Property Ii

Front 1

Executory Period

Back 1

The time between the execution of the sale K and closing during which a proposed buyer of a piece of property must fulfill several contingencies in order to close the sale.

Front 2

Executory Clauses (3)

Back 2

1. Title Search

2. Mortgage Contingency

3. Inspection Contingency

Front 3

Types of Brokers (3)

Back 3

1. Listing - K directly with seller

2. Selling - introduce buyer to property

3. Buyers - buyers hire agent to conduct search

Front 4

MLS Listings Types (3)

Back 4

1. Open

2. Exclusive Agency

3. Exclusive Right to Sell

Front 5

SoF Requirements for Land K (4)

Back 5

1. Must be in writing

2. Must be signed by bound party

3. Must contain purchase price

4. Must contain property description

Front 6

Exceptions to SoF Requirements (2)

Back 6

1. Part Performance - a) possession AND payment OR possession AND improvements; b) possession AND irreparable harm.

2. Estoppel - injury caused by breaching oral agreement after party has been induced to rely on the agreement and injury results from reliance

Front 7

Marketable Title - Definition

Back 7

Marketable title is an implied condition of all land Ks that the title to property is clear and free of all encumbrances and other defects and is not subject to litigation in order to legally force its acceptance by a buyer once signing a land K.

Front 8

Marketable Title - Standard of Acceptance

Back 8

Titlethat a prudent, educated buyer in the reasonable course of business with thewould accept—higher standard than a “reasonable person” standard.

Front 9

Types of Encumbrances (6)

Back 9

1. Mortgages/Liens

2. Zoning violations

3. Covenant violations

4. Easements

5. Chain of Title Defects

6. Interests in the land less than the fee

Front 10

Defects NOT Deeming the Title Unmarketable (3)

Back 10

1. Minor, trivial defects

2. Land use or zoning restrictions

3. Absence of access to property

Front 11

Doctrine of Equitable Conversion

Back 11

During the executory period both the buyer and the seller have interests in the property and are entitled to specific performance. The buyer holds equitable title of the real property and the seller holds legal title of the personal property--proceeds of the sale.

Front 12

Doctrine of Equitable Conversion - Risk of Loss

Back 12

Majority: Buyer

Minority: Seller

Front 13

Doctrine of Equitable Conversion - Inheritance

Back 13

Death of Buyer:

Death of Seller:

Front 14

Duty to Disclose Defects

Traditional and Modern Rules

Back 14

Traditional - caveat emptor; no duty to disclose.

Modern - Allmaterial facts that affect the value of the property which are not readilyobservable and not known to the buyer must be disclosed.

Front 15

Implied Warranty of Quality - Elements (6)

Back 15

1. Defect must be latent

2. Must be found within a reasonable time

3. Must be a merchant/builder

4. Must not be discoverable by inspection before purchase

5. Must manifest after purchase

6. An economic loss caused by the defect

Front 16

Implied Warranty of Quality - Privity Requirement

Back 16

Traditional: Privity required

Modern: No privity required

Front 17

IWQ - Privity Requirement

Modern Trend Rationale (6)

Back 17

1. Economic - least cost avoider

2. People rely on builders skill

3. If warranty applies to original owner, it should still apply to subsequent owners if within a reasonable time

4. Moving society

5. Latent defects may take time to become apparent

6. Fraud & sham sales

Front 18

Remedies for Breach of Land K (4)

Back 18

1. Monetary Damages

2. Specific Performance

3. Restitution/Retention

4. Rescission

Front 19

Types of Monetary Damages

Breach of Land K

Back 19

1. Expectation damages

2. Special damages

3. Incidental/consequential damages

4. Punitive damages

Front 20

Expectation Damages

Back 20

Gives the "benefit of the bargain"- the place the non-breaching party would have been had the K been performed.

