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56 Cards in this Set
- Front
- Back
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What is an "as is" clause"
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An as is clause places another burden on the buyer complaining of defects for the physical or environmental condition of the property.
It expressly states that the buyer has had full and fair opportunity to inspect before signing the contract, and has not relied on any representations by the seller. An as is clause cannot however be used by a seller to bar a claim for fraudulent concealment. |
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material misrepresentation E.G.
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B asks S if there was any flooding in the basement. S responded "this is a great house and title is marketable. You can have your engineer inspect if you'd like."
In fact, the basement did flood whenever it rained, and S had recently repainted to hide the water stains. Here, B could rescind the contract because S induced B to consent by material misrepresentation. BY asking a direct question, a reasonable buyer would construe S's answer as an assurance that S had no knowledge of the flooding. |
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N.Y.'s Real Property Disclosure Act
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In NY, the seller of an existing residential dwelling of one to four units shall deliver a disclosure statement answering forty eight questions on the condition of the realty based on the seller’s actual knowledge
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Consequences of failure to abide by disclosure act
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Failure to do so affords the buyer an automoatic $500 credit at the closing.
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Failure of the act
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$500 dollars is a minial fee, lawyers tell sellers not to sign and give buyer a weapon.
People use it to exploit the seller on minor defects. |
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What is an "as is" clause"
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An as is clause places another burden on the buyer complaining of defects for the physical or environmental condition of the property.
It expressly states that the buyer has had full and fair opportunity to inspect before signing the contract, and has not relied on any representations by the seller. An as is clause cannot however be used by a seller to bar a claim for fraudulent concealment. |
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material misrepresentation E.G.
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B asks S if there was any flooding in the basement. S responded "this is a great house and title is marketable. You can have your engineer inspect if you'd like."
In fact, the basement did flood whenever it rained, and S had recently repainted to hide the water stains. Here, B could rescind the contract because S induced B to consent by material misrepresentation. BY asking a direct question, a reasonable buyer would construe S's answer as an assurance that S had no knowledge of the flooding. |
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N.Y.'s Real Property Disclosure Act
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In NY, the seller of an existing residential dwelling of one to four units shall deliver a disclosure statement answering forty eight questions on the condition of the realty based on the seller’s actual knowledge
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Consequences of failure to abide by disclosure act
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Failure to do so affords the buyer an automoatic $500 credit at the closing.
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Failure of the act
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$500 dollars is a minial fee, lawyers tell sellers not to sign and give buyer a weapon.
People use it to exploit the seller on minor defects. |
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Warranty of Habitability
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On new residential construction, there is an implied warranty of habitability from the builder. In most states it does not extend beyond the first purchaser who is privity with the builder, but NY extends warranty protection to successors in title during the warranty period. THis implied warranty survives the delivery of the deed, and imposes on the builder a duty to construct the dwelling ina skillfull manner, free from material defects
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Equitable Conversion
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When a real property contract is signed, that equity would specifically enforce. Equity converts the seller's itnerest into personal property, and the buyer is equitably deemed to own the realty, and title to the land is in the buyer the moment that contract is executed. This effects the MBE parties interests in three ways.
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Equitable Conversion Situations
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1. The MBE seller's judgment creditor files a judgment after a seller has signed a contract for sale, that filed judgmnet does not attach to the seller's interest because equity now considers the interest personal property.
If the judgment instead is recorded against the buyer, then the lien attaches to the buyers converted realty interest, even though the buyer has not yet officially taken the deed. |
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Situation 2
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2. If the MBE buyer or seller dies, equitable conversion effects a bequest of "real property" passing in a will.
e.g. T's will stated all my real property x, and all my personal to y property. T died after signing: after signing, the interest is personal property, y gets the interest. |
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COnsequeces of death after signing the real property contract
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Death prior to closing does not excuse either partty from the contract. If the seller dies, the proceeds from the sale pass under S's will as personal property. If the buyer dies prior to closing, then the buyer's interest passes under B"s will as real property. AT the moment of death, equity considers B;s interest as realty and S's interest as personal property
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NY Rulke
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In NY, if a testator enters a contract to sell realty, the contract does not revoke a prior disposition in T's will of such property. Such real property passes under the will to the named beneficiary, subject to the executory contact.
