specific knowledge the seller was not obligated to make any disclosure.

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What does this mean? Latent Defects?

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Material facts which would not
be discoverable by the exercise of ordinary care and diligence on the part of the purchaser, or which a reasonable investigation and inquiry would not uncover.

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New Home Warranties

Implied Warranty of Good Workmanship

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• Requires the builder to construct the home in the same manner as would a generally proficient builder engaged in similar work and performing under similar circumstances.

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Implied Warranty of Habitability

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• Requires the builder to provide a house that is safe, sanitary, and otherwise fir for human habitation.

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Waiver of implied warranties

(at sales contract stage)

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an express warranty may supersede an implied warranty of good workmanship (but cannot disclaim it – it serves as a gap filler if the contract does not provide for the quality of work) but an implied warranty of habitability may not be waived.

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Remedies for a breach of contract sale

When a buyer is in default, the seller may:

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1. Seek relief in equity for rescission
2. Offer to perform and bring an action for specific performance
3. Elect to retain the realty and file suit seeking damages.

Loss of bargain damages are available in Texas - it is the contract price mius what the property sold for (damages if the buyer breaches)

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Special damages may also be awarded if

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1. The damages resulted as a natural and probable consequence of the breach AND
2. The breaching party reasonably knew or should have anticipated from the facts and circumstances that the damages would be incurred.
These damages are measured from the time of original closing date until the date the property is subsequently sold. Special damages are available in Texas but must be specifically pled.

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Punitive damages may be awarded if:

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Punitive damages may be awarded if:
1. The breach was in reckless disregard of the contractual obligations OR
2. The breaching party intended to harm the non-breaching party.

PUNITIVE DAMAGES ARE NOT AVAILABLE IN TEXAS FOR BOK

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Types of Deeds and Warranties - what type of rights does the grantee have after the purchase

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Depends on what type of deed the grantee receives.

When the buyer accepts the deed, warranty of marketability and merchantability go away after the contract period due to MERGER escept those which are expressly stated as surviving - ex tax determinations

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What is required of a deed in Texas?

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NO particular form - PRESENT INTENT of bargain and sale will be sustained as a conveyance

But it must:

1. WRITING
a. SOF applicable to deeds as set out in 5.021 Tex. Prop. Code
2. IDENTIFY
a. Must name the grantor and grantee or provide a sufficient description to enable them to be identified
b. If the grantee is non-existent or unascertainable the deed is void.
c. A deed to a deceased person is void but a deed to their heirs is valid because they can be ascertained.
d. A deed to the heirs of a living person is void because they cannot be ascertained.
3. OPERATIVE WORDS OF GRANT showing intent to transfer title
a. Operative words showing the grantor’s intention to convey must include a positive command or direction such as give, grant or convey as opposed to a recommendation, advice, or expression of desire such as wish, like or desire.
b. Precatory language is not sufficient.
4. ADEQUATE PHYSICAL DESCRIPTION
a. Must be described with “sufficient certainty so as to enable a party familiar with the locality to identify the property to be conveyed to the exclusion of others. – see legal descriptions cannons.
5. BE EXECUTED BY GRANTOR(need not be executed by Grantee)
a. You want the grantee to sign, however, for evidence that they agreed to the terms of the deed (as is clauses or tax agreements)
6. VALID ACKNOWLEGDEMENTt* - this is not a required element for a valid deed, but IS required for recordation in the public records.

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Forgery vs. Fraud

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Forgery makes a deed void;
Fraud makes a deed voidable by the grantee but a subsequent bona fide purchaser from the granteee who is unaware of the fraud prevails over the grantor.

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Legal Descriptions – Construction

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Where there is a mistake or inconsistency in the description (where there is doubt as to the location of the boundary line) cannons of construction are applied to ascertain the parties’ intent.

The Order is:
1. Original Survey monuments
2. Natural monuments
3. Artificial monuments
4. Maps
5. Courses (directions)
6. Distances
7. Name
8. Quantity

Physical Description – degrees, minutes, and seconds.

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Is consideration required to make a deed valid?

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No, gift deeds are valid but in texas it is customary to recite the payment of consideration to create a rebuttable presumption that the grantee is a bfp and entitled to protection against prior recorded instruments

might not want to put the real price in b/c of tax assessor

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Recordation - what must an instrument possess in order to be recorded?

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1. grantor signs and acknowledges or swears in front of two or more credible subscribing witnesses OR
2. it is sworn to before and certified by an authorized officer

deeds are valid as between grantor and grantee even without recordation

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Types of deeds

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1. General Warranty Deed
2. Special Warranty Deed
3. Quitclaim Deed

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Common elements to all deeds

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Granting clause
habbendum clause
and
IMPLIED WARRANTIES

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what warranties are implied by all deeds?

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1. That the grantor before executing the conveyance has not conveyed the same estate or any right, title, or interest in it to any other person other than the grantee.
2. That at the time of the conveyance, the estate is free from encumbrances; and
3. A covenant of seisin (grantor owns that which she purports to convey) is also generally implied unless limited by the terms of the deed or a quitclaim deed is utilized.

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General Warranty Deed - warranties

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1. Covenant of seisin - present– the grantor warrants that he owns the land he purports to convey
2. Covenant of the right to convey - present – the grantor warrants that he has the right to convey the property. (most states one and two are the same but it is possible for a person to have 1 and not 2 for example in the case of a trust where the trustee has legal title but is forbidden by the trust instrument to convey it).
3. A covenant against encumbrances – present -warrants that there are no encumbrances (mortgages, liens, easements)
4. A covenant of general warranty - future – warrants that he will defend against lawful claim and will compensate the grantee for any loss that the grantee may sustain by assertion of superior title.
5. Quiet enjoyment -future– guarantees that the grantee will not be disturbed in possession and enjoyment of the property by assertion of superior title. –identical to the covenant of general warranty and often omitted.
6. Covenant of further assurances – future -the grantor promises that he will execute any other documents required to perfect the title conveyed.

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General warranty Deed

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expressly gaurantees asurance of title. The grantor will defend against the title against everyone and compensate the owner for losses by claims against the title including ownership interests, liens, or encumberances.

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Special Warranty Deed

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A special warranty deed is created by adding to the typical warranty clause found in a general warranty deed the phrase BY THROUGH OR UNDER THE GRANTOR BUT NOT OTHERWISE

only garantees claims of persons deriving their interest in the property from the grantor. - covenants or clouds created by the grantor only. buyer not protected from claims by anyone prior or by stangers to the deed.

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Should you except special warranty deeds?

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they became commonplace in the 80's and are now used mostly in commercial transactions, but you may still accept them as long as you have title insureance.

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Quitclaim Deed

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does not convey title to the property itself but merely any interest or title the grantor may have in the property.

The use of the term “quitclaim” is NOT conclusive; the courts will consider whether the instrument as a whole indicates a purpose to convey the property itself or merely whatever title of interest the Grantor may have.

NO WARRANTIES OF TITLE - not even that the grantor owns what he purports to convey.

a sheriff's deed is a type of quitclaim deed in that it passes only the titel that the judgement debtor may have in the property.

The after aquired titel doctrine does not apply to quitclaims

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Correction deeds

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A correction deed‖ may be executed to correct a mutual mistake, such as an incorrect legal description of the property.

The correction deed generally relates back to the date of the original deed; the correction itself is said to be sufficient consideration for the correction deed, such that no new consideration is necessary.
A correction deed must be property executed and delivered to be effective.

Once a Grantor has conveyed title to another person, the Grantor may not use a correction deed to correct the Grantor’s unilateral mistake in conveying title to the property because the Grantor no longer has any title to convey.

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Reservations and Exceptions

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even in a general or special warranty deed, reservations and exceptions can be made a against defects, restrictions, etc. affecting the title.

Reservations - are granted in favor of the grantor and retains an interest (minerals, easement, lfe estate)

Exception - an exclusion is an exception that describes part of the interest granted that the grantor retains and does not convey or hat is already owned by another and is not intended to be conveyed.

NOTE – A reservation or exception in favor of a stranger (i.e., a third party) to a deed conveys no title to the stranger.

grants are broadly construed and exceptions are narrowly consrued.

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Deed of Trust

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– not a deed in and of itself. It is a mortgage; a note or a lien; on a property. _ LIKE CASH.

Buyer receives the deed w/a note or lien attached. Gives a lender a right to foreclose on a property. Allows for a non-judicial foreclosure.

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What is texas' possition on leins?

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TEXAS is a lien theory state, meaning that the borrower owns the legal title to the property and the lender only has equitable title.

Title theory states – the lender holds legal title to the property and the buyer has an equitable right to receive title once the note has been paid.

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Title - what is title?

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What is being conveyed in the transaction is much more than the land itself, but also the title to the land.

Title is: he formal right of ownership of property. The right to ownership in land; also the evidence of such ownership.

Remember if some title defect is discovered BEFORE closing, during the executory period, the Implied Covenant of Marketable Title allows for rescission of the contract.

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What happens if you don’t discover the title defect until AFTER closing?

Back 71

Multiple components working together to protect the grantee so that granteee does indeed get what he thinks he is getting.

What makes up the system of title assurance?
• Warranties of title
• Public record system/title search
• Title commitment
• Title insurance Policy
• Recording statutes and the Priority system

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Covenant, Type and Promise

Back 72

• Seisin - Present - I own what I’m conveying to you

• Right to Convey - Present - I have the right/power to convey to you

• Further Assurances – Future - I will execute any documents

• Against Encumbrances - Present* - I promise there are no encumbrances on the property

• No Prior Conveyances – Present - I promise I have not conveyed all or part of the property to anyone before you

• Warranty/Quiet Enjoyment – Future - I will defend your title against lawful claim and I will pay for losses suffered

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Breach examples

Back 73

Brown v Lober
Owner sells land reserving 2/3 mineral rights. Second owners convey to a third owner by general warranty deed . Third owners try to sell rights but have to renegotiate once the company buying the rights discovers that they only owned 2/3. They sue.
• Mere existence of a title does not mean a covenant has been breached
• Therefore, no constructive eviciton, and therefore no breach of the covenant of quiet enjoyment.
• No brech of seisin because didn;t bring within 10 yr SOL

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Does a latent violation of a land use statute or regulation existing on the land at the time the land is conveyed consitute an ecncumberance such that the conveyance breaches the grantor;s covenent against ecncumberances?

Back 74

Frimberger v. Anzelloti
Does a latent violation of a land use statute or regulation existing on the land at the time the land is conveyed consitute an ecncumberance such that the conveyance breaches the grantor;s covenent against ecncumberances?
• 3 types of encumerances
o pecuniary charge
o interests less than the fee (leases etc.)
o easements or servitudes
• To render a title unmarketable, the defect must present a real and substantial probability of litigation or loss at the time of the conveyance.

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Not all of the land pointed out to buyer was in the deed. He was shown 80 feet but deed only conveyed 70. Because franks wasn’t the only owner.

Back 75

Compton v. Franks
Not all of the land pointed out to buyer was in the deed. He was shown 80 feet but deed only conveyed 70. Because franks wasn’t the only owner.

