MBE Property Session 4

An owner entered into a contract to sell her house to a buyer. The contract's only provision concerning the closing date provided that the closing would occur on July 1. On July 1, the buyer informed the owner that she was unable to close at that time because of an unavoidable overseas obligation required by her job. The buyer stated that she would be able to close on July 8. The owner, having recently found another buyer willing to pay more for the house, has filed an action to rescind the contract. Is the owner likely to succeed in his action to rescind the contract?

Answer choice A is correct. A court will assume that time is not of the essence in a real estate contract, unless the contract specifically states that time is of the essence, circumstances indicate that this was the intention of the parties, or one party gives the other party notice that time is of the essence. If time is not of the essence, strict adherence to the closing date set in the contract will not be required in equity. Thus, a failure to perform on the closing date will generally not be grounds for rescission of the contract. Answer choice B is incorrect because, regardless of whether time is of the essence in a real estate contract, the party that fails to render performance on the date set for closing in the contract will be in breach.

A man bought a warehouse as part of his new manufacturing business. The warehouse required several upgrades in order to serve as an office and storage area. To finance these upgrades, the man took out a loan from a bank secured by a mortgage on the warehouse. The mortgage provided that the bank could declare the entire loan due and payable if the warehouse was ever sold, transferred, or encumbered without the bank's permission. The bank promptly recorded the mortgage and the man made timely payments for six years. The man later decided to expand his business and required a loan for new equipment. He took out a loan from a second bank secured by a mortgage on the warehouse. The second bank recorded its mortgage. Upon learning of the mortgage to the second bank, the first bank demanded the balance of the man's mortgage obligation, plus interest. Can the first bank foreclose on the property if the man refuses to pay the balance?

Answer choice A is correct. A due-on-encumbrance clause gives the lender the right to accelerate a mortgage obligation upon the mortgagor obtaining a second mortgage or otherwise encumbering the property. A due-on-encumbrance clause is generally enforceable to the same extent as a due-on-sale clause. Upon such an encumbrance, the lender can demand immediate payment of the full amount of the outstanding obligation, including interest. If the mortgagor refuses to pay the balance, he is in default and the lender can foreclose on the property. In this case, the first bank's mortgage contained a valid due-on-encumbrance clause. The man violated this clause when he obtained a second mortgage without the first bank's permission. Accordingly, the first bank can demand the balance of the mortgage obligation. If the man fails to pay, he is in default and the first bank can foreclose on the property.

A partnership purchased land intending to develop it commercially and financed the purchase with a loan from a bank. As security for the loan, the bank took a mortgage in the land, which the bank recorded. The partnership subsequently defaulted on the bank loan and the bank initiated foreclosure proceedings on its mortgage. At the foreclosure sale, as permitted by state law, the bank purchased the land. Several months later the bank sold the land to a developer for less than the bank paid for it at the foreclosure sale. To what extent does the bank have an interest in the land?

Answer choice A is correct. A foreclosure sale extinguishes the mortgage interest being foreclosed upon. Consequently, the developer's ownership of the land is not subject to the bank's mortgage.

A purse maker sought to market its line of "smart" purses that were compatible with a new handheld device. As part of its plans, the purse maker sought to purchase a store from which to sell its purses. The purse maker found a suitable store, and entered into a contract with the owner of a store. The contract was in writing, signed by both parties, and stated the essential terms, including a closing date in 30 days. Due to the purse maker's plan to sell her purses in advance of the release of the new handheld device, the contract stated that the closing date could not be delayed. One week before the closing date, the purse maker discovered that the store was in violation of a zoning ordinance that mandated an updated version of the current fire sprinkler system. The owner promised that he would promptly update the fire sprinkler system and that, although it would not be finished by the closing date, it would be done in time for the grand opening of the store. In addition, the owner promised to provide a warranty deed upon closing to shield the purse maker from any potential liability stemming from the outdated fire sprinkler system. On the day before the grand opening, the purse maker refused to close the land sale deal. In an action by the owner for specific performance against the purse maker, who will prevail?

Answer choice A is correct. Absent contrary language, an implied covenant of marketable title (i.e., a title free from defects) is part of a land sales contract. Here, the owner was obligated to deliver marketable title to the purse maker on the date of the closing. Generally, a court will assume that time is not of the essence in a real estate contract, unless the contract specifically states that time is of the essence, circumstances indicate that this was the intention of the parties, or one party gives the other party notice that time is of the essence. In this case, the contract specifically stated the closing date could not be delayed, and thus time was of the essence. Because the out-of-date fire sprinkler system in the warehouse was in violation of a zoning ordinance on the closing date, the title was unmarketable, and the purse maker was not obligated to close the land sale deal. This is true even if the issue was corrected within a reasonable time after the closing date because time was of the essence. Answer choice B is incorrect because the warranty deed would most likely protect the purse maker from liability for the zoning violation and, even if it did, the owner was not entitled to specific performance of the contract because he had failed to provide marketable title to the purse maker at closing.