E.G. all my real property to x and all my real property to y, x gets it when t dies, must still must sell it on closing. |
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Risk of loss post-signing
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Under equitable conversion, if the real property is damaged without the fault of either party during the executory contract period, then absent a contrary statute, or specific contract language, risk of loss is on the MBE buyer.
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Risk of loss when the seller had insurance.
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If the seller had fire or property damage insurance, and the prpoerty was destroyed after the K was signed but before the closing, most states (but not New York), impose a trust on the seller's insurance proceeds for the benefit of the buyer.
N.Y. does not do so unless the contract obligated the buyer to pay the seller's insurance premiums. |
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There are several exception to this MBE equitable conversion risk of loss rule (risk to the buyer post K)
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1. The destruction was the seller's fault.
2. The sellers title was defective, and S could not have tendered marketable title at the closing. 3. If the contract is subject to a condition that is not satisfied, thereby excusing the buyer from the contract (e.g. condition on buyer obtaining financing). |
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4.
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Rule: Under this act, risk of loss does not pass from S to B until 1. title passes at the closing, or 2, the buyer takes possession prior to the closing.)
4. 13 states that recognize the uniform vendor and purchaser risk act, even though the eqtuitable title passes to the buyer when the K is signed, risk of loss by statute remains with the seller, who is in the best position to have insured against the loss or damage (NY follows this). |
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NY Rulke
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In NY, if a testator enters a contract to sell realty, the contract does not revoke a prior disposition in T's will of such property. Such real property passes under the will to the named beneficiary, subject to the executory contact.
E.G. all my real property to x and all my real property to y, x gets it when t dies, must still must sell it on closing. |
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Risk of loss post-signing
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Under equitable conversion, if the real property is damaged without the fault of either party during the executory contract period, then absent a contrary statute, or specific contract language, risk of loss is on the MBE buyer.
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Risk of loss when the seller had insurance.
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If the seller had fire or property damage insurance, and the prpoerty was destroyed after the K was signed but before the closing, most states (but not New York), impose a trust on the seller's insurance proceeds for the benefit of the buyer.
N.Y. does not do so unless the contract obligated the buyer to pay the seller's insurance premiums. |
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There are several exception to this MBE equitable conversion risk of loss rule (risk to the buyer post K)
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1. The destruction was the seller's fault.
2. The sellers title was defective, and S could not have tendered marketable title at the closing. 3. If the contract is subject to a condition that is not satisfied, thereby excusing the buyer from the contract (e.g. condition on buyer obtaining financing). 4. 13 states that recognize the uniform vendor and purchaser risk act, even though the eqtuitable title passes to the buyer when the K is signed, risk of loss by statute remains with the seller, who is in the best position to have insured against the loss or damage (NY follows this). Rule: Under this act, risk of loss does not pass from S to B until 1. title passes at the closing, or 2, the buyer takes possession prior to the closing.) |
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4.
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If prior to closing, N.Y. property is materially destroyed through no fault of either party, or a material part is taken by eminent domain, the seller may not enforce the real property contract, and the buyer may rescind it.
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How does operation of eminent domain affect the K?
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If only an immaterial part of the premises is damaged or taken by eminent doamin, then the contract is still enforcable by either paty with an abatement in the purchase price
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NY Rulke
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In NY, if a testator enters a contract to sell realty, the contract does not revoke a prior disposition in T's will of such property. Such real property passes under the will to the named beneficiary, subject to the executory contact.
E.G. all my real property to x and all my real property to y, x gets it when t dies, must still must sell it on closing. |
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Risk of loss post-signing
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Under equitable conversion, if the real property is damaged without the fault of either party during the executory contract period, then absent a contrary statute, or specific contract language, risk of loss is on the MBE buyer.
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Risk of loss when the seller had insurance.
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If the seller had fire or property damage insurance, and the prpoerty was destroyed after the K was signed but before the closing, most states (but not New York), impose a trust on the seller's insurance proceeds for the benefit of the buyer.
