The Statute of Frauds, adopted in some form by every state, requires that, unless there is some exception available, a contract for the sale of land must be in writing and must be signed by the party against whom it is sought to be enforced.
SOL - Single instrument
The contract need not consist of a single document so long as
the multiple writings are consistent, embody the essential terms (price, parties, and property description),
and are signed by the parties.
SOL - Part Performance Exception
i. Unequivocal evidence of contract: acts that would not occur but for the existence of a contract. These acts consist of (none done without the existence of contract)
payment of all or a part of the purchase price,
taking possession, and
ii. Reasonable reliance: The modern trend is to require proof of (1) an oral contract and (2) reasonable reliance on the contract - enough reliance that it would be inequitable to deny specific performance.
The tiime for performance is treated as a formal rather essential term of the contract.
Time of the essence: By expressly making the time of performance an essential term of the agreement, a party able and willing to perform on the closing date is relieved of any future obligations under the sale contract if the other party fails to perform on the required closing date. On the other hand, if some unforeseen event occurs that makes timely closing impossible, such a clause may be more harmful than helpful.
Every contract for sale of realty contains an implied duty of the seller to deliver marketable title to the buyer.
This obligation can be expressly disclaimed by agreement between buyer and seller.
Marketable title is a title a prudent buyer would accept, one reasonably free of doubt that there is any other rival to title or any portion of it.
Any defect in title must be substantial and likely to result in injury to the buyer.
Marketable Title – not necessarily perfect title, but title that a reasonably prudent person would be willing to buy, and that a title company would be willing to insure.
Good record title – Less frequently contracts will call for the seller to furnish good record title. This means that the seller must furnish good title based on the documents in the chain of title. It precludes title by adverse possession.
Defects in title – There are numerous possible defects in title. Some of the more common ones include a defect in one of the instruments in the chain of title, private encumbrances, unrecorded easements, covenants, and restrictions on the use of the property.
Curing title defects – Normally, the seller has until closing to cure any defects in title.
Marketable title acts
Marketable title acts, enacted in a large number of states, have as their purpose limiting title searches toa reasonable period, typically the last 30 or 40 years.
Under a marketable title act, all claimants of interests in land, to be safe, must file a notice of claim every 30 to 40 years after the recording of their instruments af acquisition.
Proof of marketable title
(1) producing good record title - a recorded chain of title, showing an unbroken transfer of title from some original root of title in the past to the seller, with no recorded encumbrances (e.g., mortgages, easements, or servitudes) - or
(2) proving title by adverse possession either through a successful quiet title action or evidence sufficient to establish that the rival claim to title would not succeed if asserted and "that there is no real likelihood that any claim will ever be asserted."
To be unmarketable, the defect in title must be substantial and likely to injure the buyer. Defective title does not always prevent the transaction from taking place
Buyers can and often do waive certain defects (e.g., easements, or a mortgage that can be assumed by the buyer) and
other defects can be removed prior to or at the closing (e.g., an existing mortgage may be paid off by the sale proceeds so that the buyer receives unencumbered marketable title).
Implied warranty that seller will supply good title
Reasonably free from doubt
Don’t require buyer to purchase a lawsuit
Not likely to result in litigation by reason of third party claims. (it can still be, but not likely)
Should be unencumbered- no easement, liens, mortgages, co-tenancy issue
Encumbrances: Generally an encumbrance makes title unmarketable.
An encumbrance is a burden on the title, such as mortgages, judgment liens, easements, or covenants
If someone has possessed a property adversely, they need to have gone to court and silenced title to the property.
Quit claim deed
A quit claim deed contains no warranties of title at all, but is effective to transfer whatever interest the seller happens to have in the subject property.
Is the buyer entitled to marketable title? Look for words like “My interest if any”.
Majority Jurisdictions: buyer get whatever the seller had
Doesn’t make land unmarketable but a violation of a zoning ordinance does make a zoning violation unmarketable
Any material violation of a building probably makes the title unmarketable
Identify if it is 1) Private restrictions (encumbrances), 2) government zoning (anything that effects the sue of property), building code violations
Duty to Disclose
I. Caveat emptor: The old rule was the seller did not have to disclose any defects in the condition of the the premises unles a defect was fraudulently concealed. The buyer had the opportunity to inspect, and caveat emptor (let the buyer beware) applied.
