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156 Cards in this Set

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Fee Simple Absolute
Creation: “To A” or “To A and his heirs”
But know “and his heirs” are no longer necessary today. “To A” is sufficient to create the fee simple absolute.
Distinguishing Characteristics:
This is absolute ownership of potentially infinite duration. It is freely devisable, meaning you can leave it to another in your will, descendable, meaning it will pass by statutes of intestacy if holder dies without a will, and alienable, so can transfer the estate during your lifetime.
Accompanying future interest? NO
A living person has no heirs. While alive, only have prospective heirs and they are powerless.
Fee Tail
Creation: “To A and the heirs of his body”
Distinguishing Characteristics:
Virtually abolished in US and NY and virtually never tested.
Historically it passed directly to grantees lineal blood descendents no matter what. It was all about preserving dynasties
Today instead an attempt to create it creates the fee simple absolute.
Accompanying future interest?
Historically, yes. It was called a reversion if for the grantor. If it was for someone other than the grantor it was called the remainder.
Fee Simple Determinable
NY Distinction: In NY, this is called a “fee on limitation.”
Creation: “To A for so long as/during/until” – Grantor must use clear durational language!
If stated condition is violated, forfeiture is automatic.
Distinguishing Characteristics:
Like all defeasible fees, it is divisable, descendable, and alienable. Can leave it to another in your will, will pass to heirs by statute of intestacy if no will, and can transfer it during your lifetime. BUT it is always subject to the condition.
Can convey less than what you started with but not more.
Accompanying future interest?
Yes, it is the possibility of reverter in the grantor. (****THIS IS BIG***)
Grantee has fee simple determinable and grantor has possibility of reverter
FSDPOR – Fee Simple Determinable / Possibility of Reverter
Fee Simple Subject to Condition Subsequent
NY Distinction: In NY the fee simple subject to condition subsequent is called: “A fee on condition”
Creation: “To A but if X event occurs, grantor reserves the right to reenter and retake” – must have that right to reenter present!
Right to reenter and retake is a power of termination
Distinguishing Characteristics:
This estate is not automatically terminated BUT it can be cut short at the grantor’s option if the stated condition occurs
Accompanying future interest?
Yes, it is the right of reentry which is synonymous with the power of termination
NY Distinction: In NY that future interest is called the “right of reacquisition”
Fee Simple Subject to an Executory Limitation
Creation: “To A but if X event occurs, to B”
Need to have clause giving it to someone other than grantor if event occurs
Distinguishing Characteristics:
Just like fee simple determinable, only now, if the condition is broken, the estate is automatically forfeited in favor of someone other than the grantor.
Accompanying future interest?
Yes, it is the shifting executory interest
Defeasible Fees: 2 important points
1) Words of mere desire/hope are insufficient to create a defeasable fee.
Courts disfavor restrictions on the free use of land, thus courts will not find a defeasible fee UNLESS clear durational language is used.
Words of mere purpose/hope/aspiration/expectation, no matter how lofty/noble/etc are inadequate to create a defeasible fee
2) An absolute restraint on alienation is an absolute ban on the power is void, ban on power to sell or transfer that is not linked to any time limited purpose.
If void, then get the fee simple absolute instead.
If restraint is linked to a reasonable time limited purpose, it is good and law will allow the restriction.
Creating a Life Estate
Creation: Estate must be measured in explicit lifetime terms and never in terms of years.
Existence depends on provision rooted in explicit lifetime terms – “O conveys to A for life.”
A has a life estate and is known as the life tenant
O has a reversion, meaning at the end of A’s lifetime the estate will revert back to O or O’s heirs.
Note: if you put in “for 50 years if she lives that long” is a term of years, not a life estate
Life estate pur autrie vie
A life estate measured by a life other than the grantee’s.
O gives “To A for the life of B”
The grantor has a reversion so at the end of the B’s life, the estate will revert back to O or O’s heir.
It is permissible for a life estate to sell their interest but can only sell that life estate, not more than that. If do that hten giving a life estate pur autre vie – get the estate for the life of the person who sold it and then it reverts to the grantor of the life estate.
Life Estate and Waste
Life tenant’s entitlements are rooted in the important doctrine of waste.
Waste occurs when more than 1 person has an interest in the land.
Note 2 general rules:
1) Life tenant is entitled to all ordinary uses and profits from the land.
2) But the life tenant must not commit waste – cannot do anything to harm the future interest holders
Life Estate: Voluntary Waste
Actual overt conduct that causes a decrease in value
Voluntary waste and natural resources:
General rule: Life tenant must not consume or exploit natural resources on the property (such as timber, oil, or minerals) unless one of 4 exceptions applies, remembered by PURGE.
PU: Prior Use – prior to the grant the land was used for exploitation. When that is the case, the life tenant may continue exploitation unless the parties otherwise agreed.
“Open Mine” Doctrine: if mined on the land before the life estate, the life tenant may continue to mine but is limited to the mine already open
R: Reasonable Repairs – life tenant can consume natural resources for reasonable repairs and maintenance of the premises
G: Grant – life tenant may exploit if expressly granted the right to do so
E: Exploitation – the land is suitable only for exploitation (if the land is a quarry, etc)
Life Estate: Permissive Waste
Synonymous to neglect. Occurs when land is allowed to fall into disrepair or life tenant fails to reasonably protect the land.
a) Permissive waste and obligation to repair:
Life tenant must simply maintain the premises in reasonably good repair – do no more or less than ordinary maintenance requires.
Would be required to patch up leaking holes in ceiling but not replace entire ceiling. If didn’t patch up holes and because of that the ceiling fell in, then life tenant would be held to task for the permissive waste.
b) Permissive waste and the obligation to pay all ordinary taxes: The life tenant is obligated to pay all ordinary taxes on the land, to the extent of income or profits from the land. If there is no income or profit, the life tenant is required to pay all ordinary taxes to the extent of the premises fair rental value.
Life Estate: Ameliorative Waste
Life tenant must not engage in acts that will enhance the property’s value unless all of the future interest holders are known and consent.
Sentimental value is to be honored – need consent for changing it
NY modification: By statute, NY says that the life tenant may make improvements that are reasonable unless the remaindermen object.
Looking for kind of improvements reasonable owner would make
Life Estate Accompanying Future Interest
If held by the grantor, it is a reversion. If held by a third person, it is called a remainder.
Future Interests Capable of Creation in the Grantor
1) Possibility of Reverter:
It accompanies only the fee simple determinable
2) Right of Entry, also known as the Power of Termination:
Accompanies only the fee simple subject to condition subsequent
3) The Reversion:
Future interest arising in the grantor who happens to transfer an estate of lessor magnitude/duration than she started with, other than the fee simple determinable or the fee simple subject to condition subsequent (which go with possibility of reverter or right of entry)
Ex: “To A for life,” or “To A for 99 years,” or “To A for life, then to B for 99 years” – convey less than what started with, the fee simple absolute which is infinite in duration, so grantor’s leftover is a reversion.
Future Interests in Tranferees
If interest held by someone other than the grantor then it is:
1) Vested remainder:
Indefeasibly vested remainder;
Vested remainder subject to complete defeasible (or total divestment); and
Vested remainder subject to open
2) Contingent remainder
3) Executory Interest:
Shifting executory interest and
Springing executory interest
Remainders v. Contingent Remainders
What is a remainder?
Future interest created in a grantee that is capable of becoming possessory on the expiration of a prior possessory estate created in the same conveyance in which the remainder was created.
Remember that remainderman is sociable, patient, and polite:
1) Sociable, never travels alone.
Remainderman always accompanies a preceding estate of known fixed duration. That preceding estate is usually a life estate or a term of years
For example: “To A for life, then to B” or “To A for 10 years, then to B”
2) Remainderman is patient and polite, meaning: Remainderman never follows a defeasible fee.
Remainderman cannot cut short or divest a prior transferee.
Remainderman waits patiently for the preceding estate to run its natural course. In other words, if your present estate is a defeasible fee, your future interest is NOT a remainder. Instead, it will be an executory interest if held by someone other than the grantor.
Remainders are either Vested or Contingent
Remainder is vested when it is both created in a known ascertained person and not subject to a condition precedent.
Remainder will be contingent if its created in an unascertained person or is subject to a condition precedent, or both.
NY Distinction: In NY, any future interest in a transferee that is subject to a condition precedent is called a remainder subject to a condition precedent.
When is a remainder contingent?
1) Remainder contingent because it is crated in as yet unborn or unascertained persons.
Ex: “To A for life, then to B’s first child.” A is alive, B as yet has not children.
Ex: “To A for life, then to B’s heris” – Both A and B are alive - living person has no heirs so contingent remainder
Ex: “To A for life, then those children of B who survive A” and A is alive
2) Contingent because it is subject to condition precedent.
A condition is condition precedent when it appears before the language creating the remainder or is woven into the grant to remainderman.
Think of the condition precedent as a prerequisite – something remainderman has to do before being entitled to possession. If don’t do the condition, it reverts to the grantor or grantor’s heir.
If condition is met, the contingent remainder is transformed into an indefeasibly vested remainder.
Ex: “if B graduates from college” or “if B reaches age 21” are condition precedents
Contingent Remainder: The Rule of Destructibility of Contingent Remainders
At common law, Contingent remainder was destroyed if it was still contingent at the time the preceding estate ended
Whenever the examiners preface the question with “historically at common law” they are asking that you serve as a legal historian and discern the result based upon the way it as historically.
If the contingent remainder is destroyed, the grantor or grantor’s heirs would take in fee simple absolute.
Today, the destructibility rule has been abolished. Instead have springing executory interest and once the condition is met, the grantee takes.
NY Distinction: In NY, rule of destructibility of contingent remainders has been abolished.
Contingent Remainder: Rule in Shelley's Case
Ex: O conveys “To A for life, then, on A’s death, to A’s heirs.” A is alive.
Historically: the present and future interests would merge, giving A a fee simple absolute.
Note: Rule is a rule of law and not a rule of construction. It would apply even in the face of contrary grantor intent.
Today: the rule has been virtually abolished so when O conveys to A for life and then to A’s heirs? A has a life estate and the yet unknown heirs have a contingent remainder. O has a reversion since A could die without heirs.
