Prop II Outline Kennedy

8/7/2019 Prop II Outline Kennedy

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Property II Outline

The Land TransactionAnatomy of a land sale

4 STAGES1. Finding a Buyer

a. Seller (S) ownes a 3 bedroom home, blackacre,and wants to sell it for $350,000.

b. S finds a broker, listing agent (LA), and they enterinto agreement.

i. LA agrees to find a buyer willing and able topay $350,000 or a price acceptable to S

ii. S agrees to pay LA a 6% commission uponsale

c. Another real estate agent, the cooperating broker(CB), tells his client, buyer (B), that he likesblackacre.

i. CB is a subagent of S, and must split thecommission with LA.

2. Negotiating the Contracta. B decides to make an offer, a written contract,

which is conditional one:i. physical condition of property i.e. inspection

by licensed builderii. financing i.e. B must obtain loan from a

lenderiii. state of title i.e. S must deliver a

marketable title to the property.b. B delivers earnest money (check for $ 3,000).c. S makes counter-offer, $325,000, in which B signs.

Closing is set for 60 days.3. Preparing for Closing

a. B evaluates physical condition of premises. Heselects a house inspector who prepares a writtenreport.

b. B arranges financing. He applies for a $300,000loan from M Bank. M Bank will then evaluate Bscredit and appraise property, then issue a letter ofcommitment. M Bank requires B to sign a

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promissory note evidencing the debt and executea mortgage on the home to secure repayment ofthe loan.

c. B will evaluate the state of title to blackacre. This

can be done 1 of 3 ways:i. attorney search and certification of title1. S may retain an attorney to perform an

examination of public land records andrender a legal opinion - a certificate oftitle - on the state of title to OH-acre.

2. Certificate and supporting papers will bereviewed by Bs attorney.

ii. attorney review of title abstract1. S commissions a Title Abstract Company

(TAC) to prepare an abstract (report)summarizing state of title to OH-acre.

TAC examines the state of the title byconducting a title search of a privatedatabase of public land records aka atitle plant. The TAC does 4 things:

a. assembles documentsb. reviews them and prepares a

synopsis of each documents then

c. certifies that the abstract analyzesall records pertinent to the title ofOH-acre, then

d. sells the abstract to documents toS.

2. S gives abstract to Ss attorney whoexamines abstract and certifies title tohis client in same manner as a directtitle examination. Bs attorney thenreviews the documents.

iii. B applies for title insurance from a titleinsurance company (TIC), (whichsupplements options 1 and 2 and is usuallydone in addition to):

1. TIC examines the state of the title byconducting a title search of a private

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database of public land records aka atitle plant. Or T may commission anattorney/abstractor to perform a manualtitle search of public land records.

2. T Insurance Company will issue a titlereport to B that indicates:a. if the company will insure title to

the property andb. state the terms of policy coverage

which will exclude certaindiscovered title defects.

4. Closinga. land contract is fully performed at closing.

i. Closing supervised by attorney (easternpractice) or an escrow agent (westernpractice).

1. Escrow agent is a neutral party whoholds documents and then delivers themto the proper parties per written &signed instructions from B and S.

b. title is conveyed from S to B by delivery of deedc. loan is made from lender to B- $300,000

d. full purchase price is paid from B to S: $325,000i. $3,000 earnest money- cashii. + $22,000 down payment- cashiii. + $300,000 loan proceeds = $325,000

e. From purchase price, LA and CB are paid theircommissions.

i. $ 325,000 x 6% = $ 19,500f. B receives an owners title insurance policy from T

Company insuring his title in Blackacreg. M Bank receives a lenders title insurance policy

from T Companyh. The deed and mortgage will both be recorded.

Parties of the Sale1. Seller (seller, vendor, grantor, party of the first part)

a. Listing Agent

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b. Sellers attorneyc. Title abstract company

2. Escrow Agent: neutral party3. Buyer (sellee, vendee, grantee, party of the second

part, (mortgagor, as between bank))a. Cooperating brokerb. Buyers attorney (if he has one)c. Title insurance companyd. house inspector

4. Bank (mortgagee)

Law Regarding Real Estate Brokers and Attorneys1. Real estate brokers / Listing Agents

a. What they do:

i. market property to potential buyersii. find a buyer at Sellers acceptable priceiii. Shepard the deal through

b. The Listing Agreementi. It authorizes the listing agent for a finite

period time to find a buyer at a reasonableprice.

ii. 3 types of agreements :1. open listing agreement

a. broker does not have an exclusiveright to market property to buyer,no one is forbidden from marketingthe property

2. exclusive agency contracta. forbids the seller from selling

property through another broker. Itdoes not forbid the seller fromselling the property on his or herown behalf

3. exclusive right to sella. forbids another agent from selling

the property and the seller himselffrom selling the property.

c. Legal duties of the listing agent

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i. The Real estate broker is the agent of S. S isthe principle and the ordinary law of agencyapplies:

1. The real estate broker is under a

fiduciary duty to exercise care,diligence, loyalty, and good faith inhandling the business matters of herprinciple.

