Real Property - Land Conveyancing: Purchase And Sale Of Real Estate

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Every land conveyance requires:

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(1) a land contract and (2) a closing

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Land Sale Contracts
- SoF Requirements and Exception

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Must be in writing, signed by the party to be bound, describe the land, and state some consideration.
- When the amount of land recited in the K is more than the actual size of the parcel, the buyer’s remedy is: specific performance with a pro rata reduction in purchase price.
2. Exception to the SoF:

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Land Sale Contracts
- SoF Exception

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(Exception to SoF) Doctrine of Part Performance: (need two of the following)
a. Buyer takes possession,
b. Buyer pays all or part of the purchase price, and/or
c. Buyer makes substantial improvements.

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Land Sale Contracts
- Buyer Bears the Risk of Loss

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- Apply the doctrine of equitable conversion: equity regards as done that which ought to be done.
- Once K is signed: buyer owns the land, subject to the condition that he pays the purchase price at closing...

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Land Sale Contracts
- Buyer Bears the Risk of Loss in case of DESTRUCTION

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Destruction:
If in the interim, between the contract and the closing, Blackacre is destroyed through no fault of either party, BUYER bears the risk of loss unless the K says otherwise.

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Land Sale Contracts
- Two Implied Promises in Each K
(first promise)

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1. Seller promises to provide marketable title at the closing
a. Title free from reasonable doubt, free from lawsuits and the threat of litigation...
b. Three circumstances will render the title unmarketable:
i. Adverse possession (even just a discreet portion)
ii. Encumbrances (servitudes and mortgages render title unmarketable unless buyer has waived them). Seller has right to satisfy outstanding mortgage or lien at the time of closing with the proceeds of the sale.
iii. Zoning violations

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Land Sale Contracts
- Two Implied Promises in Each K
(second promise)

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2. Seller promises not to make any false statements of material fact
a. Majority of states hold seller liable for failure to disclose latent material defects (material lies and material omissions).
b. If K contains a general disclaimer of liability (property sold “as is” or “with all faults”), still won’t excuse seller from liability for fraud or failure to disclose.
- K contains no implied warranties of fitness or habitability BUT seller may be liable where she CONCEALED conditions on the prop.

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Deed

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At closing of land conveyance, passes legal title from seller to buyer
- Lawfully executed: in writing, signed by grantor (needs no consideration), w/ an unambiguous description and good lead (with research, will know what description terms mean)
2. Must be DELIVERED (legal standard of Grantor's PRESENT INTENT to convey a future interest in Grantee)

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Deed
- Delivery Requirement

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1. Grantor physically or manually transfers deed to grantee – but does not necessarily require physical transfer of the instrument itself.
2. Standard is a legal standard, and is a test of PRESENT INTENT of the grantor, regardless of whether the deed itself was literally handed over.
3. Recipient’s express rejection of the deed defeats delivery.
4. If deed, absolute on its face, is transferred to grantee with an oral condition, the oral condition drops out (b/c not proveable) and delivery is done.
5. Delivery by escrow is OK...

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Deed
- Delivery By Escrow

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Grantor may deliver an executed deed to a third party (escrow agent) with instructions that the deed be delivered to grantee once certain conditions are met. Once conditions are met, title passes automatically to grantee.
- Advantage of escrow: If grantor is unavailable before the express conditions are met, title will still pass from escrow agent to grantee.

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Quitclaim Deed

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- Release, if any, of grantor's interest on the property.
- Worst deed a buyer can hope for; contains no covenants; grantor isn’t even promising that he has title to convey.
- Grantor does implicitly promise in the land contract to provide marketable title at closing, so to extent that there are any problems at closing, granter may be liable. But any problems post-closing, grantor is off the hook.

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General Warranty Deed / Standard Form Warranty Deed
- Typically contains 6 of covenants.
(first 3 covenants)

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Best deed a buyer can hope for; warrants against all defects in title including those due to grantor’s predecessors.
- Typically contains all 6 of the following covenants:
(first 3 are present cov's, breached at the time of delivery)
i. The covenant of SEISIN (Grantor promises that he owns the estate)
ii. The covenant of RIGHT TO CONVEY (Grantor promises he has the power to make this transfer with no restraints)
iii. The covenant AGAINST ENCUMBRANCES (Grantor promises there are no servitudes or liens on the estate - cov may be breached if grantee aware of encumbr. at time of conveyance)...