Rule in Shelley’s case has been abolished in NY
Contingent Remainders: Doctrine of Worthier Title
Rule against a remainder in the grantor’s heirs
This doctrine is still viable in most states today
Applies when O, who is alive, tries to create a future interest in his yet unknown heirs. say “To A for life, then to A’s heirs”
Without the rule of worthier title: A has a life estate and A’s heirs have a contingent remainder.
Instead, the contingent remainder in A’s heirs is void so A has a life estate and O has a reversion.
Doctrine endeavors to create the free transfer of land.
The Grantor’s intent controls and if he clearly intends to define the doctrine and create a contingent remainder in his yet unknown heirs, then that request is binding – survives because it defers to grantor’s intention.
NY Distinction: The Doctrine of Worthier Title has been abolished in NY with respect to transfers taking effect AFTER September 1, 1967.
The indefeasibly vested remainder
The holder of this remainder is certain to acquire an estate in the future with no conditions or strings attached.
Ex: “To A for life, remainder to B” – both are alive.
A has a life estate
B has an indefeasibly vested remainder because B is born and there are no strings attached to B’s taking.
If B predeceases A, at common law B’s future interest passes by his Will or by intestacy to his heirs.
“No strings attached future interest”
The vested remainder subject to complete defeasance (also known as the “vested remainder subject to total divestment”).
NY Distinction: In NY, this remainder is called a “remainder vested subject to complete defeasance.”
Here, remainderman exists. His taking is NOT subject to any condition precedent. However, his right of possession could be cut short because of a condition subsequent.
Here, note the difference between a condition precedent and a condition subsequent. Apply the “Comma rule” – when conditional language follows language that taken alone and set of by comma’s would create a vested remainder then the condition has to be called a condition subsequent and have vested remainder subject to complete defeasance
Vested Remainder: Condition Subsequent
Ex: O conveys “To A for life, remainder to B, provided, however, that if B dies under the age of 25, to C.” A is alive, B is 20.
A has a life estate
B has a vested remainder subject to complete defeasance because of the presence of the condition subsequent.
C has a shifting executory interest.
If B is under 25 at the time of A’s death, B still takes!
Age requirement is not a prerequisite to B’s entrance on the land. It is a condition subsequent – a condition that will haunt B. B better live to be 25 for his estate to be able to retain his interests. If he cannot satisfy that, even after entering the land, then B’s heirs lose everything and C’s heirs benefit.
O has a reversion because it is possible neither C or C’s heirs would exist at the time the condition does not happen.
Vested Remainder: Condition Precedent
If the conditional language appears before the language creating the remainder, the condition is a condition precedent and you have to have a contingent remainder.
O conveys “To A for life, and if B has reached the age of 25, to B” A is alive, B is 20.
A has a life estate.
B has a contingent remainder because his taking is subject to a condition precedent – B must be 25 BEFORE he can take possession of the land.
O has a reversion – if B dies before 25, the estate reverts to O or O’s heirs.
If B is alive but not yet 25 at the time of O’s death, B cannot take! Age contingency is a prerequisite for B’s entry on the land and if it isn’t fulfilled the estate reverts back to O or O’s heirs who hold it subject to B’s springing executory interest. If/when B reaches 25, get to divest O or O’s heirs.
Vested Remainder Subject to Open
Remainder is vested in a group at least one of whom is qualified to take possession.
Each class member’s share is subject to partial diminution because additional takers not yet ascertained can still qualify as class members
Ex: “To A for life, then to B’s children.” A is alive, B has 2 children, C and D.
C and D have vested remainders subject to open – the share can be decreased if there are more children.
Vested Remainder Subject to Open: Class Opening/Closing
Open – if it is possible for others to join/enter the class
Closed – when the maximum membership of the class has been set and therefore persons born later, thereafter, are shut out
Common law rule of convenience:
The class closes whenever any member of the class can demand possession.
Therefore, in the example above “To A for life, then to B’s children” the class closes at B’s death and also at A’s death, no matter that B is still alive. Why? That is when C or D can demand possession.
This establishes a clear/bright line. Once B or A die, the children born therafter do not get a share of a gift.
Exception: A child of B that is in the womb at A’s death will share with C and D.
If C or D predecease A, at common law their share goes to their devisees or heirs.
NY Distinction: In NY, apply the law of Wills.
Executory Interest
Future interest created in a transferee but it is not a remainder because it takes effect by either cutting short some interest in another person (shifting executory interest) or cutting short the grantor or his heirs interests (springing executory interest)
Shifting Executory Interest
It always follows a defeasible fee and it cut shorts someone other than the grantor.
Ex: “To A and her heirs, but if B returns from Canada sometimes next year, to B and his heirs.”
A’s estate is not fixed in duration but has the condition based on B.
B has a shifting executory interest.
A has a fee simple subject to B’s shifting executory interest
Why doesn’t B have a remainder?
Because remainders never follow defeasible fees
Does the conveyance violate the Rule against Perpetuities?
No because of the 1 year limit on B’s power.
Ex: “To A, if A uses the land for nonresidential purposes at any time during the ext 20 years, then to B”
B has a shifting executory interest
A has fee simple subject to B’s shifting executory interst
Does the Conveyance violate the rule against perpetuities?
No, because of the 20 year limit on B’s potential power
Note: it doesn’t matter that A is in fact the master of her destiny and can abide by the stated condition or defy it. The hallmark of the executory interest persists either way because B is the beneficiary of A’s forfeiture (whether it is in A’s hands or B’s hands)
Springing Executory Interest
This cut shorts the grantor.
Ex: O conveys “To A, if and when he marries.” A is unmarried.
A has a springing executory interest, meaning if and when A does marry, he divests the grantor, O.
O has a fee simple subject to A’s springing executory interest.
Does the conveyance violate the rule against perpetuities?
No, because we will know by the end of A’s life whether the condition is met or not.
Ex: O conveys “To A, if and when he becomes a lawyer.” A is in high school.
A has a springing excutory interest.
O has a fee simple subject to A’s springing executory interest.
Does the conveyance violate the rule against perpetuities?
No, because we will know by the end of A’s life if the condition is met or not.
NY Distinction; NY has abolished the distinction between executory interests and contingent remainders. Instead, contingent remainders AND executory interests are called remainders subject to a condition precedent.
Rule Against Perpetuities
Certain kinds of future interests are void if there is any possibility, however remote, that the given interest may vest more than 21 years after the death of a measuring life
Rule Against Perpetuities: Step One
Determine which future interests have been created by the conveyance.
The RAP potentially applies only to contingent remainders, executory interests, and certain vested remainders subject to open.
The RAP does NOT apply to any future interest created in the grantor.
RAP will NOT apply to indefeasibly vested remainders or to vested remainders subject to complete defeasance.
Ex: “To A for life, then to A’s children.” A is alive, she has no children.
The yet unborn children have a contingent remainder.
Rule Against Perpetuities: Step Two
Identify the conditions precedent to the vesting of the suspect future interest.
In the preceding example, what has to happen before a future interest holder can take?
A must die, leaving a child.
Rule Against Perpetuities: Step Three
Find a measuring life. Look for a person alive at the date of conveyance and ask whether the person’s life or death is relevant to the condition’s occurrence.
In the preceding example, who qualifies as a measuring life?
A qualifies.
Rule Against Perpetuities: Step Four
Ask: Will we know with certainty within 21 years of the death of the measuring life, if our future interest holder can or cannot take? If so, the conveyance is good . If not, however remote the possibility that the condition precedent could not happen in that time period, the future interest is void.
The preceding conveyance is good. We will know at the instant of A’s death if A left a child behind or not.
Rule Against Perpetuities: Female Octogenarian Example
Ex: O conveys “To A for life and then to the first of her children to reach the age of 30.” A is 70 and her only child, B, is 29.
Apply the steps:
1) We have a contingent remainder.
2) A must die and she must have a child to reach 30.
3) Find a measuring life: A. Why isn’t B a measuring life? Because the conveyance is not specifically to B. It could go to any of A’s children – to the first of the children to reach 30, not “to B”
4) Will we know with certainty whether within 21 years of the death of the measuring life that the interest will take. Is there any possibility A will have a child reach 30 more than 21 years after A’s death? Yes.
Presume ANYTHING is possible, however far flung the horrible possibilities are.
The possibilities here:
B could die tomorrow
A could have another child, even though she is 70
We call this the fertile octogenarian rule which presumes the person is fertile no matter what his/her age may be.
A could die in labor or the child could survive.
We are left with A having a life estate and O having a reversion.
Rule Against Perpetuities: First Bright Line Rule
A gift to an open class that is conditioned on the members surviving to an age beyond 21 violates the common law RAP.
“Bad as to one, bad as to all.” To be valid, it must be shown that the condition precedent to every class member’s taking will occur within the rule of perpetuities period. If it is possible the disposition might vest too remotely with respect to any member of the class, the entire class gift is void.
Ex: To A for life, then to such of A’s children as live to attain the age of 30.” A has 2 children, B and C, B is 35 and C is 40. A is alive.
Because A is alive, the class is still open!
This gift is doomed!
B and C’s vested remainders subject to open are voided by the common law RAP and it’s “bad as to one, bad as to all” rule.
A could have a child and die in labor and the gift wouldn’t vest until 30 years later – bad for that hypothetical gift, so bad to the whole class.
A has a life estate
O has a reversion.
Rule Against Perpetuities: Second Bright Line Rule
If you see an executory interest with no limit on the time within it much vest violates the RAP.
Ex: “To A and his heirs so long as the land is used for farm purposes, and if the land ceases to be used, to B and his heirs.
Apply the steps:
1) B has a shifting executory interest.
2) For B to get its interest, the land must cease to be used for farm purposes.
3) Find a relevant measuring life: A is the measuring life.
4) Will we know for sure within 21 years of A’s death if a future interest holder can take? No. A could abide by the condition her whole life time and the coniditon may not be breached for hundreds of years – so the interest is void.
Left with “To A and his heirs as long as the land is used for farm purposes”
A has a fee simple determinable.
O has a possibility of reverter.
RAP won’t apply to future interests in O, the grantor.
Ex: “To A and his heirs but if the land ceases to be used for farm purposes, to B and his heirs.”
Now, when the conveyance is no longer grammatically sound after the offensive shifting executory interest in B is stricken. Have “To A and his heirs but if the land ceases to be use for farm purposes.” Because this is not grammatically sound, the whole clause is stricken.
