l408 final
>Suppliers:
(a form of subcontractor) don't do actual construction work but are usually a large group consisting of all businesses that supply materials for use in the construction project
Private law
(mostly, but not entirely contract law, which plays a particularly important role in the arena of real estate law) also plays a significant role in real property ownership and real estate transactions. Examples include deeds; easement terms and conditions; purchase/sale contracts; leases; notes, mortgage and other agreements related to financing real estate transactions; covenants, conditions and restrictions voluntarily limiting the use of land; rules made and enforced by landlords; and rules made and enforced by private ownership associations with quasi-governmental powers (homeowners associations, condo boards, etc.).
lease provisions
(security deposits, rent, additional rent, warranties, rules and regulations, lease term, landlord's rights to access, sublease, assignment, etc.).
One might think of two broad classifications when it comes to real estate finance,
(1) consumer and (2) non-consumer.
>Subcontractors:
(usually a large group) perform individual projects for the construction Responsible for separate jobs such as the electrical system, heating & cooling system, and the roof
>Private suits have most effect in obtaining compliance w/ environmental regulations
,
Recorded deeds, indexed by grantors and grantees, creates a searchable "chain of title."
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Phase 2:
Chemical analysis of soil, structures and water from the property (above or below ground). If this reveals contaminants, then proceed to...
Disclosure
Common law and statutes impose duties on sellers owed to buyers not to misrepresent or fail to disclose certain latent (hidden) defects.
>Americans with disabilities act (ADA):
buildings constructed after 1988 must have access/accommodations for those with disabilities
>Exclusionary zoning:
controls who come into the community and in what numbers
>Fixture:
real property that was once personal property Ex: furnace is a fixture b/c it is attached to the real property (the house) and passes the test of annexation b/c furnace cannot function on its own without the house and the house can't function without the furnace Annexation: attachment to the realty with a use or purpose related to the realty Intent Stays with the property Determine whether there would be damage to the property with removal of item - if there would be damage then it is most likely a fixture
>Statute of Frauds:
record in writing; identify parties, signatures of parties, description of leased premises, term of lease, and amount of rent >Leased property must be habitable >Landlord can only enter tenant's dwelling if tenant consents or in the case of an emergency without consent - however, can agree to other terms of entry >Assignment: tenant actually transfers leasehold interests to third parties who will take over all obligations and assume all benefits associated w/ original lease However, original tenant still liable to landlord >Sublease: tenant gives up only a portion of leasehold estate
>Intensity zoning:
regulates location & size of structures on land such as minimum lot sizes, setbacks, height limitations,, etc.
Ordinances:
county/city laws; local zoning laws; building permits/codes County, city, local ordinances establish zoning laws
>Curtesy rights:
surviving husband's porection
>Tort liability:
tenant must take legal action to recover - damages can be more than one month's rent
>Triple net lease:
tenant pays rent and all operating expenses Tenant pays for property taxes, insurance, and maintenance expenses
>Council of environmental quality (CEQ):
formulates national policies and makes recommendations to lawmakers regarding its policy statements Criminal sanctions for violations
>Title theory:
give mortgagee some type of legal title to the property - upon foreclosure, mortgagee has right to possession and rents on property Mortgagee has right to rents upon execution of mortgage
>Rule of capture:
gives owner of a tract of land the title to all the oil/gas produced by wells located on his land even tho some of the oil/gas may have migrated from adjoining land Protects driller from liability of trespass Ownership states: landowner is owner of mineral rights that can be lost only if someone captures oil/gas thru drilling Nonownership states: no one owns the oil/gas until it has been captured Has limits
>Resource Conservation and Recovery Act of 1976 (RCRA):
goal to control disposal of potentially harmful substances and encourage resource conservation and recovery
>FHA & VA:
government-backed loans
Trespass
intentional interference w/ landowner's use and quiet enjoyment of property Ex: walking across another's property or placing object's on one's property
>Voluntary lien:
lien created by both parties Ex: mortgage
>Architect:
may work w/ general contractor/owner is making sure building is constructed properly
Metes and bounds
method of description with terminal points and angles; metes refer for distance, bounds refer to the direction of the distance to be taken
Due diligence by a seller suggests review of a title abstract, report or certificate of title, created by a professional who has examined the chain of title and reported on any matters affecting title to the real estate (easements, recorded leases, access to a public right-of-way, CCRs, liens, mistakes in the chain of title, etc.).
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>All states have a statute that establishes licensing requirements for those seeking to obtain real estate license
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In most consumer transactions (those that directly, or indirectly through government backing of mortgages), practices are rigidly defined and limited by consumer protection statutes. Key concept here is disclosure of costs of borrowing - Consider the Closing Disclosure documents now required for residential consumer loan transactions.
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In non-consumer transactions, the methods and practices related to financing can be more creative than those employed in consumer transactions. The extent of such creativity will depend upon the ideas and agreements by and between the parties (borrow and lender). Non-consumer transactions allow substantially more flexibility than consumer transactions.
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Most of the consumer protections described in Ch. 9 still exist, but they are frequently updated (several times since our book went to press) and are now under the Consumer Finance Protection Bureau (CFPB), which didn't exist until 2012.
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Other issues were addressed briefly through examples of where the Constitution requires Due Process and Equal Protection. At various times throughout the semester, we pay attention to the Constitution as providing protections for private property ownership and use. An owner's use may be limited in some manner (or even taken for just compensation), but only if requirements of Due Process and Equal Protection are satisfied. Due Process, in particular, is frequently raised as an issue where local governmental bodies legislate (deny permits, change zoning, etc.) in ways that prevent intended development projects for proceeding.
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Deeds
Each state establishes its own particular requirements for legally enforceable deeds, but they tend to be very similar from state to state.