The general statement of Compton has been repeated in numerous subsequent cases for the proposition that the warranty, or other covenant of title, applies only to what is purportedly conveyed.

As noted in Compton, however, a deed may be reformed on the basis of fraud or mistake, notwithstanding.

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In this case, the plaintiff wanted to buy 80’ and the grantor granted it to him but he only owned 70’ when measured in metes and bounds. – was there a covenant of quantity?

Back 76

Smith v Ames
In this case, the plaintiff wanted to buy 80’ and the grantor granted it to him but he only owned 70’ when measured in metes and bounds. – was there a covenant of quantity?
• Words of description in a deed constitute neither an express nor implied covenant for quantity.
• HOWEVER – at the time the owner of an adjacent lot claims title then there will be a breach of the warranty against prior title even though the deed did not contain a warranty of size.

A general warranty contained in a deed from defendants to plaintiff cannot be construed as a covenant of quantity but only serves as a warranty of the title thereto.

This is just another application of the general rule that the standard covenant of warranty is of title and thus not of area or quantity.

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Rules for covenant of title:

Rule 1

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: A deed impliedly includes certain covenants where the use of the
term ―grant‖ or ―convey‖ is used.

Tex. Property Code § 5.023 provides that use of ―grant‖ or ―convey‖ implies that
1. prior to the execution of the conveyance the grantor has not conveyed the estate or any interest in the estate to a person other than the grantee; and
2. that at the time of the execution of the conveyance the estate is free from encumbrances.

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Rule 2

Back 78

Rule #2: Covenants apply only to the land described in the deed.

Consider what it is that the deed purported to convey and then ask,―Is there a problem with what is actually described in the deed? Is that what I got?

If deed conveys land the grantor does not own, potential warranty action.
If deed conveys land the grantor does own (even if more was promised &
not included), no warranty action—must use fraud/misrepresentation
causes of action.

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Rule 3

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Title covenants are contracts so there will only be a breach to address if the injury complained of matches up with a specific promise made in the deed.

You may have multiple promises in the deed but the injury must match up exactly with the promise.

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Rule #4:

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Rule #4: Present covenant apply only to the defects that EXISTED AT THE TIME of the conveyance; future covenants are breached when a later action arises. – almost like saying that the COA isn’t ripe.

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HOW TO ANALYZE A COVENANT TITLE PROBLEM

Back 81

1. What specific covenants are contained in the deed both expressly and impliedly?

2. What type of covenants are they—present or future?

3. What is required to breach those covenants?

4. When does the breach occur/statute of limitations begin to run?

5. Did the complained of defect exist at the time the covenant was given or is there now an action giving rise to a future covenant ?

6. Does the complained of defect breach a covenant contained/implied in the deed?

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After Acquired Title Doctrine-
Estoppel by Deed

Back 82

If you receive a general or special warranty deed it is implied.

Thus, under a deed warranting title or ownership, the grantor or his or her privies will be estopped from asserting, against the grantee and those claiming under the grantee, an after-acquired title or interest in the estate that the deed purports to convey.

If a grantor did not possess the estate which the deed purports to convey, they and their privies, whether in blood in an estate or in law, are estopped to claim by
an after-acquired title. The language in a deed whereby the grantors convey the fee-simple estate in the land constitutes a recital which imports an
assertion by them that the are the owners in fee simple of the land; and, having thus asserted the fact of their ownership, the grantors are estopped to deny such fact. Lindsay v. Freeman (Tex. 1892)

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After Acquired Title Doctrine-
warranty required?

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Applicability: The covenant of title or ownership necessary to raise an estoppel may be a general or special warranty, the latter operating as an estoppel to the extent of the liability assumed by the grantor.

Warranty Required? No. In Lindsay v. Freeman, the court considered the case in which no warranty was made when title was conveyed. The court held that estoppel applies though the deed contains no warranty.

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Orville dies in flight and leaves his family farm in Texas. Orville died intestate in 1990 leaving his wife Abby and son Billy. Under intestate law, Billy inherits Orville’s 1/2 interest in the property. Abby retains her 1/2 interest. Billy executes a gift deed transferring the property to his longtime friend Cal. Abby later dies and leaves all of her property to Billy. Billy dies several years later and leaves a will devising all of his property to his two daughters, Elizabeth and Emma who assert that they own a 1/4 interest each in the property.

What result?

Back 84

Billy purported to gift all of the property to Cal even if he did not own it. Daughters are estopped from claiming they own any rights in the prop because Billy gave all of the rights away. Even though the conveyance to call was a gift deed which is gift without warranties. – would have been dif if in a QC deed b/c QC deeds only what you owe.

Billy can’t say I now own 1/2 because I never really owned it all to begin with so I never conveyed the whole to you.

What if Cal, an attorney, knew that under intestate law Billy only owned a 1/2 interest in the farm?

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Additinal rules for after aquired title doctrine

Back 85

Additional Rules:

1. Where there is an express agreement in the deed that no estoppel by deed will result, such an agreement is given effect – Pugh v. Mays
2. No payment of consideration is necessary to create estoppel by deed. Gould v. West
3. The fact that the grantee knows of the defect in the grantor’s title, and therefore does not rely on any representation of title does not prevent the creation of the estoppel by deed. McBride v. Hutson.
4. The estoppel created by a deed applies only to the land purportedly conveyed, and not to other interest in the same or other land. Anderson v. Casey-Swasey Co.

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QC and post conveyances

Back 86

Application to Quitclaim Deeds: Because a grantor giving a quitclaim deed only purports to convey whatever interest is owned at the time the deed is executed, a quitclaim deed generally will not support estoppel.

Application to Post-Conveyance Claims: Estoppel by deed does not apply to claims, good against the grantee, arising after the conveyance. The doctrine does not apply to the acquisition of a later title which is not inconsistent with the prior conveyance.
1. Grantor acquired title by purchase at a tax sale for taxes
accruing after deed;
2. Grantor acquired limitation title by adverse possession
after deed;
3. Grantor acquired vendor’s lien retained in sale by a
subsequent grantee.

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Breach of Warranties and Damages

Orville dies in flight and leaves his family farm in Texas. Orville died intestate in 1990 leaving his wife Abby and son Billy. Under intestate law, Billy inherits Orville’s 1/2 interest in the property. Abby retains her 1/2 interest. Billy executes a gift deed with general warranty transferring the property to his longtime friend Cal. Abby later dies and leaves all of her property to her grandchildren, Billy’s two
daughters, Elizabeth and Emma. Upon the probate of Abby’s will, Elizabeth and Emma assert that they own a 1/4 interest each in the property.
What result for Cal?

Back 87

• A breach in title occurs at the point of time when an assertion of title is made
• Was there a conveyance? Yes
• Was there a breach? Yes
• Can I recover? Yes
• SO WHAT IS THE PROBLEM?
o No consideration! Cal cannot recover damages for more than what he put in. Cal got something that wasn’t worth anything, but he didn’t pay anything.
o DAMAGES are limited to the amount of consideration paid.
o There was a warranty, there was constructive eviction, but there was no harm, therefore no damages.

Front 88

Cross v. Thomas – General Warranty Claim. Buyer learn of superior titles and goes around town buying them up then sues original grantor for the money he spent buying up the superior titles.

Back 88

Rule: The mere existence of a superior title in another is not a breach of warranty because that does not work an eviction of a Buyer who has entered upon the land.

In this case, the warrantee voluntarily bought the outstanding title that had never been asserted against him.

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Focus on 2 warranties:

Breach of Covenant Against Encumbrances

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– A present covenant that is breached, if at all, upon the execution and delivery of the deed.

However, it has been held that no damages are recoverable until the outstanding encumbrance is asserted.

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Breach of Warranty of Title:

Back 90

There is no breach of the covenant of warranty until eviction by the holder of a superior title. In order to have such an evection, the outstanding title must be paramount to that of the warrantee.

meaning that the warantee is not responsible to protect the warrantee against tresspassers (those without rights of possession)

• ALL warrantors of the title challenged may be made parties to the suit for title against the warrantee.
• If the warrantor is a party to the suit by which the warrantee is evicted (suit to quiet title), no further proof of the superior quality of the title is necessary, since the warrantor is bound by the judgment.

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Breach of Warranty of Title: Eviction Required

Back 91

The mere existence of superior title is not an eviction in itself.

The title must be asserted by the holder of it, and either enforced in judgment (actual) or yielded by the warrantee (constructive).

If there is no assertion of superior title, there is NO eviction. If the holder of the superior title is in possession of the land, that is an assertion and there is a breach of the warranty at that time.

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Breach of Warranty of Title – Additional Rules:

Back 92

1. the warranty of titile is not applicable to subsequent claims

2. the covenant runs with the land in a special or general warranty deed and even though a grantee claims through a quitclaim deed, immediately of remotely, he may enforce the original warranty

3.Intermediate grantors have NO COA unless they are forced to pay their immediate grantees.

4. if the warratnor re-aquires title, oringinal warranties and intermediate warranties are extinguished.
• Example: If A conveys with warranty to B, and B re-conveys with warranty to A, and thereafter A conveys by quitclaim to C, C may not enforce either A’s original warranty or B’s warranty.

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Breach of Warranty of Title: Measure of Damages:

Back 93

Total failure = The measure of damages on breach of a covenant of warranty by a total failure of title is the amount received by the warrantor.

Partial failure = Where there is a partial failure of title, the measure of damages against the warrantor is a proportion of the consideration received by him, such proportion being that of the value of the portion of the land where title failed to the total value of the land.

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Implied Covenant Against Encumbrances

Back 94

to protect buyer from loss or injury he may suffer from by failure or defect in title.
available in general warranty deed - the legal duty of the grantor to pay off and discharge al liens and encumberances incurred prior to the converance which are not assumed by the grantor.

coventor warrants that he will restore purchase price if entirely lost or a portion of the consideration as the amount of loss bears to the whole of it.

Front 95

warranty of title vs. covenent against encumberances

Back 95

it is intended to protect the grantee against rights of third parties which, while consistent with the fee granted by the grantor, diminish the estate conveyed; anything that impairs the use or transfer of the property; a burden on the land, depreciative of its value, such as a lien, easement or servitude, which although adverse to the interest of the landowner, does not conflict with his conveyance of the land in fee, a burden or charge on the property; a legal claim or lien….

basically, title is a loss of the fee, encumberances says grantee keeps the land, but its worse less because of x y or z.

Front 96

What if the grantee knows of the defect before he purchases?

Back 96

It is NOT material that the Grantee “possessed or was charged with knowledge of the servitude or the limitation with the City. The Grantee’s rights under the warranties arise not from independent knowledge he possessed, or with which he was charged, but SOLELY from the language of the deed and the warranties included and read into it.”

Front 97

Breach of Warranties and Damages

Orville dies in flight and leaves his family farm in Texas. Orville died intestate in 1990 leaving his wife Abby and son Billy. Under intestate law, Billy inherits Orville’s 1/2 interest in the property. Abby retains her 1/2 interest. Billy executes a gift deed with general warranty transferring the property to his longtime friend Cal. Abby later dies and leaves all of her property to her grandchildren, Billy’s two
daughters, Elizabeth and Emma. Upon the probate of Abby’s will, Elizabeth and Emma assert that they own a 1/4 interest each in the property.
What result for Cal?