A has a fee simple absolute.
O has nothing.
Rule Against Perpetuities: Charity to Charity Exception
Gift from one charity to another will NOT violate the RAP. This is meant to encourage charitable gift giving.
Ex: “To the American Red Cross, so long as the premises are used for Red Cross purposes, and if they cease to be so used, then to the YMCA”
Ordinarily, YMCA would have an invalid shifting executory interest.
However, because of the charity to charity RAP exception, the gift is good.
So, Red Cross has a fee simple subject to the YMCA’s valid shifting executory interest.
Reform of the Rule Against Perpetuities
1) The “Wait and See” or “Second Look” Doctrine
Validity of any future interest is determined on the basis of the facts as they now exist at the conclusion of the measuring life.
This eliminates the “what if” or “anything is possible” line of inquiry
Simply wait and see and assess the validity on the basis of the facts as they actually occurred now that the measuring life has run its course
2) The Uniform Statutory Rule Against Perpetuities (USRAP)
Codifies the common law RAP and in addition provides for an alternative 90 year vesting period
3) Both the “wait and see” and USRAP reforms embrace:
a) The cy pres doctrine: “as near as possible”
If a given disposition violates the rule, a court may reform it in a way that most closely matches grantor’s intent while still complying with the RAP
b) The reduction of any offensive age contingency to 21 years
If conveyance would have violated the RAP because it depends on someone reaching an age over 21 years, that age will be knocked down to 21 years
NY Reform of the Rule Against Perpetuities
NY DISTINCTION: The NY Perpetuities Reform Statute
NY applies the common law rules against perpetuities.
It has rejected the “wait and see” doctrine and it has rejected cy pres. Except for charitable trusts and power of appointment.
Where an interest would be invalid because it depends on the person reaching an age in excess of 21 years, the age contingency is reduced to 21 years.
The common law fertile octogenarian principle is modified: NY presumes a woman over the age of 55 cannot have a child and the possibility she may have a child by adoption is disregarded.
NY “suspension” rule: the rule against suspension of the absolute power of alienation applies the common law RAP to restrictions on the power to sell or transfer.
Under the suspension rule, an interest is void if it suspends the power to sell or transfer for a period longer than lives in being plus 21 years.
There have to be people in building who can join together in a conveyance of the full fee simple title within lives in being plus 21 years.
Concurrent Estate Definitions
1) Joint Tenancy = 2 or more own with the right of survivorship
2) Tenancy by the entirety = Protected marital interest between husband and wife with the right of survivorship
3) The tenancy in common = 2 or more owned with no right of survivorship
Joint Tenancy: Distinguishing Characteristics
1) Right of Survivorship = when one joint tenant dies, his share passes automatically to the surviving joint tenants
2) A joint tenant’s interest is alienable, it is not divisible or descendible (won’t pass to your heirs by intestacy and you cannot leave it in your will to your heirs BECAUSE of the right of survivorship – when one joint tenant dies his share passes to the other joint tenant)
Joint Tenancy: Creation
1) The four unities:
Remember this “T-TIP” – Joint tenants must take:
T: At the same Time
T: By the same title (with same instrument)
I: With Identical equal interests
P: With Identical rights to possess the whole
2) Grantor must clearly express the right of survivorship
Joint tenancies are disfavored. Thus, in addition to the four unities, grantor must clearly state the right of survivorship.
Right of survivorship allows people to evade the system and escape probate, why it is difficult to have the joint tenancy.
3) Use of a straw
Ex: Dave holds Blackacre in fee simple absolute. He wants to hold it as a joint tenant with his best friend Paul instead.
What does he have to do? He must use a straw!
The strawman/conduit/ intermediary
Step one: Dave conveys Blackacre to strawman
Step two: Strawman conveys back to Dave and Paul as joint tenants with the right of survivorship.
Now, all four unities are present, including the unities of time and title.
NY Distinction: NY has eliminated the need for a straw. In NY, it is permissible for to convey directly using only one piece of paper to self and joint tenant as joint tenants.
Severance of a Joint Tenancy
"SPAM”: Sale, Partition, and Mortgage
Severance of a Joint Tenancy: Severance and Sale
Joint tenant can sell or transfer her interest during her lifetime, even without the other’s knowledge or consent.
One joint tenant’s sale severs the joint tenancy as to the seller’s interest because it disrupts the four unities.
Buyer is a tenant in common.
To the extent that we started with more than one tenant in the first place, the joint tenancy remains in tact as between the other non-transferring joint tenants.
In equity, joint tenants mere act of entering into a contract for the sale of her share will sever the joint tenancy as to that contracting party’s interest
This is because of the doctrine of equitable conversion which provides that “equity regards as done that which ought to be done.”
Equitable conversion tells us that the joint tenancy is severed from the moment the contract is signed.
Severance of a Joint Tenancy: Severance and Partition
a) Voluntary agreement = peaceful way to end the relationship
b) Partition in kind = judicial action for physical division of the property if in the best interests of all parties
Work best when the land is agricultural or rural – vast acreage lending itself to a literal physical division
c) Forced sale = judicial action if in the best interests of all the parties where the land is sold and the sale proceeds are divided up proportionately
Work best when the land is a building or something else that doesn’t lend itself to partition in kind and need to sell it to divide up the interest
Severance of a Joint Tenancy: Severance and Mortgage
Rule: One joint tenant’s execution of a mortgage or a lien on his or her share will sever the joint tenancy as to that now encumbered share only in the minority of states to follow the Title theory of mortgages.
By contrast, the majority of states follow the lien theory of mortgages whereby a joint tenant’s execution of a mortgage on his or her interest will not sever the joint tenancy.
Ex: P, J, and G are joint tenants. Suppose now that P mortgages his interest in the joint tenancy. Will this sever the joint tenancy as to Paul’s interest?
In minority jurisdiction following title theory? Yes
In majority jurisdiction following lien theory? No
NY Distinction: NY follows the lien theory.
Tenancy by the Entirety
Recognized in 29 states and NY is one.
Creation: It can only be created in husband and wife who take as a fictitious one person with the right of survivorship.
In the states that recognize tenancy by the entirety, it arises presumptively to husband and wife, unless clearly stated otherwise.
This is a very protected form of co-ownership.
a) Creditors of only one spouse cannot touch this tenancy.
NY Distinction: In NY, one spouse may mortgage his interest and his creditors may enforce against that interest, but only as to the debtor’s spouse’s share. Further, the non-debtor spouse’s rights, including the right of survivorship, must not be compromised.
b) Unilateral conveyance
Neither tenant, acting alone, can defeat the right of survivorship by a unilateral conveyance to a third party.
Ex: H and W are married and own land as tenants by the entirety. H then secretly transfers interests to his uncle. What does the uncle have? Nothing.
Remember: Can’t Touch This!
Tenancy in Common
1) Each co-tenant owns an individual part and each has a right to possess the whole
2) Each interest is descendable, divisable, and alienable. There are no survivorship rights between tenants in common.
3) The presumption favors the tenancy in common.
Fee Simple Subject to Condition Subsequent and Right to Reenter and Retake in NY
In NY that future interest is called the “right of reacquisition”
Right of reacquisition is descendible, devisable, and alienable in the same manner as an estate in possession
NY has adopted re-recordation statute; holder of interest must record a declaration of intent to preserve the interest not sooner than 27 years and not later than 30 years after the creation of the interest. Holder must also file successive renewal declarations no sooner than 9 years and not later than 10 years following initial declaration or last renewal.
Life Estate: Ameliorative Waste in NY
By statute, NY says that the life tenant may make improvements that are reasonable unless the remaindermen object.
Looking for kind of improvements reasonable owner would make
Requirements:
1) The proposed change does not violate any agreement regulating the conduct of the life tenant
2) The life estate or term of years is not less than five years and
3) The life estate gives each future interest holder written notice of the proposed change at least 30 days prior to commencement of any work. Notice must be served personally or by registered mail. If the owner of a future interest demands a security to protect his interest, the court will set a reasonable dollar amount which must be satisfied before any work can begin.
Rights and Duties of Co-Tenants: Possession
Each co-tenant is entitled to possess and enjoy the whole, irrespective of each individual’s share.
If one co-tenant wrongfully excludes another co-tenant from possession of the whole or any part, he has committed wrongful ouster
Rights and Duties of Co-Tenants: Rent from co-tenant in exclusive possession
Absent ouster, a co-tenant in exclusive possession is not liable to the others for rent
Rights and Duties of Co-Tenants: Rent from third parties
A co-tenant who leases all or part of the premises to a third party must account to his co-tenants providing them their fair share of the rental income
Rights and Duties of Co-Tenants: Adverse possession
Unless he has ousted the other co-tenants, one co-tenant in exclusive possession for the statutory adverse possession period cannot acquire title to the exclusion of the others because the hostility element of hostile possession is absent (no hostility because no ouster)
NY Distinction: Recently NY COA determined a co-tenant may acquire full title by adverse possession if he is in exclusive possession for 20 consecutive years – theory of implied ouster
Rights and Duties of Co-Tenants: Carrying Costs
Each co-tenant is responsible for his or her fair share of carrying costs such as taxes and mortgage interest payments, based upon the undivided share he or she holds
Rights and Duties of Co-Tenants: Repairs
The repairing co-tenant enjoys a right to contribution for necessary repairs provided she notified the others of the need for those repairs
Rights and Duties of Co-Tenants: Improvements
One co-tenant’s
“improvement” could be another’s nightmare!
During the life of the co-tenancy there is no right to contribution for “improvements.” Improvements are a relative construct.