>Personal property:
Ex: refrigerator is not affixed to the land - it can function alone without the house
>Tenancy in partnership:
Exists when partners have contributed property to partnership or when partnership has purchased property with partnership funds Characteristics of joint tenancy
"The Right to Light" / "Right to a View"
Rights to light and views may exist by statute or by private easement in the U.S., but otherwise adjoining landowners are generally free to do with their property whatever they may choose, so long as it does not constitute a nuisance and is otherwise permitted by applicable zoning regulations (even though it may impact other landowners values by diminishing the sunlight that reaches their properties and obstructing scenic views).
>3 step program to reduce crime in multi-unit tenant housing:
Screen out applicants who have a felony conviction Evict those who are convicted while residing on property Employ readily available resources for crime prevention such as tenant involvement, security, and partnerships with local law enforcement agencies
Listing agreements
Should be in writing (generally, per the State's statute of frauds), signed by all owners (relates to the notion of property ownership - you can't sell what isn't yours), and have an expiration date or at least explain how/when they may be terminated by the parties. They should include all material terms and conditions.
Federal statutes and regulations -
Overarching the various state and local laws are a variety of federal statutes and regulations that govern particular types of transactions. For example, federal laws that set standards and procedures for residential closings, prohibit discrimination in housing and finance, provide certain consumer protections, authorize environmental cleanup and make landowners financially responsible for the costs of environmental remediation, etc. We encountered a variety of these statutes, described more particularly below or in referenced textbook pages and other materials.
>Joint tenancy:
Parties hold equal shares and possess unique rights of ownership through survivorship When one joint tenant dies, title to the property remains with the surviving joint tenants So cannot be given away by will Requirements for creation of joint tenancy: Use of clear language - "joint tenants" Unity of time Must take title to property at same time Unity of title Unity of interest - equal interest Unity of possession - equal rights to possess property
Exemptions from mechanic's lien:
Public property such as courthouses, public schools, municipal housing Government land - state and federal Railways
>Social issue zoning:
battle social issues thru land use controls
>Reverse mortgage:
borrow on equity on your home - retired homeowners
>Fracking:
bringing oil to the surface
Consumer Financial Protection Bureau (CFPB):
enforce new laws on mortgage lending and disclosures; located in the Federal Reserve Jurisdiction includes: credit cards, student loans, and residential mortgages Created recently as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") Must disclose to borrower: APR, when payments are due, and total number of payments Non-consumer real estate transactions are NOT subject to CFPB regulations - ex: agricultural and commercial transactions Consumer mortgages are heavily regulated at both state and federal level
>Dower rights:
exist for the protection of the widow
>Master-planned community/planned unit development:
extensive plan for city - zoning
Tract index system:
faster and avoids some problems of other system - entire county divided into tracts
United States Code (USC):
federal laws/enactments Mortgage Reform and Anti-Predatory Lending Act: protections for mortgagors Real Estate Settlement Procedures Act (RESPA): deals w/ maximum closing costs American Recovery and Reinvestment Act of 2009 (ARRA): provides federal funds to stimulate economy Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA): authorizes Environmental Protection Agency (EPA) to clean up of disposal sites for hazardous waste More on this later
>Construction lender:
finances project during construction period
>Gross lease:
flat rent for tenant - landlord pays all operating expenses Escalation clause: formula for extra rent above flat rent
>Surety as grantor:
for either payment or performance according to the terms of the owner's contract or the contracts of subcontractors and suppliers
>Insurer:
for the owner, the contractor, or any other party stands liable in the event of destruction of the project during its course
Phase II:
if phase I reveals concerns, analysis of extent of contamination and how much it will cost to clean up - soil test, water test
Phase III:
if phase II finds contamination, actual cleanup of property
>Permanent lender:
carries mortgage on property once construction is completed - pays construction lenders loan once construction is complete
>Building codes:
contractor must comply with state and local building codes and are liable if don't comply May restrict building height, ceiling height, window placement, fire sprinkler systems, exits, lighting, materials, etc.
>Noise control act of 1972:
control noise emissions from low-flying aircraft
>Aesthetic zoning:
controls who come into the community and in what numbers
>Mortgage:
conveyance; a written instrument providing securities for payment of debt 2-party relationship Mortgagor: borrower who is buying mortgage or pledging property (owes debt to mortgagee) Mortgagee: lender who advances mortgagor the funds for the loan Requires form of writing or record in order to protect mortgage against others' rights Promissory note: evidences underlying debt of mortgage - actually contractual arrangement between parties - typically negotiable Acceleration clause: permits mortgagee to accelerate maturity date of note if mortgagor defaults
>Tenancy for years:
created by lease that will run for a specific period of time Has fixed beginning and ending date If longer than one year, must have writing or record to be valid Terminates automatically on specified date - tenant does not have right to terminate lease If sublease, original tenant still liable for rent payments if sublease tenant does not pay
>Tenancy at will:
created expressly when the parties agree to a lease of property but provide no time period for the lease - both parties have right to terminate lease at any time and notice is NOT required Can arise for financed properties when there is default by possessing party, in which case bank becomes tenant at will
Real Estate Settlement Procedures Act (RESPA):
deals w/ maximum closing costs
Phase I:
determine whether evidence of past or current environmental problems exist - records test
>Protective covenant:
developer will record restrictions for subdivision - deed restrictions based on common law Equitable servitude: land sue restriction existing b/c of the nature of area Required to use land in manner consistent w/ development plan
Gov't survey:
done in 1975 b/s so much vast land west of 13 colonies w/ conflicting claims of ownership; divide vast lands into rectangular segments Prime or principal meridians and baselines: served as solution to Earth's curved surface -Guide meridians placed b/w principal meridians, and parallels placed b/w baselines...survey divided into grid of 24 sq miles -Broken down even further into township lines every 6 sq miles -Further broken down into one sq mile section, 640 acres
>Nonconforming use:
a grandfather-clause protection in zoning used when a zoning ordinance now prohibits a use that already existed Ex: store or business operating in area that has just been zoned residential In order to work, use must be in existence at the time the new zoning is passed Cannot be expanded beyond the use at the time the new zoning is passed Now many local governments require nonconforming use to be eliminated after 5 years
Easement
a liberty, privilege, or advantage in another's property Nonpossessory but can run on in perpetuity
Under the Superfund Amendments and Reauthorization Act (SARA)
enacted in 1996, "innocent owners" (similar to Bona Fide Purchasers for value - BFPs that we learned about when we discussed recording statutes, priority of recordings including mortgages and other liens, etc.) are protected from CERCLA liability for clean-up costs if they exercised environmental due diligence before they consummated their purchases. When buying property, due diligence might require 1 or more steps in a three phase process.