Back 97

• A breach in title occurs at the point of time when an assertion of title is made
• Was there a conveyance? Yes
• Was there a breach? Yes
• Can I recover? Yes
• SO WHAT IS THE PROBLEM?
o No consideration! Cal cannot recover damages for more than what he put in. Cal got something that wasn’t worth anything, but he didn’t pay anything.
o DAMAGES are limited to the amount of consideration paid.
o There was a warranty, there was constructive eviction, but there was no harm, therefore no damages.

Front 98

Cross v. Thomas – General Warranty Claim. Buyer learn of superior titles and goes around town buying them up then sues original grantor for the money he spent buying up the superior titles.

Back 98

Rule: The mere existence of a superior title in another is not a breach of warranty because that does not work an eviction of a Buyer who has entered upon the land.

In this case, the warrantee voluntarily bought the outstanding title that had never been asserted against him.

Front 99

Focus on 2 warranties:

Breach of Covenant Against Encumbrances

Back 99

– A present covenant that is breached, if at all, upon the execution and delivery of the deed.

However, it has been held that no damages are recoverable until the outstanding encumbrance is asserted.

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Breach of Warranty of Title:

Back 100

There is no breach of the covenant of warranty until eviction by the holder of a superior title. In order to have such an evection, the outstanding title must be paramount to that of the warrantee.

meaning that the warantee is not responsible to protect the warrantee against tresspassers (those without rights of possession)

• ALL warrantors of the title challenged may be made parties to the suit for title against the warrantee.
• If the warrantor is a party to the suit by which the warrantee is evicted (suit to quiet title), no further proof of the superior quality of the title is necessary, since the warrantor is bound by the judgment.

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Breach of Warranty of Title: Eviction Required

Back 101

The mere existence of superior title is not an eviction in itself.

The title must be asserted by the holder of it, and either enforced in judgment (actual) or yielded by the warrantee (constructive).

If there is no assertion of superior title, there is NO eviction. If the holder of the superior title is in possession of the land, that is an assertion and there is a breach of the warranty at that time.

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Breach of Covenant Against Encumbrances– RECAP

Back 102

1. Implied Covenant – As stated in City of Beaumont, the covenant against encumbrances which is included in any conveyance where the words “grant” or “convey” are used.

2. Covenant Runs with the Land – The covenant against encumbrances runs with the land so as to be available not only to the immediate warrantee but also to a remote grantee under the original warrantor.

3. Limitations – The statute of limitations begins to run against the cause of action on the covenant only at the time the encumbrance is enforced against the covantee.

4. Damages – The damages for breach of the covenant against encumbrances are the amount required to remove the encumbrance plus interest and costs (limited by the amount received by the coventor) or the reduction in the value of the land if the encumbrance cannot be removed.

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Who can be sued in each covenant?

Back 103

1. Seisin - Present - Immediate grantor

2. Right to Convey - Present - Immediate grantor

3. No Prior Conveyances - Present - Immediate grantor

4. Against Encumbrances - Pres/Fut - Immediate grantor and possible remote grantors

5. Warranty/Quiet Enjoyment -Future - Immediate grantor and possible remote grantors

6. Further Assurances - Future -Immediate grantor and possible remote grantors

Front 104

Damages recoverable?

Breach of Covenant of Encumberances

Back 104

Breach of Covenant of Encumbrances:
1. The amount it takes to eliminate the encumbrance (limited by the consideration received by the warrantor); OR
2. If the encumbrance cannot be removed, the diminished FMV as a result of the presence of the encumbrance.

Front 105

Damages for:
Breach of Covenant of Seisin, Right to Convey, No Prior Conveyances, Warranty/Quiet Enjoyment:

Back 105

If there is a partial or complete failure of title can recover damages but how do we measure the damages?
1. Value of the land at the time of the eviction, taking into account appreciation and depreciation; OR
2. Value of the land plus improvements; OR
3. Consideration rec’d by Warrantor, plus interest (MAJORITY VIEW & TEXAS)

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Danny vs. Andrew - additional rules

Back 106

Rule: If suing a REMOTE GRANTOR grantee’s damages are measured by the amount received by the remote grantor.
• Even though Danny can sue Andrew, the damages are capped at the $50,000 Andrew received from Brian.

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What else can Danny recover?

Back 107

Interest and Taxes paid:
• Grantee in possession of property: can only recover the amount in excess of reasonable rental value
• Grantee not in possession of property: can recover full amount of interest and also full amount of taxes paid on the property

Improvements to the Property:
• If improvements made in good faith, recovery for enhanced value of the land as a result of the improvements.
• Majority view and the view in Texas

Attorney’s Fees and Costs:
Recover costs and attorney’s fees the grantee incurs in defending an eviction suit are recoverable against the suit on the warranty against the grantor/warrantor limited to where the warantee loses and there is superior title in another.

Other Issues with Damages
• Rule: No duty to mitigate damages in order to recover
• Rule: Knowledge of an encumbrance does not prevent your ability to bring a claim but can impact the award of damages.

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Execution Delivery and Acceptance of the Deed

Execution by the Grantor

Back 108

Execution by the Grantor
• Without a valid signature, deed is VOID and passes no title to the grantee or his successors.

Valid Execution
1. Grantor executes;
2. Grantor authorizes another with actual authority to execute (including the Grantee – Mondragon v. Mondragon);
3. Grantors ratifies or adopts a writing as his signature (including forged)
4. Grantor ratifies or adopts the deed by another written, signed instrument

Front 109

The Deed must be subscribed by the grantor or the grantor’s agent, authorized in
writing to convey the estate. Generally, if the deed is forged, it is wholly void.
HOWEVER

Back 109

However, it may become operative if the grantor later acknowledges it, thereby adopting the entire deed, including the forged or unauthorized signature. In addition, if the grantor is present and either expressly or impliedly authorizes another person to sign the grantor’s name to the deed, the person actually writing the name is not regarded as an agent, but as a mere instrument, and the signature is valid.

Front 110

Delivery

Back 110

A Deed is not effective to transfer an interest in land until is has been delivered by the Grantor.

Delivery is shown by words or conduct of the Grantor which indicate an intent to made the deed operative and to pass an interest immediately to the Grantee, i.e., an intent to make the deed legally effective now.

A deed that is not delivered is VOID and passes no title to the grantee or his successors.

An undelivered deed conveys no title, and even a good faith purchaser for value takes no title thereunder.

The question of delivery is one of intent of the Grantor to be determined by all of the facts/circumstances.

Front 111

Acceptance

Back 111

A deed that has not been accepted does not operate to convey title to the land

If there is no acceptance by the grantee, either expressly or impliedly, the deed is VOID and passes no title to the grantee or his successors.

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Deed Presumptions

Back 112

A deed that is recorded creates a presumption that it was signed, delivered and accepted;
1. Proof that the grantee, or a person holding under him, has or had
2. possession of the deed creates a rebuttable presumption of delivery and acceptance of the deed.
3. Assuming the delivery to have been proved, the time of delivery is presumed, in the absence of proof otherwise, to be on the date of execution recited in the deed.

Front 113

Rosengrant v. Rosengrant

Back 113

Rosengrants intend to convey the title to their land to their nephew but they asked the banker to hold on to the deed and the envelope said that the grantor Rosengrant could retrieve it at any time he wanted. Therefore the reserved a right of retrieval.
Issue:
Whether the deed was null and void for failure of legal
delivery?

Rule:
Where a grantor delivers a deed under which he reserves a right of retrieval and attaches to that delivery the condition that the deed is to become operative only after the death of the grantors and further continues to use the property as if no transfer had occurred, grantor’s actions are nothing more than an attempt to employ the deed as if it were a will.

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Conditional Delivery in a Grantee

Back 114

MAJORITY VIEW (TX):
If there is an attempted conditional delivery in a grantee, the FSA is transferred and the condition has no effect…..subject to exceptions for delivery into escrow/third parties.

MINORITY VIEW:
If there is an attempted conditional delivery in a grantee, there is no delivery and the title remains with the grantor.

Front 115

Conditional Delivery in a Third Party

HYPO
O grants and conveys Blackacre to A. O takes the deed to a banker and tells banker to hold the deed until his death upon which time the deed shall be given to A.
Is this delivery valid?

Back 115

Common Real Estate Transactions….

A conditional delivery to a third party is valid if:
1. Grantor has an intent to convey an interest: AND
2. It is not revocable

Yes, the deed is valid. However, the third party must not be an agent.
Did the grantor express that they had the right to recind, not whether the lawyer would give it back. NOT THE LAWYERS INTENT BUT THE GRANTOR’S.

a “delivery” to one who is an agent of the grantor for purposes of the transaction, that is, who is under the control of the grantor, is no delivery until the grantor’s agent, acting within his authority, makes the delivery to the grantee or to someone acting for the grantee.

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Texas cases follow the usual rule that delivery to a person other than the grantee with the instructions that the deed is to be delivered to the grantee at a specified time in the future (such as at the time of grantor’s death) is

Back 116

is an effective delivery, presently vesting an estate in the grantee which will become possessory at the stated time.

Front 117

the general rule is that a delivery of a deed must be absolute and unconditional.

Back 117

An attempted imposition of condition on the grantee is void where the deed is delivered to the grantee and on its face it is an absolute and unconditional conveyance.

Front 118

The deed in a BOX
Hypo #1 – O executes a deed conveying Blackacre to A and places it in a safe deposit box where it is discovered after O’s death.

Back 118

• All courts agree that NO DELIVERY occurred here because O has not manifested any intent for delivery.

Front 119

Hypo #2 – O executes a deed conveying Blackacre to A and places it in a safe deposit box. O gives A a key to the safe deposit box.

Back 119

• This scenario is more often viewed as giving dominion and control over the deed and thus an effective delivery. The facts/circumstances are the key factor in determining delivery.

Front 120

Basic Real Estate Finance

Types of Real Estate Loans

Back 120

Types of Real Estate Loans
• Conventional loans – 20% down; 80% financed
• Non-traditional Loans – 80% financed through primary loan; 20% financed through secondary loan at a higher interest rate
• FHA loans – 5% down payment; 95% financed
• VA Loans – 100% financed (low interest rates)

Front 121

Promissory Note vs. Deed of Trust (or Mortgage)

Back 121

Promissory note is like any other loan and is a borrower's promise to pay

A deed of trust and a mortgage are instruments that create a security interest in a property serving as collateral to pay off the debt.

Front 122

Deed of Trust vs. Mortgage

Back 122

Mortgage
• Two person transfer involving mortgagor & mortgagee

• Foreclosure under a mortgage uses a judicial foreclosure proceeding (unless jurisdiction allows otherwise)


Deed of Trust
• Three person transfer involving mortgagor/grantor, mortgagee/grantee & trustee

• Foreclosure under a deed of trust uses a non-judicial foreclosure proceeding whereby the trustee is granted the right to sell the collateral in the event of certain defaults/actions of the mortgagor.