However, at partition the improving co-tenant is entitled to a credit equal to any increase in value caused by her efforts
Attendantly, at partition, the so-called “improver” bears full liability for any decrease in value caused by her efforts
Rights and Duties of Co-Tenants: Waste
A co-tenant must not commit waste. (Recall the three species of waste: voluntary, permissive, and ameliorative)
Note: A co-tenant can bring an action for waste during the life of the co-tenancy – don’t have to wait for partition to assert the waste claim
Rights and Duties of Co-Tenants: Partition
A joint tenant or tenant in common has a right to bring an action for partition (see the 3 variations of partition discussed earlier)
Leasehold/Nonfreehold Estates: Tenancy for Years
This is also known as the Estate for Years or the Term of years
This is a lease for a fixed, determined period of time – that period could be 1 day, 2 months, 50 years
When you know the termination date from the start, you have a tenancy for years
Because the tenancy for years says from the state when it will terminate, no notice is needed to terminate
A term of years greater than one year must be in writing to be enforceable because of the statute of frauds
Leasehold/Nonfreehold Estates: Periodic Tenancy
This is a lease that continues for successive (continuous) intervals until Landlord or Tenant give proper notice of termination
The periodic tenancy can be created expressly. For example, L conveys to T for month to month or year to year or week to week
The periodic tenancy can also arise by implication, in any one of three ways:
a) Land is leased with no mention of duration, but provision is made for the payment of rent at set intervals
b) An oral term of years in violation of the statute of frauds creates an implied periodic tenancy measured by the way rent is tendered. If you have an oral lease for more than 1 year and tenant sends the first lease and it is accepted, the first rental payment renders an implied periodic tenancy with the intervals based on the way rent is tendered
c) The holdover: In a residential lease if Landlord elects to holdover a Tenant who has wrongfully stayed on past the conclusion of the original lease an implied periodic tenancy arises measured by the way rent is now tendered
NY Distinction: in NY, the landlord who elects to holdover a tenant creates an implied month-to-month periodic tenancy, unless otherwise agreed.
Leasehold/Nonfreehold Estates: Periodic Tenancy: How do you terminate a periodic tenancy?
Notice, usually written, must be given.
How much notice? At common law, at least equal to the length of the period itself, unless otherwise agreed
In month-to-month periodic tenancy: 1 monht’s notice
In week-to-week: 1 week’s notice. If year-to-year or more: only 6 month’s notice
Note: Parties are able to lengthen or shorten the provisions by agreement – freedom of contract, the lease is just a contract
***Periodic tenancy has to end at the conclusion of a natural lease period (if month-to-month lease, have to end at the end of a month)
Leasehold/Nonfreehold Estates: The Tenancy at Will
Tenancy for no fixed period of duration.
For example: “To tenant for as long as landlord or tenant desires”
This has become increasingly rare and unless the parties expressly stipulate to a tenancy at will, the payment of regular rent will make the court treat it as an implied periodic tenancy.
In theory the tenancy at will can be terminated by either party at any time however, a reasonable demand to vacate is typically required
NY Distinction: The landlord terminating a tenancy at will must give a minimum of 30 days written notice of termination
Leasehold/Nonfreehold Estates: The Tenancy at Sufferance
Created when tenant wrongfully holdovers past the expiration of the lease. This wrongdoer gets a leasehold estate, “tenant at sufferance,” to permit landlord to get rent
This only lasts until landlord evicts tenant or elects to hold tenant to a new tenancy
NY Distinction: Landlord’s acceptance of rent subsequent to the expiration of the term will create an implied month-to-month periodic tenancy, unless otherwise agreed.
Tenant's Liability to Third Parties
This is a matter of tort law
Tenant is responsible for keeping the premises in reasonably good repair so tenant is liable for injuries sustained by third parties that the tenant invited, even when landlord expressly promised to make all repairs
Tenant can seek indemnification from a plaintiff but will always lose to a plaintiff that is a guest and sues
Tenant's Duty to Repair When the lease is silent
Tenant’s duty to repair when the lease is silent
1) The standard is: maintenance
Tenant must maintain the premises and make ordinary repairs
2) Tenant must not commit waste
Remember the 3 species of waste:
a) Voluntary waste: overt harmful acts
b) Permissive waste: neglect
c) Ameliorative waste: alterations that increase the premises value
3) The law of fixtures
The law of fixtures walks hand and hand with waste
When a tenant removes a fixture, he commits voluntary waste.
Fixtures are once movable things that by virtue to their attachment to realty objectively shows the intent to permanently improve the realty (objective legal standard!)
Examples of Fixtures: Heating systems;
Customized storm windows; Furnace; Certain lighting installations
Tenant must NOT remove a fixture no matter if she installed it
Fixtures will pass with ownership of the land
Tenant's Duty to Repair: When the lease is silent: How do you know when a tenant installation qualifies as a fixture?
a) Express agreement controls: any agreement between landlord and tenant is binding
b) In the absence of agreement, tenant may remove a chattel that she has installed so long as does not cause substantial harm to the premises
If removal will cause substantial damage, then in objective judgment tenant has shown the intent to install a fixture and the fixture stays put
Tenant’s duty to repair when Tenant has expressly covenanted in the lease to maintain the property in good condition for the duration of the lease
At common law, historically, the tenant was responsible for any loss to the property, including loss attributable to force of nature
Today, the majority view the tenant may terminate the lease if the premises are destroyed without the tenant’s fault
NY Distinction: Absent, tenant’s express undertaking to restore the premises in the event of their destruction, if the premises are destroyed through no fault of tenant, tenant may quit the premises and surrender possession without any further duty to pay rent
Tenant's Duty to Pay Rent: Tenant breaches this duty and is in possession of the premises
The landlord’s only options are to evict through the courts or continue the relationship and sue for rent due. If the landlord moves to evict, she is nonetheless entitled to rent from that tenant until the tenant, who is now a tenant at sufferance, vacates.
Landlord MUST NOT engage in self-help such as changing the locks or forcibly removing the tenant or removing any of the tenant’s possessions.
Self-help is flatly outlawed, and is punishable civilly and criminally.
NY Distinction: Self-help is flatly prohibited and entitles the tenant to treble damages.
Tenant's Duty to Pay Rent: Tenant breaches duty but is out of possession
For example, Tenant wrongfully vacates with time left on a term of years lease.
Remember SIR:
1) S: Surrender:
Landlord could choose to treat tenant’s abandonment as an implicit offer of surrender which Landlord accepts. What is surrender?
Tenant demonstrates by words or actions that she wishes to give up the leasehold
If the unexpired term is greater than one year surrender must be in writing to satisfy the statute of frauds
2) I: Ignore the abandonment and hold Tenant responsible for the unpaid rent just as if tenant were still there.
This option is available only in a minority of states.
3) R: Re-let the premises on the wrongdoer’s behalf and hold him/her liable for any deficiency
Majority rule: Landlord must at least try to re-let
This is a mitigation principle, an opportunity for landlord to cut his losses (remember lease is increasingly viewed as a contract)
NY Distinction: Does not require landlord to mitigate damages when the tenant abandons the premises
Landlord's Duties: Duty to Deliver Possession
Majority or English Rule:
Landlord must put tenant in actual physical possession of the premises
If there is a holdover tenant at the time of the new tenant’s lease, then the landlord is in breach and the new tenant is entitled to damages
The American Rule:
Only followed by a small minority of states does not require landlord put the tenant in actual physical possession – requires only that the landlord give the tenant legal possession
Landlord's Duties: The implied covenant of quiet enjoyment
Applies to BOTH residential and commercial leases
Tenant has a right to quiet use and enjoyment of the premises without interference from the landlord.
a) Breach by actual wrongful eviction:
This occurs when the landlord wrongfully evicts the tenant or excludes the tenant from the premises
b) Breach by constructive eviction:
For example, every time it rains, Dido’s apartment floods. She has a claim for constructive eviction if the following elements are met
Remember the requirements of SING:
1) SI: Substantial Interference
A chronic problem attributable to the landlord’s action or failure to act
2) N: Notice
Tenant must give landlord notice of the problem and landlord must fail to respond meaningfully
3) G: Goodbye
***Get out – the tenant must vacate within a reasonable amount of time after landlord fails to fix the problem. Aggrieved tenant cannot have it both ways – can’t say she is constructively forced out but continue to remain in possession
Is landlord liable for acts of other tenants?
General Rule: No; Exceptions:
1) Landlord has a duty not to permit a nuisance on the premises
2) Landlord must control common areas
Landlord's Duties: Implied Warranty of Habitability
Applies only to residential leases – it does NOT apply commercially
The implied warranty of habitability is non-waivable – any attempt to negate/waive it is void
1) The standard: The premises must be fit for basic human habitation
Basic living requirements must be met – not a luxury/lofty/nice requirement, just basic fitness
The appropriate standard may be supplied by local housing code or independent judicial conclusion
The sorts of problems to trigger breach of the implied warranty of habitability include:
Failure to provide heat in winter
Lack of plumbing
Lack of running water
Landlord's Duties: Implied Warranty of Habitability: Tenant’s entitlements when the implied warranty of habitability is breached
Remember MR3: Move, Repair, Reduce, Remain
M: Move out and terminate the lease
R: Repair and deduct, allowable by statute in a growing number of jurisdictions. Tenant may make the reasonable repairs and deduct their cost from future rent.
R: Reduce rent, or withhold all rent until the court determines fair rental value. Typically, T must place withheld rent into an escrow account to show her good faith.
R: Remain in possession, pay rent and affirmatively seek money damages
Landlord's Duties: Retaliatory Eviction
If Tenant lawfully reports L, for housing code violations, L is barred from penalizing Tenant, by, for example:
Raising rent or
Ending the lease or
Harassing the Tenant or
Taking any other reprisals
Assignment v. Sublease
In the absence of some prohibition in the lease, a tenant may freely transfer his or her interest in whole (thereby accomplishing an assignment) or in part (thereby accomplishing a sublease)
In the lease, landlord can prohibit tenant from assigning or subleasing without landlord’s prior written approval
However, once the landlord consents to one transfer by the tenant, the landlord is said to have waived the right to object to future transfers by tenant, unless landlord expressly reserves the right
NY Distinction: Unless lease says otherwise, landlord must consent to assignment and landlord can withhold the consent and the tenants sole remedy is to seek release from the lease. But in a residential building with more than 4 stories, a tenant can sublease with the landlord’s consent. Consent to sublease cannot be unreasonable withheld. Unreasonably held consent is considered consent.
Assignment Privity
If there is an assignment, the landlord and the assignee have privity of estate and are liable for each other for the covenants in the original lease that “run with the land.” Most covenants will run with the land such as:
Promise to pay rent
Promise to paint the premises
Promise to repair
Promise to pay taxes
The landlord and the assignee tenant are not in privity of contract unless the assignee tenant expressly assumed all promises in the original lease.
The landlord and the original tenant are no longer in privity of estate after the assignment of the lease. However, they do remain in privity of contract.
The Privity of contract means that the landlord and original tenant are secondarily liable to each other.