A buyer and seller entered into a written agreement for the purchase and sale of a residential home. The land sales contract stated that the buyer would pay $250,000 in exchange for the delivery of a general warranty deed. The contract called for the closing to take place on March 15. After executing the land sales contract but prior to the closing, the buyer encountered substantial difficulties in obtaining the financing necessary to purchase the home despite acting in good faith. On March 10, the buyer informed the seller in writing that he would not be able to close on March 15 and would need "a few extra days." On March 19, the buyer attempted to pay the seller the $250,000 but the seller refused, and did not provide the buyer with a general warranty deed. The seller realized that he could get a better offer on the home. The buyer brought an action seeking specific performance of the land sales contract. Will the buyer likely prevail?

Answer choice A is correct. Generally, a court will assume that time is not of the essence in a real estate contract, unless the contract specifically states that time is of the essence. If time is not of the essence, strict adherence to the closing date set in the contract will not be required in equity. Thus, a failure to perform will generally not be grounds for rescission of the contract. A party can sue for specific performance, though, as long as the party was ready to perform within a reasonable time from the date set for performance. Here, the buyer was not able to close on the anticipated closing date of March 15. However, there are no facts to indicate that "time was of the essence." As a result, the buyer can sue for specific performance because he was ready to perform under the contract within a reasonable time from the date set for performance (i.e., the closing date).

A business owner borrowed money from a financial institution in order to expand his business. The business owner executed a nonnegotiable promissory note to evidence his personal liability to repay the financial institution. In addition, the business owner granted the financial institution a mortgage on his condominium that was evidenced by a written document as security for the loan. By a separate written document, the financial institution assigned its interest in the note to a third party. This document made no mention of the mortgage. What is the effect of this transaction on ownership of the mortgage?

Answer choice A is correct. If the promissory note is transferred without the mortgage, the mortgage is treated as having been transferred as well under the principle that the mortgage follows the note.

A limited partnership purchased a parcel of land that it intended to develop for commercial purposes. The limited partnership borrowed half the purchase price from a bank and paid the remainder from its own funds. The loan from the bank was secured by a mortgage on the land. The loan document stated that the bank agreed to look solely to the real property for satisfaction of the loan. The limited partnership made several payments on this nonrecourse loan and then, shifting its focus to the development of another parcel of land, defaulted on the loan despite having the ability to make the required payments on the loan. Can the bank foreclose on its mortgage?

Answer choice A is correct. The bank, as mortgagee, may enforce its mortgage through foreclosure proceedings upon the mortgaged property when the borrower (the mortgagor) defaults. Answer choice B is incorrect because a mortgagee can foreclose whether or not the mortgage was a purchase-money mortgage. Similarly, the loan funds do not have to be used to purchase the mortgaged property.

A man owned a building. He executed a deed conveying the building to a local church "for the purpose of using the building to further religious education." Six years later, the man died, leaving his niece as his sole heir. The man's duly probated will left his entire estate to a friend. Eighteen months later, the local church, having never made use of the building, conveyed all of its interest in the building to an investor for valuable consideration. The investor has filed an action to quiet title against the friend and niece. The investor has also joined a state official who argues that a valid charitable trust was created, and that the attorney general of the state should be permitted to enforce the charitable trust. In whom should the court find proper title is vested?

Answer choice A is correct. The man conveyed the building to the church in fee simple because the language "for the purpose of using the building to further religious education" is precatory language that only limits the property's purpose, rather than conditional language (e.g., "so long as") that is necessary to create a defeasible fee. The church then conveyed its interest in the building to the investor, who now possesses title to the building outright. Answer choice B is incorrect. The man's will did not devise the building to his friend because he no longer owned the building at his death. Additionally, because the man had conveyed the building in fee simple, the man did not retain a future interest that was devised to his friend.

A landowner gave her property's mineral rights to her son. After the transfer but before the son began to mine the minerals, the landowner sold the property to a corporation that built a commercial warehouse on the property. As a consequence of the son's subsequent mining activities, which were conducted with reasonable care and in compliance with all laws and regulations, the land subsided and the warehouse was damaged. Can the corporation recover for the damage to its warehouse?