Seller Breach: FMV (@ breach) - K price = $D

Buyer Breach: K price - FMV (@ breach) = $D

Front 21

Special Damages

Back 21

Damages that are shown to have resulted as the natural and probable consequence of the breach and, at the time of the formation of the contract, the breaching party reasonably knew or should have anticipated from the facts and circumstances that the damages would probably be incurred.

Ex. interest payments

Front 22

Consequential/Incidental Damages

Back 22

Calculable and reasonably foreseeable damagesincidental/consequential to the breach.

Ex. title search and inspection costs

Front 23

Punitive Damages

Back 23

Damages imposed for unethical/malfeasant behavior—wonton and reckless disregard of K obligation.

Front 24

Retention

Majority Rule

Back 24

Majority: When a buyer breaches a K to purchase land, theseller may elect to retain the down payment because of “the difficulty ofestimating actual damages and the general acceptance of the traditional 10%down payment as a reasonable amount.”

If the seller does not elect to retain the deposit, most courts hold that she is limited to deposit money totaling 10% of the K price or less.

Front 25

Retention

Minority Rule

Back 25

Minority: Defaulting buyers are entitled to restitution ofthe deposit money in excess of damages incurred.

Front 26

Land Sale K

Liquidated Damages Clauses

Back 26

Must be reasonable and proportionate to actualdamages in order to be enforced.

Front 27

Restitution

Back 27

Buyers receive their deposit back.

(Rarely elected as expectation damages will more justly quantify the value of the property)

Front 28

Restitution

Breach for Unmarketable Title

English and American Rules

Back 28

English/Majority: If no marketable title, the buyer may seek restitution of down payment plus interest and reasonable expenses incurred. No expectation damages except if bad faith by seller.

American/Minority: No restitution; opts for expectation damages and reasonably foreseeable special damages.

Front 29

Specific Performance

Back 29

A judicial order that a breached contract befulfilled as originally agreed.

Common in property law: PROPERTY IS UNIQUE!

Front 30

Rescission

Back 30

The unmaking of a contract between parties.Rescission is the unwinding of a transaction. This is done to bring theparties, as far as possible, back to the position in which they were beforethey entered into a contract

Front 31

Time-of-the-Essence Clauses

Back 31

Unlessthe parties expressly provide that “time is of the essence” a court will givethe parties a reasonable time for performance, and either party can fix thetime for performance by giving notice to the other, provided the notice leavesa reasonable time for rendering performance.

Front 32

What information is found on the deed? (5)

Back 32

1. Grantor and grantee names

2. Description of property

3. Words of grant

4. Grantor signature

5. Attestation of acknowledgement

Front 33

Types of Deeds (3)

Back 33

1. General Warranty Deed

2. Special Warranty Deed

3. Quit Claim Deed

Front 34

General Warranty Deed

Express Present Warranties (3)

Back 34

1. Covenant of seisin - ownership

2. Covenant of right to convey

3. Covenant against encumbrances

Front 35

General Warranty Deed

Express Future Warranties (3)

Back 35

1. Covenant of general warranty - defend and compensate for lawful claims against title

2. Covenant of quiet enjoyment

3. Covenant of further assurances - execute docs

Front 36

Special Warranty Deed

Back 36

Contains warranties only against the grantor’sown acts but not the act of others.

Front 37

Quit Claim Deed

Back 37

Contains no warranties of any kind—it merelyconveys whatever the title the grantor has.

Front 38

Effect of a Forged Deed

Back 38

Forgery - void: The grantor whose signature is forged to a deedprevails over all persons, including subsequent bona fide purchasers from thegrantee who do not know the deed is forged.

Front 39

Effect of a Fraudulent Deed

Back 39

Fraud - voidable: A deed procured by fraud is voidable by the grantor in an action against the grantee, but a subsequent bona fide purchaser from the grantee who is unaware of the fraud prevails over the grantor. (Rationale- Least Cost Avoider)

Front 40

Present Covenants

Back 40

1. Can only be broken at the time of conveyance

2. Inherently do not run with the land

3. SoL begins to run on a breach at the date of delivery of the deed.

Front 41

Future Covenants

Back 41

1. Runs with the land.

2. Breached when the grantee or his successor is evicted from the property, buys up the paramount claim, or is otherwise damaged.

