Real Property 3

Front 1

The Recording system-
Brightline rules

Back 1

If the second purchaser is a bona fide purchaser, and we are in a notice jurisdiction, the second purchaser wins, regardless of whether or not she records before the first purchaser does.
If the second purchaser is a bona fide purchaser and we are in a race-notice jurisdiction, the second purchaser wins if they record properly before the first purchaser does.
*NY is race-notice.

Front 2

The Recording system
Bona Fide Purchaser

Back 2

One who (a) purchases the property for value (remits substantial pecuniary consideration), and (b) without notice that someone else got there first.
Bargain deals count, as long as there is some consideration
 Recording statutes don’t protect donee’s heirs/devises, unless the shelter rule applies.

Front 3

The Reocording System
Notice

Back 3

AIR
Actual notice- second purchaser has literal knowledge of first purchasers existence.
Inquiry notice- (constructive notice) whether second purchaser looks or not, second purchaser is on inquiry notice of whatever an examination of the estate would show. Buyer of real estate has a duty to inspect before title of transfer to see whether anyone else is in possession. If another is in possession, second purchaser has inquiry notice whether they inspected or not. (if they didn’t and another is in possession, they can no longer claim to be BFP).
•If a recorded instrument makes reference to an unrecorded transaction, grantee is on inquiry notice of whatever a reasonable follow up would show.
Record notice- (constructive notice). If first deed was recorded properly in the chain of title. (here, results may vary depending on whether it’s a race-notice jurisdiction).
The first purchaser’s recording, puts later buyers on record notice, and will defeat BFP status

Front 4

The Recording System
Example recording statutes

Back 4

Notice- “interest in land shall not be valid against subsequent purchaser for value, without notice thereof, unless the conveyance is recorded.”
Race-notice: …without notice thereof, whose conveyance is first recorded.

Front 5

Mortgage
How to create a mortgage

Back 5

A mortgage is the creation of security interest in land intended by the parties to be collateral for the repayment of a debt. Need: (1) a debt, and (2) a voluntary transfer of a security interest in debtors land to secure the debt.
Typically must be in writing to satisfy the statute of frauds.

Front 6

Mortgage: the equitable mortgage

Back 6

Where the specific property is collateral for the debt. Parole evidence is admissible to show the parties true intent. If a creditor sells it on, the buyer becomes the owner, the other owners only remedy is to sue for fraud and recover the proceeds of the sale.
Also called deed, note, mortgage deed, sale leaseback, security interest in land.

Front 7

Mortgage
Once created- what are the parties rights?

Back 7

Unless and until foreclosure, debtor-mortgagor has title and right to possession. Creditor-mortgagee has a lien.
All parties to a mortgage can transfer their interest
•Mortgage automatically follows a properly transferred note.
•Creditor-mortgagee can transfer his interest by: (1) endorsing the note and delivering to transferee, and (2) executing a separate document of assignment.
oIf note endorsed and delivered the transferee is eligible to become a holder in due course. This means he takes the note free of any personal defenses that could be raised against original creditor. (lack of consideration, fraud in inducement, unconscionability, waiver, estoppel). Holder may foreclose the mortgage despite presence of any personal defense. The holder in due course is still subject to real defenses that the maker might raise. (Mad fifi4th)

Front 8

Mortgages
real defenses for a holder in due course.

Back 8

Material Alteration
Duress
Fraud in the factum- a lie about the instrument.
Incapacity
Illegality
Infancy
Insolvency

Front 9

Mortgages
What is a holder in due course

Back 9

oThe note must be negotiable, made payable to the named mortgagee
oThe original note must be indorsed, signed by the named mortgagee
oThe original note must be delivered to the transferee. A photocopy is not acceptable.
oTransferee must take the note in good faith without notice of any illegality and
oThe transferee must pay value for the note, meaning some amount that is more than nominal.

Front 10

Mortgage
who is personally liable if debtor-mortgagor sells property?

Back 10

if buyer assumed the mortgage: owner and buyer personally liable. Buyery primarily owner secondarily.
If Buyer takes subject to the mortgage: only onwer is perosnally liable, but if reocreded, the mortgage reamins on the land thus, if owner does not pay the mortgage may be foreclsosed.

