Property II Outline PDF

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PROPERTY II OUTLINE – WINTER 2021 I. II. III.

TABLE OF CONTENTS INTRODUCTION TO BUYING AND SELLING REAL ESTATE THE CONTRACTS OF SALES i. THE STATUTE OF FRAUDS ii. MARKETABLE TITLE iii. DUTY TO DISCLOSE DEFECTS iv. IMPLIED WARRANTY OF QUALITY v. REMEDIES IV. THE DEED i. WARRANTIES OF TITLE ii. DELIVERY iii. REAL PROPERTY V. FINANCING THE REAL ESTATE TRANSACTION VI. TITLE ASSURANCE VII. THE RECORDING SYSTEM i. THE INDEXES ii. TYPES OF RECORDING ACTS iii. CHAIN OF TITLE/PROBLEMS AND PERSONS/PERSONS PROTECTED BY THE SYSTEM iv. INQUIRY NOTICE AND MARKETABLE TITLE ACTS v. TITLE INSURANCE VIII. CONTROL OF LAND USE i. “PRIVATE” MEANS ii. “PUBLIC” MEANS IX. SERVITUDES i. EASEMENTS ii. COVENANTS RUNNING WITH THE LAND X. ZONING XI. EMINENT DOMAIN

I. THE CONTRACT OF SALES i.

THE STATUTE OF FRAUDS

a. Memo of sale must: (1) be signed by party to be bound; (2) describe the real estate; and (3) must state the price. b. Exceptions:  Partial performance: payment, possession, or significant improvements 1. Burns v. McCormick: - Take care of an old man under the promise of getting his home; to be valid, performance must be unequivocally referable to the agreement, performance which alone & without the promise is unintelligible or extraordinary. “What is done must supply the key to what is promised.”  Estoppel: unconscionable injury would result if not enforced 1. Hickey v. Green: - Specific performance is available as a remedy if (1) the party seeking enforcement and entered the contract on the reasonable belief that it was valid; and (2) injustice would result otherwise.

ii.

MARKETABLE TITLE

a. A title free from reasonable doubt as would create a just apprehension its validity in the mind of a reasonable, prudent and intelligent person i. 3 circumstances that render title unmarketable: 1. Adverse possession, even if only in part 2. Encumbrances (must be an unencumbered fee simple to be marketable) 3. Zoning violations a. Lohmeyer v. Bower: Purchased home violated city ordinances; a marketable title is free from reasonable doubt -> buyer doesn’t have to accept a building that exposes him to litigation & such a title is unmarketable b. Equitable Conversion: if there is a specifically enforceable contract for sale of land, equity regards as done what ought to be done. i. Risk of loss is on purchaser between the contract signing and the closing (unless a clause states otherwise) ii. Buyers & sellers entitled to specific performance

iii.

DUTY TO DISCLOSE DEFECTS 1. Stambovsky v. Ackley: - “Poltergeist” house; where a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care, nondisclosure does not constitute a basis for rescission as a matter of equity 2. Johnson v. Davis: - Roof leak; where the seller of a home knows facts mostly affecting the value of the property which are not readily observable and are

not known to the buyer, the seller has a duty to disclose them to the buyer

iv.

IMPLIED WARRANTY OF QUALITY

1. Lempke v. Dagenais: - Garage broken; a subsequent purchaser may sue a builder/contracts under implied warranty of workman-like quality for latent defects that (1) manifest within a reasonable time; and (2) cause economic harm. c. Remedies for the Breach of K for Sale of Land: i. Loss of Bargain Rule: proper measure of damages is (market value – purchase price). 1. Jones v. Lee: - Sellers wanted to build a new house; a party can only recover special damages that the breaching party reasonably knew of or should have anticipated from the breach 2. Kutzin v. Pirne: - Buyer’s remorse; a seller is only entitled to keep the difference between the deposit and the actual injury