Answer choice A is correct. The owner of mineral rights is not liable for damage done to structures built on the surface of the land after the mineral rights were transferred unless the owner fails to exercise reasonable care in removing the minerals. Because the facts indicate the son did exercise reasonable care in conducting the mining operation, he is not liable for the damage to the warehouse.

The owner of a commercial building obtained a nonrecourse, five-year loan from a lender and used the proceeds to fund another business project. The lender secured the loan with a mortgage on the building. Under the terms of the loan, monthly loan payments constituted only interest on the loan. The loan required a single payment of the principal amount (i.e., a "balloon" payment) at the end of the five-year period. Three years after the loan was made, the building was damaged by an unexpected hurricane. The owner did not repair the damage done by the hurricane and did not take action to protect the building from further damage. The contract was silent with regard to any obligation to repair the building. At the end of the five-year period, despite an overall rise in property values for commercial buildings in the area, the value of the building was less than the amount of the balloon payment due to its state of disrepair. The owner did not make the balloon payment. The lender sued to foreclose its mortgage. After the foreclosure sale, the lender filed an action against the owner personally. If the court finds for the lender, which of the following is the most likely reason?

Answer choice B is correct. A mortgagor has a duty not to commit waste at least to the extent that the waste impairs the mortgage's security. While the damage done to the building by the hurricane does not constitute waste because it was due to natural forces, the damage done by the owner's failure to take action to prevent further damage to the building could constitute waste. Because the overall value of commercial buildings in the area had risen during the five-year period and the decline in the value of the building was due to its state of disrepair, it is likely that the owner's failure was in part responsible for the impairment of the lender's security. Answer choice A is incorrect because, even though the loan was in default, the loan was a nonrecourse loan. A nonrecourse loan, as the name implies, is a loan secured by collateral, but for which the borrower is not personally liable; in the event of default, the lender can seize the collateral, but nothing else. Consequently, the lender was not personally responsible for payment of the loan.

The owner of a retail store sold the store to two of her employees, the manager and the bookkeeper. The employees took ownership of the store as tenants in common with equal ownership interests. At the time of the sale, there was an existing mortgage on the store that the owner had granted to a bank in exchange for a loan. The manager and the bookkeeper did not assume the obligation to repay the loan. Six months later, the former owner became insolvent and the loan went into default. Responding to the bank's threat to foreclose on the mortgage, the manager paid off the loan. Can the manager enforce the mortgage against the bookkeeper's interest in the store?

Answer choice B is correct. A person who pays off a loan that is secured by a mortgage in order to protect her own interests acquires the rights of the original mortgagee-lender and may therefore enforce the mortgage. This concept is called "subrogation." As a tenant in common with an equal ownership interest in the store with the bookkeeper, the manager is entitled to contribution from the bookkeeper for one half of the payment made by the manager because the payment protected the manager's interest in the store as well as the bookkeeper's.

A homeowner bought a home with the proceeds of a loan from a thrift institution. The loan was secured by a mortgage on the home. Under the terms of the loan, the full amount of the outstanding loan obligation was to become due and payable if the home was sold or otherwise transferred without the prior permission of the thrift institution. The thrift institution recorded its mortgage. Subsequently, the homeowner established a living trust and transferred ownership of her home to the living trust. The homeowner recorded this ownership transfer. Upon learning of the transfer, the thrift institution demanded that the homeowner pay the outstanding amount due on the loan immediately. When the homeowner refused, the thrift institution brought a foreclosure action to collect the full amount of the outstanding loan obligation. Is the thrift institution likely to succeed?

Answer choice B is correct. Generally, an acceleration clause (due-on-sale clause) in a mortgage loan document is enforceable. However, federal law provides a residential real property exemption, exempting certain transfers of residential real property from the requirement that states give effect to an acceleration clause. Among the exempt transfers is a transfer by the mortgagor-borrower to her living trust. Consequently, it is unlikely that the court will give effect to the acceleration clause in this situation and find the loan in default due to the transfer of ownership from the homeowner to her living trust.

A man decided to sell his house after receiving a new job in a neighboring state. Before putting the house on the market, the man told his friend, who had always said how much she enjoyed the house, that he was selling the house and she could buy it at a lower price than he would seek from other potential buyers. Excited at the prospect of home ownership and the lower price, the friend immediately agreed to purchase the house and entered into a contract with the man for the sale of the house, without inquiring as to any issues with the house the man had experienced or knew about. Although he did not say anything to the friend, the man was not aware of any issues. Pursuant to the contract, the man delivered a general warranty deed to the friend at the closing. The friend then moved into the house and decided she would hire a contractor to perform some slight renovations to the upstairs bathroom. As soon as the contractor broke through the wall, he discovered black mold all throughout the interior of the bathroom and along the pipes. Upon further inspection black mold was found behind the walls, throughout the upstairs. The friend brought suit against the man for damages. Pursuant to statute, a seller has a duty of disclosure in all home-sale transactions in the jurisdiction. For whom is the court likely to rule?