N.Y. does not do so unless the contract obligated the buyer to pay the seller's insurance premiums. |
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There are several exception to this MBE equitable conversion risk of loss rule (risk to the buyer post K)
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1. The destruction was the seller's fault.
2. The sellers title was defective, and S could not have tendered marketable title at the closing. 3. If the contract is subject to a condition that is not satisfied, thereby excusing the buyer from the contract (e.g. condition on buyer obtaining financing). 4. 13 states that recognize the uniform vendor and purchaser risk act, even though the eqtuitable title passes to the buyer when the K is signed, risk of loss by statute remains with the seller, who is in the best position to have insured against the loss or damage (NY follows this). Rule: Under this act, risk of loss does not pass from S to B until 1. title passes at the closing, or 2, the buyer takes possession prior to the closing.) |
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Effect of material destruction of property or taking by eminent domain on the K.
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If prior to closing, N.Y. property is materially destroyed through no fault of either party, or a material part is taken by eminent domain, the seller may not enforce the real property contract, and the buyer may rescind it. (CLARIFY
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IOLA Accounts
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N.Y. requires that, if a buyer's deposit is asmall amount or is to be held only for a short period of time (and thus will not generate more than $150 in interest), it shall be deposited by the seller's attorney into an IOLA account (interest on lawyers account), which every N.Y. lawyer who holds client funds must open. The interest earned on such accounts is used for funding legal services for indigents.
Where interest will be substantial, the funds should be placed in an interest bearing account. |
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What if IOLA for check bounces?
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If a lawyer's IOLA check bounces for insufficient funds, the bank must notify the appellate division grievance committee.
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WHo bears risk of loss on money deposit to the IOLA account?
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If deposit money paid by the buyer is embezzled by the escrowee, who is a stranger to contract and a fiduciary to both parties (usually the seller's attornee), then the risk of loss on the deposit is on the party who owned the money at the time it was converted (usually the buyer.)
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Closing
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The closing is where the deed is executed and delivered by the seller, and the buyer tenders certified or bank checks. Failure to tender the type of check called for in the contract constitutes a material breach of contract
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Must the parties specify a closing date in the K?
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The parties to a real property contract need not specifiy a closing date, because the court will infer a reasonable time.
If the closing date IS fixed in the contract, it is only tentative and a target date. Failure of either party to close on that date is not a breach of contract. Both parties are afforded a "reasonable time", even beyond the contracts closing date, to perform their respective obligations, unless the contract is expressly made "Time is of the essence." A material breach will arise if eithe rparty is not ready to tender performance on the closing date when time is of the essence. |
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Time of the Essence Example.
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The term "on or before June 1st", or "in no event later than June 1st" is not sufficiently clear to make time of the essence and lead to default if not ready to perform on that date.
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B and S entered a contract in July
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B paid thirty thousand dollars as a deposit on the 300,000 purchase price. Title was to close on or about Dec. 1.
On November 15th, S's attorney wrote to B that S would be out of town on business, and adjourn the closing th december 15th. Bs attorney objected and responded that DEc. 1 was now "time of the esence." WHen Dec/ 1 came and S did not show up, B demanded a return of his 30,000, together with reasonable expenses. S refused, and said he would tender title on december 15. On december 15, he tendered title at the closing, but B did not attend. Here, S's letter requesting an extension was reasonable, because the contract did not initially state that time was of the essence. |
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R
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A party cannot unilaterally make the original closing date "time of the essence." However, when one party requests an extension, then the other party may set a new closing date and make it time of the essence.
The notice must 1. Give clear and unequivocal notice that time is of the essence. 2 Inform the other party that their failure to close will render it in default and liable for damages, and 3. Give the other party a reasonable time to close. |
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Expectation damages
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In MBE, a seller may keep the breaching buyers deposit, but only to the extent of the sellers actual damages sustained as a result of the buyers breach.
In NY, however, a sller may keep the breaching buyer's entire deposit, even if the seller resells the realty for a mount equal to or greater than the original contract price. |
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Reliance damages on buyers breach.
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If B breached a contract to purchase real property from S for 150,000, and S resold it for only 131,000, may S recover from B?
