Real Property Set 6

Which of the following would render title to land unmarketable? response - incorrect A A very slight encroachment onto an adjacent landowner's land B A visible easement that benefits the property C An existing violation of a zoning ordinance D A mortgage that the seller is poised to satisfy at closing

An existing violation of a zoning ordinance would render title to land unmarketable. Every land sale contract contains an implied covenant that the seller will provide marketable title at closing. Marketable title is title reasonably free from doubt, which a reasonably prudent buyer would accept. While it need not be perfect title, it must not present the buyer with an unreasonable risk of litigation. Generally, this means an unencumbered fee simple with good record title. The mere existence of a zoning ordinance does not constitute an encumbrance. However, title to land that currently violates a zoning ordinance would be considered unmarketable. A mortgage that the seller is poised to satisfy at closing would not render title to land unmarketable. A seller has the right to satisfy a mortgage or lien at the closing with the proceeds from the sale. Thus, as long as the purchase price is sufficient and this is accomplished simultaneously with the transfer of title (e.g., through the use of escrows), the buyer cannot claim that title is unmarketable; the closing will result in a marketable title. A visible easement that benefits the property would not render title to land unmarketable. Most courts hold that a beneficial easement (e.g., a utility easement) that was visible or known to the buyer does not constitute an encumbrance. In contrast, an easement that reduces the value of the property or is unknown to the buyer constitutes an encumbrance that renders title unmarketable. A very slight encroachment onto an adjacent landowner's land would not render title to land unmarketable. Regardless of whether an adjacent landowner is encroaching on the seller's land or vice versa, an encroachment will not render title unmarketable if: 1. It is very slight (only a few inches) and does not inconvenience the owner on whose land it encroaches; 2. The owner encroached upon has indicated that he will not sue on it; or 3. It has existed for so long (many decades) that it has become legal by adverse possession (if the state recognizes adverse possession title as marketable). In contrast, a significant encroachment constitutes a title defect that renders title unmarketable.

If the buyer of land determines that the seller's title is unmarketable, the buyer: A May sue on the implied covenant of marketable title after closing B Must take title to the land "as is" C Must notify the seller and give a reasonable time to cure the defects D May sue for damages for breach as soon as the defect is discovered

C Must notify the seller and give a reasonable time to cure the defects If the buyer of land determines that the seller's title is unmarketable, the buyer must notify the seller and give a reasonable time to cure the defects. Every land sale contract contains an implied covenant that the seller will provide marketable title at closing. Marketable title is title reasonably free from doubt, which a reasonably prudent buyer would accept. While it need not be perfect title, it must not present the buyer with an unreasonable risk of litigation. Generally, this means an unencumbered fee simple with good record title. If the buyer of land determines that the seller's title is unmarketable, the buyer may NOT sue for damages for breach as soon as the defect is discovered. As stated above, he must notify the seller and give her reasonable time to cure, even if this requires extending the closing date, and even if time is of the essence. If the seller fails to cure the defects, then the buyer may rescind the contract, sue for damages for breach, get specific performance with abatement of the purchase price, or (in some jurisdictions) require the seller to quiet title. Thus, it is not required that the buyer take title to the land "as is." The buyer may NOT sue on the implied covenant of marketable title after closing. This covenant applies at the contract stage of a land sale transaction, before the closing (i.e., exchange of purchase price and deed). The closing extinguishes the contract, which is said to merge with the deed. Then, absent fraud, the seller is no longer liable on this implied covenant; the buyer must rely on any assurances made in the deed.

Which of the following is true when a seller of land breaches the implied covenant of marketable title? response - incorrect A The buyer may sue for breach after closing B The seller can obtain specific performance C The closing date may be extended to allow the seller time to cure D Rescission is unavailable as a remedy

C The closing date may be extended to allow the seller time to cure When a seller of land breaches the implied covenant of marketable title, the closing date may be extended to allow the seller time to cure. Every land sale contract contains an implied covenant that the seller will provide marketable title at closing. Marketable title is title reasonably free from doubt, which a reasonably prudent buyer would accept. While it need not be perfect title, it must not present the buyer with an unreasonable risk of litigation. Generally, this means an unencumbered fee simple with good record title. If the buyer determines that the seller's title is unmarketable, he must notify the seller and give her a reasonable time to cure, even if this requires extending the closing date, and even if time is of the essence. When a seller of land breaches the implied covenant of marketable title, rescission IS available as a remedy. If the seller fails to cure the defects as explained above, then the buyer may rescind the contract, sue for damages for breach, get specific performance with abatement of the purchase price, or(in some jurisdictions) require the seller to quiet title. A court also may order rescission before the delivery date of an installment land contract if the buyer shows that the seller cannot possibly cure the defects in time. In contrast with the buyer's remedies, the seller CANNOT obtain specific performance or damages (unless the seller cures the title defect within a reasonable time). When a seller of land breaches the implied covenant of marketable title, the buyer may NOT sue for breach after closing. The implied covenant of marketable title applies at the contract stage of a land sale transaction, before the closing (i.e., exchange of purchase price and deed). The closing extinguishes the contract, which is said to merge with the deed. Then, absent fraud, the seller is no longer liable on this implied covenant; the buyer must rely on any assurances made in the deed.