Answer choice B is correct. In a majority of jurisdictions, including the jurisdiction here, a seller of a residence has a duty to disclose. The seller must disclose all known material physical defects to the buyer. The defect must not be readily observable or known to the buyer. In this case, the man was not aware of the presence of black mold in his house. Therefore, he did not violate the duty of disclosure imposed on him by statute.

An individual received a contingent remainder interest in land by will. Subsequently, the individual sought to transfer this interest to his niece via a document. The unsigned document identified the individual as the grantor, the niece as the grantee of the interest, contained an adequate description of the property interest to be conveyed, and expressed an intent to transfer the interest. Does this document operate to transfer the contingent remainder interest to the niece?

Answer choice B is correct. The grantor's signature is generally required for a document to be a valid deed. Because the individual who held the contingent remainder did not sign the document, it is not a valid deed and will not operate to transfer his contingent remainder interest to his niece.

By statute, a jurisdiction provides: "Any judgment properly filed shall, for ten years from filing, be a lien on the real property then owned or subsequently acquired by any person against whom the judgment is rendered." In addition, the recording act of the jurisdiction reads, in its entirety, as follows: "No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice unless the same be recorded according to law." This act has been interpreted as not providing any grace period for recording a conveyance or mortgage. An owner conveyed land by a warranty deed to his adult child. The child recorded the deed a week later. Three days after the conveyance to the child and without knowledge of it, a creditor of the owner properly filed a judgment against the owner. The creditor then filed suit against the owner and his child to foreclose the judgment lien against the land. If the court rules against the creditor, which of the following is the most likely reason? The owner's warranty of title to his child protects the land from the creditor's claim. The creditor is not a purchaser for value. The warranty deed has priority over any valid judgment lien on the land. The child's week-long delay in recording the deed was not unreasonable. Sorry, that's not the best choice. The answer you selected is not the best choice in this situation. Answer choice B is correct. The recording act protects a subsequent purchaser for value of real property from prior unrecorded conveyances or mortgages of that property of which the subsequent purchaser did not have knowledge. At the time that the creditor properly filed a judgment against the owner, thereby creating a judgment lien against real property owned or subsequently acquired by the owner, the conveyance of the land from the owner to the child had not been recorded and the creditor had no knowledge of this conveyance. Thus, the creditor would be protected by the recording act, but only if the creditor was treated as a purchaser for value. Because the court ruled against the creditor, the jurisdiction, like a majority of jurisdictions, must not treat a lien creditor as a purchaser for value. Answer choice A is incorrect because the owner's warranty of title, as part of a warranty deed, runs to his child, as grantee. Although the owner may be obligated to defend the child's interest in the land against a challenge by the creditor as a consequence of this warranty of title, the warranty has no effect on the rights of the creditor to the land. Answer choice C is an incorrect statement of the law. A judgment lien on real property has priority over a subsequent conveyance of real property, even when that conveyance is by a warranty deed. Answer choice D is incorrect because the recording act provides no grace period for a reasonable delay in recording a deed. Thus, the fact that the child's delay in recording the conveyance was likely reasonable would not result in a judgment for the child and against the creditor. Remaining Test Time

Answer choice B is correct. The recording act protects a subsequent purchaser for value of real property from prior unrecorded conveyances or mortgages of that property of which the subsequent purchaser did not have knowledge. At the time that the creditor properly filed a judgment against the owner, thereby creating a judgment lien against real property owned or subsequently acquired by the owner, the conveyance of the land from the owner to the child had not been recorded and the creditor had no knowledge of this conveyance. Thus, the creditor would be protected by the recording act, but only if the creditor was treated as a purchaser for value. Because the court ruled against the creditor, the jurisdiction, like a majority of jurisdictions, must not treat a lien creditor as a purchaser for value.

A buyer and seller entered into a contract for the sale of a business including the building in which the business was conducted and the land on which the building was situated. In the contract, the seller agreed to convey marketable title subject to any restrictions of record, such as easement and covenants, and all applicable zoning laws and ordinances. Before closing, the buyer learned that the operation of the business violated the zoning laws, but nevertheless was confident that it could obtain a variance for the operation of the business at that location. If the seller refused to transfer title to the building and land, can the buyer seek specific performance of the contract?