2. The broker cannot engage is self-dealingor double-dealing.

3. These duties are owed to the sellera. Common law: the agent owes no

duty to the buyer, except that hecannot commit fraud.

b. Modern Law: the agent has a dutyto disclose defects in the propertythat are known

ii. A buyers agent works for the buyer if, andonly if, he pays that agent a commission.

d. Unauthorized practice of law by brokersi. Is the process of filling in the blanks of

standard forms the practice of law?1. general rule: The filling out of blanks in

legal instruments prepared by attorneyswhich require only common knowledgeregarding the information to be insertedinto the blanks and general knowledgeregarding the legal consequencesinvolved, those activities, do notconstitute the practice of law.

2. If the filling out of the blanks involveconsiderations of significant legalrefinement to the parties, that practicemust be limited to attorneys.

ii. most states have come up with a list ofactivities that must be done by attorneys:

1. if a conveyance seeks to convey a lifeestate, a remainder, or a determinablefee, that must be done by an attorney.

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e. When does the listing agent earn commission?i. Illustration: S owns blackacre and wants to

sell it for $400,000. S enters standard listingagreement with listing agent. The LA finds a

buyer who can pay the asking price. A titlesearch reveals a flaw in title- unreleaseddower. As a result, S cannot conveymarketable title. Can broker still getcommission?

1. Common law: commission is earnedwhen the contract is signed

2. Modern rule: commission is earned atclosing.

3. TWISTS & EXCEPTIONS:

a. The parties can contract for adifferent point at which commissioncan be earned.

b. If the seller willfully breaches thecontract, then the broker hasearned the commission when thecontract is signed.

2. Attorneysa. What they do:

i. prepare title reportii. draft and report a deediii. provide legal advise in case of emergency

The Contract of SaleStatute of Frauds

1. When is a Writing Required?a. leases that cant be performed within some short

time period:i. Common law time period was 3 years, the

modern rule is 1 year.b. contracts for the sale of any interest in land

i. Anything that concerns an interest in landwhich can create or extinguish an interestthat a person did not have before the transferis a transaction in land. This includes:

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1. easements2. deeds

a. NOTE: a deed works only onceb. Illustration: A sells land to B, and

transfers deed. If B wants to giveland back to A, he needs a newdeed that complies with the SoF.

3. Equitable instruments: a mortgage or alien must be in writting

ii. NOTE: A promise to refrain from transferringland is NOT within the SoF

2. Requirements to Satisfy the SoFa. A Writingb. Essential Terms

i. names of the partiesii. description of the land

1. A full legal description is not necessarya. Rule: The description must identify

the land with reasonable certainty.i. At common law you need a

full street address, butmodern courts will allow parolevidence to deal with

ambiguities.1. Illustration: 413 Main St.

was valid even thoughthere was no city orstate, because parolevidence could beadmitted to fill those in.

b. undesignated acreage problem : if Awants to convey 10 acres to B, butit is not specified which 10 acres ofa 100 acre plot that A owns, theSoF is NOT satisfied

c. if written contract provides that Awill sell his ranch and 30 acres at alatter date in which seller willspecify, the SoF is satisfied.

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i. Rule: if the contract gives oneparty the power to designateacres retained, it complieswith the SoF.

iii. some words that the seller intends to conveythe landiv. the price, or an agreed mechanism to

determine the pricev. material conditions of sale: whether or not,

and what type of financing is necessary.1. most jurisdictions require a general

statement of the financingvi. NOTE: A land contract does NOT need to

include a closing date. If there is none, the

courts will assume it is a reasonable timeafter the signing of the contract.

c. Signed by the party against whom enforcement issought.

3. Is the SoF Excused?a. Common Law Part Performance

i. Rule: Equity may excuse the SoF and maygrant specific performance to enforce an oralcontract upon proof of part performance by

the party seeking to enforce the oralcontract.

ii. 2 types:1. The party seeking performance of the

oral contract engages in certain acts:a. Takes possession of land, ANDb. Makes payment OR makes

improvementsi. But such acts must be

unequivocally referable to thecontract between the parties.

2. The party seeking performance of theoral contract shows:

a. Reliance on the contractb. And hardship would result if

contract was not enforced

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b. Common Law Estoppeli. Equity may estop a party from pleading the

SoF as a defense to enforcement of an oralcontract if:

1. party 1 engages in an act orrepresentation that2. induces party 23. to seriously change his position in

reliance on the oral contract4. such that unconscionable injury will

result if the contract is not enforcedc. Restatement of Contracts 129 / Specific

Performancei. A contract for the transfer of an interest in

land may be specifically enforcednotwithstanding failure to comply with theSoF if it is established that the party seekingenforcement:

1. in reasonable reliance on the contractand

2. on the continuing assent of the partyagainst whom enforcement is sought

3. has so changed his position that

4. injustice can be avoided only by specificperformance.

ii. NOTE: Where reliance rests on takingpossession, payment or improvements, actsmust be unequivocally referable to thecontract, unless the contract is admitted orproved.

d. The SoF can be waived if a party admits to theexistence of a contract.

