Real Property

on exam watch for the following facts concerning the chain of title that will render title unmarketable:

(1) a significant variation in the description of the land from one deed to the next; (2) a deed in the chain of title that was not executed properly; and (3) a prior grantor who lacked capacity to convey the property.

valid deed requirements

(1) a writing signed by the grantor; (2) an unambiguous description of the land; (3) identification of the parties by name or description; and (4) words of intent to transfer "grant"

common defects that render title unmarketable:

(1) adverse possession; (2) encumbrances (mortgages, liens, easements, restrictive covenants); and (3) zoning violations

what are the 3 future covenants?

(1) covenant for quiet enjoyment; (2) covenant of warranty; and (3) covenant of assurances

what are the 3 present covenants

(1) covenant of seisin; (2) covenant of right to convey; and (3) covenant against encumbrances

remedies for breach of contract

(1) damages (2) specific performance (3) rescission

delivery is presumed when:

(1) handed to the grantee; (2) acknowledged by the grantor in front of a notary, or (3) recorded.

What are the three actions that usually satisfy the second element of part performance: the acts must clearly prove the existence of a contract.

(1) possession of the property; (2) payment of the purchase price or a significant portion of the price; and (3) valuable improvements to the property.

failure to disclose elements

(1) seller must know or have reason to know of the defect; (2) the seller must realize that the buyer is unlikely to discover the defect; and (3) the defect is serious enough that the buyer would probably reconsider the purchase.

statutory special warranty deed that makes only what two limited assurances against acts of the grantor (not her predecessors):

(1) that prior to the time of the execution of such conveyance, the grantor has not conveyed the same estate or any interest therein to any person other than the grantee and (2) that the estate conveyed is free from encumbrances made by the grantor.

Order of rules on oral contract for sale of land if you think part performance applies:

(1) the SOF requires contracts for sale of land be evidenced by a writing signed by the party to be bound. (2) here, the contract is oral and won't be enforceable unless it falls within an exception to the statute. (3) part performance rules and analysis

delivery of deed to third party

(1) transfer to third party w/o conditions (2) transfer to third party w/conditions (escrow); and (3) donative escrow with conditions

defective deeds

(1) void deeds (2) voidable deeds (3) fraudulent conveyances

seller contracted to sell blackacre to buyer. seller then died before closing. in his will, seller provided that all of his real property would pass to A and all his personal property would pass to B. if buyer goes to closing with seller's estate, who would get the money from the sale?

B - equitable conversion takes place at the signing of the contract so seller's interest is a personal property interest.

tender of performance

a buyer's obligation to pay the purchase price and the seller's obligation to convey title are concurrent conditions; so, neither party is in breach until the other party tenders performance, even if the closing date has passed. if neither party tenders performance, the closing date is automatically extended until one of them does so.

passage of title at death for the seller

a deceased seller's interest, the right to the purchase price, passes to their estate as personal property.

written conditions for deeds

a deed containing a written condition is generally valid when delivered. if the condition is the grantor's death, the deed creates a future interest (executory interest) in the grantee.

delivery of the deed

a deed isn't effective to transfer an interest in realty unless it has been delivered. delivery turns on the grantor's intent that title pass immediately, even if possession is postponed. acceptance is presumed.

rule for attempting to return a deed

a deed may only move in one direction; therefore, if the grantee wishes to return the deed to the grantor, an entirely new deed must be made.

insufficient description of the deed

if the description of the land is insufficient to provide a good lead, title isn't transferred. the grantor retains title. if a description is ambiguous, rather than vague or inadequate, outside (parol) evidence is permitted to clear up ambiguity.

presumptions concerning delivery

if the grantor retains possession of the deed, it is presumed that it hasn't been delivered. if the grantee has possession of the deed, delivery is presumed.

remedies for unmarketable title

if title is not marketable, the buyer is entitled to usual remedies for breach of contract: rescission, damages, or specific performance with an adjustment in the purchase price.

marketable title

there is an implied covenant in every land sale contract that AT CLOSING the seller will provide the buyer with a title that is "marketable." this title is reasonably free from doubt, law suits, and the threat of litigation.