Answer choice C is correct. A buyer is entitled to specific performance when a seller breaches a contract to sell a real property interest because the buyer's remedy at law (i.e., damages) is considered inadequate due to the unique nature of land. In addition, when the buyer seeks specific performance with respect to property for which there is a title defect (e.g., an encumbrance), the buyer may also obtain an abatement in the purchase price to compensate the buyer for the defect. Here, because the seller breached the contract, the buyer is entitled to specific performance, if it wants the property despite the defect.

A buyer entered into a written contract to purchase real property from its owner. The buyer asked that the owner convey the property to the buyer and her brother as tenants in common. The owner noted that the buyer's brother would need to attend the closing to sign the necessary paperwork. Because the brother lived in another state and could not attend the closing, the buyer brought her roommate to the closing instead. The roommate pretended to be the buyer's brother and signed all the necessary paperwork with the brother's name. The buyer paid the full purchase price, and the deed granting the buyer and her brother half interests as co-tenants was recorded on the same day. Unknown to any of the parties, the evening before the closing, the buyer's brother had died in a car accident. The brother's valid probated will devised all of his property to his wife. The brother's wife has brought an action against the buyer, who has taken sole possession of the property, and the original owner to quiet legal title to an undivided one-half interest in the property. Who should the court find has legal title to the real property, and in what proportions?

Answer choice C is correct. A deed to a nonexistent grantee is void as to the nonexistent grantee. Therefore, the purported conveyance of a one-half interest in the real property to the buyer's brother failed, and the original owner retains this one-half interest. The conveyance of a one-half interest in the property to the buyer is unaffected. (Note: The buyer should be successful in an unjust enrichment action to recoup one-half of the purchase price from the original owner.)

A small company specializing in providing meditation retreats purchased a tract of land fronting a river in a rural residential area. As the residential area grew around the company's tract of land, the tract became essentially cut off from the only public road. Hoping to avoid the expense of building a bridge across the river, the company approached an owner of one residential plot separating the company's tract from the road to request an easement. The owner, without requiring consideration, granted the company an easement by deed to a strip of land 30 feet wide across his property. The deed did not place any express limitations on the easement's use. The company built a narrow dirt road across the easement to accommodate the limited number of vehicles attending its occasional meditation retreats. A year later, the company began to offer outdoor yoga classes each night. This new service was wildly popular, resulting in increased daily traffic across the easement. On busy evenings, visitors also parked on the dirt road for the duration of their class. After a month of enduring the additional traffic, the owner erected a concrete barrier to prevent any use of the easement to access the company's tract. The company objected, and the owner brought an action to terminate the easement across her property. Should the court allow the owner to terminate the easement on these facts?

Answer choice C is correct. An express easement arises when it is affirmatively created by the parties in a writing that is in compliance with the Statute of Frauds. In addition to any express terms in the written instrument that allow for termination of the easement, an express easement may be terminated by an express written release, merger, severance, abandonment, prescription, or estoppel. Here, although the owner of the servient estate may be able to thwart a change in the scope of an express easement, this change does not constitute grounds for terminating the easement. Answer choice A is incorrect. Although the expanded use of an easement may be enjoined by the owner of the servient estate if such use is not in conformity with the express terms of the easement or is otherwise unreasonable, expanded use is not an independent ground for termination of an easement.

A landowner died and left a piece of land to his three sons as joint tenants with the right of survivorship. The youngest son sold his interest in the property to the oldest son. The oldest son then died and left all of his real property interests to his daughter. The youngest son later died. Following the youngest son's death, the middle son gave his interest in the property to a nephew. The applicable jurisdiction continues to follow the common law with regard to joint tenancy. Who owns the property?

Answer choice C is correct. At the landowner's death, each of the three sons held a one-third interest in the property as joint tenants with the right of survivorship. The sale of the property from the younger son to the older son severed the unity of title; therefore, upon the youngest son's sale of his interest to the oldest son, the oldest son held a one-third interest as a tenant-in-common, and a one-third interest as joint tenant with the middle son. (Note: The youngest son's subsequent death had no effect on ownership rights in the property, because he had already transferred his interest.) Upon the oldest son's death, the daughter was entitled by the terms of her father's will to the one-third interest he held as a tenant-in-common. His remaining one-third interest became the property of the middle son pursuant to the right of survivorship, giving the middle son a two-thirds interest as a tenant-in-common with the daughter. The middle son then gave this interest to his nephew. Thus, the nephew owned a two-thirds interest in the property as a tenant-in-common with the daughter.