>Statutory lien
a lien that exists because of an enabling statute Ex - mechanic's lien: allows those furnishing labor/construction and improvement of real property to file a lien against that property for debt or payment security For mechanic's lien: property owner or agent acting on behalf of property owner can contract for improvements that can be the basis for a mechanic's lien Mechanic's lien may be terminated by agreement of both parties such as one party waiving right to file a lien Exemptions from mechanic's lien: Public property such as courthouses, public schools, municipal housing Government land - state and federal Railways
>Lien:
a special encumbrance that makes real property the security for the payment of a debt or obligation
For a variety of other types of land interests, refer to the following:
a. Some of these land interests are merely introduced in Chapter 3, discussed in significantly more detail in later chapters. In particular: i. Nonpossessory Land Interests, most notably easements (Ch. 4, etc.) ii. Life Estates, Future Interests, and transferability by will or otherwise post mortem (after one dies) ("handout" (posting in Canvas) on wills and intestate interests) iii. Mortgages and other liens pertaining to finance (Ch. 15, etc.) iv. Nonfreehold interests (Tenancies - Ch. 9 and Ch. 10) b. The notion of an easement is something that we should be particularly familiar with. One frequently encounters easements and related issues during a career in real estate (above-ground and underground utility easements, temporary construction easements, drainage easements, maintenance easements, etc.). c. No need to be able to distinguish the specific language that makes a fee simple defeasible estate "determinable" or subject to a condition subsequent. It is enough to know that a fee simple estate may be defeasible. d. A Deed is a type of Legally Operative Document (document that by its existence creates, modifies or destroys a legal relationship) which conveys from Grantor(s) to Grantee(s) an ownership interest in real property. We encounter other legally operative documents throughout our course - other examples include: Will, Trust Instrument, Contract, Bill of sale, Divorce decree, Proxy appointment form, Power of Attorney, etc.
Easement by express grant:
actually written up
4th Amendment of US constitution:
affords property owners the right to be secure in their homes
>Title insurance:
affords the property purchaser financial protection in the event certain types of defects arise in the property
Grantor/grantee system:
agency responsible for recording maintains a running index of transactions alphabetized by the grantor and grantee's names
Code of Federal Regulations (CFR):
all federal regulations appear in this volume
>General partnership:
all profits and losses flow through to individual partners Personal assets are all subject to the creditors of the partnership Property remains titled to the partnership when one partner dies
mechanic's lien:
allows those furnishing labor/construction and improvement of real property to file a lien against that property for debt or payment security
>Corporation:
also created formally - double taxation
>Workout:
alternative to foreclosure - restructure mortgage loan
>Nuisance:
applied by courts to allows landowners living near contaminated sires to recover for damages to their property resulting from contamination
Easement by necessity:
arises solely on the basis of necessity, and the requirements of prior use need not be established Lasts only as long as the necessity continues
Easement by implication:
arises when there is a necessity May go on in perpetuity
>Limited partnership:
at least one general partner and one limited partner GP has full and complete personal liability for all partnership losses LP liability is limited to the amount of their capital contributions - personal assets not at risk Created formally - filed in public office LP supplies most of the funds but has limited liability; GP manages and has unlimited liability
Easement appurtenant:
attaches to or benefits a particular tract of land Purpose is to provide benefit to landowner
>Abstract of title:
attorney opinion on chain of title for parties transferring property interests Concise statement of the substance of documents/facts appearing on the public records that affect the title Legal description called caption or head Abstractor's certificate summarizes what abstractor did not examine - ex: zoning issues
Exclusive Right-to-Sell Agency
the most commonly used listing/agency agreement, under which (during the term of the agreement and a reasonable time thereafter) the seller agrees to pay a commission to the broker regardless of who produces the buyer. Less common is the exclusive agency agreement (under which sellers would not owe a commission if they procure a buyer through their own efforts). Rare and disfavored (especially in residential transactions) are open listing agreements and net listing agreements.
Insurable title
there may be a defect reflected among the land records that is minor, and that a title insurance company is willing to "insure over" so long as it is adequately disclosed to them in advance (giving them the opportunity to consider whether they are willing to accept the related risk).
>Lease termination:
through constructive eviction of uninhabitable space
>Marketable title:
title free of problems in the chain of title, quality of title, and seller's right to convey the property Often obtained through purchase and issuance of title insurance policy as pre-requisite for closing the transaction
>REIT:
trustee holds legal title to property to be developed and responsible for management of properties in trust; each investor, beneficiary, holds equitable title to the property Liability limited to trust assets Taxed only on undistributed income and gains Avoid double taxation of corporations Follow 85/95 rule
>Federal Environmental Pesticide Control Act:
use of pesticides is controlled
>Tenancy at sufferance:
when tenant stays on landlord's property after original tenancy ends - tenant still pay rent and landlord still accepts rent - lease becomes periodic tenancy once rent is paid and accepted past original lease expiration date
Dual agent
with adequate disclosure, may represent both seller and buyer.