O agrees to sell Blackacre to A. There is no written agreement, however. A takes possession and starts building a home on Blackacre. Before closing, O dies. O's estate refuses to close, saying that the oral agreement is not enforceable. A sues for specific performance of the oral contract. Who wins?

A - A wins under the doctrine of part performance. To enforce an oral contract for the sale of land, a buyer must be able to prove that there was a contract. To do this, they must prove they took two of the following three actions: they took possession, they made improvements to the property, and/or they paid all or a substantial portion of the purchase price. In addition, these must unequivocally reference a contract and not some other arrangement. Here, A has taken possession and is making a valuable improvement (building a home). No one but a buyer would build a home on property.

remedies: specific performance

Because land is unique, money damages are considered inadequate and a nonbreaching buyer is entitled to specific performance as a remedy for the seller's breach. Note that if the seller cannot produce marketable title and a nonbreaching buyer wants to go through with the purchase, the buyer will usually be entitled to specific performance with a reduction in the purchase price to account for the defects. And, because the buyer is entitled to specific performance in the event of breach, a nonbreaching seller is also entitled to that remedy.

Owen Owner entered into a contract to sell Blackacre to Barry Buyer, and Buyer paid Owner 10% of the contract price as earnest money. Buyer also gave Owner a post-dated check for the balance of the purchase price. On the day scheduled for closing Owner cashed the check, executed a deed for Blackacre to Buyer, and recorded the deed. Owner did not know that Buyer had dropped dead the day before closing. Who has title to Blackacre?

Owen Owner retains title to Blackacre because a deed to a dead grantee is void. But, specific performance of the contract of sale can be secured by either Owen Owner or Barry Buyer's estate. Under the doctrine of equitable conversion, Barry Buyer's estate is the equitable owner of Blackacre, and Owen Owner is entitled to the proceeds of the sale.

exception to statute of frauds?

Part performance

transfer of deed to third party w/o conditions rule

a delivery to a third party with instructions to deliver the deed to the intended grantee is considered valid delivery. whether delivery to a third party w/o instructions is a valid delivery often hinges on whether that third party is an agent of the grantor or the grantee. ex: a delivery to the grantor's lawyer is probably not a delivery, while delivery to the grantee's lawyer probably is.

closing documents: disclosure

a document provided by the mortgagee to the mortgagor detailing the loan provisions, such as the loan amount, interest rate, monthly payment, penalties, and closing costs

closing documents: notification of defects

a form provided by the seller to the buyer detailing any physical defects on the property (leaky roof, termites, etc.) known to the seller. this is required even if the seller is selling the property "as is."

future covenants

a future covenant is not breached until the grantee is disturbed in possession. SoL begin only when grantee is disturbed in possession.

hypo 14A - B enters into a K to purchase a farm. the K recites that the farm is 100 acres, but a survey shows that it is only 98 acres. What is B's remedy?

a price adjustment -specific performance with a pro rata reduction in price commensurate with the acre deficiency.

failure to disclose

a seller will be liable for fraud (knowingly making a false statement of material fact that the buyer relied on or actively concealed a defect) or failing to disclose known defects in the property.

extrinsic evidence regarding deeds

all types of evidence, including the grantor's conduct or statements before or after the alleged delivery are admissible to prove the grantor's intent to pass title. outside evidence is not permitted to show that the unconditional deed given directly to a grantee was subject to a condition.

condition of survival for deed

although a condition that the grantee survive the grantor seems like the same things as a condition of the grantor's death, it isn't. unlike the condition of the grantor's death, which conveys a future interest, a conveyance to the grantee "only if the grantee survives the grantor" indicates that the grantor does not intend to part with anything until death = no delivery.

part performance requirements

an equitable doctrine that allows a buyer to enforce a contract by specific performance if the following factors are met: (1) the oral contract must be certain and clear and (2) the acts of partial performance must clearly prove the existence of a contract.

As a surprise graduation gift, A's Aunt Gertrude executes a deed conveying Blackacre to A. A responds, "I can't accept such a lavish gift." Who does Blackacre belong to?

aunt gertrude - express rejection defeats delivery

risk of loss

because the buyer is considered the owner of the real property, the buyer bears the risk of any loss during the escrow period. if the property is damaged or destroyed during that period through no fault of either party, the burden of that loss falls on the buyer.