NOTE: the focus of the SoF is judicial enforcement. Byviolating the Sof, the contract is not void, but it cannot be

judicially enforced.

Marketable TitleRule: the law will imply into the contract that the seller willdeliver a marketable title. If the parties want to contract for

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a different level of title they can, and if there is an expressedtitle standard, the court will enforce it as a matter of contractlaw. If seller cant deliver on this, the buyer can rescind thecontract, or sue the seller for breach of covenant.

Marketable Title- 3 definitions1. A marketable title is one that is free from reasonabledoubt, but not all doubt.

a. The law assures to a buyer a title free fromreasonable doubt, but not from every doubtIf theonly defect in the title is a very remote andimprobable contingency, a slender possibility only,a conveyance will be decreed. (Cardozo)

2. Marketable title is the kind of title that a reasonablyprudent buyer advised by competent counsel would

willingly accept.3. In the specialized context of an action for specific

performance by the seller, marketable title is the kindand quality of title that a court will force a buyerunwillingly to accept.

Marketable title as both a contract and a covenant1. As a contract, if seller cannot deliver on marketable

title, buyer can rescind the contract and pursue

contract remedies.2. As a covenant, if breached, there is an action at law for

damages: fair market value of promised title less thefair market value of title actual delivered.

When does the duty to deliver marketable title arise?1. the duty to convey marketable title arises when the

land contract is signed, and ends when closing occurs.Once closing occurs, the covenant to convey amarketable title is merged with the deed and no longercan be sued upon. At this point, the buyer has lost hisright to sue under the breach of title covenant, unlesshe can show that the seller defrauded him.

When is title NOT Marketable

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1. Where the seller tries to convey an estate he does nothave.

a. S wants to sell a FSA, but only has a LE. Title isunmarketable.

2. Under-acreage problem ***ask kennedy about thisrelated to title insurance case***b. If seller purports to convey 10 acres and she only

has title to 5. Title is unmarketable.3. if there is a lien, easement, or encumbrance that has

not been accepted by the buyer, title is unmarketablec. All encumbrances may be classed as either:

i. a pecuniary charge against the premises1. such as a mortgage, judgment liens, tax

liens, or assignments

ii. estate or interests in the property less thanthe fee

1. such as leases, life estates, or dowerrights

iii. easements or servitudes on the land1. such as rights of way, restrictive

covenants, and profitd. the fact than an encumbrance may be beneficial is

irrelevant, title is still unmarketable

e. NOTE: The courts are split as to whether an openand visible encumbrance is unmarketable.

4. Private Restrictions and Covenantsf. Restrictions on the use of land or the location and

type of buildings that may be erected thereonfixed by covenants or other private restrictiveagreements constitute encumbrances, renderingthe title to the land unmarketable.

5. EXCEPTIONSg. Zoning ordinances

i. A public restriction on land use, such as azoning ordinance, makes title unmarketableonly if they are violated.

h. If the seller has a mortgage on the propertyi. if the seller has a mortgage, it is usually

recorded by the bank, and thus is an

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encumbrance of record. But the expectationis that the seller will pay it off at closing, andthe encumbrance will usually go away.

i. Lack of access to property

i. the fact that buyer may not be able to reachthe property does not make title legallyunmarketable.

j. Hazardous Wastei. This is a defect on the condition of the land,

not a title defect

What if Sellers title is founded upon an adverse possessionclaim?

1. When a perspective sellers title is grounded upon

adverse possession, or contains some apparent flaw ofrecord, he has a choice of options:

k. He may at once take whatever steps arenecessary to perfect the record title, including anaction to quiet title, or action to cancel anoutstanding encumbrance.

l. He may also, believing his title to be marketabledespite the fact that it rests on adverse possessionor is otherwise imperfect of record, choose to

enter into a contract of sale, hoping to convincethe purchaser or, if necessary, a court, that hisestimate of the marketability on his title is

justified. It must be borne in mind that this lattercourse is available only where the contract of saledoes not require the vendor to give a title valid ofrecord, but provides for a less stringentrequirement, such as marketability or insurability.

i. Majority Rule: adverse possession can be thebasis of a marketable title if it is highlyimprobable that the true owner can assert histitle. The burden of proving this is on theseller.

1. NOTE: if the court rules that title isnonetheless marketable, the buyerstitle that he gets is not a good record

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title, but merely marketable title. Thismay be a problem if he wants to sell thehouse. To avoid this problem, a buyershould always have an express title

standard of good record title.

3 LAYERS TO A MARKETABLE TITLE PROBLEM1. What is the standard of title that the parties agreed to?

a. Good record titleb. Marketable Titlec. Insurable titled. No standard- implied marketable

2. What kind of general exceptions has the buyer agreed

to?a. i.e. easements or encumbrances of record

3. What kind of specific exceptions has buyer agreed to?a. there may be an unrecorded visible easement in

favor of farmer Brown next door, and buyerexpressly agrees to live with it.