See p49 for sample question you’ll see
Sublease Privity
Landlord and sublesee share no privity. The tenants are responsible to each other.
Landlord's Tort Liability: Common law of caveat lessee
The Norm: let the lessee beware – landlord under no duty to make the premises safe
Exceptions: Remember CLAPS
C: Common Areas:
Landlord must maintain all common areas (hallways, stairway, etc)
L: Latent defects rule:
Landlord must warn tenant of hidden defects of which the landlord has knowledge or reason to know
This is just a duty to warn, not repair
A: Assumption of repairs:
While under no duty to make repairs, once undertaken, landlord must complete them with reasonable care. If landlord makes repairs as a volunteer negligently, then the landlord is liable
P: Public use rule
Landlord who leases public space (such as a convention hall or a museum), and who should know because of the nature of the defect and the length of the lease, that tenant will not repair is liable for any defects on the premises.
In those situations, landlord is responsible and liable for the harm caused by those defects – tenant not in position to make the repairs so
S: Short term lease of furnished dwelling
Landlord is responsible for any defective condition which proximately harms tenant
Tenant doesn’t have time or inclination to make the repairs herself
Easements: Definition
The grant of a nonpossessory property interest that entitles its holder to some form of use or enjoyment of another’s land, called the servient tenement.
Common examples: privilege to lay utility lines on another’s land, the easement giving its holder the right of access across a tract of land
Easements: Negative v. Affirmative
a) Most easements are affirmative
The right to go on to and do something on servient land
Ex: right to lay utility lines on another’s land, etc
b) Negative easements: The negative easement entitles its holder to prevent the servient landowner from doing something that would otherwise be permissible. Negative easements are generally recognized in only four categories:
Remember LASS
L: Light
A: Air
S: Support
S: Stream water from an artificial flow
In a minority of states you can get a negative easement for Scenic View
Entitles holder of negative easement to prevent servient owner from doing something otherwise allowable on the servient land
Negative easements can only be created expressly by writing signed by the grantor. There is no natural or automatic right to a negative easement.
Easements: Appurtenant v. Gross
a) The easement is appurtenant when it benefits its holder in his physical use or enjoyment of his property.
How will you know when you have an easement appurtenant?
“It takes 2” – 2 parcels of land must be involved:
1) A dominant tenement which derives the benefit and
2) A servient tenement which bears the burden
b) The easement is in gross if it confers upon its holder only some personal or pecuniary advantage that is not related to his use or enjoyment of his land. Here servient land is burdened. However, there is no benefited or dominant tenement.
Common Examples:
Right to place a billboard on another’s lot
Right to swim in another’s pond
Utility company’s right to lay power lines on another’s land
Servient land is burdened but there is no accompanying dominant land, the servient owner just gets a pecuniary or personal land not linked to the easement holder’s land
Easement: Easement and Transferability
a) The appurtenant easement passes automatically with the dominant tenement, regardless of whether it is even mentioned in the conveyance.
Note that the burden of the easement appurtenant also passes automatically with the servient estate, unless the new owner is a bona fide purchaser without notice of the easement
b) An easement in gross is not transferable unless it is for commercial purposes
Easement: Creation of an affirmative easement
Remember PING:
P: Prescription
I: Implication
N: Necessity
G: Grant
By Grant:
If easement is for more than one year, must be in writing for the statute of frauds. The writing to evidence the easement is called a “deed of easement”
By Implication (or existing use):
Previous use must be apparent, the parties must expect the use would survive division because it is reasonably necessary to the dominant land’s use and enjoyment
By Necessity (The landlocked setting).
An easement of right of way will be implied by necessity if grantor conveys a portion of his land with no way out except over some part of grantor’s remaining land.
By Prescription:
An easement may be acquired by satisfying the elements of adverse possession. Elements of adverse possession (remember COAH):
C: Continuous use for the given statutory period
O: Open and notorious use
A: Actual use
H: Hostile use (without the servient owner’s consent)
Note: Permission defeats the acquisition of an easement by prescription. An easement by prescription requires the use to be hostile.
NY Distinction: Appropriate statutory period is ten years.
Easement: Scope
This is set by the terms of the grant or the conditions that created it.
Unilateral expansion is NOT allowed.
Easement: Termination
Remember END CRAMP:
E: Estoppel Servient owner materially changes position in reliance from the easement holder’s assurances that the easement will no longer be enforced
N: Necessity: Easements created by necessity will expire as soon as the necessity ends.
However, if the easement based on necessity was created by express grant it does not end once the necessity ends. (such as when you have a necessity needing the easement and also put the easement in writing)
D: Destruction Destruction of the servient land, other than through the willful conduct of the servient owner will terminate the easement
C: Condemnation of the servient estate
Condemnation by eminent domain terminates the easement
R: Release Need a written release, given by the easement holder to the servient owner
A: Abandonment The easement holder must demonstrate by physical easement the intent to never use the easement again. Remember: Need PHYSICAL action by the easement holder, mere non-use or words are insufficient
M: Merger doctrine (also known as unity of ownership)
The easement is extinguished when title to the easement and title to the servient land become vested in the same person. Note: If complete unity of title is achieved, the easement is Extinguished, even though there may later be separation of title the easement is NOT automatically revived.
P: Prescription
Servient owner may extinguish easement by interfering with it through adverse possession.
Remember COAH and look for Interference that is:
C: Continuous; O: Open and notorious; A: Actual; H: Hostile to the easement holder. Just as you can acquire an easement through prescription, you can terminate an easement through prescription by interfering with the easement through adverse possession
License
1) Definition: License is a mere privilege to enter another’s land for some delineated purpose
2) Licenses are very informal and not subject to the statute of frauds so you do not need a writing to create a license.
3) Licenses are freely revocable at the will of the licensor, unless estoppel applies to bar revocation.
4) The classic license cases:
a) The Ticket cases:
Tickets create freely revocable licenses
b) Neighbors talking by the fence:
Nothing good comes from neighbors talk by the fence.
Oral easement neighbors create is unenforceable because it violates the statute of frauds – oral easement instead creates a freely revocable license so it can be revoked at anytime.
c) Estoppel will apply to bar revocation only when the licensee has invested substantial money, labor, or both in reasonable reliance on the license’s continuation.
The Profit
1) The profit entitles its holder to enter the servient land and take from it the soil or some substance of the soil (minerals, timbers, oil)
2) The profit shares all the rules of easements.
Covenant: Definition
Promise to do or not do something related to the land. It is not the grant of a property interest but is rather a contractual limitation or promise regarding land.
Covenants: Restrictive v. Affirmative
Restrictive Covenants: negative covenants = promise to refrain from doing something related to the land. (Most covenants are restrictive)
Example: “I promise not to build for commercial purposes on my land.”
Affirmative Covenants: The affirmative covenant is a promise to do something related to the land
Example: “I promise to maintain our common fence”
Covenant: How to know whether to construe the given promise as a covenant or as an equitable servitude?
On the basis of the remedy that the plaintiff seeks:
If plaintiff seeks money damages, you must construe it as a covenant
If plaintiff seeks an injunction, you must construe it as an equitable servitude
Covenant: In covenant parlance, one tract is burdened by the promise and another is benefited: When will the covenant run with the land?
When it is capable of binding successors
Covenant: In covenant parlance, one tract is burdened by the promise and another is benefited: First Step - Burdened Party
Elements necessary for the burden to run:
Remember WITHN:
W: Writing - Original promise between the original promising parties must have been in writing.
I: Intend - Original Parties must have intended that the covenant run with the land
Courts tend to assume that intent.
T: Touch and concern the land
Have to affect legal relations as land owners and not simply as members of the community at large.
H: Horizontal AND Vertical privity are both required
Horizontal Privity: Horizontal privity refers to the nexus between the original promising parties be in succession of estate
Succession of estate requires one of the following relationships:
Grantor/grantee; Landlord/ tenant, Mortgagor/ mortgagee
Note: Horizontal privity is difficult to establish and its absence is the reason why many burdens will not run!
Vertical Privity:
Vertical privity refers to the nexus between the originally burdened party and her successor. This is much easier to meet than horizontal privity and just requires some non-hostile nexus such as: Contract, Devise or Descent
Only absent if got it through adverse possession
N: Notice - Must have some notice of the promise when you take the land from the originally burdened party
Covenant: In covenant parlance, one tract is burdened by the promise and another is benefited: Second Step - Benefited Party
Elements required:
Remember: WITV:
W: Writing
Original promise was in writing
I: Intent
Original parties intended that the benefit would run
T: Touch and Concern
Promise affects the parties as landowners
V: Vertical Privity
Some non-hostile nexus between the originally benefited party and the newly benefited party
Note: Horizontal privity is not required for the benefit to run which is why it is easier for the benefit side to run than the burdened side to run
Equitable Servitude: Definition
Promise equity enforces against successors, accompanied by injunctive relief
Equitable Servitude: To create an equitable servitude binding successors
Remember WITNES:
W: Writing
Generally, but not always, the original promise was in writing
I: Intent
Original parties intended that the promise would be enforceable by and against assignees
T: Touch and Concern
The promise affects the parties as landowners
N: Notice
Assignees of the burdened land had notice of the promise
ES: In the equitable servitude arena.
Note: Privity is not required to bind successors in equitable servitudes!
Equitable Servitude: Implied equitable servitude (aka: general or common scheme doctrine)(see p66)
Under common scheme doctrine, the court will imply a reciprocal negative servitude to hold the unrestricted lot holder to the restrictive covenant.
2 elements of general or common scheme doctrine:
a) When the sales of subdivider lots began, the subdivider had a general scheme of residential development which included the defendant lot now in question
b) The defendant lotholder had notice of the promise contained in the prior deeds
There are three forms of notice potentially imputed to the defendant: Remember AIR:
A: Actual notice - Defendant had literal notice of the promises contained in the prior deeds
I: Inquiry notice - The neighborhood seems to conform to common restrictions – form of constructive notice, whether bothered to look or not you should have known what the area was like – this is also synonymous with “the lay of the land”
R: Record notice - The form of notice sometimes imputed to buyers on the basis of the publicly recorded documents – also form of constructive notice and whether you bother to look or not you can be charged with record notice
Equitable Servitude: Implied equitable servitude: Note on Record Notice
***Note: With respect to record notice, the courts are split. Some take the view that a subsequent buyer is on record notice of the contents of prior deeds transferred to others by a common grantor. The better view, taken by other courts, is that the subsequent buyer does NOT have record notice of the contents of those prior deeds transferred to others by the common grantor.
