Real Estate Prelim 2
How do you solve the inherent conflict of interest in the bringing broker acting as a subagent of the listing broker?
1) legislative response - Dual Representation Statute: Brokers have to give notice of dual agency and lack of fiduciary duty 2) Marketplace Response: rise of buyer's broker, express pledge of fiduciary duty
priority of payment in foreclosure
1) mortgage 2) judgment 3) tax 4) second mortgage
To Execute Deeds, a person must be:
1) of legal age 2) legally competent (sound mind) 3) deed must be signed without undue influence
3 requirements to be a contract
1) offer - present intent, must be communicated to offeree 2) acceptance -- must be made by party with "power to accept" -- the "mirror image" rule applies: acceptance must exactly mirror the offer. if not, it is a counter offer and the power to accept shifts 3) consideration - some of value given by each side
Mortgage - components
1) promissory note: sets terms of loan (interest rate, term, etc) 2) mortgage: pledge of collateral/real property
Pre-Stambovsky Duty to Disclose
only when: - confidential/fiduciary relationship between buyer and seller - seller actively concealed a defect
In a foreclosure, if all liens are paid and there is leftover money from a sale, who gets the money?
owner's equity
Abstract of Title and Title Insurance purpose
proof of ownership free and clear of any other claims/liens
Contracts
set of legally enforceable promises
How to calculate tenant's CAM cost for the building
(tenant's rental area/total rentable area OR total rented area) x total CAM expenses ** check for vacancies --> total rentable area is a better negotiation term for tenant
Lease as a Financing Device: Ground Lease
- 35-99 yr term - land only is leased (lessee can build building) - everything reverts back to lessor at end of lease
Escrow
- 3rd party serving as a middle man - receive doc from seller & money from buyer - no need for face to face meeting
Percentage rent
- in addition to the rent schedule, % of gross receipts above a certain floor paid to landlord by tenant - Why would tenant do this? location is too good to pass up (usually in retail stores)
Diligence/Preparation stage
- takes a lot of time - mutual to seller and buyers - buyers: inspections, review title, arrange financing - seller: prepare docs (deeds, recording forms, survey), fulfillment of other contract terms
Bradshaw v. Ewing
- Dutchland pays 60K for 3 acres of land from Ewing - Dutchland claims that in a conversation during a basketball game, following changes verbally made to the agreement and should be enforced: would now pay 40K for 2 acres - Dutchland claims that alteration to contract should be heard because they made improvements to the land by moving a house onto the property, clearing some trees, picking up trash - court rules that these actions do not qualify as part performance bc moving house was done at request of third party and other 2 actions are not sufficient because the improvement has to be significant and permanent - original terms of contract enforced
Gensheimer v. Kneisley
- Gensheimer bought a home from the Bealls in May - Kneisley got a judgment lien against Beall on Oct 28 - Gensheimer had been living in the house and finally recorded his deed - TOO LATE - judgment lien is in effect and Kneisley gets possession of house for sale to cover amount * Gensheimer being punished for not recording his deed fast enough
Stand Alone Lease
- tenants leasing entire building; tenant pays rent, secures its own services, pays for everything: heat, electricity, phone, security, etc. -ex. Old Ithaca Beer Co.
Letsos v. Century 21
- Letsos had some property to sell, hired RE Broker (Brusha) - Broker Brusha = independent broker affiliated with C21 agency - Brusha and Letsos entered into many contracts to help sell some property - Brusha couldn't sell - they keep renewing contracts - after the last contract expires, both parties still act like everything is same - Brusha finds buyer. Brusha buys property from Letsos at current valuation, sells at higher price. makes commission and profit from double transactions. - Letsos finds out, sues. - Court finds Brusha in violation of fiduciary duty. - C21 got in trouble because they are responsible Brusha. Even though he says he's independent, he used agency name in the transaction. Therefore, compensation should also go to C21. - Brusha could have avoided this by telling that buyer was found through email or text which could be used as evidence.