Yes, S's expectation loss would be the difference between the price B agreed to pay and the subsequent selling price minus any deposit placed by B. In such a suitm S's reliance damages include out-of pocket expenditures in reliance on the contract, including S's legal fees for evicting an existing tenant, refurbishing the premises to meet the contract specification, and the MBE borkers commission, because such expenses are customary and foreseeable by the breaching buyer. THe prevailing New York view does not permit recover of S's broker's fee as reliance damages |
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What costs arent recoverable in a sellers' suit against a buyer's breach?'
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S's cost of insuring the realty is not recoverable because these damages are not deemed within contemplation of the parties when the contract was entered.
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What must you show in order to hold the other party in breach on a RP K?
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In order for the seller to hold the seller in default, of for a buyer to hold a breaching seller in default, the party claiming that the other is in breach ,must be able to demonstrate that it was ready, willing, and able to comply with the contract terms
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Buyer's Remedies for Seller'sBreach of Real Property Contract
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Specific performance, which in the courts discretion is avialable to both the buyer and seller, because equity considers all realty sales unique
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If court;s grant specific prformance, are there any consequential damages that you can get on top of performance?
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If the court grants specific performance, it may also award consequential damages, e.g. for example, where S's breach caused the buyer to A or B
A - Need to obtain a new mortgage with a higher interest rate. B- Lose rents on the purchase of S's rental property. |
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Can the Buyer sue for recission if the contract upon breach?
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Sue the breaching seller in equity for recission of the contract and for restitition of any down payment. Recission seeks to place the plaintiff in the position she was in before the contract
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Can buyer get any damages, other than just resitution, when he sues for recission.
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Reliance damages to compensate the non-breaching party for out-of-pocket expenses. B's recovery of preparation expses, such as money paid to architects or engineers for plans to build or renovate the structure depend on their foreseeability.
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Can the buyer recover lost profit (expecation), where the property would have apprecateid?
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SUe the breaching seller for the buyer's loss of bargain, and, for a commercial property, for lost profit due to S's breach. The buyer may recover the difference between the contract price and the higher market value on the date of the breach.
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What does New York require for the buyer to recover on expectation damages?
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In NY, and nearly half of the other states, this expectation lost profit recover only if the seller's refusal or inability to convey title was done in bad faith.
e.g. of bad faithnever had title, sold it to someone else for a higher price, contracted to convey better title than he had, or S refused to cure a curable title defect. |
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What if the seller breached in good faith?
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In NY if the seller breached in good faith and could not tender a marketable title, then the buyers recovery is limited to restitition plus reliance damages.
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Conflicts of interest among lawyers
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A lawyer may not represent a new client whose intretests are adverse toa former client if
1. THe new matter substantially relates to the prior representation, and has information obtained in the former representation that could be used to disadvantage the old client or to the advantage of the new client. |
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Client Consent
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Both clients must consent after full disclosure of the disadvantages and risks involved.
If a dispute arises, then the lawyer must withdraw from any further representation of either client. A lawyer subject to discipline for failing to decline legal employment if the exercise of her independent professional judgment is likely to be adversely affected by the lawyers conflict of interest. |
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Can you get a fee after misconduct?
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An attorney engaging in ethical misconduct is not entitled to a fee
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If B's lawyer refers B to a mortgage broker, may B's attornee accept a referral fee from the broker?
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Yes, but only with B's informed consent, and only if the fee is used to reduce the buyer's legal fee.
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May a lawyer conduct her law practice and real estate brokerage from the same office?
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Yes, but she cannot act as both on the same transaction. The conflict of self-interest is too great.
The conflict is not cured by using the broker-lawyers spouse as the attorney. |
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May a lawyer sell or buy real or personal property from a client?
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Yes, but because the lawyer could profit from the client, whenever a lawyer enters a business transacation with a client,
a- The terms must be fair and reasonable B – The terms must be fully disclosed in writing in a manner that can be reasonably understood by the client c. The client must be advised to seek the advice of independent counsel. and d. The client must consent, in a signed writing, to the fully disclosed terms, and to the lawyer’s inherent conflict of interest in the transaction. |