Listing agent
works directly with seller to list and market the property.
>Air rights:
land interest above the surface Who can use the air rights and to what extent? What air interests can be transferred? Purchase of air rights is popular in areas where upward construction is only means for growth and expansion - one will purchase air rights above building and then build upward Air rights are a real property interest and are taxed in this instance >Dividing air and surface ownership enables maximum use of real property >Transfers of air rights have become very common >Airspace is now at a premium as its uses become increasingly important in developing alternative energy sources
>Torrens systems:
land title registration by making an entry reflecting the owner who is then given an official certificate of title - can transfer title
Cumulative:
lesser restricted areas allow all of the activities permitted in more restrictive areas - ex: area zoned commercial could have residential uses within it
>Zoning:
local laws that control land use Affects property value, price, and marketability One way to restrict land use - can also restrict land use thru private law such as deed restrictions Established by county, city, and local ordinances Method of controlling community development - follow and enforce a general/master plan for the community Must serve some public health, safety, or morals interest Cannot be arbitrary or discriminatory
>Trade fixture:
machines, equipment, and other personal property used in a trade or business Does NOT remain with the property
>Recording:
method of title protection Documents required to be recorded - deeds, mortgages, liens, judgments, financing statements Mechanics of recording - statutorily designated offices such as county office System for maintaining and organizing records Grantor/grantee system: agency responsible for recording maintains a running index of transactions alphabetized by the grantor and grantee's names Tract index system: faster and avoids some problems of other system - entire county divided into tracts Method for determining priorities of interests Pure race: first to record is first to hold title Notice: last good-faith purchaser (has no knowledge of prior conveyance) keeps the land interest Pure race and notice: good-faith purchaser who is first to record
>Lien theory:
mortgagee only has a lien on the property and is entitled to possession and rents only upon foreclosure - mortgagor holds title to property Mortgagee not entitled to rents until default/foreclosure
>Deed in lieu of foreclosure:
mortgagor surrenders deed to property to the lender
Plat map:
most frequent in residential areas; map of subdivision, contains size & shape of each lot
>Tax lien:
must be paid first if there are multiple liens Has priority of payment over all other liens
>Periodic tenancy:
no definite ending date - continues until one of the parties takes proper legal steps to end the interest Can be expressly created or created thru conduct - ex: acceptance of rent Notice required for termination of lease - typically one month's notice
Easement in gross
not created to benefit any landowner; belongs to holders regardless of whether they own any adjacent property Ex: public utilities
>LLC:
offers limited liability of a corporation but permits tax advantages of a partnership
>Constructive eviction:
one theory used to require repairs by landlord - tenant must establish that landlord was responsible for repair - tenant has no choice but to leave and must move out in order for doctrine to apply
Noncumulative:
only the activities specified by the applicable zone are permitted
Affirmative easement
owner of easement right can use another's land
>Governmental supervisor:
party who must be consulted or who must inspect as the project progresses
Mortgage defined
pledge of property as security for a loan. Mortgages are recorded among the land records, becoming a type of voluntary lien on the subject property.
Negative easement:
prevents other property owners from using their property Ex: easement preventing shading of solar panels Conservation easement - prevent from tearing down buildings w/ historical significance
>Interim zoning:
prevents uncontrolled development before a comprehensive plan and ordinances are adopted - would do this is city master plan isn't yet complete
>Conventional mortgage:
private lender - not insured by government agency so not subject to government restrictions
>Real estate syndication:
process of investor ownership of real estate projects - allows developers to acquire nontraditional funding for a project through individual investors Syndicator: primary party Unit purchasers: those who invest Form of syndicate: partnership, corporation, LLC, or REIT
5th Amendment:
prohibits federal gov't from depriving any person of "property without due process of law" and from taking private property for public use "without just compensation" Eminent domain: action of taking property for public use Regulating land use - zoning sometimes triggers 5th Amendment when residents land is taken and they question whether or not just compensation was given Taking of property occurs when landowner is deprived of any use of the property Just compensation: fair market value - what a willing buyer would pay a willing seller State must provide a way for landowner to present what he/she thinks the value should be - this is called due process
14th Amendment:
prohibits state gov't from depriving any person of "property without due process of law; also makes it unconstitutional for any state law to interfere with any rights given to citizens in the US constitution Equal protection clause: states must apply laws equally, so all citizens enjoy same protection, rights, opportunity or ownership, etc
Dominant tenement:
property owned by easement holder - party gaining the benefit of the easement Has right to transfer easement Right of repair
Servient tenement:
property through which the easement runs - party granting the benefit Can't interfere with dominant tenement's use of property
Mortgage Reform and Anti-Predatory Lending Act:
protections for mortgagors
American Recovery and Reinvestment Act of 2009 (ARRA):
provides federal funds to stimulate economy
Types of deeds
quitclaim (no warranties by seller), warranty (general warranty) (seller warrants good and marketable title), special warranty (seller warrants that they did nothing to impair title to the property during their term of ownership)
Recording statutes
race, notice, or race-notice.