NY Distinction: NY takes the latter, better, view. A subsequent buyer does not have record notice on these facts. This is less burdensome to defendant’s title searcher and is more efficient/streamlined/equitable.
Equitable Servitude: Equitable defenses to enforcement of an equitable servitude
Changed conditions:
The changed circumstances alleged by the party seeking release from the terms of an equitable servitude must be so pervasive that the entire area or subdivision has changed
What is never good enough?
Limited or piecemeal change
Equitable Servitude: To create an equitable servitude binding successors
Remember WITNES:
W: Writing
Generally, but not always, the original promise was in writing
I: Intent
Original parties intended that the promise would be enforceable by and against assignees
T: Touch and Concern
The promise affects the parties as landowners
N: Notice
Assignees of the burdened land had notice of the promise
ES: In the equitable servitude arena.
Note: Privity is not required to bind successors in equitable servitudes!
Equitable Servitude: Implied equitable servitude (aka: general or common scheme doctrine)(see p66)
Under common scheme doctrine, the court will imply a reciprocal negative servitude to hold the unrestricted lot holder to the restrictive covenant.
2 elements of general or common scheme doctrine:
1) When the sales of subdivider lots began, the subdivider had a general scheme of residential development which included the defendant lot now in question
2) The defendant lotholder had notice of the promise contained in the prior deeds
There are three forms of notice potentially imputed to the defendant: Remember AIR:
A: Actual notice - Defendant had literal notice of the promises contained in the prior deeds
I: Inquiry notice - The neighborhood seems to conform to common restrictions – form of constructive notice, whether bothered to look or not you should have known what the area was like – this is also synonymous with “the lay of the land”
R: Record notice - The form of notice sometimes imputed to buyers on the basis of the publicly recorded documents – also form of constructive notice and whether you bother to look or not you can be charged with record notice
Equitable Servitude: Implied equitable servitude: Note on Record Notice
***Note: With respect to record notice, the courts are split. Some take the view that a subsequent buyer is on record notice of the contents of prior deeds transferred to others by a common grantor. The better view, taken by other courts, is that the subsequent buyer does NOT have record notice of the contents of those prior deeds transferred to others by the common grantor.
NY Distinction: NY takes the latter, better, view. A subsequent buyer does not have record notice on these facts. This is less burdensome to defendant’s title searcher and is more efficient/streamlined/equitable.
Equitable Servitude: Equitable defenses to enforcement of an equitable servitude
Changed conditions:
The changed circumstances alleged by the party seeking release from the terms of an equitable servitude must be so pervasive that the entire area or subdivision has changed
What is never good enough?
Limited or piecemeal change
Adverse Possession: Overview
Possession, for a statutorily prescribed period of time can, if certain elements are met ripen into title
The elements of adverse possession: Remember COAH:
C: Continuous - Uninterrupted for the given statutory period.
For NY: The statutory period is 10 years.
O: Open and Notorious - Sort of possession that the usual owner would make under the circumstances.
A: Actual - Entry cannot be hypothetical or fictitious – it cannot be symbolic
H: Hostile - Possessor doesn’t have the true owner’s consent to be there
Note: This is an OBJECTIVE formulation. The Possessor’s Subjective state of mind is irrelevant!
Adverse Possession: Tacking
One adverse possessor may tack onto his land the predecessor’s time as long as there is privity. Privity is satisfied by any non-hostile nexus (not difficult to achieve).
Examples of Privity here:
Blood
Contract
Deed
Will
Tacking is NOT allowed when there has been an ouster – ouster defeats privity!
Adverse Possession: Disability
Statute of limitations won’t run against a true owner afflicted with a disability at the inception of the adverse possession.
Examples of Disabilities:
Insanity
Infancy
Imprisonment
Land Conveyancing Requirements
Every conveyance of real estate involves 2 steps:
Step 1: The land contract, which endures until step 2.
Step 2: The closing, where deed becomes operative document
Land Contract: Standard
Land contract must be
a) In writing signed by the party against whom enforcement is sought
b) Describe the land and
c) State some consideration.
When the amount of land recited in the land contract is more than the actual size of the parcel the appropriate remedy is specific performance with a pro rata in purchase price
Land Contract: Part Performance
The one exception to the statute of frauds: The Doctrine of Part Performance
If there is any combination of 2 of the following 3, the doctrine is satisfied and specific performance is required for the oral contract
a) Take physical possession of the land
b) Pay all or part of the purchase price
c) Make substantial improvements to the land
Remember, any 2 of these renders doctrine of part performance satisfied
Land Contract: Problem of Risk of Loss
For the Multistate: Apply doctrine of equitable conversion – “equity regards as done that which ought to be done”
In equity, once the contract is signed, the buyer is the owner of the land subject to the condition that he pay the purchase price at the closing.
After the contract is signed, if the land is destroyed, then buyer bears the risk of loss unless the contract says otherwise!
NY Distinction: In NY, so long as buyer is without fault, the risk of loss remains with seller until the buyer has title or takes possession.
Land Contract: First Implied Promise
Seller promises to provide marketable title at the closing. Standard: Title free from reasonable doubt, free from lawsuits and the threat of litigation
3 circumstances render title unmarketable:
Adverse Possession - If even a portion of the title rests on adverse possession, it is unmarketable. Seller must be able to provide good record title.
Encumbrances - Marketable title means an unencumbered fee simple thus servitudes and mortgages render title unmarketable unless the buyer waived those (this often does happen in the real world).
Note: Seller has the right to satisfy an outstanding mortgage or lien at the closing, with the proceeds of the sale. Thus, buyer cannot claim title is unmarketable because it is subject to a mortgage prior to closing when the parties understand that mortgage will be satisfied/discharged through the selling of the property.
Zoning Violations - Title is unmarketable if the property VIOLATES a zoning ordinance
The mere presence of zoning restrictions is not a problem, it is only the violation of those zoning ordinances that is a problem
Land Contract: Second Implied Promise
Seller promises not to make any statements of material fact
Majority of states also hold sellers liable for failing to disclose latent material defects
Seller is responsible for his material lies AND material omissions
So, silence is not golden
Disclaimer of sold “as is” or “with all faults” will not excuse the seller from liability for fraud or failure to disclose
NY Distinction: NY by statute passed the “Property Condition Disclosure Act.” This requires sellers of one to four family residential dwellings to provide buyers with a completed statutory disclosure form before the contract is signed.
Land Contract: Warranties
The land contract contains no implied warranties of fitness or habitability
Caveat Emptor: Let the buyer beware
Exception: implied warranty of fitness of workmen like construction for the sale of a new home by a builder vendor
The Closing: Deed Requirements: Lawfully Executed
Standard - The deed must be in writing, signed by the grantor. The deed need not site consideration and consideration does not have to pass to make the deed valid. The description of the land does not have to be perfect. The law only requires an unambiguous description and a good lead.
Unambiguous Description and good lead:
Description of “all” O’s land is a good lead.
Lead - Means you can reserve and discern what the description encompases.
Description of “some” of O’s land is too imprecise and does not satisfy the requirements. Even with research, we wouldn’t know what the word “some” refers to.
The Closing
Controlling document is the Deed
Pass legal title form seller to buyer
Remember LEAD: Must be: "Lawfully Executed and Delivered"
The Closing: Deed Requirements: Delivery
1) Delivery can be satisfied when the deed is physically or manually transferred from the grantor to the grantee
It is permissible to use:
The mail; An Agent; A messenger
2) However, delivery does not necessarily require actual physical transfer of the instrument itself.
The standard for delivery is a legal standard! It is a test solely of present intent – ask, did the grantor had the present intent to be immediately bound, irrespective of whether or not the deed was literally handed over?
3) Recipients express rejection of the deed defeats delivery.
4) If a deed absolute on its face is transferred to the grantee with an oral condition, the oral condition drops out. It is not provable and delivery is deemed accomplished.
5) Delivery by escrow is permissible
Grantor may deliver an executed deed to a third party, known as an escrow agent with instructions that the deed be delivered to grantee once certain conditions are met. Once the conditions are met, title passes automatically to the grantee.
The advantage of escrow: If grantor dies or becomes incompetent or is otherwise unavailable before the express conditions are met, the deed will still transfer automatically when the conditions are met
The Closing: Deeds and Covenants: Quitclaim Deed
It contains no covenants. Grantor isn’t even promising that he has title to convey in the first place. This is the worst deed buyer could hope for.
Remember: The grantor still implicitly promised in the land contract to provide marketable title at the closing. This promise is short lived so grantor is off the hook for any problems manifested post closing.
The Closing: Deeds and Covenants: General Warranty Deed
The best deed a buyer could hope for. It warrants against all defect in title, including those attributable to grantor’s predecessors.
The general warranty deed typically contains all six of the following covenants: The first three are present covenants, meaning: a present covenant is breached, if ever, at the time the deed is delivered. Thus, the statute of limitations for breach of a present covenant begins to run from the instant of delivery
1) The covenant of seisin
Grantor promises that he owns the estate that he now plans to convey
2) ***The covenant of right to convey
Grantor promises that he has the power to make this conveyance – meaning there are no temporary restraints on grantor’s power to sell
3) The covenant against encumbrances
Grantor promises there are no servitudes or mortgages on the land
The next three covenants are future covenants, meaning a future covenant is not breached, if ever, until grantee is disturbed in possession. Thus, the statute of limitations for breach of a future covenant will not begin to run until that future date.
4) The covenant for quiet enjoyment
Grantor promises that grantee will not be disturbed in possession by a third party’s lawful claim of title
5) The covenant of warranty
Grantor promises to defend grantee should there be any lawful claims of title asserted by others
6) The covenant for further assurances
Grantor promises to perform whatever future acts are reasonably necessary to perfect grantee’s title if it later turns out to be imperfect
The Closing: Deeds and Covenants: Statutory Special Warrant Deed
Provided for by statute in many states, this deed contains 2 promises that grantor makes only on behalf of himself. (Note; Grantor makes no representations on behalf of his predecessors in interest)
1) Grantor promises that he hasn’t conveyed this estate to anyone other than grantee.