II. Modernly, most states hold that the seller must disclose all known material defects to the buyer.
Remedies of the buyer- recission
If the seller breaches, the buyer may rescind the contract and recover any down payment, but usually the seller doesn't agree to furnish title until closing, so the buyer cannot rescind until then (buyer can't rescind contract prior to closing because seller may be able to acquire title before closing.
Remedies for buyer- specific performance
The buyer has the right to specific performance because land is unique, but a court generally will not force a seller to cure a title defect; instead it will order specific performance with an abatement in price due to the title defect.
Remedies for the buyer- Damages
In most states the buyer may sue for the difference between the contract price and the market value of the property on the date performance is due
Remedies for seller- Recission
If the buer breaches the seller may rescind
Remedies for seller- Specific performance
The seller usually can get specific performance but there is a trend to deny specific performance if the seller can easily resell and sue at law for damages
II. Minority is seller retains risk of loss until property transfers to buyer
III. The Uniform Vendor and Purchaser Act puts the risk of loss on the party in possession until title has passed.
Remedies for seller- damages
The seller can sue for the difference between the contract price and the market price when performance is due; alternatively the seller may keep the down payment as liquidated damages if the parties so intended and the down payment amount bears some reasonable relationship to the actual damages sustained.
Risk of loss
I. Equitableconversion: Majority of courts hold that equitable ownership of property passed to the buyer at the moment a specifically enforceable contract of sale was made putting the risk of loss on the buyer.
Even though the risk of loss is on the buyer, if the property is damaged or destroyed, the seller must credit any fire of casualty, insurance proceeds he receives against the purchase price the buyer is required to pay.
II. Minority is seller retains risk of loss until property transfers to buyer
III. The Uniform Vendor and Purchaser Act puts the risk of loss on the party in possession until title has passed.
Risk of loss- insurable interests
Both seller and buyer are permitted to purchase insurance during escrow period
Party can decide who can get insurance but both parties are able to obtain insurance
Seller who gets proceeds and Proceeds goes to buyer and court create constructive proceeds who is the seller must take and pay to the buyer
Implied warranty of quality
The traditional rule was that a builder had no liability to anyone for his poor workmanship unless he had given an express warranty of quality.
Subsequent owner's liability: The owner of a home who is not the builder has no liability based on the implied warranty of quality. Only the original builder is liable on that theory, but a seller may be liable for breach of a duty to disclose a known defect.
Doesn’t apply if the owner isn’t a builder by merchant by trade
Does not apply to commercial properties
Formal requirements and component parts: A deed is the usual method by which title to realty is transferred. This section addresses the formal requirements for a valid deed and the elements of the instrument.
The deeds description of the land: Metes and bounds
Metes and bounds (a surveyor's description of the length and direction of the boundaries), reference to a recorded survey map or other survey, and street and number
The deeds description of the land: Rules of construction
If a property description is internally inconsistent, plainly mistaken, or incomplete, courts strive to determine the intentions of the parties. If there are no better clues to intent, courts employ a hierarchy of rules to sort out these problems. In descending order of preference and reliability, these are as follows:
(1) original survey markers,
(2) natural monuments (e.g., trees),
(3) artificial monuments (e.g., structures),
(5) courses ofdirection (e.g., "a line running ENE" or "a line 90 degrees to the left ofthe baseline"),
(7) common names (e.g., "McDonald's Farm"), and (8) quantity (e.g., 140 acres).
Deed warranty- present warranties
Present covenant (breached if at all at the moment of the transfer and statute of limitations begins to run at the moment of the transfer)
1. Covenant of seisin: Grantor owns the estate that he purports to convey
If you convey that you own a fee simple but only own a life estate then it is a breach of covenant of seisin
2. Covenant of right to convey: Grantor's promise that he has the right to convey the interest in the property indentified in the deed.