Seller and Buyer enter into a contract for the sale of Blackacre, with a closing date of September 14. Buyer has trouble getting the funds together to pay for property, and the closing date passes. When Buyer tells Seller he's ready to close on October 14, Seller refuses. Which party has breached the contract?

both seller and buyer - Buyer has breached the contract by missing the closing date. It isn't a material breach and doesn't excuse Seller's duty to perform. Buyer will be liable for any damages that Seller incurred as a result of the delay. Seller has breached by refusing to go through with the sale. Since the breach isn't material, a buyer who is late in paying the purchase price can still enforce the contract if they tender the price within a reasonable time--usually within a month or two.

present covenants

breached if ever AT THE TIME THE DEED IS DELIVERED. SoL starts running at the moment of delivery.

Seller contracted to sell 100 acres for $200,000 to Buyer. Before closing, Buyer discovers that Seller owns only 90 acres. At closing, Buyer refuses to go through with the sale, and Seller sues for specific performance. Who will prevail?

buyer - b/c seller breached the contract - Buyer has several choices of remedy for Seller's breach of contract. She may rescind the contract and sue for damages or she may take the property with an adjustment in the purchase price. Those are the Buyer's options. The Seller cannot enforce the contract that he breached even with an adjustment in price.

buyer and seller enter into an oral agreement for the sale of Blackacre for 100K. under their agreement, buyer pays seller 100K, but decides to build a new garage for her SUV before moving onto the property. when the garage is almost done, seller gets a much higher offer for the property. seller gives buyer notice to vacate and returns buyer's check for 100K. buyer sues to quiet title. who will prevail?

buyer - payment and purchase price plus improvements will be found to unequivocally refer to a K for sale. buyer has proven part performance sufficient to take the contract out of the SOF.

Buyer and seller enter into an oral agreement for the sale of Blackacre for $100,000. Pursuant to the agreement Buyer pays Seller $100,000 and moves onto the property. Shortly thereafter, Seller receives a much higher offer for the property and gives Buyer notice to vacate and returns Buyer's check for $100,000. Buyer sues to quiet title. Who will prevail?

buyer - unlike periodic payments, a court would not mistake this for a lease. buyer has paid substantial portion of purchase price and taken possession.

caveat emptor

buyer beware

Buyer and Seller enter into a contract for the sale of Blueacre. The day before the closing, Buyer learns that one acre of the ten-acre tract is titled in Neighbor's name, even though Seller has had a building on it for 30 years. The statute of limitations for acquiring property by adverse possession is 20 years in this jurisdiction. At the closing, Buyer refuses to go through with the transaction and Seller sues for specific performance. What is the likely result?

buyer will win because seller breached the contract - Property acquired by adverse possession does not have marketable title unless the party acquiring it has quieted title. Here, Seller has gone through the steps required to acquire title through adverse possession but has not quieted title. Thus, there is a threat of a lawsuit from Neighbor, and title is unmarketable. If a buyer breaches, a nonbreaching seller may pursue specific performance under the theory of mutuality of remedy. The breach is material and is not de minimis.

special warranty deeds rule

contain the same covenants that general warranty deeds do, but they limit the promises to defects arising while the grantor owned the property. the grantor promises that they did not do anything to cause a title defect.

quitclaim deed

contains no covenants. grantor is not promising that he has good title to convey. worst deed a buyer could hope for. contains absolutely no promises to convey good title. one mitigating point: in the contract, grantor did impliedly promise in the land sale contract marketable title at closing. note: that promise is short lived - it applies at closing, the moment of closing, and dies right after closing.

in order to provide marketable title, seller must be able to provide which sort of title?

good record title - can't have a claim anchored in adverse possession

O conveys a deed to Blackacre that is absolute on its face, but says to grantee, "Blackacre is yours only if you survive me." What is the effect of the oral condition?

grantee has title to blackacre immediately - the deed is void and delivery has been done

covenant for quiet enjoyment

grantee will not be disturbed in possession by a third party's lawful claim of title.

covenant of right to convey

grantor promises she has the power to transfer. there are no temporary restraints/restrictions on alienation/on the grantor's ability to sell or transfer property. grantor is under no disability/she is of the requisite age and of sound mind

covenant of seisin rule

grantor promises she owns this estate

covenant against encumbrances

grantor promises there are no servitudes or liens on property

covenant of warranty

grantor will defend grantee against any superior title claims.