A farmer owned a farm in joint tenancy with her brother. The farmer lived on the farm while her brother lived upstate in a major metropolitan area. The farmer and her brother took ownership of the farm pursuant to their father's will upon his death. Several years later, the farmer took out a loan from a local lending institution in order to build a new barn on the farm. The farmer executed a promissory note in favor of the lender. The farmer also granted the lender a mortgage on her interest in the farm. After the barn was constructed, the farmer defaulted on the loan and died shortly thereafter. The jurisdiction adheres to the title theory of mortgages. Can the lender enforce its mortgage by foreclosing on the farm?

Answer choice C is correct. In a jurisdiction that follows the title theory of mortgages, the granting of a mortgage by less than all of the joint tenants severs the joint tenancy and transforms it into a tenancy in common. Consequently, after the farmer granted a mortgage with respect to her interest in the farm, she and her brother became tenants in common, each owning a one-half interest in the farm, because each joint tenant owns an equal interest in property held in joint tenancy. Upon default of the loan obligation by the farmer-mortgagor, the lender-mortgagee can foreclose on its mortgage.

A farmer informed his best friend, who had fallen on hard times, that he wanted to give him a small farm he had recently acquired. The friend told the farmer that he would be honored to own it. The farmer had his attorney prepare a proper deed transferring the farm to his friend. The farmer signed the deed, and his signature was notarized. On his way to deliver the deed to his friend, the farmer stopped by his home for lunch. The farmer placed the deed on a small table in the entryway, along with his car keys and wallet. The farmer had lunch and then took a nap. While napping, he died. The farmer's adult son, from whom he had been estranged for several years, claims that the deed is not valid. The friend contends that the farmer's deed was effective to convey the farm to him. The farm is located in a race-notice jurisdiction. Did the farmer likely transfer his farm to his friend?

Answer choice C is correct. In order to validly transfer a real property interest, the grantor must make a present transfer of the interest; this is usually demonstrated by the delivery of the deed to the recipient. However, intent can be implied from the words and conduct of the grantor, even if the deed has not been actually delivered. Here, there is significant evidence that the farmer intended to presently transfer an interest to the friend. He signed and notarized the deed. Acceptance of a beneficial transfer, such as this one, is generally presumed; in any event, the friend had indicated his acceptance of the gift. The friend is most likely correct that the deed effectively transferred the farm to him.

A fitness company entered into a ten-year lease with the landlord of a gym facility. The lease required the fitness company to maintain the gym equipment in proper, working condition, and to upgrade or replace any of the equipment as required by the safety guidelines for gymnasiums issued by a national organization of gymnasiums. In addition, the lease specified that all of the fitness company's clients must sign a valid waiver releasing the current landlord from liability for any injury arising from their improper use of the gym equipment. One year into the lease, the landlord transferred the remaining term of the fitness company's lease to a large fitness conglomerate. The transfer occurred without the fitness company's consent. The fitness company paid rent to the conglomerate, but they stopped making their clients sign the liability waiver because the conglomerate did not require any of their gym members to sign one. The conglomerate has brought an action against the fitness company to enforce this covenant in the lease. Who will prevail?

Answer choice C is correct. Under the doctrine of attornment, the tenant is bound to honor any covenant in his lease that has been assigned by the landlord to a third party, if the covenant touches and concerns the land. Here, the liability waiver touches and concerns the land because it has to do with clients using gym equipment in the gym facility. Answer choice A is incorrect. Although the conglomerate does not require liability waivers from its members, the covenant in the lease requires such liability waivers by clients of the fitness company in using the gym facility.

A grantor owned two tracts of land, one 10 acres and the other 20 acres. Fifteen years ago, the grantor conveyed the larger tract to a friend and retained the smaller tract for himself. The deed to the friend contained, in addition to all requirements for a valid deed, the following provision: "I, the grantor, bind myself that in the event I offer to sell the smaller tract that I now retain, I will notify the grantee in writing, and the grantee shall have the right to purchase the smaller tract for its fair market value as determined by a board of three qualified expert appraisers." The deed also contained a reciprocal provision conveying a similar right to the grantor for the right to purchase the larger tract from the friend. Five years ago, the grantor decided to sell the smaller tract of land. He informed the friend in writing of his intention to sell the property. The friend had no interest in buying the smaller tract and released his right to purchase the tract. The grantor sold the property to a buyer. Several months ago, the friend decided to sell the larger tract of land. However, the friend failed to inform the grantor in writing of his intention to sell the property. The grantor learned of the offer to sell the property through a local newspaper. The grantor approached the friend with an offer to purchase the property at fair market value. The friend refused because he believed he could sell the property for a higher value. The common law Rule Against Perpetuities is unmodified in this jurisdiction and there are no applicable statutes. The grantor has brought an action for specific performance of the right of first refusal. Is he likely to succeed?