If the grantor's right to convey is limited at the time the grantor delivers the deed to the grantee, and as a result, the grantor does not have the right to convey the interest described in the deed at the time the grantor executes and delivers the deed, the grantor will breach the covenant of right to convey
3. Covenant against encumbrances: Grantor warrents there are no encumbrances on the property ....“except for" listing the encumbrances. If there are no encumbrances listed then grantor is warranting that there are none
Deed warranty- future warranties
Future covenants (A future covenant promises that the grantor will do some future act, such as defending against claims of third parties or compensating the grantee for loss by virtue of failure of title. A future covenant is not breached until the grantee or his successor is evicted from the property, buys up the paramount claim, or is otherwise damaged)
1. A covenant of general warranty- Grantor promises to defend grantee against (i) any lawful claim made against the grantee's title and (ii) to compensate the grantee against successful claims made against title.
Claimant must have been evicted or legal process has begun to evict the claimant
process to enforce the claim must have been started and the covenantee has failed to provide a defense
5. A covenant of quiet enjoyment - The grantor warrants that the grantee will not be disturbed in possession and enjoyment of the property by assertion of superior title. This covenant provides defense if.
in the covenant of general warranty the grantor promises to provide a defense if title is challenged by someone with paramount title
the covenant of quiet enjoyment focuses on the convenantee not being evicted by someone with paramount title
6. A covenant of further assurances- The grantor promises that he will execute any other documents required to perfect the title conveyed.
Statute of limitations for breach of warranty deed
The statute of limitations begins to run on a breach of a present covenant at the date of delivery of the deed. It begins to run on a future covenant at the time of eviction or when the covenant is broken in the future.
Special warranty deed
Special warranty deed: A special warranty deed contains the same six (or fewer) covenants of the general warranty deed.
The only difference is that the grantor warrants against defects of title that arose during the grantor's time of holding title.
Defects arising before the grantor's ownership are not covered. The grantor warrants, in essence, only that the grantor has not created or suffered a defect to occur during his ownership period.
The covenant of quiet enjoyment guarantees only possession and enjoyment of the premises, not a perfect title.
Estoppel by deed
If a grantor conveys an interest in property that he does not own, and later acquires the unowned interest, this doctrine operates to send that afteracquired title directly and immediately to the grantee or his successors in interest. The grantor is estopped from denying the scope of the original deed.
Put another way, the grantor's original deed carries an implied promise that he will convey the missing pieces of title should he lateracquire them.
Though originally limited to warranty deeds this doctrine now applies to quitclaim deeds conveying fee simple absolute, on the theory that the doctrine operates to effectuate the parties' probable intent.
Measure of damages for breach of covenant
Breach of covenant of seisin
Price paid for the land plus interest
Breach of encumbrances
If the breach is removable (mortgage or liens) price is to remove the encumbrance. If the encumbrance is not easily removable then is an easement.
Damages is the difference is the value of the land with encumbrance and the value of the land without the encumbrance
Breach is at the date of transfer and can’t assign the right to bring an action
Majority: Date of the transfer shows an action. Can’t assign the action
Minority Can sue for the breach of a present action and is assignable
Runs to successors in interest and only breached when third party comes in and claims superior title
The deed- signed by grantor only
The writing mut be signed by the party to be bound- the grantor.
Forged deed- owner doesn't know the transaction took place. no interest passes under a forged deed. unless estoppel comes into play because the purported grantor's acts, the deed is not legally effective at all.
a forged deed is a nullity, and is not valid for any purpose. Neither the donee nor a subsequent bona fide purchaser who believes the forged deed is good takes anything.
deed procurred by fraud- Owner knows the transaction was made but signature was wrongfully made. Not void, only voidable
The delivery of the deed
To be effective, a deed must be delivered with the intent that it be presently operative.
The key is the grantor's intent. If a grantor hands a deed to the purported grantee and says,
Delivery without consideration
For there to be delivery, there must be manifestation of intent by the Grantor that title pass presently. Words are evidence of the intent. That the grantee has the deed also shows delivery.
Presumption, if it’s in the possession of the grantor, then there has been no delivery. The lack of intent for present transfers is what the presumption is getting at. To evidence the presumption, the statement to Wendy that George owns it would rebut the presumption. George does not know of the delivery, has he accepted it?