notice and right to cure if title unmarketable

if a buyer discovers that the seller's title is unmarketable, the buyer must give the seller notice detailing the defects. the buyer must give the seller reasonable time to cure the defects, even if it requires postponing the closing date.

encroachments

if a neighbor's building onto the property is significant it will render title unmarketable.

adverse possession

if even a PORTION of the title resides on adverse possession, it is unmarketable

recission

if the buyer breaches, the seller may rescind the contract. if the seller breaches, the buyer may rescind the contract and recover any down payment or earnest money. since the seller generally has until closing to clear any defects, buyer cannot rescind before then.

donative escrow with instructions rule - If the grantor gives a deed to a third party with instructions to turn it over to the named donee only when certain conditions occur, is there a valid delivery or can the grantor change her mind and demand the deed back before the conditions occur?

it depends on the condition. if the condition is something other than the grantor's death (the grantee's marriage, for example), the grantor may retrieve it. if the condition is the grantor's death, the grantor cannot get the deed back b/c they intended to presently convey a future interest.

how does a deed succeed?

must be lawfully executed and delivered

Buyer and Seller enter into a valid contract for the sale of Blackacre. Seller's garage encroaches 2 inches onto Neighbors land. Neighbor's driveway encroaches 3 inches onto Blackacre. Which of following breaches the covenant of marketable title?

neither encroachment - a significant encroachment is a title defect, regardless of whether an adjacent landowner is encroaching on the seller's land or vice versa. but a slight encroachment generally doesn't render title unmarketable.

O conveys "SOME of my land in Sussex County." Does such a description satisfy the standard?

no - it is too ambiguous b/c even with research we won't know the meaning of "some."

when must title be marketable?

on the day of closing. the seller has up until that time to clear up whatever defect is making the title unmarketable. the seller may even clear the title at the closing by using the proceeds of the sale to clear mortgages and liens.

merger rule

once a deed is delivered and accepted, a buyer can sue only on the covenants in the deed. the seller is discharged from all obligations under the contract of sale. this is referred to as the contract "merging" with the deed.

fraudulent conveyance

one made to avoid the grantor's creditors. looks like an insolvent grantor conveying property to a relative for much less than the value of the property to avoid the property being taken by a creditor. this will be set aside unless the grantee took in good faith and paid reasonably equivalent value.

Part performance question: While chatting at local diner, Kenny agrees to sell his farm to Eric for 500K. before closing, Kenny dies and his estate refuses to close on the oral contract with Eric. What are Eric's damages?

part performance if he can prove the oral contract was certain and clear and the acts of partial performance clearly proved the existence of a contract.

the statute of frauds

requires a writing signed by the party to be bound and must additionally (1) identify the parties; (2) describe the property; and (3) include the price or means of determining the price (like fair market value as determined by an appraisal). these terms must be definite enough for a court to enforce the contract; if the court can tell who the parties are, which parcel is being conveyed, and what consideration is being supplied, the statute is satisfied. when exam question contains sale of land via oral contract, think first of statute of frauds problem.

liquidated damages (earnest money)

sales contracts often require the buyer to give the seller earnest money (down payment) and provides that the seller can keep the money if the buyer breaches the contract. if the amount bears a reasonable relationship to the seller's actual damages, the court will allow the seller to keep the money as liquidated damages. if the amount if 10% or less of the purchase price, it will be found to be reasonable.

Seller conveys to Buyer by general warranty deed. After two months, Investor knocks on Buyer's door with a notice of eviction and bearing proof that Seller never had title to the property. Investor had title all along. If buyer brings suit against Seller for breach of the warranties of title, under which warranties is Seller potentially liable? (Select all that apply)

seisin, quiet enjoyment, warranty, right to convey, and further assurances - Seller has potential liability on five of the six warranties. Because the action comes within two months of the conveyance, the statute of limitations will not have run on the present warranties. The three present warranties (seisin, right to convey, and against encumbrances) are breached at the time of the conveyance and the statute begins to run at that time. Since the grantor did not have title he breached the covenants of seisin and right to convey. There is no mention of encumbrances, so there is no breach of that warranty. The future covenants are breached, when as here, the grantee is actually disturbed in possession. The covenant of quiet enjoyment promises that the grantee won't be disturbed in possession by one claiming superior title (which is exactly the case here) and warranty promises that the grantor will defend against such a claim. Finally the covenant of further assurances promises the grantor will do whatever is necessary to perfect title.