Murray vs Crank
- Murrays buy house near golf course from Cranks - complete inspection and buy house. Cranks add "As is" clause - Murrays discover that golf balls keep hitting their home and water and roof problems - Murrays sue Cranks for not disclosing water and roof probs and leading them on - Murrays cannot prove Cranks knew about golf course issues or other issues so no issue --- golf course changed location of teeing, nothing to do with seller --- seller was not professional roofer - context matters. PLUS buyer did his own inspection
Normile v. Miller
- Normile tries to purchase Miller's property, makes offer through broker - Broker delivers offer to Miller who makes counteroffer - Normile thinks she has dibs on property, makes comments to broker suggesting maybe she cannot agree to counter offer - Broker goes off to others with similar contract as counteroffer. Segal signs - Normile delivers deposit and signed contract afterwards but it's too late. gets made - fiduciary duty runs to seller only - seller says "you snooze, you lose" --> revocation of contract with Normile. otherwise would have been two diff contracts
Rhea v. Paulson
- Rhea has serious medical condition. Larry takes charge of more and more of her daily affairs - Falsely tells her she might lose the house - isolates her from other family members - denies her independent advice - all of this counts as undue influence, not her free will
Barton v. Mitchell
- Tenant leaves after 2yrs 9 months out of a 5 yr term - Lower court rules in favor of landlord - Appeal: reverse lower court's decision - Tenant has done everything -- complained, waited for remedy, even moved out/constructively evicted. - LL's remedy was only after LL's departure. - Court rules in favor of tenant
if you hire a contractor to build a patio but they only complete 85%, do you have to pay?
- Yes, but not the full amount due to the Doctrine of Substantial Performance - promises can be substantially performed - minor deviation from agreed upon deal, that's when this doctrine kicks in - have to pay agreed upon price minus cost to complete it - cost to complete: not mathematical, probably more than 15%. get quotes to determine and deduct
foreclosure
- a "cutting off" of current interest so that property can now be sold to a buyer "free and clear" - what is cut off? --- 1) owner's "equity of redemption" - if they give up the property and then win the lottery, they cannot come back and reclaim with payment. too messy --- 2) all junior liens
recording laws what is a bona fide purchaser? goal of recording laws
- a deed or other instrument is ineffective and void against subsequent bona fide purchasers unless and until deed is recorded - BFP: for value (not a gift) and without notice goal: give notice to subsequent purchases
Judicial/Sheriff's/Referee's Deed
- there was a foreclosure and one of the above conducts sale on courthouse steps - looks like great deal in newspaper, however no promises - you can't go back to ppl above and complain about the title - need to conduct research before bidding, investigate title upfront - foreclosure driven by parties, not judge
Lender Security tools
- borrower needs skin in the game = 30% equity typical, 70% lent - pledge of collateral - personal guarantee by owners A, B, C - insurance - additional insured status - assignment of rents and leases - secured income streams - security agreement - personal property - cash collateral and LTV requirements
Little vs. Rohauer
- both littles (seller) and rohauers (buyers) represented by Coldwell Brokers - seller must provide abstract of title OR title commitment/insurance commitment by july 10 - sellers provide title commitment 5 days before closing = substantially performed their duty because doc is easy to read. if they had submitted abstract of title (a more dense doc), 5 days would have been too little time and seller would not have substantially performed their duty. - Littles entitled to liquidated damages
Commercial Leasing - The Team
- broker: listings, knowledge of the market - lawyer: critical evaluation of the lease, interpret lease, negotiate, acts in your best interest - contractor/architect/designer - will help you understand how to use the space
Stambovsky v. Ackley
- buyer wants to rescind transaction because house is haunted (as a matter of law because seller actually held out the house as being haunted) - buyer wins - enlarged duty to disclose
How is an offer terminated?
- by its own terms - lapse (varies with industries, reasonable amount of time) - revocation - acceptance - counter-offer TLRAC Tracy Likes Riding Alpacas Carefully
Prepayment Penalty
- clause in mortgage/note that requires borrower to pay additional charge for paying off loan early - to compensate lender for interest payments they lose - highly negotiable
due on sale clause
- clause in mortgage/note that requires fully payment of loan when property is sold
Option contract
- contract to hold an offer to make a contract open for a fixed period of time - to be enforceable, optioner must pay for the "time", option requires its own considerations
liquidated damages clause
- damages that are specified in advance in contract - routine in real estate contracts - seller retains buyer's deposit if buyer breaches
amortization
- distribution of payments into multiple installments consisting of principal and interest over term of loan
Strip Mall Lease
- ex. 1 building, 4 tenants - Tenants pay rent, tenants secure some services. - LL provides some - Tenants also pay CAM (common area maintenance) charges (snow removal, landscaping, security ,etc.) - in larger buildings with more tenants, LL provides for most services, recouped via CAM charges
Race/Notice Jurisdiction
- first BFP to record wins
Renewal Clause
- gives tenant right to renew lease in the future, not binding on tenant - gives tenant business flexibility and reduces liability - at time of renewal, rent likely to renegotiated to match fair market value
Warranty Deed
- highest form of deed, safest, comes with 3 promises: 1) grantor owns property 2) free from unspecified encumbrances 3) grantor will defend title * have title insurance to protect against liens against utility co, specified encumbrances
Bijan v. St. Regis Sheraton
- hotel renovation --> access to Bijan's store restricted. Bijan basically claiming they got trapped/evicted, points to general language of lease. - Landlord --> points out clause 14A of lease which permits making such renovations as deemed necessary. this clause shows that they have contemplated this situation. - Court rules in favor of landlord
Why would tenant agree to a ground lease?