Majority: Acceptance is presumed if it is beneficial to him.
Minority: Acceptance only if George knows of it, and does not disclaim the conveyance.
California: If a minor, California presumes acceptance. If the Grantee has no knowledge of the deed, if the deed is delivered to a third party it is deemed accepted.
Express conditional delivery
Grantor needs intent grant to a present interest. This would be subject to RAP.
Oral condition delivery
Majority: Whyddon’s Rule: Deed is absolute on its face, is effective immediately and the oral condition drops out. The deed is absolute.
Minority View: As between the parties, Owen and George (Grantor and Grantee), If Owen can prove the oral condition, it will be considered a conditional delivery.The general rule still applies to subsequent purchasers.
A subsequent bona fide purchaser for value, who does not know about it because it is not on the deed, does not have actual or constructive notice. She will not be held to condition.
Condition of death
If the grantor intends to pass title or a future interest to the grantee now, there has been a delivery even though possession may be postponed until the grantor's death.
On the other hand, if the grantor intends that no interest should arise until death, no delivery during life has taken place; the deed cannot take legal effect at death because the grantor intended it to be a will, not a deed, and the instrument is not executed with two witnesses in accordance with the Statute of Wills.
Uncertain exceptions: (e.g., "to A, effective upon my death" or "to A if A survives me").
These conditional grants can be interpreted to mean either that the deed has passed a springing executory interest to the grantee or that nodelivery has occurred - the deed is a nullity until the subsequent condition (the grantor's death) occurs. By the latter construction the deed would be of no effect unless it could qualify as a will.
By the former construction the grantee received a valid springing executory interest which became possessory upon grantor's death.
The academic answer is that the deed should be given effect as malting a transfer of a springing executory interest, because the deed is adequate by itself to indicate the grantor's intentions at death.
Grantor retains possession of deed, to transfer upon his death
Because grantor held the deed, there was no delivery of the deed. Cannot be used as a will. Usually, the courts will find there was no deed. If grantee can show through statements from third parties that grantor's intent was to transfer the property, then grantee could get it.
Delivery to a third party- commerical escrow
Delivery is also completed when the deed is given to the escrow holder under oral instructions if there is a written sale contract.
Majority requires a written instruction under the escrow If there is no contract the escrow is a revocable transaction. Without a written sales contract, an escrow agent holding a deed under oral instructions is deemed to be the seller's agent only, and the seller is empowered to revoke the escrow at any time.
Minority: Oral instructions in an escrow will create an irrevocable escrow, even when there is not a valid underlying contract to the escrow.
Delivery to a Third Person with the Grantor’s Death as a Condition
Regardless of expressly on the deed or oral, the grantor when handed the deed to a third person, the grantor made an effective delivery. The third person becomes the agent of the grantor and grantee and the grantor cannot recall the deed. The grantee receives a Springing Executory Interest in fee simple.
However, if the grantor retained the right to recall the deed, then the escrow is invalid. Theoretically, if the grantor retains the right to retain the deed, then the third person is just the agent of the grantor and not the grantee.
If third person is a “Trusted Friend” of the grantor, the argument must be made both ways in regards to whether the grantor could take back the deed from the third person, grantor’s trusted friend.
O gives the deed to T with oral insturction to give the deed to A "when A graduations from college" Several years later, A graduates from college
Condition which may or may not occur. If the O's intent was to do an irrevocable act and O cannot get the deed back, then it is in Escrow. If a valid Escrow was created, when A graduates from College, the transfer of title occurs automatically by operation of law and does not require the handing over of the deed to A.
Delivery by estoppel
Even if a grantor does not intend to deliver a deed, he will be estopped from denying delivery in two principal circumstances.
Entrustment to a deceitful grantee: If the grantor gives a deed to a grantee with no intent to transfer title, but the grantee uses the deed to convey to a third party bona fide purchaser, the grantor will be estopped from denying delivery.