>Asbestos hazard emergency response act (AHERA):
requires all public and private schools to arrange for the inspection of their facilities to determine whether their buildings contain asbestos
>Surface mining and reclamation act of 1977:
requires those mining coal to restore land surfaces to their original conditions and prohibits surface coal mining without a permit
>General contractor/builder:
responsible for coordination of construction
Anchor tenant:
responsible for drawing most customers to shopping center - ex: grocery store
>EPA:
responsible for enforcement of major environmental laws
>Covenant:
restriction placed in a deed that is a nonpossessory interest in land Equitable servitudes: restrictions on land use that run with the land
>Toxic substances control act (TOSCA):
resulted from toxic waste at Love Canal and Valley of Drums Authorized EPA to control the manufacture, use, and disposal of toxic substances
>Solar easement:
right for assuring adequate access to direct sunlight
>License:
right to use land in the possession of another, but it passes no land interest and does not alter or transfer property Ex: hunting/fishing May be created by oral agreement
Private law:
rules & regulations created by landowners; contracts for purchase, sale, lease, or mortgage of real estate
>Anaconda/dragnet mortgage:
secures all items of indebtedness that the mortgagor may owe to the mortgagee
Regulatory Takings
see also, "handout" (postings) on Constitutional issues in real estate. We look primarily at 5th Amendment "takings" through the Lucas and Kelo cases (Lucas a regulatory taking, Kelo a physical taking).
>Subordinate mortgage/wrap-around mortgage:
seller acts as lender for their buyers who cannot afford loan from commercial lender
Truth in lending laws:
specific disclosures required in consumer credit contracts Mandated by truth in lending act (TILA) which is part of consumer credit protection act Consumer financial protection bureau (CFPB), which was created under Dodd-Frank and is housed within the Federal Reserve, mandates/enforces TILA
>Forcible detainer and action for dispossession:
specific procedures for having nonpaying tenants evicted
"Good and Marketable Title"
standard for "clear" title to be conveyed and warranted.
>Many commercial tenants are operating under oral agreements
statute of frauds for commercial leases only takes effect when leases run for more than 6 months or 1 year
>Self-Help:
tenant can make repairs (up to one month's rent) if landlord does not response within 14 days of written demand for repair - then tenant can send landlord receipt for repair and deduct amount from his rent Landlord cannot engage in retaliatory eviction which would be up to one year after tenant employs self-help action
>Intermediate theory:
>Title theory: >Lien theory: combo of above 2 theories
>Real estate can have significant value but legal issue could exist preventing owner from selling property to realize that value
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Eminent domain:
action of taking property for public use
State constitutions:
more specific than US constitution; sources for real estate law in states
>Owner:
owns land on which building is being constructed
Title insurance
two varieties - owner's title insurance and lender's title insurance. • An owner's title insurance policy protects the ownership interest in the property (i.e., the owner's equity in the real estate). • A mortgagee title insurance policy insures the validity and priority of the mortgagee's lien • Matters that affect an ownership interests (the government's right to assess property taxes; existing and "permitted" encumbrances like prior permitted liens, utility easements, etc.) appear as "exceptions" to title insurance policies (which only insure against unknown/not readily ascertainable risks). • "Exclusions" also apply for matters common to everyone (e.g., things the owner him/herself does that affect title; matters arising after the effective date of the policy (title insurance is "backward" looking - insuring against existing unknown/unknowable defects in title); matters arising by governmental action like zoning changes and takings).
>TILA-RESPA integrated disclosure process:
under MDIA, the loan estimate must be given 3 business days after mortgage application and the closing disclosure must be given 3 business days before closing
Brownfields -
undeveloped, potentially hazardous land Require cleanup and remain unused b/c of cost of cleanup
Nuisance
unreasonable interference w/ another's property such as noise or bad odor Can be public or private
Real Estate Brokers/Agents are licensed state-by-state, with each state adopting its own set of rules, with many common rules and themes. Recognize application of basic contract principals, and some conventions particular to real estate contracts - offer, acceptance, counter-offer, in writing to be enforceable ("statute of frauds"), containing all material terms stated with adequate specificity, contingencies, inspection reports (title report, property condition, environmental conditions, pests, etc.). As with other areas of real estate law we encounter, it is important to keep in mind the distinction between residential (consumer) and non-residential contracts. Residential contracts generally have more disclosure requirements and similar provisions intended as a means of "consumer protection."
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Agency relationship
- Broker/real estate agents that work for the Broker (typically as independent contractors) are agents/subagents of the principal (either the buyer or seller for whom the broker/real estate agent works). As an agent, common law and statutory agency requirements apply (most notably, duties that related to not secretly competing with the principal or favoring oneself over the principal).
Hazard Insurance (also called homeowner's insurance for residential dwellings)
- Does not protect against losses affecting title to real estate, rather casualties to structures, persons and contents, subject to standard types of exclusions and limitations. This is also true of other types of insurance that protect against other types of loss.
Key trend tenancy
- Landlord-tenant laws in more populous and urban areas (most notably, New York City, with its robust warranty of habitability), where there may be proportionally more renters compared to owners than in suburban and rural areas, tend to be more tenant friendly.
Periodic tenancy
- Usually month-to-month, automatically renews at the beginning of each successive period, and generally may be terminated by either party by giving notice equal to the period length
Subsurface Rights
- be familiar with the general notion of separating subsurface from surface rights (creating separately transferable interests in real estate), and resulting possibilities of leasing oil, mineral and gas rights; conflicting interests between surface and subsurface owners, etc.
Methods of Transfer and Conveyance
- refer to the methods of transfer addressed in various sections of our materials (deed, will, intestacy)
Key concept tenancy
- residential leases are typically governed by a combination of common law rules (generally more friendly toward landlords but providing minimum protections for tenants) overlaid by state residential landlord tenants statutes and some requirements imposed by federal statutes. State laws are typically based upon the Uniform Residential Landlord-Tenant Act, which provides substantially more protections to tenants (especially tenants of landlords who own multiple units) than was historically provided at common law.