Seller and Buyer enter into a contract for the sale of Blackacre, with a closing date of March 30. The contract states that time is of the essence. On March 29, Seller has emergency surgery and cannot make it to the closing. On April 1, Buyer finds a property she likes better. On April 5, Seller notifies Buyer that he is ready to close on the Blackacre contract. Buyer refuses. Which party has breached the contract?

seller - time is of the essence, a party who fails to tender performance on the date set for closing in total breach and loses his right to enforce the contract.

seller's liability for defects, fraud, or failure to disclose

seller is liable for material lies and omissions. seller is liable for fraud for what she affirmatively misrepresents of a material latent nature. seller is also liable for her convenient omissions of relevant latent material problems on site.

what must seller do regarding the purchase price if risk of loss is on the buyer and the property is damaged or destroyed?

seller must credit any insurance proceeds received against the purchase price the buyer is required to pay.

buyer and seller enter into an oral agreement for the sale of a house for 100K. under their agreement, buyer moves into the house and makes monthly payments of 2K for two years. seller wants the sell the house to someone else. after giving notice to buyer, seller brings an action to quiet title and buyer brings action to quiet title. who will prevail?

seller will prevail despite buyer having proven both possession and partial payment b/c those acts to not unequivocally reference a contract for sale. possession plus periodic payments could be a lease rather than a sale.

general warranty deed

the best that a buyer could take. warrants against ALL defects in title, including those due to grantor's predecessors. contains a host of promises (covenants) that grantor makes on behalf of herself and all predecessor's interests.

what is the closing controlling document?

the deed - passes legal title from seller to buyer. the contract dies at this point

delivery occurs when

the deed is delivered by grantor either physically or manually. it is a legal standard - did grantor have the present intent to be bound immediately regardless of whether or not the deed instrument was handed over.

covenant of assurances

the grantor promises to do what's needed in the future to perfect the title if it turns out to be imperfect.

exception to implied warranty by seller regarding real property

the implied warranty of fitness and workman like construction does apply TO THE SALE OF A NEW HOME BY A BUILDER VENDOR.

passage of title at death for buyer

the interests of the departed party pass to their estate. so, b/c under doctrine of equitable conversion, the buyer owns the property from the moment the contract is signed, a deceased buyer's interest passes as real property to their estate.

equitable conversion

the moment the contract is signed, the law, through this doctrine, recognizes the buyer as the new owner of the property. the seller's interest (money from the sale) is considered personal property. the seller retains bare legal title and the right to possess the property until closing. two issues on the bar are risk of loss and passage of title on the death of a party.

damages for breach of land sale contract

the nonbreaching party can seek damages - usually the difference b/t the contract price and the market value of the property on date performance was due. a nonbreaching seller usually has the option to seek those damages or keep the buyer's down payment as liquidated damages.

delivery with conditions - oral condition

the oral condition drops out. it is not proveable and delivery is done b/c it is too susceptible to fraud or fabrication.

the land sale contract

the sale of real property begins with the contract which requires offer, acceptance, and consideration. the contract must comply with the statute of frauds and there must not be any other defenses to enforcement.

if the seller causes damage or destroys the property during the escrow period, who bears the risk of loss?

the seller

covenants for title: types of deeds

the seller's liability for title defects is governed by the covenants of title contained in the deed. three types of deeds: (1) quitclaim deed; (2) general warranty deed; and (3) special warranty deed.

escrow period

the time between signing contract and closing date. usually where most problems occur.

what happens if the grantor dies or otherwise becomes unavailable before the instructions are met specifying how the title will be passed?

the title will still pass to the grantee from the escrow agent once all conditions have been met. grantor does not have to be present or even alive once the stipulated instructions have been met.

transfer of deed to third party with conditions (escrow transaction) rule

this is typically related to the purchase of property and the condition typically is the payment of the purchase price. if the escrow agent is given written instructions, the grantor is bound by the delivery to the agent. but, if the grantor gives the escrow agent oral instructions, the grantor may change the instructions and recall the deed while it's still in the agent's hands, unless there is a written contract of sale.