2) That the estate is free from encumbrances made by the grantor
NY Distinction: The special warranty deed is called a “bargain and sale deed.”
Recording System
Our Mode: The Case of the Double Dealer
Ex: O conveys Blackacre to A. Later, O conveys Blackacre, the same parcel, to B. O, our double dealer, has skipped town. In the battle of A v. B, who wins?
Remember 2 brightline rules:
1) If B is a BONA FIDE PURCHASER and we are in a notice jurisdiction, B wins whether or not she records before A.
2) If B is a BONA FIDE PURCHASER and we are in a race-notice jurisdiction, B wines if she records properly before A does.
NY Distinction: NY is a race-notice jurisdiction.
First, recording acts exist to protect only bona fide purchasers and mortgagees.
A bona fide purchaser is one who:
1) Purchases the land (Blackacre) for value and
2) Without notice that someone else got there first
Two routine value questions:
1) The bargain basement sale: as long as the facts show the buyer remitted substantial pecuniary compensation to qualify as a purchaser for value
2) The case of the doomed donee: Recording statutes do NOT protect donees, heirs, or devisees unless the shelter rule applies (discussed later)
Recording System: Three forms of notice
(Remember AIR):
A: Actual
I: Inquiry
R: Record
Inquiry and Record notice are both forms of constructive notice
Recording System: Forms of Notice: Actual Notice
Prior to the B’s closing, he gets literal notice of A’s existence
Recording System: Forms of Notice: Inquiry Notice
Whether he looks or not, B is on inquiry notice of whatever an examination of the land would reveal.
The buyer of real estate has a duty to inspect the premises before transfer of title, to see, for example, whether anyone else is in possession. If another is in possession, B is on inquiry notice of that fact regardless of whether the buyer actually bothered to inspect or not.
Thus, in our model, the case of the double dealer, if A had taken possession of the premises, B would be on inquiry notice of that fact, thereby defeating B’s status as a bona fide purchaser.
If a recorded instrument makes reference to an unrecorded transaction, grantee is on inquiry notice of whatever a reasonable follow-up would have revealed.
Recording System: Forms of Notice: Record Notice
B is on record notice of A’s deed if at the time B takes, A’s deed is properly recorded within the chain of title – whether consulted the records or not
In our model, what if A has not recorded, or has not recorded properly at the time B takes? Assume that B is a bona fide purchaser. Does B win?
It depends on which recording statute the jurisdiction has enacted. In a notice state, yes, B wins. In a race-notice state, to win B must be a bona fide purchaser and B must also win the race to record.
Recording Statutes: Notice Statute
“A conveyance of an interest in land shall not be valid against any subsequent purchaser for value, without notice thereof, unless the conveyance is recorded.” (“O to A” shall not be valid for B if he is a bona fide purchaser, unless A’s conveyance is recorded)
If, at the time B takes, he is a bona fide purchaser, then he wins. It won’t matter that A may ultimately record first, before B does. It won’t matter in the A v. B contest that B never records.
Recording Statutes: Race Notice Statute
“Any conveyance of an interest in land shall not be valid against any subsequent purchaser for value, without notice thereof, whose conveyance is first recorded.” (“O to A” applies unless B’s conveyance is first recorded)
To prevail, B must 1) be a bona fide purchaser and B must 2) win the race to record. Back to our original model, note that in either a notice or race-notice jurisdiction, B’s status as a subsequent bona fide purchaser will be defeated if A promptly and properly recorded before B takes. In other words, A’s proper recordation places subsequent buyers on record notice, thereby defeating their status as bona fide purchasers. To give record notice to subsequent takers, the deed must be recorded properly, within the chain of title, which refers to that sequence of recorded documents capable of giving record notice to later takers. In most states, the chain of title is established through a title search of the grantor/grantee index.
Recording Statutes: Chain of Title Problems: Shelter Rule
One who takes from a bona fide purchaser (BFP) will prevail against any entity that the transferor or BFP would have prevailed against. In other words, the transferee “takes shelter” in the status of her transferor, and thereby steps into the shoes” of the BFP even though she otherwise fails to meet the requirements of BFP status.
Note: The Shelter Rule exists with the intent to protect the BFP, allowing successful transfer if the BFP so wishes.
Recording Statutes: Chain of Title Problems: Wild Deed
Ex: O sells Blackacre to A, who does not record. Then A sells to B and B records the A to B deed.
Note: The A to B deed, although recorded, is not connected to the chain of title because it contains a missing grantor. The O to A link is missing from the public records.
The A to B deed is therefore a wild deed. The rule of the wild deed: If a deed, entered on the records (A to B), has a grantor unconnected to the chain of title (O to A), the deed is a wild deed. It is incapable of giving record notice of its existence.
O, our initial grantor and dirty double dealer, then sells Blackacre to C. Assume that C has no actual or inquiry knowledge of the O to A or A to B conveyance. C records. O skipped town. In the contest of B v. C, who prevails?
C wins, in both a notice and race-notice state. C wins in a notice state because at the time C takes she is a bona fide purchaser. C wins in a race-notice state because she is a bona fide purchaser who has won the race to record (B’s recording is a nullity and doomed by the doctrine of the wild deed – should have corrected deficiencies in the record!)
Recording Statute: Chain of Title Problems: Estoppel by Deed
Ex: In 1950, O owns Blackacre. He is thinking about selling it to X, but for now decides against it. In 1950, X, who does not own Blackacre, sells it anyway, to A. A records.
In 1960, O finally sells Blackacre to X. X records in 1960.
In 1970, X sells Blackacre to B and B records.
1) As between X and A, who owned Blackacre from 1960 to 1969? A did, because of the rule of estoppel by deed. If you convey realty you don’t have interest in you are estopped from saying you didn’t have a valid interest in the land if you subsequently acquire an interest in the land you previously transferred.
2) Who owns Blackacre in 1970?
B, as long as he is a bona fide purchaser. B wins in a notice system because he is a BFP. B wins in a race-notice system because he is a BFP who wins the race to record.
How so? A’s 1950 recording is a nullity. A recorded too early. B’s title searcher would not find A’s deed.
Why not? Because one is entitled to assume that no one sells land until they first own it. Thus, B’s title searcher would not discover X’s 1950 pre-ownership transfer to A.
Mortgage: Overview
Our model: C, a creditor, is thinking of lending O $50,000. O is offering up Blackacre as collateral.
1) Creation: A mortgage is a conveyance of a security interest in land intended by the parties to be collateral for the repayment of a monetary obligation
A mortgage represents the union of:
1) A debt and
2) A voluntary transfer of a security interest in debtor’s land to secure (back up) the debt
Debtor is: the mortgagor
Creditor is: the mortgagee
Mortgage: Legal Mortgage
The mortgage typically has to be in writing to satisfy the statute of frauds. This is the legal mortgage. A legal mortgage is evidenced by a writing.
Words used synonymous to a legal mortgage:
Mortgage deed
Note
Security interest in land
Deed of Trust
Sale lease back
Mortgage: Equitable Mortgage
Ex: O owns Blackacre. Creditor lends O a sum of money. The parties understand that Blackacre is collateral for the debt. However, instead of executing a note or mortgage deed, O hands Creditor a deed to Blackacre that is absolute on its face.
This is called an equitable mortgage
As between O and Creditor:
Parol evidence is freely admissible to show the party’s true intent
What if Creditor proceeds to sell Blackacre to bona fide purchaser X?
X owns the land
O’s only recourse is to proceed against Creditor for fraud and to recover the proceeds of the sale
Mortgage: Rights of Parties
Unless and until foreclosure, debtor-mortgagor has title and a right to possession
Creditor-mortgagee has a lien, meaning the right to look to the land if there is a default
Mortgage: Transfering Interests
The mortgage automatically follows a properly transferred note
The creditor-mortgagee can transfer his interest by
1) Endorsing the note and delivering it to the transferee or
2) By executing a separate document of assignment
If the note is endorsed and delivered, the transferee is eligible to become a holder in due course (HDC). This means that he takes the note free of any personal defenses that could have been raised against the mortgagee.
Mortgage: Transfering Interests: Holder in Due Course: Personal Defenses
1) Lack of Consideration
2) Fraud in the Inducement
3) Unconscionability
4) Waiver
5) Estoppel
Thus, the holder in due course may foreclose the mortgage despite the presence of any such personal defense
By contrast, the holder in due course is still subject to “real” defenses that the maker might raise.
Mortgage: Transfering Interests: Holder in Due Course: Real Defenses
Remember MAD FIFI4
MA: Material Alteration
D: Duress
F: Fraud
I: in the
F: Factum (meaning a lie about the instrument – debtor lied to about what he was signing)
I: Incapacity
I: Illegality
I: Infancy
I: Insolvency
Mortgage: Transfering Interests: Holder in Due Course: Requirements
a) The note must be negotiable, made payable to the named mortgagee
b) The original note must be indorsed, signed by the named mortgagee
c) The original note must be delivered to the transferee – photocopies are unacceptable
d) The transferee must take the note in good faith without any notice of any illegality
e) The transferee must pay value for the note, meaning some amount that is more than nominal
Mortgage: Recording Statutes
If O, our debtor-mortgager, sells Blackacre, which is now mortgaged the lien remains on the land so long as the mortgage instrument has been properly recorded
Ex: On Jan 10, Madge took out $50,000 mortgage on Blackacre, with First Bank. First Bank promptly and properly recorded its interest on Jan 10. Later, on Jan 15, Madge sells Blackacer to Buyer and Buyer, without knowledge of the lien, properly records its deed.
Is buyer subject to the lien?
YES, all recording statutes do apply to mortgages as well as deeds. Thus, a subsequent buyer takes subject to a properly recorded lien.
In notice state buyer take it because buyer is on record notice of the lien at the time buyer takes.
In race-notice, Buyer is on record notice and First Bank won the race to record.
Mortgages: Recording Statutes: Liability
Assume Madge sold Blackacre but on Jan 20 First Bank reports its mortgage and on Jan 30 Buyer recorded its deed.
In race-notice jurisdiction, buyer loses because he lost the race to record. In a notice jurisdiction, Buyer wins as long as he was a bona fide purchaser when he took – won’t matter that buyer lost the race to record. In a notice state, subsequent BFP prevails over prior grantee or mortgagee who has not yet recorded properly at the time the BFP takes. Who is personally liable if O, debtor-mortgagor, sells Blackacre to B? If B “assumed the mortgage”? Both O and B are personally liable. B is primarily liable. O remains secondarily liable.