Answer choice D is correct. A right of first refusal is a preemptive right that gives its holder the opportunity to acquire property before it is transferred to another. Such a provision is valid if it complies with the Statute of Frauds and the terms are reasonable. Under the reasonableness standard, the utility of the purpose served by the restraint is balanced against the likely harm that would result from its enforcement. In this case, the original deed from the grantor to friend created the right of first refusal in both the grantor and the friend. This provision complied with the Statute of Frauds. Because the fair market value is to be determined by a panel of experts, the pricing of the property is likely fair and reasonable.

The owner of a restaurant decided to pursue a different line of work, so he conveyed the restaurant to an up-and-coming chef. The owner executed a valid, written deed to the chef, who did not record the deed. The chef was talented, but he did not understand how to run a business, so his restaurant failed within a few months. A culinary school, in search of a new location to hold their cooking classes, purchased the restaurant from the chef. The chef executed a valid, written deed to the culinary school, and the culinary school promptly recorded the deed. After the sale, but before the culinary school had a chance to occupy the restaurant space, the original owner noticed that the restaurant was vacant. The owner then conveyed the space to a fast-food chain, and the fast food chain promptly recorded the deed. The owner did not tell the fast-food chain of his earlier conveyance of the restaurant to the chef and the fast-food chain otherwise lacked actual knowledge of this conveyance. Subsequently, the chef recorded the deed from the owner conveying the restaurant to him. When the fast-food chain attempted to take possession of the restaurant, it discovered the culinary school had moved into the restaurant. The fast-food chain has filed an appropriate action for quiet title against the owner, the chef and the cooking school. The jurisdiction in which the restaurant is located applies a race-notice recording statute. Who will prevail?

Answer choice D is correct. Although an instrument is recorded and indexed in the recording office, it's possible that it was not recorded in such a way as to give notice to subsequent purchasers. The school's recording would not suffice to put the fast-food chain on notice of the earlier sale because the chef never recorded his deed. A search by the owner's name would indicate that the owner had the ability to transfer a valid deed to the fast-food restaurant. Here, the restaurant is located in a race-notice jurisdiction. Under the race-notice statute, the culinary school's prior recording of the deed from the chef to the culinary school does not count because it is a "wild deed"—a deed not within the chain of title—due to the failure of the chef to promptly record his deed to the restaurant that he received from the owner. In addition, the fast-food chain did not have inquiry notice of the owner's deed to the chef at the time of its purchase of the restaurant from the owner because the restaurant was then unoccupied. The fast food chain also did not have actual or constructive notice of the deed to the chef. For these reasons, the fast food chain will prevail

A bank made a loan to a homeowner to enable the homeowner to buy his primary residence. The homeowner executed a promissory note to the bank. As security for payment of the note, the homeowner granted the bank a mortgage in the residence. The mortgage loan document contained the following acceleration clause: Upon a transfer of the property without the permission of the lender, the full amount of the outstanding loan obligation becomes due and payable. One year later, the homeowner married. Shortly thereafter, the homeowner retitled ownership of the residence in his and his wife's names as tenants by the entirety. Five years later, the homeowner and his wife divorced. The divorce decree mandated that the homeowner transfer his ownership interest in the residence to his ex-spouse. The homeowner complied with the court's decree. In neither case did the homeowner notify the bank of the transfer. Do these changes in ownership likely violate the acceleration clause?

Answer choice D is correct. Generally, an acceleration clause (due-on-sale clause) in a mortgage loan document is enforceable. However, federal law provides a residential real property exemption exempting certain transfers of residential real property from the requirement that states give effect to an acceleration clause. Among the exempt transfers are a transfer of property to a spouse or child and a transfer of property to an ex-spouse due to a divorce. Consequently, it is unlikely that a court would find that either of the ownership changes effected by the homeowner violate the acceleration clause.

A grandmother had lived in her family's mansion for her entire life, but she decided to sell the property and move into a smaller home. The grandmother, desiring to keep the mansion in her family, sold the mansion to her grandson at a below-market price. The grandmother included a right of first refusal clause in the valid, written deed to her grandson. The clause stated that, in the event the grandson, his heirs, devisees, or assigns attempted to sell the property to a non-family member, the grandmother, her heirs, devisees, or assigns would have the opportunity to purchase the property before the transfer. One year after the grandson purchased the property, he was approached by a buyer who offered him twice the price he had paid his grandmother. The grandson readily accepted, and immediately sold the mansion to the buyer. The grandmother subsequently read about the sale in the local newspaper, and brought an action against the buyer to enforce her right of refusal. The jurisdiction adheres to the common law Rule Against Perpetuities. Which of the following doctrines will help determine whether the grandmother will be able to enforce the right of first refusal clause?