Entrustment to a negligent escrow agent: If the grantor gives a deed to an escrow agent but the grantee obtains it wrongfully, using it to sell the property to a bona fide purchaser, courts are split on whether the grantor is estopped from denying delivery.
borrow a significant portion of the purchase price from a lender on terms that require them to repay the loan with interest via monthly payments made over an extended period of time (frequently 30 years). To secure repayment of the loan, the lender will require the borrower to give the lender a mortgage on the property. The mortgage empowers the lender to sell the property in the event of the borrower's default on the loan, and to apply the sale proceeds to repayment of the loan.
Mortgagee- the lender
Mortgagor- the borrower, owner of house or property
default- mortgagor not paying off the loan
Equitity- borrower's interest in the land and can pay back the debt
ballon payment mortgage- calls for periodic interest payments until the due date of the debt, when the whole principal sum must be paid at once.
Amortized payment mortgage- a mortgage for 25 or 30 years with even monthly payments over the period.
Equity of redemption- borrower can pay back lender and redeem the land back indefinetly
Generally, there are 2 documents signed
Promissory Note (debtor’s Bond)
Can be sued on for damages (Contract issue)
Makes the land a secured interest
there is a private sale or judicial supervision having the property sold and the proceeds from the sale are used to pay off whoever has a mortgage on the property. Any money left over goes to the mortgagor
Deed of trust
By this arrangement the borrower transfers title to a third person as trustee for the lender to secure the debt. If the debt is not paid, the trustee sells the land under a power of sale in the trust deed, pays off the debt, and pays over to the borrower anything left.
Trustor- buyer/ borrower
Beneficiary- lender /bank
Trustee- third party who holds the deed or trust
judicial forclosure- in some jdx's the mortgagee must go through judical proceedings by filing a complaint for foreclosure and giving the mortgagor a notice of default.
Power of sale- In other jdx's, the mortgagee can foreclose by his own public sale afer notice to all parties, avoiding judicial foreclosure
Installment land contracts
An agreement by the buyer to buy land and to ay for it over a period of years- maybe 10 to 20 years.
The seller agrees to deliver title at the end of the period
The buyer goes into poession, and the seller keeps title until the final payment.
installment land contracts should be treated like a mortgage and judicial foreclosure required; forfeiture of payments is limited to situations where equitable (roughly equal to fair rental value)
Sale subject to the mortgage
The mortgagor can transfer his interest ("the equity") subject to the morgage and the new buyer takes the land subject to the lien on it, but the new buyer is not personally liable on the debt.
If the debt is not paid, the morgagee can foreclose on the land but the morgagee cannot sue the new buyer on the debt.
Sale with assumption of the mortgage
The mortgagor can transfer his interest to a new buyer who assumes the morgage
The new buyer becomes personally liable on the debt.
The mortgagee can sue either the new buyer or the orginal mortgagor on the debt (both subject to a deficiency judgment if upon foreclosure sale, the land does not bring a sum sufficient to discharge the debt)
Title assurance- prior in time (common law rule)
The common law rule gave legal effect to conveyance in accordance with the time of execution. Thus a grantee who was prior in time prevailed over one subsequent in time.
Ex. O -> A then later O -> B A prevails over B on the theory that O had conveyed title to A and had nothing left to convey to B.
exception in equity- if the prior interest was equitable, and therefore within the jurisdiction of the equity court, equity woudl not enforce it against a subsequent purchaser of a legal interest who did not know of the prior equitable interest and paid valuable consideration.
Ex. O contracts to sell Blackacre to A; under the doctrine of conversion the contract gives A equitable title. Later O conveys legal title to Blackacre to B, and B is a purchaser for value who has no notice of A's equitable interest. The subsequent conveyance to B cuts off the prior equity in A (this is called doctrine of bonafide purchaser)
Seperate index volumes are maintained for grantors and grantees, enabling a title searches to locate an instrument by searching under either the granto's name or the grantee's name.
Always start in the Grantee index to make the person who is selling actually is listed as the current owner (Grantee). Then work your way backwards. Then keep going up to match the grantor to the previous grantees.
How far you go back depends on the jurisdiction. In California we can go back as far as the King of Spain. Generally, 60-100 years is the standard.