If B takes “subject to the mortgage”? B assumes no personal liability on the debt Only O is personally liable BUT if recorded, the mortgage remains on the land, thus if O does not pay, the mortgage may be foreclosed***
Mortgages: Foreclosure: First Step
Assuming that our mortgagee-creditor must look to the land for satisfaction, how must he/she proceed?
Must foreclose by proper judicial proceeding. Sale of land proceeds go to satisfying the debt. If the sale proceeds are less than the amount owed, the mortgagee can bring a personal action against the debtor for a deficiency judgment.
By contrast, what if there is a surplus?
Junior liens = Creditors with lessor priority, are paid off in order of their priority. Any remaining surplus thereafter goes to the debtor.
Ex: Assume Blackacre has a fair market value of $50,000 and is subject to three mortgages executed by its owner, Madge. First Bank, with first priority, is owed $30,000. Second Bank, with first priority, is owed $15,000, and Third Bank, with third priority is owed $10,000. Assume First Bank’s mortgage is foreclosed, and Blackacre is sold for $50,000. How will the funds be distributed?
Off the top: Attorney’s fees and then any expenses of the foreclosure and then any accrued interest on First Bank’s mortgage.
Mortgages: Foreclosure: Later Steps
The sale proceeds are then used to pay off the mortgages in the order of their priority. Each claimant is entitled to satisfaction in full before a subordinate lienholder may take. Thus, First Bank takes $30,000. Then, Second Bank takes $15,000.
The remaining balance is applied toward Third Bank that takes $5,000. Third Bank should be able to proceed for a deficiency judgment.
Now assume the same facts as above, except that Blackacre is sold at First Bank’s foreclosure sale for $60,000. What result?
After all creditors are paid in full, the $5,000 surplus goes to debtor Madge.
Mortgages: Effect of Foreclosure
Foreclosure will terminate interests junior to the mortgage being foreclosed but will not affect senior interests. (This means that junior lienholders will be paid in descending order with the proceeds from the sale, assuming funds leftover after full satisfaction of superior claims. Junior lienholders should be able to proceed for a deficiency judgment. But once foreclosure of a superior claim has occurred, with the proceeds distributed appropriately, junior lienholders can no longer look to the land for satisfaction***).
Those with interests subordinate (junior) to those foreclosing party are necessary parties to the foreclosure action
The debtor-mortgagor is also consider a necessary party to the foreclosure action and must be joined, particularly if the creditor wishes to then proceed against the debtor for personal deficiency judgment. If you fail to include a necessary party, that party’s claim is preserved and his mortgage will remain on the land.
Foreclosure won’t affect any interest senior to the mortgage being foreclosed. Buyer takes subject to such interest which means buyer is not personally liable on the senior debt BUT if that senior mortgage is not paid sooner or later the senior debtor will foreclose against the land.
Mortgages: Effect of Foreclosure: Paying Creditors
Ex: Assume same set of facts as above. Now, however, suppose that it is Second Bank’s mortgage that is being foreclosed. (First Bank’s mortgage exists, but it is either not in default or its holder has not yet taken action to foreclose it)
Foreclosure does not affect any interest senior to the mortgage being foreclosed. Thus, foreclosure of Second Bank’s mortgage will not affect First Bank’s mortgage. First Bank’s mortgage will continue to exist on Blackacre in the hands of the foreclosure sale buyer.
Is the foreclosure sale buyer personally liable to First Bank?
No, but if the senior debt is not paid up, First Bank is entitled to foreclose on the land.
The foreclosure sale buyer has a strong incentive to pay off First Bank’s lien, otherwise the buyer is subject to a later foreclosure action brought by First Bank.
How is bidding apt to proceed at the foreclosure sale brought by Second Bank? Buyer should bid up to $20,000, which represents Blackacre’s fair market value ($50,000) minus the amount Buyer has to pay to discharge First Bank’s mortgage ($30,000)
How will the proceeds from the sale be distributed?
$15,000 goes to Second Bank
$5,000 goes to Third Bank who should get a deficiency judgment against debtor for the remaining balance
Buyer then pays off the $30,000 owed to First Bank.
Mortgages: Priorities
1) As to creditor, you must record.
Until you properly record your mortgage, you have NO priority.
2) Once recorded, priority is determined by the norm of “first in time, first in right”
3) The purchase money mortgage:
A mortgage given to secure a loan that enables the debtor to acquire the encumbered land.
Ex: C lends O $100,000 so that O can purchase Blackacre. C takes as collateral a security interest in Balckacre, the very parcel that C’s extension of value enabled O to acquire.
C is: a purchase money mortgagee
Assuming C records properly, he has first priority as to the parcel he financed, in this case, Blackacre
Mortgages: Priorities: Purchase Money Mortgagee Superiority and Subordination Agreements
Ex: C1 lends $20,000 to O, taking a security interest in all of O’s real estate holdings, “whether now owned or hereafter acquired” (This clause is called an after acquired collateral clause. It is permissible.)
C1 records the mortgage note. 6 months later, C2 lends O $50,000 to enable O to acquire a parcel known as Blueacre, taking back a security interest in Blueacre and recording that interest. Subsequently, O defaults on all outstanding obligations All that he has left is Blueacre. Who has first priority in Blueacre, C1 or C2?
C2 – the purchase money mortgagee has first priority as to Blueacre, the parcel it financed.
But for C2’s given value, wouldn’t have Blueacre
Subordination Agreements
Permissible
By private agreement, a senior creditor may agree to subordinate its priority to a junior creditor
Mortgages: Redemption: Redemption in Equity
Equitable redemption is universally recognized up to the date of sale. At any time prior to the foreclosure sale the debtor has the right to redeem the land and free it of the mortgage
Once a valid foreclosure has taken place the right to equitable redemption is cut off.
How is the right of equitable redemption exercised?
By paying off the missed payment or payments plus interest and costs
What if the mortgage or note contained an acceleration clause? An acceleration clause permits the mortgagee to declare the full balance due in the event of default.
If the mortgage contains an acceleration clause the full balance plus accrued interest plus costs must be paid to redeem
May a debtor/mortgagor waive the right to redeem in the mortgage itself?
NO, this is known as “clogging” the equity of redemption and it is prohibited
We flatly disallow it on the basis of public policy!
Mortgages: Redemption: Statutory Redemption
Recognized in ½ of the states, statutory redemption gives the debtor-mortgagor a statutory right to redeem for some fixed period after the foreclosure sale has occurred (typically six months to one year).
Where recognized, statutory redemption applies only after foreclosure has occurred.
The amount to be paid is usually the foreclosure sale price, rather than the amount of the original debt.
In most states to recognize statutory redemption, the mortgagor will have the right to possession of the land during the statutory period
When a mortgagor redeems, the effect is to nullify the foreclosure sale. The redeeming owner is restored to title.
NY Distinction: There is no statutory right to redeem.
Lateral Support
If land is improved by buildings and an adjacent landowner’s exaction causes that improved land to cave in, the excavator will be liable only if he acted negligently
Strict liability does not attach to the excavator’s actions unless plaintiff shows that, because of defendant’s actions, plaintiff’s improved land would have collapsed even in its natural state. (means have to show improvements on plaintiff’s land did not contribute to its collapse – hard to show)
Water Rights: Allocation of Water
Allocation of water in watercourses, such as streams, rivers, and lakes:
1) The riparian doctrine:
The water belongs to those who own the land bordering the watercourse.
These people are known as riparians. They share the right of reasonable use of the water
Thus, one riparian will be liable if his or her use unreasonably interferes with other’s use
2) The prior 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. The norm for allocation is first in time, first in right. Thus, a person can acquire the right to divert and use water from a watercourse merely by being the first to do so. Any productive or beneficial use of the water, including use for agriculture, is sufficient to create the appropriation right.
Water Rights: Groundwater
Also known as percolating water: Water beneath the surface of the earth that is not confined to a known channel.
Surface owner is entitled to make reasonable use of ground water.
However, the use must NOT be wasteful
Water Rights: Surface Waters
Those which come from rain, springs, melting snow, and have not yet reached a natural watercourse or basin.
Common enemy rule (followed by ½ the states):
Surface water is considered a “menace” or “common enemy”
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 common enemy rule to prohibit unnecessary harm to other’s land
Possessor's Rights
The possessor of land has the right to be free from trespass and nuisance
1) Trespass:
The invasion of land by tangible physical object
To remove a trespasser, you bring an action for ejectment
2) Private Nuisance:
The substantial and unreasonable interference with another’s use and enjoyment of land
Note: Unlike trespass, nuisance does NOT require tangible physical invasion. Thus, odors and noise could give rise to a nuisance but not a trespass
Nuisance and the hypersensitive plaintiff
If the plaintiff is hypersensitive or has a hypersensitive use of the land, then the plaintiff will lose
NO nuisance if the problem is the result of plaintiff’s supersensitivity or specialized use
Eminent Domain
1) Definition:
Government’s Fifth Amendment power to take private property for public use in exchange for just compensation
2) Explicit takings:
Acts of governmental condemnation
For example, the government condemns your land to make way for a public highway.
3) Implicit or regulatory takings
A governmental regulation that, although not intended to be a taking, has the same effect.
Need to have no other economic way to use the land
4) The remedy for a regulatory taking: government must either
a) Compensate the owner for the taking or
b) Terminate the regulation and pay the owner for damages
Zoning
1) Definition
Pursuant to its police powers, government may enact statutes to reasonably control land use
2) The variance:
The principal means to achieve flexibility in zoning
The proponent must show, to get a variance:
a) Undue hardship and
b) That the variance won’t work detriment to surrounding property values
The variance is granted or denied by administrative action, typically a zoning board
3) The nonconforming use:
A once lawful, existing use now deemed nonconforming because of a new zoning ordinance. It cannot be eliminated all at once unless just compensation is paid. Otherwise, it could be deemed an unconstitutional taking.
4) Unconstitutional exactions: Defined:
Exactions are those amenities that government seeks in exchange to granting permission to build.
These are inherently suspect and the law tries to protect against government overreaching through exactions
Therefore, exactions must:
Be reasonably related both in nature and scope to the impact of the proposed development. If they are not, then the exactions are unconstitutional.