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General Warranty Deed / Standard Form Warranty Deed
- Typically contains 6 of covenants.
(last 3 covenants)

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(last 3 are future cov's, which are not breached until grantee is disturbed in possession)
iv. The covenant for QUIET ENJOYMENT (Grantor promises grantee won’t be disturbed in possession by some third party’s lawful claim of title)
v. The covenant of WARRANTY (Grantor promises to defend grantee should there be any lawful claims of title brought by others)
vi. The covenant of FURTHER ASSURANCES (Grantor promises to do whatever future acts are reasonably necessary to perfect the title if it turns out to be flawed)

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Statutory Special Warranty Deed

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Provided for by statute in many states, contains two promises that grantor makes only on behalf of himself (not predecessors):
i. Grantor promises he hasn’t conveyed estate to anyone other than grantee, and
ii. Estate is free from encumbrances made by grantor.

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The Recording System: 2 Rules

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(1) Notice Jurisdiction

(2) Race-Notice Jurisdiction

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Notice Jurisdiction

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If B is a BFP, B wins, regardless of whether she records before A does.
- Statute: “A conveyance of an interest in land (O to A) shall not be valid against any subsequent purchaser for value (B), without notice thereof (B), unless the conveyance is recorded.”

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Race-Notice Jurisdiction

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If B is a BFP, B wins if she records properly before A does.
a. Statute: “Any conveyance of an interest in land (O to A) shall not be valid against any subsequent purchaser for value (B), without notice thereof (B), whose conveyance is first recorded (B).”

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Bona Fide Purchaser

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One who purchases Blackacre for value W/O NOTICE that someone else got there first.
- Purchaser for Value – B must remit substantial pecuniary consideration
- In either Notice or Race-Notice jurisd, B’s status as a subsequent BFP will be defeated if A had promptly & properly recorded before B takes b/c A’s proper recordation puts later Bs on record notice, defeating their status as a later in time BFP.

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Bona Fide Purchaser
- Forms of Notice

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a. Actual (Prior to B’s closing, B learns of A)
b. Inquiry (constr. notice, may be imputed to B; whether he looks or not, B is on inquiry notice of whatever an exam of the land would show)
- Buyer of real estate has a duty to inspect before transfer of title, to see, i.e., whether anyone else is in possession.
- If recorded instrument makes reference to an unrecorded transaction, grantee is on inquiry notice of whatever a reasonable follow up would show.
c. Record Notice (constr. notice, sometimes imputed to buyer)
- B is on record notice of A’s deed if at the time B takes, A’s deed was properly recorded.

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Chain of Title
- 3 Discrete Chain of Title Problems

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(Sequence of recorded documents capable of giving record notice to later takers)
3 Discrete Chain of Title Problems:
(1) The Shelter Rule
(2) The Problem of the Wild Deed
(3) Estoppel by Deed

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The Shelter Rule

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One who takes from a BFP will prevail against any entity that the transferor-BFP would have prevailed against.
Transferee takes shelter in the status of her transferor (even though she otherwise fails to meet BFP status).

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The Problem of the Wild Deed:

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1. O sells Blackacre to A, who does not record. Then A sells to B. B records the A-to-B deed.
2. The A-to-B deed is NOT connected to the chain of title b/c the O-to-A link is missing from the records; it is a wild deed.
3. Rule: 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.

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Estoppel by Deed

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Rule: One who conveys realty in which he has no interest is estopped from denying the validity of that conveyance if he later acquires that previously transferred interest.

