Allocating Title Risks

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4 Types of Titles

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1. Insurable Title: K describesthe type of insurance policy that will be satisfactory to the buyer

2. Record Title: proofof the status of title, gathered solely from deeds and other instruments thatare recorded in the public records for recording interests in real property

3. Adverse Possession: sometimesmarketable, sometimes not

4. Marketable Title: anestate that is totally free from encumbrances; doesn't mean perfect title

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Marketable Title - Default Rule

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Sellermust deliver marketable title atthe closing; Buyer must accept marketable title

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Encumbrance

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anonpossessory right or interest in the property held by a third party thatreduces the property’s market value, restricts its use or imposes an obligationon the property owner.

- Ex: easements, real covenants, equitable servitudemarital property rights, mortgage liens, tax liens, and other liens andcharges.

Render title unmarketable, except if it is de minimis or visible

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Encroachment

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An improvement over a boundaryline; an unauthorized extension of animprovement across a boundary line, a trespass by the improver.

- Encroachmentsof a concern to purchaser: Improvements on the property under contract mayencroach on neighboring tracts or on a street, or neighboring improvements mayencroach on the property

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Staley v. Stephens - No Purchase for Failure to Deliver Marketable Title

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Atitle that has no defects of a serious nature and none which affect thepossessory title of the owner, ought to be adjudge marketable.

- A court ofequity will not compel a purchaser to accept a title which is so doubtful thatit may expose him to litigation, though the court may believe it to be good.

- Buyer’s were not required to purchase because they could be subject tolitigation until the 20 year SOL ran & they were entitled to present theirevidence on the counterclaim

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Scott v. Turner - Effect of Public Regulation on Title

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Scott’spurchased property on land that required roadways to meet certainspecifications but also contained a variance for a gravel road as long asconditions were met. When the Scott’s entered into a contract for sale to theTurners there were 4 lots on the property, which ended the variance. Scottssued and Turners countersued.

- Title was not marketable and therefore the courtfound for the Turners

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Buyer’sRemedies for Title Defect - English Rule v. American Rule

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ENG: Whenthe buyer seeks damages because the seller is unable to convey marketable title, expectation damages are not allowed

AM: awardsexpectation damages under the normal rules of contract law

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Requirements of Deed Conveyance

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1. Execution of Deed

2. Delivery of Deed

3. Acceptance of Deed

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Deed

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aninstrument that conveys an interest in real estate

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General Warranty Deed

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notime restrictions, the maximum amount of protection to grantee, grantor taking on all thetitle risk

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General Warranties of Title

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cover entire chain of title up to the time of delivery

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Special Warranty Deed

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lessprotection to the grantee, reflects a sharing of the risk between the parties.

- Limited to title matters arising while the grantor owned the property

- AKA Limited Warranty Deed

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Quitclaim Deed

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nocovenants of title.

- Grantee bears all the risk (e.g. gift, dispute resolution)

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Present Covenants

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thecovenant speaks only to the state of affairs at the moment the deed isdelivered

- If breached, it’s breached upon delivery (generally SOL begins torun at delivery);

- only to immediate grantee

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3 Types of Present Covenants

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1. Seisen: grantorpromises he is seized of the estate the deed purports to convey – promise ofgood title to the estate

2. Right to Convey: grantorpromises that he has the legal right to convey the estate the deed purports toconvey

3. Covenant Against Encumbrances: grantorpromises that there are no encumbrances on the land. Generally no knowledgerequirement

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Future Covenants

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protectthe grantee from certain specified events that may occur after the deed isdelivered in the future

- Covenants run with the land

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3 Types of Future Covenants

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1. Quiet Enjoyment: grantorpromise that the grantee may possess and quietly enjoy the land. Breached ifthe grantee is actually or constructively evicted from all or part of the landby the grantor, by someone claiming under the grantor, or by someone withparamount title

2. Warranty: grantorwarrants the title to the grantee. Clause uses the term “warrant and foreverdefend” the conveyed land. Same scope as covenant of quiet enjoyment; breachedby an actual or constructive eviction of the grantee from all or part of theproperty

3. Future Assurances: Grantorpromises to give whatever “further assurances” may be required in the future tovest the grantee with the title the deed purports to convey. If grantor refusesto give further assurances, thus breaching the covenant, the remedy of specificperformance is available as an alternative to damages

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Booker T. WashingtonConstruction & Design Company v. Huntington Urban Renewal Authority

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Whenthe grantee of real property under a fee simple, general warranty deedcontracts to sell the fee to a purchaser and, in fact, the grantee has only alife estate, if the purchaser sues the grantee for an inability to conveymarketable title, the covenant of general warranty in the deed to the granteeis broken, and the covenantor, upon proper notice, is obligated to defend thetitle or be answerable to the grantee in damages. Damages in action: Measure ofdamages, when the land is entirely lost to the vendor, is the purchase moneywith interest from the date of the actual eviction, the costs incurred indefending the title and such damages as the vendee may have paid or may beshown to be clearly liable to pay the person who evicted him. Partial eviction:measure of damages is the portion of the purchase money that represents therelative value of the land (or interest) lost compared to the value of thewhole land (or interest)