Time is of the Essence Provision, and a note on Closing1. Rule: If there is a time is of the essence provision it

will be enforced both at law and equity. Additionally,either party can unilaterally add a time is of theessence provision so long as the notice leavesreasonable time for rendering performance.

2. Rule: If the contracts sets a closing date, law willenforce that date, but equity will allow for a reasonabletime after the date to complete performance

Remedies for Breach of a Land Contract1. money damages at law

a. non-breaching seller (Contract Price FMV)i. Illustration: B and S enter into sale of

blackacre for $100,000. At time of closingseller is ready to perform, but seller renegeson deal. After deal goes sour, seller succeedson selling to X for $90,000.

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1. Result: Seller is entitled to contract priceless the fair market value ($100,000-$90,000= $10,000)

b. non-breaching buyeri.

English rule: Buyer is entitled to get onlyrestitution, and not the benefit of thebargained damages, if the sellers breach isnot willful. However, he is entitled to thebenefit of the bargain damages if sellersbreach is willful.

1. Illustration: Contract price of $90,000.Buyer is ready. Title search reveals flawwhich makes title unmarketable.

a. Result: In this circumstance, breach

by the seller is not willful, andbuyer is not entitled to bargaindamages. But he is entitled torestitution, i.e. the earnest moneyput down as the down payment.

2. Illustration: Contract price of $90,000.Fair market value at time of closing is$100,000. At closing buyer is ready toperform, but seller reneges, and sells to

X for $100,000.a. Result: Buyer is entitled to the

benefit of bargain damages, whichis contract price less the fairmarket value.

ii. American Rule: a disappointed buyer isentitled to the bargain value whether or notthe sellers breach is willful.

2. specific performance in equitya. Available to both buyers and sellers, so long as

title is marketable.3. restitution in both law and equity

The Duty to Disclose Defects***ask Kennedy about caveat emptor v. progressive

jurisdictions***

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Conservative Caveat Emptor Jurisdictions:General rule of Caveat Emptor: The doctrine of

caveat emptor requires that a buyer act prudentlyto assess the fitness and value of his purchase and

operates to bar the purchaser who fails to exercisedue care from seeking the equitable remedy ofrescission.

However, there is no sound policy reason todeny a plaintiff relief from failing to discovera state of affairs which the most prudentpurchaser would not be expected to evencontemplate. Where a condition which hasbeen created by the seller materially impairsthe value of the contract and is peculiarly

within the knowledge of the seller or unlikelyto be discovered by a prudent purchaserexercising due care with respect to thesubject transaction, non-disclosureconstitutes a basis for rescission as a matterof equity.

circumstances where the law will provide relief:Fraud

***get fraud definition***

Buyer can rescind the transferactive concealment- seller knows of a problem,

and actively tries to conceal itBuyer can rescind the sale

if there is a fiduciary duty between buyer andseller

Seller is under a duty to disclose all known,material defects.

Buyer can rescind salewhen there is the beginning of a disclosure- if

he begins to disclose a problem, the sellermust fully disclose.

EXCEPTIONSLatent Defects, including off-site latent

defects: caveat emptor is still the rule

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Patent defects- something discoverable:caveat emptor is still the rule

Progressive Jurisdictions: courts will provide relief for:Latent defect, including those created by the seller,

and off-site latent defectsWhere the seller of a home knows of factsmaterially affecting the value of theproperty which are not readily observableand are not known to the buyer, the seller isunder a duty to disclose them to the buyer.

There are two tests to determine if adefect is material

objective test: whether a reasonableperson would attach importance to

it in deciding to buy, orsubjective test: whether the defect

affects the value or desirability ofthe property to the buyer

Examples of latent defects that must bedisclosed

basement flooding; cracked walls andfoundation problems; termiteinfestation; roach infestation; soil

defects; underground sewage orstorage tanks; alterations orrepairs made without thenecessary permits; violations ofbuilding codes or zoningordinances; and encroachments byneighbors.

Illustration: A, buyer, inquires about cracksin the ceiling, and B, seller, states thatthere is, absolutely no problem withthe roof because the leak had beenfixed. Later, A found new evidence ofleaking and elected to rescind thecontract either because of fraud ormutual mistake. Rescission is allowedbecause B either knew it still leaked,

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which was fraud, or thought the roof hadbeen repaired and no longer leaked,which led to a mutual mistake of fact.

The Effect of an as is Clause in the Contract1. An as is clause is valid if 2 elements are satisfied:a. there is no fraud, andb. the conditions subject to the as is clause are

reasonably discoverable

Builders Implied Warranty of Workmanlike QualityRule: The duty is to perform in a workmanlike manner and inaccordance with accepted customary standards of skill andcare. This court rules that the claim can be brought by a

subsequent homeowner eliminating the privity of contractrequirement.Purpose: to protect innocent buyers; character of society haschanged such that an ordinary buyer is not in a position todiscover hidden defects; builder will not be unduly takenunaware by the extension of the warranty to a subsequentpurchaser; similar warranties exist for the sale of goods, anda home purchase is even bigger that a sale of goods.