II. THE DEED (WARRANTIES OF TITLE, DELIVERY, REAL PROPERTY) a. Three types of deeds: i. General Warranty Deed: greatest degree of protection; grantor promises they own the estate and have the right to convey it, has no encumbrances and will do anything in his/her power to assure perfect title ii. Special Warranty Deed: second most protected; warranties only grantor’s own acts but not the acts of others iii. Quitclaim deed: no promises/warranties, just conveys whatever title the grantor has; grantee cannot sue grantor – quitclaim does not even promise that grantor has good title to convey b. Requirements for conveyance: i. Written deed ii. Delivery 1. Sweeney v. Sweeney: - Conditional delivery can be made, but only by placing deed in the hands of a third party until the conditions/event is met; physical possession of an executed deed is not conclusive proof that the deed was delivered c. Land Transaction Process: 1. Contract must: (1) be signed by the party to be bound; (2) reasonably describe land and; (3) have consideration o UNLESS: partial performance (Burns v. McCormick); preferred remedy is specific performance

2. Deed must: (1) reasonably describe real property and; (2) be properly delivered with intent that it be presently effective (grantor hands title to grantee or into escrow) o To grantor: hands over title when he receives purchase price o To escrow agent: - Grantor hands over title to be transferred once conditions are fulfilled; - Grantor cannot get deed back from agent; escrow agent will “relate back” transfer to the day handled over from grantor, if needed - CONDITIONS: conditional delivery can be made ONLY by placing the deed in the hands of the third party until the conditions are met (Sweeney) d. Difference between inter vivos transfer & transfer at death: i. Inter vivos: requires delivery of a signed instrument (gives future interest at time of delivery) ii. At death: requires an instrument complying with Statute of Wills (no future interest – interest is given after will is settled) e. Land Contracts / Rent to Buy: i. Lien theory: mortgagor retains title but mortgagee has a lien on the property ii. Buyer takes possession immediately, but seller only transfers title once the buyer completes all payments iii. Often comes with a forfeiture clause that takes buyer’s payments if he defaults on a payment & can remove any equity he has o Many states operate with a 50% equity rule, allowing some redemption if buyer has made 50% of the payments f. Wild Deed Doctrine: 1. Board of Education of Minneapolis v. Hughes: - Delivering a deed that does not include the name of the grantee is null until grantee’s name is filled in; where the recipient of the deed has actual/implicit authorization to fill in the name, delivery becomes valid once the name is filled in - If real property is conveyed to multiple parties, first to duly record his title has superior rights

III.

FINANCING THE REAL ESTATE TRANSACTION

a. Mortgage Foreclosure: 1. Murphy v. Fin. Dev. Corp.: - Good faith & due diligence rule: when undertaking a foreclosure sale, the mortgagee has a duty to exercise good faith & due diligence to protect the interests of the mortgagor; good faith & due diligence need to be assessed independently 2. Good faith: - To constitute bad faith, there must be an intentional disregard of duty or a purpose to injure - Foreclosure sale must be conducted in a reasonable manner, including advertisement of sale

3. Due Diligence: - Mortgage must exert every reasonable effort to obtain a fair & reasonable price under the circumstances i. Fair is less than market price ii. Includes advertising in public spaces & to give notice to general public - If necessary, they must adjourn the sale or establish an upset price below which he will not accept an offer - Test for due diligence: whether a reasonable man would have adjourned the sale or taken measure to receive fair price 4. Most conclusive evidence of good faith/due diligence exists when mortgagee knew or should have known to get a higher value for the foreclosed home 5. Assessing damages: - Mortgagee bad faith -> difference between fair market value & price obtained at sale - Mortgagee lacked due diligence -> difference between fair price (NOT market value) & price obtained at the foreclosure sale (lower standard) b. Mortgagor Rights: i. Mortgagor right to petition foreclosure -> can petition to enjoin a proposed foreclosure sale; can restrict rights of mortgagor - Bars any action based on facts which the mortgagor knew or should have known soon enough to reasonably permit the filing of a petition prior to sale ii. Mortgagor right of redemption: - Equitable redemption: right to redeem property after foreclosure proceedings begin  Must pay full amount of mortgage (principal + fees + interest) -> accelerating the mortgage  Ends once the foreclosed property has been sold - Statutory redemption: can be done once the property has been sold in foreclosure sale  Defaulted mortgagee can still redeem to new buyer (6month period); gives defaulters time before leaving c. Unfair Loan Practices: i. ARM loans with introductory period of 3 years or less ii. Introductory period rate was at least 3x lower than fully indexed rate iii. Loans were given borrowers who had a debt to income ratio of >50%, with payments measured at the fully indexed rate iv. Loan to value ratio was 100% or the loan had a substantial pre-payment penalty (mortgage amount / property value)

IV.