- if they bought land, can't write off as a business expense - useful life of building likely to have depreciated to 0
To make up for whatever amount is not paid off at foreclosure, lender can look at:
- in a RECOURSE loan: lender can look into other assets. most home, commercial loans made on recourse basis - in a NONRECOURSE loan: lender can only look to the property/collateral. ex. California, usually only granted to strong borrower with high credit rating or if property has a big equity cushion
Title Insurance
- insurance that pays the buyer of property in the event that certain title defects arise - review of property's title is essentially outsourced to an insurance company that issues a policy in return for a preium * used in escrow situations and loan situations
Bragdon v. Drew
- issue of legal competence. Leon has PTSD - free act of deed? sister said yes - court: doesn't matter if transaction is fair because Leon is not mentally competent. a surrogate or guardian needs to be appointed
Quitclaim Deed
- no promises - often intra family transactions
Do landlords often offer the option to expand?
- not attractive to landlord, they do not know whether the space will be available in the future - in strong market, landlord has many options for tenants, will not offer option to expand - might accept in weak market
Freedom of Contract/Efficient Breach Theory
- not truly wrong for contractor to breach contract if there is a better option elsewhere
Trengen v. Mongeon
- parents sell land to son at low price. upon his deather, land goes to his widow through joint tenancy - son's sister sues on behalf of parents - court determines son was not under undue influence - adequacy of consideration? "freedom of contract" = parties are free to ascribe their own value unless fraud/mistake/undue influence. here, transaction is valid
Duty to disclose
- patent (open and obvious) defects: buyers' duty to uncover - latent (hidden) defects: seller has duty to disclose
Ex. A and B have adjacent properties, A has been parking cars on B's land. B offers quitclaim deed to buyer only - what issues could arise? why would buyer be okay with just quitclaim deed?
- potential adverse possession claim - buyer might do it if they think they could get a bargain and work something out with A
Property Brokers v. Loyning
- property brokers help Loyning sell their ranch - brokers found buyers that would buy BUT only after selling their own home in Montana. they couldn't sell the home in time. Brokers are mad because they didn't get the commission. - in these cases, court looks specifically at the contract. because the grace period for selling was over AND buyer was not able to buy at the time, there was no issue. buyer needs to be ready, willing, and able. - even though brokers introduced buyer/seller, they can't get commission in this case.
acceleration clause
- provision in note/mortgage that provides for the acceleration of the due date of the loan; generally results in full amt. of loan being due after a default - leverage for lender
Marketable Title
- reasonably free of risk (ex. litigation over title) - reasonably prudent buyer would take - implied warranty of marketability in every purchase
Sale-lease back
- seller becomes tenant of buyer, buyer becomes landlord - taking money without mortgage
Who does your broker represent? For example, is it okay for your broker to reveal your intent to a listing agent?
- seller pays both brokers and they split commission. so the bringing broker is a subagent of the listing broker
What is the purpose of a contract? What are contingencies?
- sets out terms: price, closing date, and any contingencies - contingencies must be described as contingent in the contract - if contingency is not satisfied, then contract cannot be terminated.