Rules for interpreting property descriptions:
1.) The language of the description is construed against the grantor (seller) of the property and in favor of the grantee; grantor drafted deed & could check for accuracy 2.) If there is ambiguous & nonambiguous descriptions, the nonambiguous descriptions prevails so that a legally sufficient description is found 3.) Ambiguities may be clarified by reference to other portions of the document & to oral testimony -Latent ambiguity example: typing error
Black's Law Dictionary defines "deed," in part, as:
: "[A] written agreement, signed, sealed, and delivered, by which one person conveys land, tenements*, or hereditaments to another." (*Tenements - privileges and rights associated with the ownership of real estate)
>Judgment lien:
: arises from some action taken by a court Allows sale of plaintiff's property in order to satisfy the plaintiff's judgment
Equal protection clause
: states must apply laws equally, so all citizens enjoy same protection, rights, opportunity or ownership, etc
misc info on easement
>Court employs rule of reason when interpreting the deed/contract granting the easement Most difficult in easements by implication >All easements can be terminated through abandonment Easement owner must possess the intent to abandon Intent to abandon must be accompanied by conduct indicating the intent to terminate >Terminated when one owner for both servient and dominant tenement
percentage rent
>Shopping centers and mall leases sometimes carry a percentage rent which entitles landlord to a percentage of the tenant's sales
misc insurance info
>Title insurance does not afford protection for new problems developing after the closing of the transaction and the transfer of title to the buyer >American Land Title Association (ALTA): developed most widely used form policies >Exclusions from title insurance coverage: facts, rights, or claims not noted in the public records but visible upon inspection, and zoning issues Offer coverage for these items for a fee >Title policies are not transferable >Loss is least of Actual loss of insured claim Amount of insurance set forth in policy Amount necessary to pay off mortgage debt
Key concept on transactions
As with many of the topic we encounter, there are significant differences in how the law applies to residential and non-residential transactions. There is significantly more flexibility/freedom to contract in non-residential transactions than in residential transactions, where the agent-principal relationship is more regulated by the various states. Then intent here is to protect residential buyers and sellers, who might typically be less sophisticated than non-residential sellers and buyers - a form of "consumer protection" - a theme that frequently repeats itself in the arena of real estate law.
Phase 3:
Actual cleanup/remediation
>Zoning classifications:
Cumulative: lesser restricted areas allow all of the activities permitted in more restrictive areas - ex: area zoned commercial could have residential uses within it Noncumulative: only the activities specified by the applicable zone are permitted
how "real property" is defined
Having a good understanding of how "real property" is defined (and thereby being able to distinguish the other broad category, "personal property") is an essential building block to understanding many other aspects of real estate law and relating it to business decision-making. Being conversant with the following definition should prove quite useful: Real Estate: Land and anything fixed, immovable, or permanently attached to it such as appurtenances, buildings, fences, fixtures, improvements, roads, shrubs and trees (but not growing crops), sewers, structures, utility systems, and walls. Title to real estate normally includes title to air rights, mineral rights, and surface rights which can be bought, leased, sold, or transferred together or separately. Also called real property or realty. Read more: http://www.businessdictionary.com/definition/real-estate.html#ixzz2dLfrHvRI
>Avoid foreclosures:
Hope for Homeowners Act of 2008: established authority for FHFA to help homeowners restructure, refinance, and modify their loans Troubled Asset Relief Program (TARP): authorized Secretary of Treasury to purchase troubled assets from financial institutions
>Landlord held liable for injuries resulting from disrepair of common areas - injuries to tenants and to third parties
If in tenant's dwelling unit, injury to third party may be liable to tenant or to landlord depending on who was responsible for maintaining repairs Tenant must warn third party of problems until landlord has time to repair, if tenant fails to warn third parties then both tenant and landlord may be liable Landlords sometimes use exculpatory clauses claiming that they are not responsible for negligence that results in injury but these often do not hold up in court Precautions landlords can take to prevent liability in case of injury: Obtain adequate insurance Use leases that specify who is responsible for R & M
Air Rights, etc.
In theory, a real property owner owns the surface and everything directly above and below the surface. In practice, air rights and subsurface rights may be separated out and conveyed, temporarily (as in a lease) or permanently by deed to another party.
Fixtures
Items of personal property that has become part of the real estate (transforming, in a legal sense, from personal to real property) are considered fixtures. Not always easy to distinguish, courts in the various states generally employ a three-part test to determine if an item of property is a fixture: i. Annexation (property physically attached to the land or structure) ii. Adaptation (the extent to which the property is adapted to the use and purpose of the real estate) iii. Intention of the parties (determined objectively. Generally the most important of the three parts of the test, such that courts will usually consider the intention of the parties to control the outcome regardless of physical attachment or degree of adaptation)
"Trade Fixtures"
Items that might ordinarily be considered fixtures by applying the three tests, but are not really "fixtures" at all, rather personal property, as is customary with particular items used in a particular trade for business (e.g., ovens for restaurants, display shelves and cases for retail stores, tanks, conveyors and machinery in factories, etc.).
Air Rights
Land Interests above the Surface: Air rights are typically defined by two areas, column lot (up to 23 feet above the surface) and air lot (above the 23-foot plane). The owner of air rights can then build upward simply by acquiring easements or small segments of the surface lot so that foundations may be placed. Selling and buying air rights, especially as facilitated by various state and local laws pertaining to transferable development rights (TDRs) has greatly contributed to the development of many urban areas.
Tenancy at will
Landlord and tenant agree that the lease is for an indefinite period of time and may be terminated by either party at any time so long as the agreed upon or statutorily required advance notice is given
>Tenant has responsibility to make payments on time - if they do not, there is breach of lease and landlord can take action to minimize damages
Landlord must give tenant written notice of nonpayment that states that lease terminates within specified period after receipt of notice if rent is not paid If rent is not received within 14 days from time tenant receives notice of nonpayment, the lease will terminate within 30 days from receipt of notice
Tenancy for years
Lease for any set period of time, not necessarily "years"
Phase 1:
Looking at public and private land records, aerial photographs, and physically inspecting the site. If concerns, proceed to...