Economic Loss

The courts are split as to whether they should allowrecovery for pure economic harm, which generallyis that loss resulting from the failure of the productto perform to the level expected by the buyer andis commonly measured by the cost of repairing orreplacing the product. Pure economic loss is notrecoverable in tort, but is in contract. The issue isshould courts allow recovery when privity ofcontract is done away with?

Limitations- limits on the cause of action:The rule only applies to latent defects which become

manifest after the subsequent owners purchaseand which were not discoverable had a reasonableinspection of the structure been made prior to thepurchase

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the implied warranty for workmanlike quality islimited to a reasonable time period

the plaintiff has the burden of proof of showing thatthe defect was caused by the builder

the builder can affirmatively defend byshowing that the defect was not caused byhim, that they are the result of age orordinary wear and tear, or that the previousowner has made substantial changes

The standard is ordinary workmanlike quality, notperfect quality.

This rule is generally limited to residential homes

The Uniform Land Transaction Act

This act provides for two implied warranties against personswho are in the business of selling real estate:

1. Warranty of Suitabilitya. This warranty arises in the case of used as well as

mew buildings. This warranty is very narrow inthat defects may not be so serious as to make theproperty unsuitable for its intended purpose

2. Warranty of Qualitya. This warranty only applies to new construction,

and is broader than the warranty of suitability. Thereasonable time period is 6 years.

3. NOTE: No state has adopted this act, but it is influentialof judicial decisions.

General DisclaimersRule: No general disclaimer is effective with respect to abuyer of a home in which the buyer intends to live. A sellermay disclaim liability only for a specific defect entered intoand became a part of the basis of the bargain.

Equitable ConversionRule: The doctrine of equitable conversion is that if there is aspecifically enforceable contract for the sale of land, equityregards as done that which ought to be done. The buyer isviewed in equity as owner from the date of the contract

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(thus having equitable title to the property, while stillretaining legal title to the purchase money), and the seller isviewed as owner of the purchase money (thus havingequitable title to the purchase money, while still retaining

legal title to the property). Additionally, the buyersequitable title to the land is qualified by a vendors lien infavor of the seller. If buyer doesnt pay the purchase price,Seller can sue on the lien to get the land back, or to get thefull price paid. This rule has four caveats:

1. In order for equitable conversion to apply, the sellermust be able to get specific performance to enforce thecontract.

2. Insurance: parties can moderate the risk by gettinginsurance

3. The parties can always contract out of this simply byincluding a provision regarding risk of loss in thecontract of sale.

4. All of this assumes that neither party is at fault. If theproperty is damaged as a result of the sellersnegligence, he is liable under tort law. If it is damagedas a result of the buyers negligence, he is liable undertort law.

3 Equitable Conversion Scenarios1. Property Damage Occurs Before Closing

a. Illustration: Parties enter into land contract. Beforeclosing, a hurricane destroys the house and allthat remains is a slab? Who bears the loss?

i. Majority Rule / Equitable Conversion: Buyerbears the loss

1. Many courts will apply the doctrine ofequitable conversion. Because Buyerhas equitable title to the property, hebears the loss, and pays full contractprice.

ii. Minority Rule / Massachusetts Rule: Loss isborne by the seller

1. If the damage to the property is sosubstantial that it frustrates the purpose

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of the contract, equitable conversiondoes not apply, the risk stays with theseller, and doesnt shift until legal titleshifts. If damage is only modest,

contract can be specifically enforced bythe seller, but the buyer gets a priceabatement equal to the loss sustained.

iii. Second Minority Rule / Uniform Vendor andPurchaser Act: This rule assigns the risk ofloss to the party in possession. Thus if theseller remains in possession up until closing,the seller takes the risk of loss.

2. One Party Dies Before Closinga. Illustration: buyer dies leaving a will stating: all

real property to John, and all personal property toMarsha. Who gets the benefit of the deal?

i. John, because he is the beneficiary of the realproperty, and the buyer had equitable title tothe property.

b. Illustration: seller dies, and has will stating: allreal property to John, and all personal property toMarsha.

i. Marsha will get it because the seller has

equitable title to the money.3. Installment Land Sale

a. Illustration: parties make a land contract at T1.Contract provides that buyer will make installmentpayments for a period of 30 years. However, onlywhen last payment is made does title transfer.Buyer has possession of land, but seller still haslegal title. In this situation there is 30 yearsbetween when the contract is signed, and whentitle transfers. Thus, the doctrine of equitable titleis important here.

The DeedGeneral Rules

1. A deed is entitled to transfer land only once. Eachgrantor must execute a new deed for each conveyance.

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And if the grantee wants to re-convey the land back tothe grantor, he would need a new deed.