Comerca Bank v Harris
- significance: strong policy reason not to allow Comerica to strip away fruits (rents) without assuming responsbility - court protects tenants/income streams. if you want benefit, take the burden - lender doesn't want to foreclose because: 1) loan is being paid timely 2) dont want to be in charge of the property
Statutory Redemption
- some states have borrowed the concept of equity of redemption but applied after auction - ex. Texas, 6M if borrower brings $ within this period, he gets the property back - As a result, you don't want to put money into a property during this period
Bargain & sale Deed
1) grantor owns property 2) free from unspecified encumbrances 3) G will defend claims arising during G's ownership ** ex. if adverse possession occurred 40yrs prior to G's ownership, then not covered. but under warranty deed, G could defend if no other problems arise. title insurance is still better
Future Fair Market Value can be determined by:
1) Tie FMV to a benchmark or index (like CPI) 2) Landlord and tenant try to reach agreement about FMV and if no agreement reached, arbitrator will make a decision 3) "Baseball arbitration" - variation of final offer arbitration where arbitrator decides case without knowing parties' final offer. tenant and landlord submit rent quote, arbitrator must choose 1 of the numbers submitted. ---- forces both LL and tenant to be close to FMV ---- often results in agreement without actual arbitration
Requirements for Doctrine of Part Performance
1) Valuable improvements OR 2) partial payment and possession
5 elements of misrepresentation
1) false, material statement 2) speaker knows, should have known 3) intends the listener to rely on the statement 4) reasonable reliance of the listener on the statement 5) reliance causes damge
When is the liquidated damages clause enforceable?
1) has to be in the contract (intent of parties) 2) reasonable amount (<30% of cost) when viewed as of time of contract 3) exact amount is not discernable as of time of contract
what can a landlord do if a tenant is not profitable?
-terminate tenant's lease
Fiduciary Duty Components
1) Duty of Care - agent must act with skill and diligence of a typical agent (ex. research, analyze, find comparable sales, etc.) 2) Duty of Loyalty - -----a) no usurpation of opportunities -----b) when handling funds, broker must not allow commingling of funds (separate bank accounts) -----c) duty of information: must inform principal of everything -----d) cannot self deal (buy at discount and then flip to another person) UCIS Ursula Can't Ingest Salt Usurption, commingling, information, self deal
Foreclosure Process
1) Plaintiff begins with filing of complaint (summons): legal pleading --- must include all necessary parties, anyone who has an interest in the property for due process of law. give them notice and opportunity to be heard. --- if someone is left out, their interest in unaffected 2) Defendant files an answer legal pleading 3) Pre-trial motions/discovery = process of learning about someone's claim 4) Trial 5) Judgment/Decision = preponderance of evidence in a civil trial, less high of a standard. **not called verdict = proof beyond a reasonable doubt in criminal trial 6) Auction - "cutting off" occurs, sale. CADTJA Carla asked Dana to jump angrily.
Transaction Structure
Contract --> Diligence/Preparation --> Closing
Remedy to Statute of Frauds being used offensively?
Doctrine of Part Performance -- substitute of contract, gets past initial barrier of statute of frauds to get to a decision maker.
How can the statute of frauds be used offensively?
EXAMPLE: - landlord offers sale of house at $200k in 5yrs. - Tenants keeps paying rent @ $1500/month and $500/month credited to deposit. - LL & T shake hands but no writing - 4 yrs and 11M later: LL sats no. statute of frauds, no writing
Golden Rule of Recording Laws
IF YOU RECORD ON THE DAY YOU BUY THE PROPERTY, THEN YOU ALWAYS WIN.
balloon mortgage
mortgage/note that calls for a "balloon" payment well before end of amortization period. allows for lower monthly payments before balloon ** problem = underlying assumption is that market is always going up
does fulfilling the requirements for the Doctrine of Part Performance automatically mean you win the case?
NO. still must persuade the trier of fact with evidence (ex. witness, cancelled check, personal notes)
Pure Notice Jurisdiction
a subsequent BFP who records, wins
Which (abstract of title or title insurance) is better for the buyer?
Title insurance is forever. For example, what if the attorney that reviewed the abstract of title retires/passes away? - insurance = safer protection down the road, especially if claim is made.
Abstract of Title
a compilation of documents appearing on the public land records that affect the title to a particular property
Post-Stambovsky Duty to Disclose
enlarged - superior knowledge (not "reasonably available" to buyer must be disclosed * the more recent, the more you should disclose * the buyer can't automatically rely on seller's word, if it's public info ,look it up
Examples of contingencies
financing, structural, inspection, sales of another property
Pure Race Jurisdiction
first to record wins
if there is no liquidated damages clause in the contract, how do you sue for damages?
have to prove damages in court which is very difficult and expensive
Statute of Frauds purpose
to prevent fraud by making sure there is written document signed by parties so court doesn't have to decipher who is telling the truth