Front 123

Judicial vs. Non Judicial Foreclosure

Back 123

• Judicial Foreclosure is available in all states and is the dominant method in half the states.

• Process requires the filing of a lawsuit for foreclosure of the lien; obtaining judgment of foreclosure; obtaining an writ of execution; exercise of a writ of execution and order of sale by the sheriff, etc.

• In Texas non-judicial foreclosure is accomplished through the use of deeds of trust.

Front 124

The foreclosure Process

Back 124

triggered by default. default can include:\\• non-payment of the debt
• failure to pay property taxes
• failure to maintain insurance
• failure to properly maintain the property
• mortgagee has a reasonable belief that future payments will not be made – what is an example of this??? – abandonment of house; behind on other payments; you say you aren’t going to pay...

Front 125

judicial foreclosure process in Texas

Back 125

1. must be at auction held between 10 and 4 at the county courthous in a designated ares

2.notice of sale must be given 21 days before the sale by posting at the courthouse door of each county in which the prop is located, filing notice with the county clerk, and serving written notice by CM on each debtor.

if disaster closes clerk = 48 hours

sale must occur at time in notice or not later than 3 hours after


BUT before notice of sale, msut give notice that the debtor is in default and give them 20 days to cure before the notice of sale can be given,

The entire calendar day on which the notice of sale is given, regardless of the time of day at which the notice is given, is included in computing the 21-day notice period required by Subsection (b), and the entire calendar day of the foreclosure sale is excluded.

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Notice of foreclsure

Back 126

Regardless of judicial or non-judicial foreclosure, mortgagee must provide notices to the mortgagor.

Notice #1: Notice of Intent to Accelerate Debt;

NOTE: Debtor Residence Notice: TX Property Code § 51.002(d) requires
that mortgagee give notice of default and acceleration of debt on real property used as debtor’s residence allowing at least 20 days to cure the defect.
Notice #2: Notice of Acceleration of Debt
Notice #3(Often in conjunction with #2): Notice of Foreclosure – notice of
foreclosure sale 21 days before the date of the sale.

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Foreclosure: Additional points

Back 127

• Warranty Deed with Vendor’s Lien: Seller transfers vendor’s lien to third party lender in the deed.
• Acceleration of Debt: All principal payments are accelerated so borrower owes all outstanding principal, all then accrued interest, and interest continues to accrue (but not future, un-accrued interest)
• Real life: Texas Homestead affects lien creation, foreclosures, etc.

Front 128

Validity of foreclosure sale

How does the trustee get his power?

Back 128

• Power of trustee to sell property is derived solely from deed of trust and can only be exercised in strict compliance therewith.
• Once a foreclosure sale is complete, the sale and the trustee's deed have the effect of divesting the title of the mortgagor and vesting it in the purchaser.
• When a party with a property interest wishes to challenge a sale's validity, the proper action is to bring a cause of action to set aside the sale and cancel the trustee's deed.
• Once a sale is complete, the trustee has no further express or implied authority to act as the mortgagor's agent in the cancellation or rescission of a sale.

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what if the mortgagee gets outbid? what happens to the surplus money.

Back 129

• Unless otherwise agreed by the parties, the surplus remaining after paying the mortgage debt and the expenses of sale belongs to the mortgagor.
• When a lien holder gets outbid, the surplus $ over the senior interest goes to pay all junior liens or back to the morgagee.
• All Jr. liens get obliterated when the Sr. lien forecloses.

Front 130

Does the trustee have a duty to obtain a fair price?

Back 130

• IN TEXAS the trustee is not responsible for obtaining a good deal for the purchaser or to protect the purchaser’s interest, even if that purchaser also happens to be the mortgagee. as long as he complies with the statute

Front 131

what if the deed is set aside.

Back 131

• If the court sets aside a foreclosure sale, the debt will be revived and considered outstanding
• In that case, the mortgagee may seek a judicial foreclosure of the lien and any deficiency

Front 132

Why does the borrower care about the Price Obtained at a Foreclosure sale?

Back 132

• Surplus goes to the Borrower (salvage some equity)
• Junior Debt and Liens Get Paid Off
• Deficiency judgment potential if price not as much as the debt

Front 133

when can a debtor recover for a wrongful foreclosure and what must he prove?

Back 133

A debtor may recover damages for wrongful foreclosure only if the mortgagee either
1. fails to comply with statutory or contractual terms, or
2. complies with such terms, yet takes affirmative action that detrimentally affects the fairness of the foreclosure process.

To Invalidate a foreclosure:
• To invalidate a foreclosure sale the debtor must prove that some defect or irregularity in the foreclosure process caused the property to be sold for a grossly inadequate price.
• Inadequacy of consideration alone does not render a foreclosure sale void if the sale was otherwise conducted legally and fairly.

Front 134

Deficiency Judgments and offsetts

Back 134

Deficiency Judgments
• When real property is sold at a judicial or nonjudicial foreclosure sale, the price of the property may be less than the unpaid balance of the indebtedness secured by the real property, resulting in a deficiency.
• Unless the parties have provided otherwise by contract (i.e. non-recourse loan), a lender may bring an action after a foreclosure sale to obtain a deficiency judgment for the difference between the amount received at the sale and the principal amount of the note, accrued interest, and costs
• 2 Year SOL (after foreclosure sale)

Offset
• Debtor may be able to obtain an offset against the deficiency, to scale down the amount of the judgment to what it would have been if the property had sold at its fair market value [Tex. Prop. Code § 51.003 & 51.004].
• Anyone against whom a deficiency judgment is sought may ask the court in which the action is pending to determine the fair market value of the property as of the date of the foreclosure sale.
• The determination is to be made by the finder of fact after the parties introduce competent evidence of fair market value.

Front 135

Legal Implications of the Foreclosure Sale

Back 135

• Look to the rule, “First in Time, First in Right.”
• Priority is established based on when the lien is obtained (with limited exceptions – tax liens, mechanic’s liens).
• Foreclosure extinguishes the lien foreclosed and all liens junior to it.
• Foreclosure also extinguishes other junior property interests(leases, ECRs, etc.)
• Foreclosure sale does not extinguish senior liens.
• After foreclosure, the property remains subject to liens senior to the one foreclosed.
• Purchaser at junior lien foreclosure sale takes the property subject to all senior liens, but is not personally liable for the debt secured by the senior lien.
• If debt secured by senior lien is not paid, then senior lienholder can foreclose
• Remaining proceeds of sale after payment of senior lien foreclosed are applied towards payment of junior liens
• Any remaining funds are paid to Borrower

Front 136

Foreclosure Sale #1
Liens on the commercial property:
1. Original purchase money loan -- $60,000 balance due
2. Commercial Improvement loan --- $10,000 balance due
3. Judgment lien -- $5,000 due

Fair Market Value at time of foreclosure=$100,000

Original purchase money loan in default and foreclosure sale takes place.

ABC Investors, the high bidder, bids and pays $80,000 at the sale.

Result:

Back 136

• All liens are extinguished after foreclosure sale
• Everyone gets paid with the $80,000 proceeds
• ABC Investors gets title to the property free and clear of all liens
• $5,000 paid to the debtor who lost the property due to foreclosure

Front 137

Foreclosure Sale #3

Liens on the commercial property:
1. Original purchase money loan --- $60,000 balance due
2. Commercial Improvement loan --- $10,000 balance due
3. Judgment lien -- $5,000 due

Fair Market Value at time of foreclosure=$100,000

Commercial improvement loan in default and foreclosure sale takes place.
ABC Investors, the high bidder, bids and pays $10,000 at the sale.
Result:

Back 137

• Commercial improvement loan & judgment lien are extinguished But not the original purchase money loan
• ABC Investors takes property still subject to original purchase $ loan
• Commercial improvement loan is paid; judgment lien creditor gets nothing

Front 138

Foreclosure Sale #2
Liens on the commercial property:
1. Original purchase money loan -- $60,000 balance due
2. Commercial Improvement loan --- $10,000 balance due
3. Judgment lien --- $5,000 due

Fair Market Value at time of foreclosure=$100,000

Original purchase money loan in default and foreclosure sale takes place.
ABC Investors, the high bidder, bids and pays $65,000 at the sale.

Result:

Back 138

Result:
• All liens are extinguished after foreclosure sale
• Original purchase money loan is paid off
• Commercial Improvement Lender paid $5K, still owed $5K
• Judgment lien holder not paid anything
• ABC Investors gets title to the property free and clear of all liens

Front 139

Foreclosure Sale #4

Liens on the commercial property:
1. Original purchase money loan --- $60,000 balance due
2. Commercial Improvement loan - -- $10,000 balance due
3. Judgment lien -- $5,000 due

Fair Market Value at time of foreclosure=$100,000

Commercial Improvement loan in default and foreclosure sale takes place.
ABC Investors, the high bidder, bids and pays $20,000 at the sale.
Result:

Back 139

Result:
• Commercial improvement loan & judgment lien are extinguished
• But not the original purchase money loan
• ABC Investors takes property still subject to original purchase $ loan
• Commercial Improvement loan is paid; judgment lien creditor is paid; Additional $5,000 goes to debtor

Front 140

what is a Deed in Lieu of Foreclosure?

Back 140

• Borrower voluntarily deeds the property to the Lender in lieu of lender foreclosing
• Lender sells the property at private sale in order to mitigate its loss
• What about the borrower’s equity?
• What about a deficiency?
• What about junior liens/junior interests?
• What happens to the lien on the property?
• 51.006 Texas Property Code (1995)

Front 141

Executory Contracts for Deed

Back 141

Seller Financing – Available option that is not commonly used
Two Methods:
1. Seller acts just as an institutional lender
2. Contract for Deed

Front 142

Seller Financing

Back 142

• Seller acts just as a bank
• Extends credit for purchase price less (likely) some down payment
• Promissory Note + DOT
• Have closing with delivery of the deed to the buyer

Front 143

Executory Contract for Deed

Back 143

• Similar to “rent to own”
• Enter into a contract for the sale with installment payments made to the seller
• No deed until final payment is made by buyer – this is why it is referred to as an executory contract.
• All payments made = legal title transfers
• Default = seller keeps the property & the money

Front 144

Protections for those entering into a contract for deed.

Back 144

• On the front end: 14 day cooling off period
o Seller must provide notice of buyer’s right to cancel
• Notice must be in 14 point boldface type or 14 POINT UPPERCASE

• If the contract is canceled, the seller must refund all money exchanged to date within 10 days of seller receiving buyer’s notice of cancellation

Front 145

What happens when the buyer defaults? when he has paid less than 40% (or 48 monthly paymnets)

Back 145

If the buyer has paid less than 40% of the of the amount due or less than 48 monthly payments, the seller may:
1. Enforce the remedy of rescission; OR
2. Enforce the remedy of forfeiture and acceleration

Only if
1. Seller provides notice of intent to enforce the remedy and
2. Gives the buyer a 30 day period to cure the default

Front 146

what happens when the buyer defaults and he has paid 40% or more? (or 48 monthoy payment)

Back 146

• The seller is granted the power to sell, through a trustee designated by the seller, the buyer’s interest in the property.
• Cannot enforce the remedy of rescission or of forfeiture and acceleration
• Must allow 60 days to cure the default
• Foreclosure process per §51.002 must be followed.