2. A deed is only evidence of a transfer; it is not the titleitself. Additionally, the type of deed has no bearing on

the kind of title conveyed. A deed is just a vehicle thatevidences conveyance. If you lose a deed or a deed isdestroyed, you can get another copy from countyclerks office.

Types of deeds1. General Warranty Deed

a. The grantor warrants against not only his acts, butthe acts of any previous grantor. The land with 6covenants:

i. covenant of seiningii. covenant of the right to conveyiii. covenant against encumbrancesiv. covenant of warrantyv. covenant of quiet enjoymentvi. covenant of further assurance

2. Limited Warranty Deedb. has all 6 covenants, but grantor warrants against

defects caused by his acts, and not the acts of

earlier grantors3. Quit Claim Deed

c. there are no warranties3. a

Requirements of a Deed1. Compliance with the statute of frauds- requires a short

list of essential terms of transfer:a. identify the parties, description of the land, words

of a grantors present intent to convey an interestof land, and the grantors signature. The deed canalso recite a nominal consideration to prove thatthe purchaser is a bona fide purchaser of value.***ask Kennedy about the consideration***

i. Three ways to describe the land in a deed1. metes and bounds

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a. This is the oldest way of doingthings. Reference to natural orartificial monuments and, from thestarting point, reference to

directions and distances.2. govt surveya. A cross hatch of north and south

range/meridia lines, and East andWest township/base lines.

i. Range lines are 6 miles apart,and form townships. Eachtownship forms 36 tracts.

3. street name, or description by platta. real estate developer employs a

surveyor who prepares a plat mapwho divides the map into blocks,which is subdivided into plots.

b. Habendum Clause- To have and to hold...i. tells you what estate the grantor is giving,

and may also function to limit the estategranted in some way.

2. Acknowledgementc. In most jurisdictions, a deed signed by the grantor,

and delivered, is valid without anacknowledgement. However, in order for the deedto be recorded in the courthouse, giving notice tothe world of the grantees interest, the deed mustbe acknowledged.

i. NOTE: If there is no acknowledgement andthe deed somehow gets into the record, itstill does not give notice to the world as amatter of law.

1. aWhat happens if you get a forged deed?

1. Forgeryd. If someone forges a grantors name on a deed and

sells it to grantee, who sells it to X, a BFP with nonotice of the forgery. X gets a void title.

2. Fraud

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e. Fraud in the Inducement- ordinary fraudi. If the grantor is defrauded, the grantee has a

voidable title.1. So long as property is still in the hands

of the grantee, the grantor can rescindthe deal.2. If grantee sells the land to X, a BFP who

doesnt know of the fraud, X has goodtitle.

3. NOTE: Apply the sheltered doctrine if itis the case.

f. Fraud in the Execution- form of forgeryi. Illustration: A is the nephew of B, a blind old

uncle. A says, I need your signature so I can

get a drivers license. B signs it, not knowingit is a deed. This is fraud in the execution. If Asells the land to X, a BFP who does not knowof the fraud, he does not have good title, titleremains void.

1. aDeed Covenants

1. Present Covenants - the statute of limitations begin torun at the time the deed is made

g. Covenant of Seisini. grantor warrants he owns the estate that he

purports to convey.ii. REMEDIES FOR BREACH

1. damages is a return of all, or part of thepurchase price plus interest

a. Illustration: A B by generalwarranty deed 100 acres for$300,000. It turns out that As titlefails on 20 acres.

i. Result: B can recover for theone fifth of the purchaseprice, not one fifith of themarket value if the price hasgone up.

h. Covenant of the right to convey

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i. Grantor warrants that he has the right toconvey

1. Illustration: grantor owns a FS with arestraint on alienation, but grantor still

conveys. There is a breach of thecovenant of the right to convey.ii. REMEDIES FOR BREACH

1. damages is a return of all, or part of thepurchase price, plus interest

i. Covenant of against encumbrancesi. grantor warrants that there are no

encumbrances on the propertyii. VISIBLE EASEMENTS

1. Some courts hold that certain visible

public easements, such as highways andrailroads, in open and notorious use atthe time of the conveyance do notbreach the covenant. However, privaterights of way, which is a burden uponthe estate granted and which diminishesits value constitutes a breach,regardless of whether the grantee hadknowledge of its existence or that it was

visible and notorious.iii. RESTRICTIVE LAND USE ORDINANCE

VIOLATIONS1. Majority Rule: A latent violation of a

restrictive land use statute does notaffect the marketability of title andshould not rise to the level of anencumbrance. It is a defect on thecondition of the land, and not a defect oftitle.

a. Purpose: Such a conceptualenlargement of the covenantagainst encumbrances wouldcreate uncertainty and confusion inthe law of conveyancing and titleinsurance because neither a title

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search nor a physical examinationof the premises would disclose theviolation. The parties to aconveyance can adequately protect

themselves from such conditionsby including protective language inthe contract.