3. SoL begins to run on a breach at the time of eviction or broken covenant.

Front 42

Merger Doctrine - Traditional

Back 42

When the buyer accepts the deed at closing, thebuyers is deemed to be satisfied that all the contractual obligations have beenmet except in cases of fraud and contractual promises deemed collateral to thedeed (outside promise).

Front 43

Merger Doctrine - Modern

Back 43

Collateral promises exception has been greatlyexpanded which make the merger document weaker. The seller and buyer may bargainabout what K warranties survive the closing and provide so in the K.

Front 44

Encumbrances - Defined

Back 44

An encumbrance is defined as every right to orinterest in the land which may subsist in third persons, to the diminution ofthe value of the land, but consistent with the passing of the fee by theconveyance

Front 45

Types of Encumbrances

Back 45

1. Mortgages & liens - can be satisfied @ closing

2. Estates or interests in the property less thanthe fee

3. Easements - not known, visible, or are burden

4. Covenants and Servitudes

5. Defects in chain of title

6. Zoning violations

7. Major encroachments

Front 46

Latent Encumbrances

Back 46

Latent violations of land use statutes orregulations are not violations of the covenant against encumbrances.

Violation beforeclosing is an encumbrance on marketability of title.

Afterclosing, the buyer cannot hold the seller liable for latent violations.

Front 47

Delivery of real property by deed requires:

(3)

Back 47

1. Presently Operative Donative Intent

2. Delivery

3. Acceptance

Front 48

Presently Operative Donative Intent

Back 48

The grantor must intend to transfer an interest immediately to the grantee. If the grantor intends the deed to take effect only on the death of the grantor, will formalities must be observe. Deed can be delivered to grantee upon fulfilling agreed conditions.

Front 49

Delivery

Back 49

Delivery is usually accomplished through a physical act of handing over but can be given orally.

A presumption of delivery arises if:

1. Deed is later found in grantee's possession.

2. The deed is properly executed and recorded.

3. The deed contains an attestation clause that attests to delivery.

Front 50

Acceptions

Back 50

Acceptance is presumed if conveyance is beneficial to the grantee.

Front 51

Conditional Delivery

Back 51

Delivery can only be made by placing the deed in thehands of a 3rd party to be kept until the condition is met and then the deedis delivered to the grantee by the 3rd party.

Minority- No delivery; testamentary and void.

Smaller Minority- Conditional delivery OK - courts understand why parties do this and theintentions of the parties defeat the rule of law.

Front 52

Revocable Deeds

Back 52

Parties are intending on using deed as a will - invalid.

Front 53

Revocable Trusts

Back 53

-Grantors sign a declaration of trust providingthey hold the property in trust, retaining the right to possession and to allrents and profits of the property and on their death the title of the farm isto pass to the Grantee.

-Grantors retain the right to revoke the trustand re-claim legal title for themselves.

-Grantors do not need to deliver the trust to theGrantee, but should keep it in a safe place; it does not have to be recordedbut it establishes convincing evidence that the parties intend the trust to beeffective.

-Valid in all states; avoids probate.

Front 54

What is a mortgage?

Back 54

A mortgage is a conveyance of an interest in real property made to secure performance of an obligation--the obligation is usually a loan of money to facilitate a purchase.

Front 55

A mortgage is usually evidenced by two documents:

Back 55

1. A mortgage deed

2. A promissory note

Front 56

Mortgage Deed

Back 56

A document that conveys an interest in property designed to secure repayment for the amount of money loaned.

Front 57

Promissory Note

Back 57

Represents the mortgage obligation. An IOU that creates personal liability in the mortgagor.

Front 58

Types of Mortgages (4)

Back 58

1. Fixed Rates

2. Adjustable

3. FHA

4. Piggy Back

Front 59

Equity of Redemption

Back 59

Short for "equity," representing the mortgagor's interest in the property.