Notice
If buyer has paid 40% or more of the amount due or the equivalent of 48 monthly payments, must provide the same notice of the default but it will read:
YOU ARE NOT COMPLYING WITH THE TERMS OF THE CONTRACT TO BUY YOUR PROPERTY. UNLESS YOU TAKE THE ACTION SPECIFIED IN THIS NOTICE BY (DATE) A TRUSTEE DESIGNATED BY THE SELLER HAS THE RIGHT TO SELL YOUR PROPERTY AT A PUBLIC AUCTION.

Front 147

Annual Accounting Statement

Back 147

• January of every year, seller shall provide a statement that includes specific information regarding the contract—allows the buyer to see exactly how much is going towards principal and interest, that taxes and insurance being paid (if being collected by the seller), accounting of insurance proceeds, etc.
• Trying to prevent sellers taking advantage of buyers

Front 148

Name 3 important grapes in Port.

Back 148

Red Port:
Touriga Nacional , Touriga Francesa
Tinta Cao , Tinta Roriz (Tempranillo)
Tinta Baraco , Bastardo

White Port:
Arinto
Codega
Malvasia , Fino Malvasia
Corada , Robigato
Voshino

Front 149

Recording statutes

Back 149

1. Race: As between successive grantees to the same land, priority is determined solely by who records first.
2. Race-Notice: Priority is determined by whether the subsequent purchaser was without notice and also won the race to record;
3. Notice Statute: A subsequent bona fide purchaser prevails over a prior grantee who fails to record;
a. must have no actual or constructive notice of prior claim at the time of the conveyance.
b. The subsequent purchaser is not required to record his deed.

Front 150

Effect of Recordation

Back 150

• Proper recordation of an interest in property gives statutory protection to the grantee.
• After recordation, all persons who deal with the land thereafter have constructive notice of the existence and contents of the recorded instrument, and no subsequent purchaser without notice can arise.

Front 151

Recordation does NOT:

Back 151

Recordation does NOT:
1. Validate an Invalid Deed.
a. Recordation is not necessary for a valid deed;
b. a deed is valid if properly executed, in compliance with the SOF; delivered by Grantor and accepted by Grantee.
c. Recordation does raise a rebuttable presumption that the instrument has been validly delivered and that it is authentic.
d. However, if the deed is forged or not delivered, recordation will not validate it.

2. Protect Interests Arising by Operation of Law:
a. Recordation will not protect a subsequent purchaser against prior interests that have arisen by operation of law (prescriptive and implied easements; title by adverse possession).
b. The recording statute only applies to unrecorded conveyances. B/c interests arising by operation of law do not arise by conveyance, the recording statute does not apply, and subsequent purchasers take title subject to such interests.

Front 152

Good Faith Purchaser and the Burden of Proof

Back 152

A party asserting the defense of innocent or bona fide purchaser has the burden of proof on that issue. Thus, to defeat the claim of the holder of a senior unrecorded deed, the holder of the junior recorded deed has the burden of establishing the acquisition of apparent legal title to the property
1. in good faith,
2. for valuable consideration, and
3. without actual or constructive notice of the opponent’s claim.

Front 153

Title Searches – Indexes

Back 153

• Organized by grantor and grantee names
• Organized by types of documents (deeds, deeds of trust, mechanics liens. Etc)
• In McLennan County, after April 1996, records are all on computer (index and actual scanned images)
• Indexes list the Grantor/Grantee; Date; Property Description and Vol and page number of the record.

Front 154

The title search Process

Back 154

1. Search the grantee index and actual documents
a. Start with the grantor that is selling property to you and then find the next grantee
2. After searching back far enough, begin searching from the origination point forward looking for any adverse conveyances by each grantor
a. Search each grantors name form the date the grantor is shown to have received the interest (date of the instrument) until the date the next person recorded (not necessarily the date of the instrument).
3. Additional searching requiring adverse conveyances
a. If adverse conveyances by the actual grantor are found, you also need to look for documentation of that problem being resolved, if it can.
i. Ex. if you found a deed of trust for the purchase money can you find evidence that the debt is paid off?
ii. If an easement was granted can you locate a release of that easement or possible transactions merging the dominant and servient estate ownership as to terminate the easement? If not the easement is an encumbrance to the title.
iii. If there were restrictive covenants on file has there been anything recorded indicating the termination of the covenants or did the covenant document itself indicate an ending date? If not, its an encumbrance.

See slides

Front 155

Chain of title problems and Quitclaim deeds:

Back 155

• A person claiming title under a quitclaim deed is charged with notice of defects in title. As a result, the grantee in a quitclaim deed is not an innocent purchaser but takes with notice of all defects in the grantors title. Moreover, the holder of a title in which a quitclaim deed appears, HOWEVER REMOTE is not protected against any outstanding title or equity existing at the time the quitclaim deed was executed.

Front 156

Mother Hubbard Clauses:

Back 156

what is this?

Front 157

Invalid or Missing Acknowledgement:

Back 157

• TX Property Code §13.002 says a document that is properly recorded provides constructive notice.
• TX Property Code §12.001 states that to be properly recorded it must be acknowledged, sworn to or proved according to law.

• If not properly recorded, NO constructive notice! Result, document is actually recorded and indexed but not a proper recording, NO CONSTRUCTIVE NOTICE PROVIDED.

Front 158

Improper Indexing

Back 158

• If a notice is properly recorded but it is not properly indexed, (wrong name, wrong date, left out) The document is actually recorded but not properly indexed so it will not be found, however, THERE IS CONSTRUCTIVE NOTICE OF THE DOCUMENT.

Front 159

Incorrect name

Back 159

• If the recorded document contains significant errors in the names of the grantor or grantee then the deed is considered outside the chain of title and does not provide constructive notice.
• Result, document is actually recorded and properly indexed, however, there is a significant defect in one or both of the names so that it would not likely be found in the relevant search, therefore, NO CONSTRUCTIVE NOTICE.

Front 160

Why are the chain of title problems a concern?

Back 160

• They affect the documents ability to provide constructive notice.
• Certain defects cause recorded documents to essentially to be treated as unrecorded documents.

What are the types of problems that can happen?
• Timing issues
• Technical defects in the document
• Problems with indexing the recorded documents

Front 161

Timing Issues

Back 161

• Recording too late – wrksheet 1 problem 5, and ex. 10 p 595-596

• Recording too early – example 9, text page 595
o Suppose Andrew is buying Blackacre from Olympia but it’s taking longer than anticipated. Andrew deeds the property, Blackacre, to his daughter Barbara for her birthday. She records the deed. Andrew then acquires title from Olympia and records. When Andrew runs into financial trouble, he sells the property to Carol who also records.

Front 162

Timing Issues: Deeds from common grantor of multiple lots
• O acquires title to a large tract of land and in 2005 divides it into multiple adjacent properties (Blackacre and Whiteacre are among them).

• In 2006, O conveys Blackacre to A and covenants that Blackacre and all other property still held by O will only be used for agricultural purposes. A records the deed.
• In 2007, O conveys Whiteacre to B without including the restrictive covenant in the deed.

• Does B have constructive notice of the restrictive covenant and does it therefore burden Whiteacre?

Back 162

answer??

Front 163

The bfp and the gfc

Back 163

to be a bfp or a gfc you must have both notice and have paid good consideration.

Front 164

Notice

Back 164

There are three types of notice.
1. Actual notice, where the purchaser is actually made aware of a conflicitng interest in real property.

2. Record Notice occurs when an instrument is properly recorded and within a chain of title of the grantee.

3. inwuiry notice is a form of constructive notice where there is a notice of facts that would lead a reasonable person to investigate the titel to the property. the purchaser is charged with notice of the facts that the inquiry would have uncovered.

Front 165

Inquiry notice example - harper v paradise

Back 165

1928 deed mentioned the 1922 deed therefore there was constructive notice that there was another deed out there and should have inquired as to whether or not it gave a life estate. Recitals put subsequent purchaser on notice and it was incumbent upon them to ascertain through diligent inquiry the contents of the earlier deed and the interest conveyed therein.

Front 166

Eylar Doctrine

Back 166

c. Eylar Doctrine – clear, unequivocal, open and notorious possession of property is sufficient to put someone on inquiry notice.
d. Eylar vs. Eylar – conveyance had the appearance of a straight conveyance and not a mortgage, even though one party claimed it was a mortgage and not a conveyance. Subsequent owner was not bound to inquire about a mortgage because the chain of title showed a deed.

Madison v. Gordon
still living there but court says that he was there as a tenant and that was not inconsistent with other property interests.
• A duty to inquire arises when the interest is visible, open, exclusive and unequivocal. Tenant rights were not incompatible with other possession rights.

Front 167

Establishing BFP and GFC status

Back 167

In either instance, there has been consideration exchanged at some point in time the difference is when and why.

A receipt of a gift is not protected by any exception.

Front 168

McKamey v. Thorpe
• Mr. Mckamey sells his wife’s inherited land and uses the money to buy more property on her behalf. He then sells that property to pay off his debt. Sells to thompson and thompson to thorpe.
• Thorp new of McKamey’s interest but that was not the issue because he would have been sheltered by the fact that thompson had no notice. BUT the issue was did Thompson pay good and valuable consideration?

Back 168

o No. Because he bid his credit and the creditor is no worse off than he would have been. He gave no new consideration.

Front 169

What qualifies as consideration?

Back 169

• Cash; Personal Check
• Negotiable Instrument/Promissory Note
• Performance of Services
• Surrender of a claim or valuable right
• Cancellation of a debt secured by a recorded deed of trust or by a valid deed
• The conveyance of other valuable property
• Loan in exchange for a lien
• Assumption of an existing obligation
• NOT PRE-EXISTING DEBTS


IF A CREDITOR BIDS HIS DEBT ON A PROPERTY IT IS NOT NEW CONSIDERATION BECAUSE THEY DEBT OCCURRED BEFORE. CONSIDERATION WAS ADVANCED AT THE TIME THE DOT WAS GIVEN?

Front 170

Timing of the consideration:

Back 170

• At the time that you exchanged the new consideration, for the interest in the property, were you without notice?

Front 171

what if there is a contract for deed and only part consideration has been paid by an otherwise gfp? Does he get the benefit of the consideration and retain the full interest in title?

Back 171

• Contract for deed and a monthly payment schedule – Buyer pays down payment at closing and continues to make monthly payments on loan. Then he receives notice of the right of first refusal that had been given to the neighbor.
• RULE _A buyer who prior to the payment of any consideration receives notice of an outstanding interest, pays the consideration at his or her peril with respect to the holder of the outstanding interest. But what about fractional interest as in a contract for deed.
• Court holds that we apply the pro tanto rule that the buyer is a gfp as to part but not as to the whole .
o 3 methods –
• prior interest holder is awarded land and pays the subsequent buyer the money they paid for the land
• award a fractional interest of the land in the amount of proportion of the total sales price paid before notice.
• Allow buyer to complete the purchase but to pay the remaining installments to the holder of the outstanding interest.
• Court went with #1

Front 172

how much consideration is enough?