- Financing the Real Estate Purchase Key concept
Make distinction between consumer (regulated by CFPB) and non-consumer real estate transactions (generally not regulated by CFPB; much more flexibility and "freedom of contract" in non-consumer transactions).
5th Amendment Takings
May be physical (Kelo case) or regulatory (Lucas case)
Statutes, Regulations and Ordinances, State and Local
Much of U.S. real estate law is state legislation and regulation. Each state's laws are similar to that of the others, though each also has its own unique characteristics. Beneath the state level, local rules (ordinances adopted by legislative bodies representing cities, counties, towns, etc.) play a significant role in governing real estate transactions and related business decision-making. Note that local rules must be in accordance with state law - local rules that conflict with state law are invalid. Likewise, local rules and state laws must be consistent with federal laws.
>Easement by prescription:
Must be used for the appropriate prescriptive period Use of easement must be adverse (not permissive) Use of easement must be open and notorious (owner is aware of use) Use of easement must be continuous and exclusive Confined to a specific area and used consistently
Multiple Listing Service (MLS)
Network of exclusive right-to-sell listings affording brokers and sellers a larger market for their properties. Essentially, a marketing tool that also sets rules between participating brokers as to how commissions will be shared.
Tenancy at Sufferance
Occurs when a lease ends, the tenant stays, and is basically at the whim and mercy of the landlord (landlord can evict, raise the rent substantially, etc.)
"Trespass" and "Nuisance"
One should generally know what these doctrines are - they give landowners a right of action (right to sue) to keep others from either interfering physically with the use and enjoyment of their property (trespass), or interfering by other means (noise, odors, pollutants, vibration, etc.) with the use and enjoyment of their property (nuisance). In either type of case, the remedy awarded to a successful plaintiff may be twofold: Injunctive relief (an injunction is a court order to abstain from doing something injurious to the rights of another) and monetary relief (court ordered payment of a sum of money by the defendant to the plaintiff necessary to compensate the plaintiff for the damage caused to the use and enjoyment of the plaintiff's property).
due process
State must provide a way for landowner to present what he/she thinks the value should be
Laws on land use restrictions:
Subject to zoning ordinances Subject to private law such as covenants and restrictions in the deed Subject to future interests in land
>4 methods of co-ownership
Tenancy in common Joint tenancies Tenancies by entirety Tenancies in partnership
>Tenancy in common:
Tenants hold separate interests in a single piece of property May hold equal/unequal shares in the land May convey interests to others Each tenant entitled to equal possession of the property
Constitutional Law
The U.S. Constitution and each state's constitution establish certain minimum rights that cannot be violated by other laws or governmental action. For example, we examine in our course the "due process" and "just compensation" aspects of eminent domain - the government is allowed to take private land and use it for a public purpose, but in doing so, the process must be fair (comport with Due Process); and the landowner whose property is taken must be justly compensated. Many of the state's constitutions are more detailed and specific than the U.S. Constitution, some with specific provisions related to real estate.
Remedies
Using the deposit as "liquidated damages"; aggrieved part may also recover actual damages; Misrepresentation as a defense to contract formation, allowing the remedy of "recission"; Other remedies for misrepresentation, disclosure statutes which enable recission for non-disclosure.
"Creditors Rights in Fixtures"
UCC Article 9 permits creditors to perfect a security interest in trade fixtures and other personal property by proper completing and filing a UCC "financing statement" - these are recorded among land records and with the corresponding state's office of Secretary of State.
ownership types
There are various levels and types of ownership (title) regarding real property. Title can exist presently, or as a future interest. The right to present possession can be transferred without transferring title (as in a lease, where title remains with the landlord and possession lies with the tenant). Ownership of all of the rights pertaining to a particular piece of real property as generally understood (the right to use and enjoy land however one would like, free to exclude everyone else, presently and indefinitely, with the land and its appurtenances being freely transferrable to one's heirs or others, subject to the government's rights to restrict, tax and take for a public purpose (eminent domain) = a freehold estate held in fee simple.
(CERCLA)
This federal statute (states also have environmental protection statutes one must be aware of), passed in 1980 and amended and expanded from time to time since then, enabled the existence of a Hazardous Substance Response Trust Fund (the so-called "Superfund") to provide funding for cleanup of contaminated lands. The government may seek repayment of such funds expended from responsible parties, which includes landowners who purchased lands without conducting adequate "due diligence."
When commission is due
Typically (unless there is a "no deal/no commission" clause), commission is due and owing when the broker produces a ready, willing and able buyer (i.e., contract would have closed, but for some fault of the seller).
>Tenancy by entirety:
Unity of time, title, interest, and possession Unity of person - tenants must be married Right of survivorship - spouses can't dispose of property by will
Zoning -
We combine our look at zoning with Constitutional Issues and Development Issues - Be aware of the typical use restrictions, "variance" and "nonconforming" (grandfathered) uses.