TITLE ASSURANCE

a. Three main methods of title assurance: i. Title opinion based on a title search ii. Title insurance

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Title covenants o Common for purchaser of land to use all three methods (belt-andsuspenders approach) o Title registration: state registers title and issues a title certificate to the owner, which is re-issued to each new purchaser of the property o Title searches: rely on public records office (all instruments affecting land titles that are recorded) -> deeds, mortgages, wills, etc. The Recording System Functions: i. Establishes system of public recordation of land titles (anyone can ascertain who owns land in the county by searching the records) ii. Preserves in a secure place the important document (recorded copies of documents can be admitted directly into evidence in judicial proceedings) iii. Protects purchasers for value and lien creditors against prior unrecorded interests (MOST IMPORTANT FUNCTION OF RECORDING STATUTES) Indexes: i. Grantor-grantee index: sets forth essentials (grantor, grantee, description of land, kind of instrument, date of recording and volume & page numbers where instrument can be found) ii. Tract index: indexes documents by a parcel identification number assigned to the particular tract; every document affecting the relevant tract is filed under that number, so a title searcher looks up the documents in that tract’s file Types of Recording Acts: i. Race: as between successive purchasers of the same parcel of land, the person who records first wins o Notice: subsequent bona fide purchaser has priority even though that person fails to record - Virtue of notice statute is its fairness between two conflicting claimants, but inasmuch as the question of whether the subsequent purchaser has notice depends on facts not on record - The shelter rule: a person who takes from a bona fide purchaser protected by the recording act has the same rights as his grantor; necessary if the recording act is to give someone the benefit of his bargain by protecting his market ii. Race-notice: a subsequent purchaser is protected against prior unrecorded instruments only if the subsequent purchaser (1) is without notice of the prior instrument and; (2) records before the prior instrument is recorded Types of notice: g. Actual: was there in person h. Inquiry: something was “off”; someone unrecorded was in possession of property upon purchase i. Record/Constructive: notice is assumed whether you check/search or not (all types of notice require reasonable care) 1. Luthi v. Evans: - “Mother hubbard” clause; doesn’t provide sufficiently detailed description of property conveyed fails to provide constructive notice to a subsequent purchaser

2. Messersmith v. Smith: - Plaintiff & nephew each own ½ interest in land; a recording of a title does not provide constructive notice of transfer to subsequent buyers if it does not meet the recording act’s statutory requirements 3. Lewis v. Superior Court: - Lis pendens; A purchaser of property is presumed to have knowledge of any encumbrances to the property which can be found at the recorder’s office at the time of the conveyance. 4. Waldorff Insurance v. Eglin: - Condominium write off; If a purchaser of real property has actual or constructive notice of another's equitable interest, then the purchaser's interest is inferior to the equitable interest.

iii.

MARKETABLE TITLE ACTS

a. Purpose is to limit title searches to a reason period, typically 30 to 40 years i. When one person has record title to land for a designated period of time, inconsistent claims or interests are extinguished o Take form of a statute of limitations barring a claim not recorded within the designated period o Others declare that record owner with a clear title going back for the designated period has marketable record title that is free and clear of adverse claims b. Except for the interests excepted from the statute, title searches may be safely limited to the number of years specified in the statute o Under marketable title act -> all claimants of interests in land must file a notice of claim every 30 to 40 years after the recording of their instruments of acquisition c. Some states (without general marketable title statutes) require periodic re-recordation of certain types of interests in order to preserve them -> if not re-recorded, interests expire  Usual re-recordation period is 30 years  Interests affected by these special re-recordation requirements may include possibilities of reverter and rights of entry, easements, covenants and mineral interests

iv.