2. Minority Rule: Any substantial violationof municipal ordinances is anencumbrance in violation of the deedcovenants.

iv. REMEDIES FOR BREACH1. If the encumbrance is easily removed,

the measure of damamges recoverable

is equal to the cost of removing theencumbrance.

a. Illustration: A B by generalwarranty deed. However, there is a$10,000 tax lien on the property. Bwould pay it, and then sue on thecovenant against encumbrances,and get the $10,000.

2. If encumbrance is not easily removed,

the measure of damages is thedifference in value between the landwith the encumbrance and without theencumbrance plus interest. However,the total purchase price is a cap on whatthe grantee can recover.

3. a2. Future Covenants - the statute of limitations does not

begin to run until the grantee has been oustedj. Covenant of general warranty

i. grantor warrants that he will defend againstlawful claims and will compensate thegrantee for any loss that the grantee maysustain by assertion of superior title.

1. NOTE: The grantor is NOT liable for legalfees incurred by the grantee in

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successfully defending title, because thethird partys losing claim is not lawful.

The grantor is liable for the granteeslegal fees only if the grantee loses to a

superior lawful claim.k. Covenant of quiet enjoymenti. grantor warrants that the grantee will not be

disturbed in possession and enjoyment of theproperty by assertion of superior title

1. The mere existence of a paramount titledoes not constitute a breach of thecovenant. There is not a breach untilthere has been ouster.

ii. Minerals underneath the land

1. Possession of the surface does not carrypossession of the mineralsto possessthe mineral estate, one must undertakethe actual removal thereof from theground or do such other acts as willapprise the community that suchinterest is in the exclusive use andenjoyment of the claiming party.Accordingly, until such time as one

holding paramount title interferes withthe plaintiffs right of possession, therecan be no constructive eviction and,therefore, no breach of the covenant ofquiet enjoyment.

l. Covenant of further assurancei. Grantor promises that he will execute any

other documents required to perfect the titleconveyed.

Measure of Damages for Breach of Deed CovenantsRule: In order to recover upon a breach of present or futurecovenant, there must be actual damage. If there is no actualdamage and a present covenant is breached, plaintiff is onlyentitled to nominal damages.

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Do the present covenants run with the land?1. English Rule: the covenant of seisin runs with the land,

and is broken the instant the conveyance is delivered,and thus becomes a chose in action held by the grantee

in the deed, and that a deed by said first granteeoperates as an assignment of such chose in action to aremote grantee, who can maintain an action thereonagainst the grantor in the original deed.

a. Is Actual Possession Necessary?i. No, courts which recognize that the covenant

of seisin runs with the land base their holdingupon the fact of the grantee having hadpossession under the deed. It is the theorythat seisin in fact is what carries the

covenant of seisin and causes it to run withthe land. This, however, is NOT the reason torule that the covenant of seisin runs with theland to a remote grantee, as recognized bythis court. The covenant of seisin is intendedto secure indemnity for the deprivation of thetitle.

1. Rule: If the covenant of seisin runs withthe land to a remote grantee, under the

theory that subsequent deeds operateas an assignment of the chose in actionthat accrued to the first grantee, thenthere is no logical reason why a remotegrantee cannot maintain an actionwhether or not he ever had actualpossession of the land.

2. American Rule: the present covenants are notassignable, and do not run with the land.

***ask kennedy which is the majority rule***

Parol EvidenceRule: Parol proof of consideration to contradict thatexpressed in the deed is admissible as between the originalparties to the conveyance, but is not admissible in a suitagainst the original grantor by a remote grantee. The remote

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grantee, in purchasing the premises, had a right to rely uponthe fact that the original grantor in a prior deed was boundby the covenants of warranty and of seisin therein, and hada right to take into account the consideration recited in such

prior deed in purchasing the premises. As to them, theoriginal grantor is estopped to claim that the considerationrecited in said deed is in fact less than the recitals thereincontained. This is the rule as to the covenant of warrantyand applies equally to the covenant of seisin.

MergerRule: Merger occurs at closing. Once closing occurs, the dutyto deliver marketable title merges with the deed, andextinguishes. The six deed covenants replace the sellers

duty to deliver a marketable title. If seller tenders and buyeraccepts a quit claim deed, then the sellers duty to deliver amarketable title [does or does not merge, ***askkennedy***] merges with the quit claim deed, and the buyergets no warranties.

Estoppel by DeedRule: If grantor conveys land to a grantee that he does not

own, and the grantor warrants title to the land. If the grantorsubsequently acquires title to the land, the grantor isestopped to deny that he had title at the time of the deedand that title passed to the grantee. As a matter of law, titleautomatically vests from A to B.NOTE: This rule only applies where there are warranties. If Agave B a quit claim deed, estoppel by deed would not apply.

DeliveryRule: The deed is effective only upon delivery. A deed is voiduntil it is delivered.For delivery to be valid there must be:

1. an act or deliverya. The act can be the handing over of the document

to the grantee, but it can also be the grantors

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declaration, express or implied, that he is boundby his deed.