Buyer and Seller enter into a contract for the sale of Blackacre. At the time of the contract, Blackacre is subject to a $100,000 mortgage held by First Bank. What is the effect of this mortgage with respect to the contract?

title may still be marketable - the seller has until closing to deliver marketable title and can satisfy the mortgage at the closing with sale proceeds. if the purchase price is sufficient and this is accomplished simultaneously with the transfer of title, the buyer can't claim that the seller's title is unmarketable.

Grantor decides to give her lake house to her friend. Grantor draws a deed conveying title to the lake house to her friend and signs it. Before grantor can give the deed to her friend, she is in an accident and is left in a coma. Which of the following best describes the state of title to the lake house?

title remains in the grantor - Grantor did not deliver the deed to the friend or do any act that would allow delivery to be presumed. Since Grantor did not express any intent that title pass, the fact that she kept the deed in her possession, raises a presumption of no delivery. Thus, title remains in the grantor.

encumbrances

unencumbered fee simple - servitudes and mortgages render title unmarketable, UNLESS BUYER HAS WAIVED THEM.

time of performance

unless the contract or the circumstances indicate otherwise, time is not of the essence in a land sale contract. missing the closing date in the contract is not a material breach. even if a buyer is late in paying the purchase price, they can still enforce the contract if they tender the price within a reasonable time - usually a month or two.

closing documents: environmental report

usually comes up in commercial real estate sales. an owner of real property is responsible to pay to clean up any environmental damage on the property, even if it occurred before they owned the property. the parties often negotiate an environmental report explaining which environmental guarantees the seller is making.

void deeds

will be set aside even if it has been conveyed to a bona fide purchaser.

voidable deed

will be set aside only if the property has not passed to a bona fide purchaser.

does the recipient's express rejection of the deed defeat delivery?

yes

Seller, who owned a home with a very leaky roof, was told that she would need to replace the roof before she could sell the home. Instead, Seller painted the roof so that it appear new and covered the watermarks on the interior ceiling and walls. Then Seller entered into a contract with Buyer for the sale of the house. Shortly after closing, the roof leaked and Buyer was told by the roofing contractor that it was very old and needed to be replaced. If Buyer sues Seller for damage caused by the leak and the cost of a new roof, is he likely to succeed?

yes - Despite the fact that the closing has occurred and that generally there is no warranty of fitness or quality in an existing structure, Seller can be held liable on the basis of fraudulent misrepresentation for concealing the defect and the damage. Also most states require a seller to disclose known defects and will hold the seller liable if she fails to do so.

O leases Blackacre to A for five years, and in the lease O gives A an option to purchase the farm at the end of the lease. Two years into the lease, O contracts to sell Blackacre to B. The sales contract does not mention A's option to purchase. At closing, has O breached the implied warranty of marketability of title?

yes - a seller must give a buyer title free of encumbrances - no easements, no restrictive covenants, no mortgages, no options - other than those that have been previously disclosed to the buyer.

The deed recites that O conveys "ALL of O's land," or "ALL of O's land in Essex County." Would such descriptions suffice?

yes - they provide a good lead b/c we can research and learn the meaning of "all." public records help with the research.

Buyer and Seller enter into a contract to purchase Blackacre, with a closing date of April 1. On March 20, Seller is killed in a car accident. Seller's will leaves Blackacre to his daughter. Seller's daughter does not want to sell Blackacre. On April 1, Buyer arrives at the closing with the purchase price, but no one from the Seller's estate shows up. Buyer sues Seller estate for specific performance. Will Buyer prevail?

yes b/c she tendered performance on the closing date - Buyer will win because of the doctrine of equitable conversion. Once the contract is signed, a buyer is considered the owner of equitable title, which means she is entitled to the real property, and the seller holds bare legal title, which means he is entitled to the purchase price (personal property). Death does not terminate the contract. Seller had nothing but the right to the purchase price to pass on by will. His devise of Blackacre to Daughter is adeemed, and she has no interest in Blackacre. Since Buyer tendered performance, she is not in breach and is entitled to specific performance from Seller's estate.