Back 172

• Rule: In Texas, a purchaser need not pay full market value in order to qualify as a bona fide purchaser in good faith. If the consideration paid is not grossly inadequate, the subsequent purchaser can qualify as having paid value.

Front 173

• What is grossly inadequate?

Back 173

•What is grossly inadequate?
< 20% of FMV is likely grossly inadequate
> 50% of FMV is likely adequate
Grey area between 20% and 50%

Front 174

Adverse Possession:
hypo

Mr. Ott owns Blackacre in FSA.
In 1995, Ott sells Blackacre to a friend, Ms Adams for FMV of $100,000.
He conveys the property with a GWD and Ms. Adams records it on the same day. Ott sells Blackacre on January 1, 2000 to his cousin Mr. Bailey. Mr. Bailey doesn’t do a title search and pays $45,000 for a property worth $100,000. The deed from Ott to Bailey is a quitclaim deed. Mr. Bailey moves onto the property, makes some improvements and resides on the property. Now, a dispute arises between Ms. Adams and Mr. Bailey. Bailey hires you to represent him.
What result?

Back 174

Adams has superior title against Bailey so he cannot take advantage of any priority rule. He can’t sue OTT under any title covenants because none were made but...he may be able to claim adverse possession.

Front 175

How is adverse possession different from other SOL’s?

Back 175

• Typical statute of limitations is merely an affirmative defense to prevent stale claims from being pursued
• Adverse possession can act both as an affirmative defense in an action brought against the adverse possessor AND it can also give rise to an claim asserted affirmatively by the adverse possessor to quiet title and have title declared in him

Front 176

Elements of Adverse Possession: Possession must be:

Back 176

1. Actual
2. Exclusive
3. Open and Notorious
4. Adverse or Hostile
5. Continuous
6. For the Statutory Period

Front 177

Actual possession

Back 177

an actual entry onto the land by the possessor who makes actual use of the property

If as the adverse possessor, Mr. Allen (taking w/o a deed or color
of title), enters a 500 acre tract of land but only cultivates and uses
a 5 acre section of it, even if all of the other required elements are
met, he only acquires title to the 5 acres and not the other 495 acres.

Front 178

What does actual possession mean?

Back 178

• Majority View: the adverse possessor must enter and physically use the particular parcel of land in the same manner a reasonable owner would.

• Actual possession of residential property → reside in the house as owner
• Actual possession of 100 acre farm land → cultivate/farm the land
• Actual possession of 1000 acres of wilderness → activities suited to the land such as timber harvesting, grazing, hunting, fishing, camping
• The acts necessary to satisfy the requirement will vary from parcel to parcel depending on the nature, character and location of the land and use to which it may be devoted.

• Minority View: 10 states (including California, Florida and New York) specify by statute the particular conduct that will satisfy actual possession, regardless of the type or character of the land

Front 179

Exception to Actual Possession of the Whole: COLOR OF TITLE

Back 179

onstructive Possession: if the adverse possessor is taking under “color of title” then there can be constructive possession of the property.

• “Color of Title” is different from claim of title; color of title refers to a claim founded on a written instrument (e.g., a deed/will) or judgment decree which for some reason is defective or invalid but purports to convey title .
o So the claimant must have (1) defective document claiming under and (2) actual possession of part of the land described in the document to be deemed to have constructive possession of the WHOLE parcel of land.

Front 180

What does adverse or hostile under a claim of right mean?

Back 180

• Everyone is in agreement that this means non-permissive use by the true owner of the land.
• If the land is being used with permission then the limitations period is not running.

Front 181

But what about the adverse possessor’s state of mind?

Back 181

3 tests for the objector's state of mind
objective test, good faith test and intentional trespass test

Front 182

Objective Test:

Back 182

(growing Majority AND TEXAS) the adverse possessor’s state of mind is irrelevant as long as he is (1) using land that is not his/hers; and (2) there isno permission to do so.

Front 183

Good Faith Test:

Back 183

(Dwindling Minority) the adverse possessor must believe in good faith that he/she owns title to the land; innocently but mistakenly thinks he is the true owner.

Front 184

Intentional Trespass Test:

Back 184

(very rare) the adverse possessor must know that he does not own the land and subjectively intend to take title from the record owner by virtue of possession.

Front 185

Special Circumstances for Adverse or Hostile Possession
Landlord Tenant Relationship
Tenant in Common Relationship

Back 185

When the person seeking to claim adverse possession already has a possessory right they must show:

AP may be established after permissive entry by showing three additional elements:
1. Repudiation – assert claim as owner
2. Notice – actual or constructive notice (SOL runs from date of notice)
3. Time –must be continuous for a prescribed number of years

Front 186

AP Element 3 - OPEN AND NOTORIOUS

Back 186

• The acts of the possessor must be so visible and obvious that a reasonable owner who inspects the land will receive notice of an adverse claim

difference betwee a possessor who's use is obvious (farmer) and one who's is not (atronomer).

Front 187

Open and Notorious requirments in Boundary Disputes.

Issue: if, in a boundary dispute, an owner would not have had actual notice does this allow the adverse possessor to claim it was open and notorious?

Back 187

Son builds a driveway that encroached on 15” of property. – normally would need to be open and notorious but because this would require a survey every time someone wanted to build, court said not needed.

Front 188

What happens to improvements?

Back 188

• If record owner has no actual knowledge so that land is not transferred via adverse possession, look to see if adverse possessor made improvements in good faith. Why do we care about good faith here?

• If no adverse possession but improvements made in good faith:
1. Record owner may be forced to convey the land in exchange for FMV if
removal of the encroachment would cause great expense or hardship.

2. “Betterment Statues” in some states require a forced conveyance of the
land or a forced payment of the value of the improvements by the true land owner.

Front 189

Other Solutions for Boundary Disputes:

Back 189

• Boundary by Agreement: If there is uncertainty as to the true boundary between neighbors, an oral agreement as to the location of the boundary line is enforceable if they subsequently accept the line for a long period of time.
• Boundary by Acquiescence: Long acquiescence as to the location of a boundary line is evidence of an agreement of the parties fixing the location of the boundary line.
• Boundary by Estoppel: One neighbor makes representations about or engages in conduct that tends to indicate the location of a common boundary and other neighbor changes position in reliance on those statements or conduct.

Front 190

Element 4 - Continuous Possession

Back 190

• Does not mandate physical occupation or use every minute—the possession need only be as continuous or sporadic as those of a reasonable land owner

Front 191

So how much is continuous enough?

Back 191

Two major issues with continuous possession —
(1) how much use/occupancy is enough for continuity?
(2) tacking of successive periods of adverse possession?

Front 192

can a party tack their time of adverse possession onto that of the previous owners?

Back 192

a party may tack their time period of adverse possession onto the previous occupiers if they have privity of contract with the previous occupiers.

Front 193

what is privity of possession?

Back 193

Privity of Possession – Transfer of possession to a later occupant by agreement, gift, devise, or inheritance.
• As long as the successive possessors can establish a voluntary transfer of an estate or of possession between them then the continuous element is satisfied by virtue of adding or “tacking” together their periods of possession.

Front 194

see examples of tacking on slides

Back 194

see examples on slides

Front 195

Element V – Exclusive Possession

issue: was the land being used exclusively by the party claiming adverse possession?

Back 195

• Possession must not be shared with either the true owner or the general public!
• Absolute exclusivity is not required. The adverse possessor’s possession must be as exclusive as would characterize a normal owner’s use for such land.

Front 196

Element VI – For the statutory period

issue: did the party claiming adverse possession claim the land for long enough? when did the clock start running?

Back 196

THERE MUST BE A CLAIM OF RIGHT -
• “Mere occupancy of land without any intention to appropriate it will not support the statute of limitations.”
• “No matter how exclusive and hostile to the true owner possession may be in appearance, it cannot be adverse unless accompanied by the intent on the part of the occupant to make it so.”

ALSO – you can never adversely possess against the king!

Front 197

in Texas, what is the standard for when a possession is adverse or hostile?

Back 197

in texas, there must be an intent to claim the property as one's own to the exclusion of all others. mere occupancy without the intent to own will not do.

Front 198

issue: when homeboy let the owner use the driveway was that wxclusive?

Back 198

No! possession must not be shared with wither the true owner or the general public! However, absolute exclusivity is not required. must be exclusive to as a normal owner's use.

Front 199

Element VI - for the statutory period

issue: did jones meet the statutory period?

Back 199

Rule: four periods that can be met to claim adverse possesion.

Bare possession with no document claiming title requires adverse possesion for a period of 10 years.

a person bringing suit under color of title in which they claim possession based an invalid document is theree years.

Front 200

issue: can you claim adverse possesion under color of title for an unrecorded deed?

Back 200

yes, because the deed is valid as between the parties and does not need to be recorded.

Must have a deed that describes the property being possessed
AND
• The deed cannot be void on its face
• The deed cannot be void ab initio
• The deed cannot be a result of any intrinsic fraud or unfairness
• The deed cannot be missing the acknowledgement
• The deed must link up the chain of title tracing back to the sovereign

Front 201

5 year statute of adverse possesion

Back 201

Effective Deed for 5 year statute
• Must have a deed that describes the property being possessed AND
• The deed cannot be void on its face
• The deed cannot be a forgery or based on a forged power of attorney
• The deed cannot be unrecorded
• The deed cannot be a quitclaim deed

Front 202

10 year “Bare Possession” Statute

Back 202

person may bring suit not later than 10 years after the day the cause of action accrues to recover real property held in peaceable and adverse possession by another who cultivates, uses or enjoys the property.
o Peaceable &amp; adverse possession= incorporates all of the elements
o Cultivates, uses or enjoys= standard for actual possession
o Time period = 10 years from date all of the elements are satisfied and clock begins to run
• (b) Without a title instrument, peaceable and adverse possession is limited in this section to 160 acres, including improvements, unless the number of acres actually enclosed exceeds 160. If the number of enclosed acres exceeds 160 acres, peaceable and adverse possession extends to the real property actually enclosed.
• (c) Peaceable possession of real property held under a duly registered deed or other memorandum of title that fixes the boundaries of the possessor’s claim extends to the boundaries specified in the instrument.

Front 203

issue: did the clock stop runing for the sol when:

Back 203

Tolling the SOL – these events temporarily stop the SOL clock
• Agreement not to hold the land adversely
• Judicial action
• Adverse Possessor’s absence from the state
• Death of True Owner
• Disabilities (minor, mentally incompetent, serving in the military)

Front 204

Issue: what if the owner of the property is incapacitated or disabled?

Back 204

TX Civ Prac & Rem Code 16.027 - 25 year “Notwithstanding Disability” Statute
• A person, regardless of whether the person is or has been under a legal disability, must bring suit not later than 25 years after the date the cause of action accrues to recover real property held in peaceable and adverse possession by another who cultivates, uses or enjoys the property.

Front 205

25 year disability tolling

Back 205

- the disability must be present on the day the adverse possession began.
-there is no tacking of disabilities
-

Front 206

is this boat/ train a homestead?