Front 11

foreclosure

Back 11

Must foreclose by proper judicial proceeding. At foreclosure the land is sold. The sale proceeds go to satisfying the debt.
 If the proceeds are less than the amount owed, bring deficiency action.
If there is a surplus, junior liens paid off- in order of priority, then remainder to debtor. Each claimant being paid in full.
Off the top: attorneys fees, expenses of foreclosure, any accrued interest in mortgages.

Front 12

effect of foreclosure on interests

Back 12

Foreclosure will terminate interests junior to the mortgage being foreclosed but will not affect senior interests. Once foreclosure of a superior claim has occurred, with the proceeds distributed appropriately, junior lienholders can no longer look to the property for satisfaction.
Debtor-mortgagor is considered a necessary party and must be joined, particularly if they want a deficiency judgment. Failure to include a necessary party results in the preservation of that parties claim- their mortgage remains on the land. Foreclosure does not affect any interest senior to the mortgage being foreclosed.

Front 13

foreclosure- priorities.

Back 13

As a creditor, you must record. If you don’t record you have no priority.
Once recorded priority is determined by the norm of first in time first in right.

Front 14

purchase money mortgage

Back 14

 A mortgage given to secure a loan that enables the debtor to acquire the encumbered land.
 Super priority – after acquired collateral clause. Gives security interest in all real estate, whether now owned or hereinafter acquired.
 Subordination agreement: allowed by private agreement a senior creditor may agree to subordinate its priority to a junior creditor.

Front 15

foreclosure
redemption

Back 15

Redemption in equity: recognized up to the date of sale. Any time prior to the foreclosure sale debtor has the right to redeem the land and free it of the mortgage. Once a valid foreclosure has taken place, right to equitable redemption is gone.
Exercised by paying off the missed payment/payments and interest and costs.
If the mortgage contains an acceleration clause: the full balance and accrued interest and costs must be paid to redeem.
Debtor/mortgagor may not waive the right to redeem in the mortgage itself.

Front 16

foreclosure
statutory redemption

Back 16

**Not recognized in NY.**gives debtor-mortgagor a statutory right to redeem for some fixed period after the foreclosure sale has occurred.
•After the sale. The amount to be paid is usually the foreclosure sale price, not the original debt.
•Most states give the mortgagor the right to repossess during the statutory period.
•When a mortgagor redeems, its nullifies the sale, is restored title.

Front 17

lateral support

Back 17

o If land is improved by buildings an adjacent landowners excavation causes that improved the land to cave in, excavator will be liable only if he acted negligently.
o Strict liability does not attach unless P can show that because of D’s actions, P’s improved land would have collapsed, even in its natural state.

Front 18

water rights

Back 18

oRiparian doctrine: the water belongs to those who own the land bordering the water course. They are known as riparians, they share the right of reasonable use of the water. One riparian will be liable if their use unreasonably interferes with others use.
oPrior Appropriation doctrine: the water belongs initially to the state, but the right to divert it and use it can be acquired by an individual, regardless of whether or not he happens to be a riparian owner. Rights are determined by priority of beneficial use. First in time, first in right. Any productive/beneficial use of the water (including agriculture) is sufficient to create the appropriation right.
oGroundwater/percolating water: surface owner is entitled to make reasonable use of ground water, however the use must not be wasteful.
oSurface water: (rain, springs, melting snow and have not yet reached a natural watercourse. Common enemy rule: A landowner may change drainage or make any other changes/improvements on his land to combat the flow of surface water. Many courts have modified the rule to prohibit unnecessary harm to others land.

Front 19

Possessors rights

Back 19

o Right to be free from trespass and nuisance.
 Trespass- invasion of land by physical objection. To remove a trespasser- bring an ejectment action.
 Private nuisance- substantial and unreasonable interference with another use/enjoyment of land. Does not require tangible physical invasion (odors/noise sufficient).

Front 20

Eminent domain

Back 20

oGovernments 5th amendment power to take private property for public use in exchange for just compensation.
oExplicit takings: acts of government condemnation.
*Implicit/regulatory taking: governmental regulation that, although not intended to be a taking, has the same effect.
oRemedy: government must either: compensate an owner for the taking or terminate the regulation and pay owner for damages that occurred while it was in effect.