Answer choice D is correct. Rights of first refusal are subject to the Rule Against Perpetuities. For the grandmother to prevail, she must prove that the right of first refusal clause was valid. Under the Rule Against Perpetuities, specific future interests are valid only if they must vest or fail by the end of a life in being, plus 21 years. If this requirement is not met, then the clause is invalid, and the grandmother loses.

The owner of a wooded parcel of land conveyed the land "to [her accountant] and his heirs, provided that, if this parcel is developed, [the owner] and her heirs may reenter and retake the property." Subsequently, the owner transferred "all my interests in real property" to her friend. When the owner died, she willed "all my interests in real property" to her coworker, with whom she had developed a longtime friendship. At the time of her death, the owner's only heir was her niece. One year after the owner's death, the accountant began construction of a house on the wooded parcel of land.Property taxes assessed against this parcel of land may be challenged only by the owner of the property who holds the current possessory interest in the land. Based on these facts alone, who may challenge the property taxes assessed against this parcel of land?

Answer choice D is correct. The owner conveyed the parcel of land to the accountant in fee simple subject to a condition subsequent because she used the phrase "provided that" in limiting the property interest transferred to him. She retained for herself and her heirs a right of reentry. Unlike the possibility of reverter, a right of reentry does not automatically trigger the transfer of ownership of the property to the holder of the right of reentry. This property interest gives its holder the right to compel the holder of the fee simple subject to a condition subsequent to transfer ownership and possession to the holder upon the breach of the condition. Until the holder of the right of reentry exercises that right, the holder of the fee simple subject to a condition subsequent retains the current possessory interest in the property. Consequently, the accountant, as the holder of the fee simple subject to a condition subsequent interest in the parcel, is the only person who may challenge the property taxes assessed against the parcel of land.

A couple entered into a contract to purchase a house from the owner. The couple did not record the contract of sale. Prior to the execution of the contract, the owner incurred a debt to a creditor. Subsequent to the execution of the contract, the creditor obtained a judgment against the owner. Unaware of the contract of sale, the creditor recorded her judgment in the land records for the county in which the house was located, thereby giving the creditor a lien against property owned by the owner in the county. After the owner deeded the house to the couple and they recorded the deed, the creditor sought to execute the lien and levy on the house. The couple filed an action to enjoin the creditor from executing the lien. The applicable recording act reads: No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice unless the same be recorded according to law. Who will prevail?

Answer choice D is correct. Upon execution of the land sales contract, the couple became the equitable owners of the house; the owner merely held legal title which he was required to convey at closing to the couple. Consequently, the creditor's judgment lien, which was obtained after the contract was executed, was not enforceable against the house because the house no longer belonged to the owner.

A brother and sister coowned a farm on which they lived. The sister held a 60 percent interest in the farm, and the brother held a 40 percent interest. Each moved away. The sister rented the farm to a third party at a yearly rent of $10,000. The brother subsequently died. By will, he left all of his property to a cousin. When the sister received the next annual rental payment from the third party, the cousin demanded that she pay him his share of the rental payment, but she refused. The cousin then sued the sister for $4,000, representing 40 percent of the total rental payment that she had received from the third party. Who will be successful?

Answer choice D is correct. Upon the brother's death, the cousin received the brother's 40 percent interest in the farm through the brother's will. The cousin is entitled to the rents received by the sister from the third party in proportion to his ownership interest in the farm. Consequently, he is entitled to $4,000 of the $10,000 rental payment made by the third party to the sister.

A woman who has never married and has no children duly executes a will. Under her will, her residence is devised to her nephew and all personal property is devised to her niece, except for a bequest of $100,000 to a specific local charity. The will does not specify any alternate takers for her property and does not contain a residuary clause. The woman dies and her will is properly probated. Because the nephew served as a witness to his aunt's will, he, under state law, is an interested witness and therefore is prohibited from receiving a devise under the will. Under the applicable law of intestate succession, the woman's sister, who is the mother of the niece and nephew, is entitled to inherit the woman's estate. All property that does not pass by will or by operation of law escheats to the state. Who is entitled to the residence?

Answer choice is A is correct. The woman's residence passes by operation of law to the woman's sister. Although an individual may dictate through a will who takes her property after her death, the devise of her residence to her nephew failed. Although she could have named an alternate taker of the residence or a person to take the remainder of her estate, she did neither. Consequently, since the valid portion of the will does not specify a taker of the residence, it passes under the applicable intestacy statute.