A The contract is void B The mortgage is extinguished C Title may be marketable D Title is unmarketable

C Title may be marketable If a mortgage exists on property when a real estate contract is signed, title may be marketable. Every land sale contract contains an implied covenant that the seller will furnish marketable title on the date of closing. Generally, encumbrances (i.e., mortgages, liens, easements, and covenants) render title unmarketable. However, a seller has the right to satisfy a mortgage or lien at the closing with sale proceeds. Thus, if the purchase price is sufficient and this is accomplished simultaneously with the transfer of title, the buyer cannot claim that the seller's title is unmarketable. If a mortgage exists on property when a real estate contract is signed, the mortgage is NOT extinguished. Rather, the mortgage will remain on the land and will encumber the title in the hands of the buyer unless it is satisfied as explained above. If the mortgage is not timely satisfied, the seller will breach the implied covenant of marketability, for which the buyer may pursue several remedies (e.g., rescission, damages, or specific performance with abatement of the purchase price). The contract is NOT void.

A rancher entered into a contract to sell her land to a developer for $60,000. The contract provided that the rancher agreed to convey a good and marketable title to the developer 60 days from the date of the contract. At the time set for closing, the rancher tendered a deed in the form agreed to in the contract. The developer's examination of the record prior to the date of closing disclosed, however, that the owner of record was not the rancher, but a farmer. Further investigation by the developer revealed that, notwithstanding the state of the record, the rancher had been in what the developer concedes is adverse possession for 15 years. The period of time to acquire title by adverse possession in the jurisdiction is 10 years. The developer refuses to pay the purchase price or to take possession because of the "inability" of the rancher to transfer a marketable title. In an appropriate action by the rancher against the developer for specific performance, will the rancher prevail? response - incorrect A Yes, because she has obtained a "good and marketable title" by adverse possession. B Yes, because the rancher's action for specific performance is an action in rem even though the farmer is not a party. C No, because the developer cannot be required to buy a lawsuit even if the probability is great that the developer would prevail against the farmer. D No, because the rancher's failure to disclose her lack of record title constitutes fraud.

C No, because the developer cannot be required to buy a lawsuit even if the probability is great that the developer would prevail against the farmer. The seller of land is obligated to deliver a title that is free from reasonable doubt either in fact or law. This does not require a perfect title, but rather one that is free from questions that might present an unreasonable risk of litigation. Title is marketable if a reasonably prudent buyer would accept it in the exercise of ordinary prudence. An inability to establish a record chain of title will generally render the title unmarketable. If the seller attempts to rely on adverse possession to show that defects have been cleared, courts traditionally do not favor such an argument, because proof of adverse possession normally rests on oral evidence, which might not be available to the buyer at a later time. Here, although the rancher may have acquired title by adverse possession, the developer should not be faced with the prospect of having to prove this in court in the future. Thus, (A) is incorrect. (If the rancher had written proof or a quiet title judgment, title would be marketable.) (D) is incorrect because it does not appear that the rancher's conduct amounted to fraud. (B) is nonsensical.

On April 15, a seller entered into a valid written agreement to sell her home to a buyer for $175,000. The provisions of the agreement provided that closing would be at the buyer's attorney's office on May 15, and that the seller would deliver to the buyer marketable title, free and clear of all encumbrances. On the date of closing, the seller offered to the buyer the deed to the house, but the buyer refused to go ahead with the purchase because his attorney told him that a contractor who had done work on the house had recorded a lis pendens on May 1 against the property regarding a $10,000 contract dispute he had with the seller. The seller indicated that she was unaware of the lien, but that she was willing to go ahead with the sale and set aside funds from the purchase price to cover the contractor's claim until the dispute was resolved. The buyer still refused to proceed, stating that the seller had breached the contract. If the seller brings an action against the buyer for specific performance, what is the probable result? A The buyer prevails, because the title to the property was not marketable as of the date of closing. B The buyer prevails, because an encumbrance was on the title as of the date of closing that was subject to litigation. C The seller prevails, because under the doctrine of equitable conversion, the buyer was the owner of the property when the lis pendens was recorded, and therefore it was invalid. D The seller prevails, because an implied term of their contract was that she could use the proceeds to clear any encumbrance on the title.