The right of redemption stops at foreclosure but the mortgagor can redeem anytime after default until foreclosure in order to pay the debt due.

Front 60

Foreclosure - Defined

Back 60

The process by which the mortgagor's interest in the party is terminated. The property is generally sold to satisfy the debt.

Front 61

Types of Foreclosure

Back 61

1. Judicial

2. Power of Sale

3. Strict

Front 62

Judicial Foreclosure Requirements

Back 62

Lenderfiles lawsuit against borrower - the sale:

1. Must be public

2. Must be properly noticed

3. Must be conducted in a reasonable manner

4. Must result in a "fair price"

Front 63

What constitutes a "fair price"?

Back 63

A fair price is arrived as a result of the mortgagee's due diligence and good faith in conducting the foreclosure sale.

Inadequacy of price alone is not sufficient todemonstrate bad faith.

Front 64

Bad Faith v. Diligence

Regarding the fair foreclosure sale

Back 64

Bad Faith - An intentional disregard of duty or purpose toinjure: FMV – sale price = damages

Due Diligence - Whether a reasonable man in the lenders’ placewould have adjourned the sale or taken other measures to receive a fair price: Fair price - sale price = damages

Front 65

Power of Sale Foreclosure

Back 65

Occurs without judicial action, pursuant to a power-of-sale clause included in the mortgage documents.

Quicker and cheaper but less procedural safegaurds.

Front 66

Deed of Trust

Back 66

Treated as a mortgage but by-passes the judicialprocess.

Borrower conveys title to trustee to securepayment of the debt to the lender. The trustee is given the power to sell theland without going to court if borrower defaults.

Front 67

Deficiency Judgments

Back 67

If the proceeds from a foreclosure sale are not sufficient to cover the liens foreclosed, the mortgagee may obtain a deficiency judgment against the mortgagor for the difference.

Front 68

Deficiency Judgments

In Judicial Proceedings

Back 68

Thesale price is ordinarily not challengeable (unless it shocks the conscience ofthe court) and the amount realized is applied to the debt. The mortgagee isentitled to a deficiency judgment for the difference, collectable out of thegeneral assets of the borrower.

Front 69

Deficiency Judgments

In Private Sales

Back 69

Courtsmay scrutinize the sale more closely to assure that the mortgagee acted fairlyand may deny a deficiency judgment when there are sufficient grounds to set thesale aside.

Front 70

Anti-Deficiency Judgment Statutes

Back 70

--Prohibitjudgments or regulate amount or process of judgment.

-Protectbuyers—are a form of insurance against adverse effects of default and foreclosure.

-Publicpolicy rationale—bank should not lend to risky buyers.

Front 71

Inadequacy of Foreclosure Prices

Back 71

Amortgagee executing a power of sale is bound both by the statutory proceduralrequirements and by a (fiduciary) duty to protect the interests of the mortgagorthrough the exercise of 1) good faith and 2) due diligence.

Themortgagee must exert every reasonable effort to obtain “a fair and reasonableprice under the circumstances.”

Front 72

Standards for Invalidation of Foreclosure Sales

Back 72

Mere inadequacy of foreclosure sale price willnot invalidate a sale, absent fraud, unfairness, or other regularity.

Standards for Invalidation—split authority

-Inadequacy “so gross that it shocks theconscience of the court”

-Price must “grossly inadequate”

Front 73

Recording

Common Law Rule

Back 73

First in time—“prior in time, prior in effect”—isstill controlling unless a person can qualify for protection under theapplicable recording act.

Front 74

Race Statutes

Back 74

Whoever records first prevails. Actual notice is irrelevant.

Rationale: Actual notice depends on extrinsic evidence which may be unreliable.

Front 75

Notice Statutes

Back 75

Subsequent BFPs prevail over a prior grantee who failed to record. The subsequent BFP must have no actual or constructive notice at the time of conveyance. Constructive notice includes record and inquiry notice. The subsequent BFP is protected regardless if she records at all.