TITLE INSURANCE

a. Developed because of the inadequacies and inefficiencies of the public records in protecting private titles  Bought by one premium paid at the time the policy is issued -> based on the amount of insurance purchased, which is the amount of the purchase price of the property (homeowner’s policy) and the amount of the loan (lender’s policy)  Has no fixed term and continues for as long as the insured maintains an interest in the property  Creates a liability to the insured only and does not run with the land to subsequent purchasers -> must take out a new policy if the purchaser wants title insurance b. The opinion of the insurer concerning the validity of title, backed by an agreement to make that opinion good if it should prove to be mistaken and loss results as a consequence

c. Free to use whatever contract forms they choose -> but, under pressure by large institutional leaders and quasi-government corporations operating the secondary mortgage market, most title insurance companies today use uniform policy forms based upon forms developed by the American Land Title Association (ALTA) d. Two basic forms of title insurance policies: a mortgagee’s policy and an owner’s policy  Mortgagee’s policy insures the mortgage lender and not the homeowner -> homeowner who desires title insurance must take out a separate owner’s policy e. ALTA owner’s policy covers 4 types of risk:  Risk that title is held by someone other than the insured party;  Risk of a defect, lien or encumbrance on the insured’s title;  Risk that title is unmarketable; and  Risk that the insured owner has no right of access to the land f. Guarantees that the insurance company has searched the public records and insures against any defects in the public records, unless such defects are specifically excepted from coverage in the policy g. Extended coverage can be purchased for an increased premium; coverage is not broad, because it is subject to both exclusions and exceptions:  Exclusions: (1) losses arising from government regulations affecting the use, occupancy or enjoyment of land unless a notice of enforcement or violation is recorded in the public records; (2) claims of persons in possession not shown by the public records, as well as unrecorded easements and implied easements; (3) easement arising by prescription  Exceptions: title defects that relate to the specific property (usually defects that would be revealed by a survey or inspection) h. ALTA’s standard mortgage policy insuring mortgage lender varies principally that it insures that the mortgage lien is valid, enforceable and a first and prior lien against all other liens i. Almost all institutional lenders require title insurance (at the borrower’s expense) -> all secondary-market purchasers of mortgages also require lender’s title insurance 1. Lick Mill v. Chicago Title Insurance: - Hazardous material; The presence of hazardous materials on land does not render the title to the land unmarketable, nor does its presence constitute an encumbrance on the land.

V. LAND CONTROLS a. Law of nuisance -> Part torts and part property  Torts b/c nuisance liability arises from negligent or otherwise wrongful activity  Property b/c liability is for interference with the use & employment of land b. Guiding principle for nuisance law -> sic utere tuo ut alienum non laedas  “One should use one’s own property in such a way as not to injure the property of another”  Suppose two neighbors are engaged in incompatible land uses, such as that if A gets his way, B can’t get her way and vice versa -> sic utere gets you nowhere 1. Morgan v. High Penn Oil:

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Nauseating gases; A party who intentionally and unreasonably commits a non-trespassory invasion of another’s land can be held liable for private nuisance, even if the party was not negligent. c. Lateral and Subjacent Support: Lateral support refers to that provided to one piece of land by the parcels of land surrounding it Subjacent support refers to support from underneath as opposed to sides  Common law right of lateral support imposes a duty on neighboring land to provide the support that the subject parcel would need and receive under natural conditions -> no right to support of structures on the land  Cause of action for interference with the right to lateral support does not arise until subsidence actually occurs or is threatened, then runs against the excavator Liability is absolute -> negligence need not be shown  If the supported land had been built upon in such a way that subsidence would not have occurred but for the improvements, there is no liability without negligence, so long as the excavator gives notice of his plans  Also, no liability, absent negligence, if subsidence of improved or unimproved land is shown to have been caused by withdrawal of fluids or their release as a result of excavation Right of lateral support can be waived or expressly expanded as by grant of a right to additional support Issues of subjacent support arise when one person owns surface rights and another person owns some kind of subsurface rights (mineral interest) 1. Estancias Dallas Corp v. Schultz - Apartment complex air conditioning; A trial court must engage in balancing the equities when determining whether an injunction is appropriate to abate a nuisance. 2. Boomer v. Atlantic Cement: - Hudson River; Permanent damages, rather than an injunction, are appropriate when the damages resulting from a nuisance are significantly less than the economic benefit derived from the party causing the harm. a. Restatement of Torts defines a “public nuisance” as an “unreasonable interference with a right common to the general public” -> circumstances of unreasonableness:  Whether the conduct in question significantly interferes with public health, safety, peace, comfort or convenience;  Whether the conduct is proscribed by statute or ordinance;  Whether the conduct is of a continuing nature or has produced a permanent or long-lasting effect b. Underlying ba...