D The seller prevails, because an implied term of their contract was that she could use the proceeds to clear any encumbrance on the title. The seller will likely prevail because she is entitled to clear the encumbrance with the proceeds of the sale. In a contract for the sale of real property, the seller of the land is entitled to use the proceeds of the sale to clear title if she can ensure that the purchaser will be protected. The seller's offer to escrow the funds in this case should act as such guarantee. Thus, (A) is incorrect. (B) is incorrect because, although there will be litigation over the contract dispute, the litigation will not affect the title to the land because the contractor is claiming only money damages and not an interest in the property. (C) is incorrect because the doctrine of equitable conversion is only applicable as against the seller and the buyer, and does not affect the right of some third party with regard to attaching property held in the name of a debtor.

A seller owned a two-acre tract of land, on which he built a single-family residence. The seller entered into a contract to sell the land to a buyer for $200,000. One week before closing, the buyer had a survey of the property conducted. It revealed that a portion of the seller's house was 5.98 feet from the sideline. The applicable zoning ordinance requires a six-foot sideline setback. The buyer refused to go ahead with the purchase of the land on the ground that the seller's title was not marketable. If the seller brings suit against the buyer for specific performance, will he prevail? response - correct A Yes, because any suit against the seller concerning the setback would be frivolous. B Yes, because the setback violation is de minimis. C No, because any variation, however small, amounts to a breach of contract. D No, because the seller's title is unmarketable.

The seller will not prevail because his title was unmarketable. There is an implied covenant in every land sale contract that at closing the seller will provide the buyer with title that is marketable. It need not be perfect title, but it must be free from questions that might present an unreasonable risk of litigation. Because the placement of the seller's house violated the zoning ordinance, the buyer could be subject to suit. (A) is incorrect because the location of the house violates the ordinance, and the local government has the power to enforce the ordinance strictly. (B) is incorrect for the same reason. It is probably unlikely that the local government would insist on the strict enforcement of the zoning ordinance, but it has the power to do so, which makes title unmarketable, barring specific enforcement of the contract. As a practical matter, if the parties are acting in good faith, this problem would probably be dealt with by the seller applying to the zoning authority, usually a city or county zoning board, for a zoning variance. The board would probably grant a permanent variance, allowing this particular piece of property to violate the six-foot rule by a fraction of an inch. Once that variance is granted, title would be marketable because the property would no longer violate any zoning rules applicable to the property. This solution would take some time, but the parties could push the closing date back in order to make time. So, even though the de minimis nature of the setback violation would probably allow for a solution to the problem, it would not give the seller a right to specific performance. (C) is an incorrect statement of law. Building the house too close to the sideline did not breach a contract; it violated an ordinance.

A buyer entered into a written contract with a seller to purchase his commercial property for $100,000. The contract did not specify the quality of title to be conveyed, and made no mention of easements or reservations. The closing was set for November 25, three months from the signing of the contract. Shortly thereafter, the buyer obtained a survey of the property, which revealed that the city had an easement for the public sidewalk that ran in front of the store. Because this actually enhanced the value of the property, the buyer did not mention it to the seller. Subsequently, the buyer found a better location for her business. On November 1, the buyer notified the seller that she no longer intended to purchase the property. The seller told her that he intended to hold her to her contract. At closing, the buyer refused to tender the purchase price, claiming that the seller's title is unmarketable and citing the sidewalk easement as proof of that fact. In a suit for specific performance, will the seller likely prevail? response - incorrect A Yes, because the contract did not specify the quality of title to be conveyed. B Yes, because the buyer was aware of the visible easement and it enhanced the value of the property. C No, because an easement not provided for in the contract renders title unmarketable. D No, because the buyer gave the seller sufficient notice of her change in plans and yet he made no effort to try to find another purchaser.

The seller will prevail in his suit for specific performance because the easement was visible, the buyer was aware of it at the time she entered into the contract (i.e., she knew a public sidewalk ran in front of the store), and the easement enhanced the value of the property. There is an implied covenant in every land sale contract that, at closing, the seller will provide the buyer with marketable title. Marketable title is title reasonably free from doubt, which generally means free from encumbrances and with good record title. Easements are generally considered encumbrances that render title unmarketable; so if an easement is not provided for in the contract, it usually renders the seller's title unmarketable. There is an exception, however. A majority of courts have held that a beneficial easement that was visible or known to the buyer does not constitute an encumbrance. In this case, the sidewalk was visible, known to the buyer, and beneficial to the property. Thus, the sidewalk easement does not impair the marketability of the seller's title. Therefore, the buyer's excuse for her nonperformance is not valid, and because land is involved, the seller can get specific performance of the contract for purchase of the property. (A) is wrong because, as noted above, the covenant that the seller will convey marketable title is implied in every land sale contract. So here, the fact that the contract did not specify the quality of title does not relieve the seller from providing marketable title. Thus, (A) reaches the correct result for the wrong reason. (C) is wrong because, as noted above, there is an exception to the general rule, stated in (C), for beneficial easements that are visible or known to the buyer. (D) is wrong because the buyer cannot escape the contract merely by giving notice of her intent to breach it. It apparently was a valid contract that can be enforced against her. Failure to mitigate damages might prevent the seller from recovering avoidable damages but would not negate the breach.