Back 206

a homestead is a residence and can be land and improvements thereon.

to qualify as a homestead a residence must rest ont he land and have a requisite degree of physical permanancy, immobility, and attachement to fixed realty.

Front 207

Issue: did Jones meet the requirements of a homestead?

Back 207

both a single adult and a family are entitled to homestead protextion.

Front 208

issue: did Jones clan qualify as a family?

Back 208

what is a family? a family is a group of people living in a group subjet to one domestic government..

there must be a legal or a moral obligation on the heahd of the family to care for the rest of the family and a corresponding dependence of the others on the head of the family.

Front 209

There are only 8 constitutionally protected ways a len can be valid againsta homestead.

Back 209

1. purchase money lien
2. Tax lien
3. Owelty of partition
4. refinance of valid liens
5. mechanic's lien
6. Home equity/ line of credit lien
7. Reverse Mortgage
8. refinance of personal property lien on manufactued home.

Front 210

issue: can any liens attacn as exceptions to the homestead protection?

Back 210

liens that are attached to a property prior to its being established as a homestead stay attached

also, if a homestead is is aquired subject to restrictions, if those restrictions are not met

Front 211

issue: if a marriage is ended by death what becomes of the homestead?

Back 211

If a marriage is ended by death the family status is ot affected the surviving spuse has the same homestead rights as before.

Front 212

Issue: if a family divorces, what happens to the homestead?

Back 212

a family can only have one homestead. a man and wife who get divorced can claim seperate homesteads only after a divorce is final.

Front 213

Issue: when is someone dependent on a member of a household?

Back 213

a peson must depend on a head of a household either emotionally or financialy as in the case of minors or elderly infermed people.

adults are dependent if thel oss head of the household's income would significanlty change their situation.

Front 214

how much land can be claimed as a homestead?

Back 214

Urban Family
An Urban Family may claim:
One or more CONTIGUOUS lots not more than 10 acres
used as a home or both as an urban home and a place of business

A rural familiy can claim:
200 acres (does not have to be contiguous) used for the purposes of a home or to support the family

an urba single adult may claim:
one or more CONTIGUOUS lots nor more than 10 acres used for the purpose of a home or business

a rural single adult may claim:
100 acres not in a city for the purpose of a home or for support.

Front 215

Is the land being claimed an urban homesead or a rural homestead?

Back 215

a debtor can claim one or the other but may not blend an urban and a rural homestead.

A rural homestead cannot be used asa business homestead, but a farm may be claimed as a homestead if it supports the family

Front 216

issue: is this an urban homestead:

Back 216

A homestead is considered urban if, at the time of designation, the property is:
(1) Located within the limits of a municipality or its ETJ or a platted subdivision;
AND
(2) Served by police protection, paid or volunteer fire protection, AND AT LEAST 3
of the following services provided by a municipality or under contract to a
municipality:
•Electric;
•Natural gas;
•Sewer;
•Storm sewer; and
•Water.
Anything that isn’t urban is RURAL!

Front 217

hod do you establish a homestead?

Back 217

you must need to have an intention to establish a homestead AND
some overt act or preperation evidenceing that intention.

Front 218

Can a prior lien remain attached to a homestead?

Back 218

yes. when you take a property subject to a lien then that lien remains attached to the property regardless of it now being claimed as a homestead.

Front 219

issue: if there is an outstanding lien out in space, can it attach to a homestead as soon as land is bought?

Back 219

No. if a property is purchased and there is an intention to use it as a homestead and then some overt act evidencing that intent, then the homestead classification relates back to the moment the property was purchased.

Front 220

what about if you are living in one house and buy another?

Back 220

while you are occupying one homestead, you cannot claim another.

once a homestad right is established, it runs with the land and it is the burden of someone asserting that it is not a homestead to prove it.

Front 221

How is the homestead character
determined?

Back 221

Intent PLUS use/occupation of the property or overt acts evidencing
intent to use and occupy in the future

limited use and intent for homestead at some time in the future is not enough.

Front 222

can a homestead interest attach to land i will own someday?

Back 222

No. The person claiming homestead protection must have some present
possessory interest in the land.

Lawrence v. Lawrence
Future interests not entitled to homestead protection
Must have a present right to possess the land, even if not a fee simple owner of the property

Front 223

Interests that Support Homestead

Back 223

1. FSA
2. Tenancy in Common
3. Tenancy at Will
4. Equitable Estates
5. Life Estates
6. Leasehold

Front 224

Interests Won’t Support Homestead

Back 224

1. Future Interests
2. Non-Possessory Interests
3. Partnership Property
4. Corporate Property

Front 225

issue: when does the homestead character attach?

Back 225

When the court is able to determine that all of the required
elements are satisfied the homestead character attaches; a
formal designation of homestead status is not required.

Front 226

however, you can designate a property as homestead

Back 226

Tex. Property Code § 41.005
May voluntarily designate property as homestead
Recorded in the county deed records
Designation must contain:
sufficient property description
statement the property is the person’s homestead
name of current record title holder of property
for rural homestead, number of acres and if more
than one survey, the number of acres in each survey

Front 227

Homestead Problem #1
Mr. Brady is the divorced father of three minor children. The
children, Greg, Peter and Bobby, reside primarily with their mother
during the school year, visiting their father on alternating
weekends and for four weeks during the summer. Mr. Brady lives
on a parcel of land consisting of 130 acres, located in Texas,
which he owns in fee simple absolute. The land would be
categorized as rural under the Texas Property Code definition.
How much land can Mr. Brady claim as homestead? Why?

Back 227

he is a single adult, but becuase he supports his kids, even though he is deivorced, his home will qualify for the full family rural homestead designation and he will be able to keep all 130 acres.

Front 228

Homestead Problem #2
Eventually Mr. Brady marries Carol who is the divorced mother of
three minor children, Marsha, Jan and Cindy. Mr. Brady moved
into the house in which Carol and her three children were already
residing before their marriage. The new Mr. & Mrs. Brady buy a
house that they intend to move to and claim as their homestead in
the next few years, likely after the youngest children finish school.
When can the new property be their homestead and enjoy the
protections afforded by the homestead laws?

Back 228

they cannot establish the new homestead as their home because they cannot have two homestead properties.

they must abandon the current homestead and then have intent and overt act to claim the new one.

THERE IS NO RELATION BACK TO PURCHASE BECAUSE THEY ALREADY HAVE A HOMESTEAD.

Front 229

Homestead Problem #3
Mr. Brady is the owner in fee simple absolute of 300 noncontiguous acres
located in Texas. The property would satisfy the Property Code’s
definition of rural property. This is Mr. Brady’s separate property,
acquired before his marriage to his current wife, Carol. The house in
which Mr. & Mrs. Brady reside is located on one parcel of 50 acres. The
other parcel of 250 acres, not too far away from the Brady’s home, is
used for farming and ranching to support Mr. & Mrs. Brady.
Recently Mr. Brady died. He was survived by only Mrs. Brady and
Bobby, his son from a prior marriage. Mr. Brady left all 300 acres to
Bobby in his will. A dispute has arisen between Bobby and Mrs. Brady
because Mrs. Brady has taken the position that she is entitled to a life
estate giving her possession to 200 acres, and the 200 acres she has
chosen consists of 150 acres of property used for ranching and the 50
acres on which her house sits.

Back 229

How much land is Carol entitled to count as homestead? Why?
Can she designate the land as her homestead in the way described
above? Why or why not?

carrol is entitled to the 200 acres as described above because a death does not end a familial statuts for homestead purposes. Quasi-life estate because only for possessory interest.

Front 230

Joinder

Back 230

An owner or claimant of property claimed as homestead may not sell orabandon the homestead without the consent of each owner and the spouse of each owner – Tex. Const. art. 16, § 50(b)

An owner or claimant of property claimed as homestead may not sell or
abandon the homestead without the consent of each owner and the spouse of each owner – Tex. Const. art. 16, § 50(b)

To fix a lien on a homestead, a person who is to furnish material or perform labor and the owner must execute a written contract….if the owner is married, the contract must be signed by both spouses. – Tex. Property Code § 53.254

Whether the homestead is separate property of either spouse or community property, neither spouse may sell, convey or encumber the homestead without the joinder of the other spouse except as provided in this chapter or by otherrules of law. – Tex. Family Code § 5.001

Front 231

joinder exceptions

Back 231

5.002 Sale of Separate Property Homestead After Spouse
Judicially Declared Incapacitated
5.003 Sale of Community Property Homestead After Spouse
Judicially Declared Incapacitated
5.101 Sale of Separate Property Homestead Under Unusual
Circumstances
5.102 Sale of Community Property Homestead Under Unusual
Circumstances

Front 232

Constitutionally permisible liens

Back 232

Liens that are Constitutionally Permissible:
1. Purchase money lien
2. Tax liens
3. Owelty of partition
4. Refinance of an otherwise permissible lien
5. Mechanic’s lien or “home improvement” lien
6. Home equity loan or line of credit
7. Reverse Mortgage
8. Refinance of personal property lien on manufactured home

Front 233

unconditional liens

Back 233

These liens are said to be unconditional liens because other than the joinder requirement, there are no special requirements for the liens to validly attach to the homestead property.

Purchase money lien
Federal tax liens and property taxes Owelty of partition
Refinance of an otherwise permissible lien
Refinance of personal property lien on manufactured home

Front 234

Conditional liens

Back 234

These liens may validly attach to the homestead property ONLY IF ALL
CONDITIONS set forth in the constitution are satisfied.
IF NOT, NO VALID LIEN!

Mechanic’s Lien (i.e. Lien for Improvement)
Home equity loan or line of credit
Reverse mortgage

Front 235

Mechanic’s Lien

Back 235

Work and material used to construct new improvements:
a written contract between contractor/builder and property
owner; must meet joinder requirement

Work and material used to repair or renovate existing improvements:
Need a written contract meeting joinder requirement;
5 day waiting period from application for credit to signing the contract
(unless affects material health or safety);
3 days rescission period after signing contract; AND
Signed at the proper location (not at contractor’s office—must be at office
of third party lender, attorney or title company)

Front 236

Home Equity Loans/Lines of Credit

Back 236

Equity: the difference between the FMV of the property and the debt secured by the property

Front 237

Conditions on the Home Equity
Loans/Lines of Credit

Back 237

Written Agreement; Joinder of Both Spouses
(B) 80% Rule—Total amount of all debt attached to the property
cannot exceed 80% of the FMV of the home
Example: In a home worth $150,000 and $90,000 of outstanding
debt, the homeowner cannot use the entire $60,000 in equity.
The limit on total indebtedness is 80% of $150,000. This means
that the maximum amount of debt attached to the property is
$120,000. There is already $90,000 in debt so the home equity
loan amount can only be $30,000.