Environmental Law and Regulation
We looked at CERCLA as our primary example of a federal environmental statue that broadly impacts real estate transactions and decision-making. We also looked at CERCLA and state "brownfields" laws intended to enable the cleanup and redevelopment of contaminated properties. Clean-up of contaminated sites has been expedited by sites being listed (as required by a 1986 amendment to CERCLA) a National Priorities List (NPL), which identifies contaminated sites and lists them in order of priority for clean-up. The list appears in a database called the Comprehensive Environmental Response, Compensation, and Liability Information System (CERCLIS). Recall also various contracts we examine, and that each specifically addresses environmental disclosures, inspections and potential liability. Being an informed purchaser who performs appropriate due diligence (Phase I, etc.) helps avoid potential liabilities for clean-up costs, etc. The "innocent landowner defense" to liability for environmental clean-up costs was created by an amendment to CERCLA passed in 1996 - the Superfund Amendments and Reauthorization Act (SARA), which describes appropriate due diligence that gives rise to the defense as consisting of up to three phases (more on this, below). Other statutes and regulations.... Regulation occurs at the federal, state and local level. For example, projects requiring federal approval implicate the need for an environmental impact statement as mandated by the National Environmental Policy Act (NEPA). State laws modeled after NEPA generally require similar assessments of environmental impact for state regulated projects and even for local projects that require governmental approval (i.e., most projects). Federal laws pertaining to environmental protection are generally regulated by the U.S. Environmental Protection Agency (EPA). State-level agencies are responsible for administering similar state laws (e.g., Indiana's state environmental protection statutes are administered by the Indiana Department of Environmental Management, which describes itself like this: "The Indiana Department of Environmental Management's (IDEM) mission is to implement federal and state regulations to protect human health and the environment while allowing the environmentally sound operations of industrial, agricultural, commercial and government activities vital to a prosperous economy." http://www.in.gov/idem/landquality/2357.htm Other important statutes include the federal Emergency Planning and Community Right-to-Know Act (EPCRA), designed to provide information to the public about hazardous chemicals in their communities, requiring cataloging and disclosure; the Resource Conservation and Recovery Act (RCRA), regulating the treatment, storage and disposal of hazardous wastes. And State Superfund laws, enacted by some states - these laws generally mirror the federal CERCLA in its effect and intent, but on a smaller scale.
Common Law and the role of the judiciary -
Where legislative bodies and constitutions have not already spoken, courts play a limited role in making law (common law). Courts also play an important role by interpreting and refining existing common law; by interpreting statutes, ordinances and constitutional provisions; and by reviewing administrative decisions (by serving as the avenue of appeal for aggrieved parties - landowners who disagree with an administrative determination may eventually "have their day in court").
Commercial Leases Key concept
Wide variety of commercial leases, depending upon the intended use of the premises, with terms that might be used for some types of leases, but not others. Much more customization and private bargaining permitted in commercial leases than in residential leases. Residential leases are heavily regulated by statute; commercial leases allow more freedom of contract.
Consumer Transactions:
With regard to consumer (residential) mortgages, one might find answers to nearly every question one might think of by consulting the Consumer Financial Protection Bureau (CFPB)*: http://www.consumerfinance.gov/ Consumer transactions are also regulated at the state level. E.g., by Indiana's Department of Financial Institutions: http://www.in.gov/dfi/index.htm *The CFPB is an independent federal administrative agency created in 2011 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"), passed in response to the 2007-08 financial crisis. The CFPB holds primary responsibility for regulating consumer protection with regard to financial products and services in the United States. It writes and enforces rules for banks and non-bank financial institutions, monitors and reports on markets, provides "plain English" information to consumers, provides guidance to financial institutions regarding statutory and regulatory compliance and examination procedures, and collects and tracks consumer complaints. The jurisdiction of the CFPB is quite broad, but its major concerns are credit cards, student loans and mortgages.
>Comprehensive, Environmental Response, Compensation, and Liability Act (CERCLA):
authorized president to use funds for the cleanup of areas that were once disposal sites for hazardous waste Hazardous Substance Response Trust Fund set up to provide funding for cleanup - often called Superfund - funds available for governmental use Superfund Amendment and Reauthorization Act - EPA can recover cleanup funds from those responsible for the release of hazardous substances Lender who takes over property in the case of foreclosure is NOT a potentially responsible party for hazardous cleanup UNLESS lender participates in managerial and operational affairs Potentially responsible parties: present owners and operators, owners/operators at time property was contaminated, those who transport hazardous waste, and those who arrange for transportation of hazardous waste Screen property before buying it Phase I: determine whether evidence of past or current environmental problems exist - records test Phase II: if phase I reveals concerns, analysis of extent of contamination and how much it will cost to clean up - soil test, water test Phase III: if phase II finds contamination, actual cleanup of property Brownfields - undeveloped, potentially hazardous land Require cleanup and remain unused b/c of cost of cleanup
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA):
authorizes Environmental Protection Agency (EPA) to clean up of disposal sites for hazardous waste More on this later
>Standard State Zoning Enabling Act:
authorizes local government entities to pass zoning laws
who is liable under cercla
• "owners" of lands at the time the lands were contaminated • "operators" of facilities that caused the contamination (e.g., tenants who operated factories) • transporters - Those who may have transport or arrange to transport hazardous materials • Subsequent owners (Exemptions now may be sought under "Brownfields" laws) • Lenders* who exercise active control over a property (e.g., following foreclosure) *Note: Whether a lender with a security interest, or who acquires title by foreclosure, etc. may be held liable has been a debatable issue in the past. Legislation now exempts lenders, unless they exercise active control over the property. Also Note: Generally, insurers are able to, through express contract provisions, disclaim liability under CERCLA. Owners, operators, etc. may expressly agree to indemnification by others, but cannot disclaim liability (in other words, insurers, but not owners etc. may "contract their way out" of future litigation).
Non-consumer transactions include:
• Business transactions • Commercial transactions • Agricultural transactions • Organizational credit transactions TILA-RESPA Integrated Disclosure Rules - "Know Before You Owe" http://www.consumerfinance.gov/know-before-you-owe/ http://www.realtor.org/topics/trid-tila-respa-integrated-disclosure