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MORTGAGE
(Other names: the note, deed of trust, mortgage deed, sale leaseback, security interest in land)
(Mortgagor = debtor)
(Mortgagee = creditor)
- Creation

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- Conveyance of a security interest in land, intended by the parties to be collateral.
- Union of two elements: a DEBT and a VOLUNTARY LIEN in debtor’s land to back up or secure the debt.
- Typically must be in writing

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Equitable Mortgage

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- Owner of land gives creditor a deed to the land absolute on its face as a security interest in the property.
- Factors: debt/promise payment by deed's grantor, grantee's promise to return land if debt is paid, amount advanced to debtor much lower than prop. value, degree of debtor's financial stress, & parties' prior negotiations.
- Must institute foreclosure proceedings to recover
- Parole evidence is admissible to show the parties’ intent.

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Mortgage Parties' Rights

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- Unless and until foreclosure, debtor-mortgagor has title and the right to possess.
- Creditor-mortgagee has a lien
- All parties to a mortgage can transfer their interests

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Mortgage Parties':
Ways to Transfer Their Interests

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1. Creditor-mortgagee can transfer his interest by:
- Endorsing the note and delivering it to transferee, or executing a separate document of assignment.
2. Holder in due course of the note:
a. Note must be negotiable, made payable to the named mortgagee;
b. Original note must be endorsed, signed by the named mortgagee;
c. Original note must be delivered to the transferee (no photocopy);
d. Transferee must take the note in good faith without notice of any illegality; and
e. Transferee must pay value for the note, meaning some amount that is more than nominal...

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Mortgage Parties':
Defenses of other party when one party tries to transfer her interest

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Holder in due course subject to “real” defenses that the maker might raise: (not subject to “personal” defenses including the lack of consideration, fraud in the inducement, unconscionability, waiver, estoppel)
MAD FIFI4, the Real Defenses:
Material, Alteration, Duress, Fraud in the Factum (a lie about the instrument), Incapacity, Illegality, Infancy, Insolvency

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Foreclosure

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The land is sold. Sale proceeds used to pay off the mortgages in the order of their priority, each entitled to its full satisfaction before a subordinated lienholder may take.
- If proceeds from sale of land are less than the amount owed, mortgagee brings a deficiency action against debtor.
- If proceeds are greater, junior liens are paid in order of priority. Remaining surplus goes back to debtor.

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Effect of Foreclosure on Various Interests

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1. Terminate interests junior to the mortgage including easements; will not affect senior interests BUT
- Failure to include NECESSARY PARTIES result in preservation of that party's interest despite foreclosure and sale.
2. Those with interests subordinate to the foreclosing party & debtor-mortgagor are necessary parties to the foreclosure action.
3. Foreclosure does not affect any interest senior to the mortgage being foreclosed. The buyer at the sale takes subject to such interest (buyer not personally liable on the senior debt).

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If a necessary party is not included in a foreclosure proceeding, the party may:

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(1) Collect on the $ from the foreclosure sale that the collecting party received, or
(2) move to foreclose on the property

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Sale "Subject To" the Mortgage

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Mortgagee (creditor) may foreclose on the land or sue the mortgagor on the debt (not the purchaser).

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Foreclosure Order of Party Priorities

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As a creditor, you must properly record. Until you do so, have no priority.
- Once recorded, “first in time, first in right.”

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Purchase Money Mortgage

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A mortgage given to secure a loan that enables the debtor to acquire the encumbered land.
The mortgagee (lender) has first priority as to the parcel that he has financed, assuming he records properly.

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Right to Equitable Redemption
(mortgagor undoes/nullifies the foreclosure sale)

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1. At any time prior to the foreclosure sale, debtor can try to redeem the land.
2. Once a valid foreclosure has taken place, the right is gone.
3. The right is exercised by paying off the mixed payment plus any interest plus any costs.
4. If the mortgage contains an acceleration clause, the full balance plus accrued interest plus costs must be paid in the event of default.
5. Debtor/mortgagor may not waive the right to redeem in the mortgage itself.

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Statutory Redemption

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a. Gives the debtor-mortgagor a statutory right to redeem for some fixed period after the foreclosure sale has occurred.
b. Applies only after foreclosure.
c. Amount to be paid is usually the foreclosure sale price rather than the amount of the original debt.
d. Mortgagor has the right to possess Blackacre during the statutory period.