Front 238

more conditions

Back 238

Tex. Constitution art 16, § 50(a)(6)(C) & (H)
(C) Non-recourse loan: No personal liability for the loan unless
acquired through actual fraud;
(D) Judicial Foreclosure ONLY
(E) 3% Cap on Fees
(F) Not an open ended account
(G) Pre-payable
(H) Not secured by additional real or personal property
(I) Not secured by ag use property other than that used primarily for
the production of milk.
(J) No Acceleration b/c of decrease in FMV or Default on other
Indebtedness
(K) Only other debt that is constitutionally permissible
(L) Repayment requirements (minimum)

Front 239

Conditions on the Home Equity
Loans/Lines of Credit

closing

Back 239

Cannot close the loan earlier than:
(i) 12th day after the later of the date the owner submits the loan
application to the lender OR the date the lender provides the owner with a
copy of the Art. 16, Sec. 50(g) disclosures;
(ii) one (1) business day after the date the owner of the homestead
property receives a final itemized disclosure of all fees, interest rate, etc.;
AND
(iii) one (1) year after the date of any other home equity loan except a
refinance of the home equity loan.

Front 240

reverse mortgages

Back 240

The reverse mortgage allows for individuals age 62 or older [whether the owner of the
property or the owner’s spouse] to utilize the equity in their homes without taking out a
home equity loan and making payments on the money advanced.
The reverse mortgage provides installment payments or one lump sum payment to the
property owner and no payments must be made to the lender until:
(1) all borrowers have died;
(2) the homestead property securing the loan is sold or transferred;
(3) all borrowers cease occupying the property for more than 12 consecutive
months without prior approval from lender; OR
(4) the borrow defaults in some manner
In addition, the constitution includes specific requirements related to lender defaults,
counseling to owner’s obtaining a reverse mortgage; receipt of disclosure statements by
owners; minimum rights to cure defaults by owners; and limitations on foreclosures by
judicial process.

Front 241

Hypo – Purchase Money

Alan is an attorney in Dallas and has excellent credit. He decides to buy a
new home and “flip it” after doing some modest improvements. He
decides that he will move in and live in the home for six months and then
once the work is complete he will put it on the market. He finds a nice
house on one of the “M” streets for $300K that needs to be updated. He
goes to Stan, a young mortgage broker with Washington Mutual and
convinces Stan to give him a loan for $320,000 to be used for the house and buying new appliances and upgrades. At closing Alan receives a deed to the property and $20,000 in cash which he, after he thought about it, used as a down payment on a new BMW lease.

Back 241

this does not work because the lien is a combo purchase money and improvements lien. the lien is valid only up to the amount used to purchase the house.

Front 242

Probate rules applicable to the homestead

Proceeds from Sale of Homestead

Back 242

The homestead claimant’s proceeds of a sale of
a homestead are not subject to seizure for a creditor’s claim for
six months after the date of the sale.
This gives the homestead owner the ability to use the money to
purchase another homestead without creditors taking the money.
However, if homestead owner uses the proceeds for anything
other than a new homestead, the exempt status of such proceeds
is lost.

Front 243

Tax Benefits

Back 243

Homestead property in Texas enjoys some property tax relief
Entitled to a minimum of $15,000 off of taxed value of property for
school taxes; some areas give up to 20% discount
May receive a $3,000 tax exemption on some county taxes
Those who are age 65 and older or disabled get additional tax
exemptions

Front 244

Possession at Death
“Life Estate by Operation of Law” or
Right of Occupancy

Back 244

On the death of the husband or wife, or both, the
homestead shall descend and vest in like manner as other real
property of the deceased, and shall be governed by the same
laws of descent and distribution,
but it shall not be partitioned among the heirs of the
deceased during the lifetime of the surviving husband or wife,
or so long as the survivor may elect to use or occupy the same as
a homestead,
or so long as the guardian of the minor children of
the deceased may be permitted, under the order of the proper
court having jurisdiction, to use and occupy the same.

Front 245

HYPO: Michael inherited a farm from his father in 1990. In 1991, he and
his wife Jan move onto the property and claim it as their homestead. In
2008, Michael dies and leaves a will whereby he devises all of his
property to his girlfriend Carol. Upon the probate of his will, Carol seeks
to have Jan evicted from the home since she does not have any
proprietary ownership in the property since it was Michael’s separate
property.
What result?

Back 245

michael has the power to devise the property to carol but carol cannot evict jan. she has a quasi-life estate. jan must maintain but is entitled to all rents anf revenues.

Front 246

Debt Protection at Owner’s Death

What debts may attach to homestead property at the time of the owner’s death?

Back 246

It depends, based on who is still alive at the time of the property
owner’s death:
1. surviving spouse
2. surviving minor children
3. surviving unmarried adult child living at home

Front 247

What happens to the homestead protection at the time of the
owner’s death? In re Casida…

Back 247

the mere existence of a consitunet family member exempts the homestead from creditors, BUT the surviving spouse and the guardian of minor children are the only ones that are allowed to gain occupancy. so his existence allowed the homestead to be free from creditors but his status as a single adult child made him get the boot.

Front 248

Abstracts of Judgment

Where Filing of an AJ does NOT perfect a lien:

Back 248

(a) Dormant Judgments;
(b) Homestead Property

TPC § 52.001 – Except as provided by 52.011 and 52.012, a first or
subsequent abstract of judgment, when it is recorded and indexed in
accordance with this chapter, if the judgment is not then dormant,
constitutes a lien on and attaches to any real property of the
defendant, other than real property exempt from seizure or forced
sale under Chapter 41, the Texas Constitution, or any other law, that
is located in the county in which the abstract is recorded and
indexed, including the real property acquired after such recording an
indexing.

Front 249

Effect of Perfected Lien

a perfected lien is a recoded lien that just sits there

Back 249

1. Priority Over Subsequent Claims; and
2. Superior to Prior Unrecorded Interests

Front 250

Release of Lien on Homestead Property

Back 250

1. Suit to Quiet Title;
2. Declaratory Judgment Action;
3. Demand for Release (b/c it is slander of title)
4. Filing of Affidavit per TPC 52.0012

Front 251

Writ of Execution & Levy

Back 251

A writ of execution is the principal process for the collection of
money judgments. A writ of execution is issued by the clerk and
delivered to the sheriff or constable which empowers the officer to
levy on a debtor’s nonexempt real (and personal) property within
the officer’s county, sell the property at public auction and apply the
proceeds toward satisfaction of the judgment.
Levy of execution is accomplished by the officer taking control or
custody of the property; W/R/T real property this is evidenced by
the officer’s declaration that he has levied the writ on the property.
Thereafter, the property may be sold upon notice of the time and
place of sale is published along with a description thereof; the sale
occurs on the first Tuesday of the month between 10AM and 4PM,
after the period of time for notice of the sale has elapsed.

Front 252

Terminating the Homestead

Methods of termination:

Back 252

1. Abandonment
2. Alienation – Sale or Conveyance
3. Acquisition of Another Homestead;
4. Death of Surviving Spouse w/o survival of constituent family member

Front 253

Establishing Termination of the
Homestead

Back 253

Generally whether or not a homestead has been terminated is a
fact question for the jury.
The burden of establishing that a homestead has been terminated
is on the one alleging the homestead character is gone.
When it has been shown that property has become impressed with the
homestead character, a presumption arises that the homestead character
continues to exist. However, it is a rebuttable presumption

Front 254

I. Abandonment
An Affirmative Defense & Question of Fact

Back 254

Abandonment Must be “undeniably clear”
Elements of Abandonment:
1. Discontinuance of use of the tract by overt acts; and
2. Intent to permanently abandon the tract as homestead

Front 255

Abandonment

Back 255

Physical Absence
II. Temporary Absence
III. Renting of Homestead
IV. Joinder

Front 256

What does the court tell us in Churchill v. Mayo regarding
abandonment of homestead?

Back 256

Abandonment = cease to use property + intends not to use it again as HS
Merely changing residences alone is not abandonment
Moving from homestead due to health reasons is not abandonment
Temporary renting of homestead is not abandonment

Front 257

In Re Casida, what did the court say there about abandonment
of homestead status?

Back 257

Abandonment = cease to use property + intends not to use it again as HS
Decedent lived for 10 years in various locations in Arizona
Traveled often
Never bought any real property in Arizona/never purchased a house
Left all furnishings in the Texas home
Decedent returned “home” from 2 to 4 times per year until his death

Front 258

Other issues relevant to abandonment of homestead property:

Back 258

Acquiring a new home is not always the acquiring of a new homestead
The best evidence of abandonment of a residence, however, is that a new
and permanent home has been acquired AND occupied
If the homestead owner becomes a resident of another state, that evidence is sufficient to establish abandonment of the homestead property

Front 259

Alienation of Homestead

Back 259

Generally, homestead protection afforded to property will be lost when the claimant alienates the property via sale or conveyance.

Front 260

III. Acquisition of a New Homestead

Back 260

May not have two homesteads at the same time
Acquisition of a new homestead = abandonment of former
Acquisition of a new home is not always abandonment of
former homestead

Front 261

Probate Homestead

Back 261

The probate homestead vests immediately upon the death of the spouse. It is presumed to continue until proof to the contrary is shown. The probate homestead will extend for the lifetime of the surviving spouse (or the order of the court for the use by the guardian
of a minor child) until abandoned.

see notes for hypos

Front 262

Terminating the Homestead

Back 262

Homestead Property Owner is currently living on Blackacre, her
homestead property, and wishes to sell the home and build a new home that will become owner’s homestead.
Is it possible for property owner to protect new home being built from day 1 of ownership? What would property owner need to establish in order to make new property her homestead? she would need to sell the old house and move into an apartment then make overt action that evidences her intent.

Must terminate prior homestead and establish homestead status in
new property.

Front 263

Hypo #1
Property Owner continues living on Blackacre while
Whiteacre is being built.
Property Owner does not put Blackacre up for sale
until Whiteacre is built and Property Owner is ready to
move in. When Property Owner moves to Whiteacre, she still owns Blackacre.

Back 263

she will have to move to whittacre. question of intent - fact question

Front 264

Hypo #2
Property owner continues living on Blackacre while Whiteacre is being built. Property Owner puts Blackacre up for sale while new property is built.
When property owner moves to Whiteacre, she still owns Blackacre and is trying to sell it.

Back 264

an attempt or offer to sell does not amount to abandonment

BUT?? ask reagan

Front 265

Hypo #3
Property owner continues living on Blackacre while
Whiteacre is being built.
Property Owner puts Blackacre up for sale and enters
into a sales contract with buyer.
When Property Owner moves onto Whiteacre,
Blackacre is under a valid sales contract.

Back 265

there is intent but no secasoin of use?

Front 266

Hypo #4
Property Owner continues living on Blackacre while
Whiteacre is being built.
Property Owner sells Blackacre and Whiteacre is not
yet completed.
Property Owner moves from Blackacre and stays with
family temporarily or moves into an apartment until
Whiteacre is completed.

Back 266

old homestad is gone
overt acts are present - moves
buys new home

Front 267

Effect of Terminating Homestead Status

Back 267

Allows for a new homestead to be established elsewhere
Allows the property to now be subject to all creditors
Joinder requirement is extinguished
Would no longer be subject to division in divorce proceedings
if separate property
At death would pass through will or intestate succession and
subject to all debts and partition by new owners