2. the requisite intent by the parties that the deedpresently transfers title from grantor to grantee, and

a. for delivery to be valid, it must be beyond therecall of the grantor.b. If grantor intends to pass title of a future interest

to the grantee now, there has been a deliveryeven though possession may be postponed untilthe grantors death. On the other hand, if thegrantor intends that no interest should arise untildeath, no delivery during life has taken effect.

i. If the grantor places deed in safety depositbox with the intention that grantee will take it

after his death. This may or may not be valid.When the grantor puts the deed in the safedeposit box, if he intends to immediatelytransfer some ownership interest to thegrantee it is valid. If he intends to transferthe title upon his death, this is not animmediate transfer, and delivery is invalid.

3. the deed must be accepted by grantee.a. If the deed is beneficial to the grantee, there is a

rebuttable presumption that there wasacceptance.

b. Physical possession of a duly executed deed is notconclusive proof that it was legally delivered. Thisis so under some circumstances even where therehas been a manual delivery. Delivery must bemade with the intent to pass title if it is to beeffective.

Delivery to Third Parties1. agent of grantor

a. No delivery has occurred.2. agent of grantee

a. Delivery is valid; it is beyond recall of the grantor.3. escrow agent

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a. The escrow agent holds the deed for the grantoruntil conditions are met. Once all conditions aremet, the escrow agent is obligated to deliver thedeed to grantee. This will be valid because

ordinarily a grantor cannot recall a deed from anescrow agent.i. Relation Back Doctrine

1. If a grantor puts the deed in the handsof an escrow agent to deliver to thebuyer at closing, and if the grantor diesbefore the escrow agent delivers thedeed, the delivery of the deed by theagent is treated as if it occurred beforethe grantors death. By this fiction the

rule that a will is required to pass title atdeath is avoided. Title is regarded ashaving transferred to the grantee duringthe grantors life.

2. Purpose: This rule implements the intentof the parties, and strengthens landtitles because fewer deals will bederailed.

Conditional Delivery1. Majority Rule: A conditional delivery is and can only be

made by placing the deed in the hands of a third personto be kept by him until the happening of the event uponthe happening of which the deed is to be delivered overby the third person to the grantee. Conditional deliveryto the grantee vests absolute title to the latter.

a. Purpose: The safety of real estate titles isconsidered more important than the unfortunateresults which may follow the application of the rulein a few individual instances. To relax it wouldopen the door wide to fraud and the fabrication ofevidence.

2. Minority Rule 1: Where a deed is delivered with an oralcondition, both the condition, as well as the delivery arevoid.

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3. Minority Rule 2: both the oral condition and the deliveryare enforced.

Delivery without the Grantees name

Rule: The deed is void until the grantees name is inserted.A deed which is in nullity when delivered because the nameof the grantee is omitted becomes operative without a newexecution or acknowledgement, if the grantee, with eitherexpressed or implied authority from the grantor, inserts hisname in the blank space left for the name of the grantee,and this authority to do so does not need to be in writing tosatisfy the SoF.

Mortgage LawMortgage Defined: A debt is evidenced by a promissory note,upon which the debtor is personally liable. The debt issecured by a mortgage. The mortgage is an interest in landgiven to a lender to secure the loan. The mortgage mustcomply with the statute of frauds, and should be recordedsince it is an interest in land

Rights under a Mortgage

1. Right to Possession/Rents/Profitsa. Title Theory (less than 10 states)

i. Title is in the L/Me (the bank) until mortgageis satisfied or foreclosed

ii. L/Me has a right to rents and profitsiii. O/Mr (mortgagor) has possession, but on

default, Me can take possession & takerents/profits

b. Lien Theory (40 states and the Restatement)i. O/Mr has equitable & legal title until a valid

foreclosureii. Mr has right to possession/rents/profitsiii. On default, some jurisdictions enforce

mortgage clause giving Me right ofpossession

Transfers by Mortgagor

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General Rule: O/Mrs interest in land equity - is freelytransferable but a transfer of land does not relieve thedebt. The liability remains on the promissory note.

What if Mr sells the mortgaged land to a new purchaser(NP)?2 types:

1. NP may take the land subject to Mrs mortgage, ora. Consequences

i. While land still secures mortgage - NP is notpersonally liable on mortgage debt

1. If L/Me sues NP on mortgage note NPhas a valid defense (I didnt make thenote, dont sue me)

2. L/Me can foreclose on land. If saleproceeds are less than the mortgageL/Me cannot look to NP for deficiency.

3. Practically, if L/Mes forecloses on land,NPs interest in land is wiped out, hisdown-payment may be gone, so NP hasan incentive to pay on mortgage.

ii. O/Mr (the original borrower) remains liable onfull mortgage debt

1. NP may assume the Mrs mortgage debta. If NP assumes an existing mortgage s/he becomes

personally liable for payment of the mortgage debtb. Assumption transfer is an express promise by NP

to pay debt. This promise is made by NP to O/Mr orL/Me or both.

Discharge of Debt and MortgageRule: Payment must be in full to achieve redemption andextinguish the mortgage

1. When can payment be made?a. Redemption of mortgage can be made only:

i. when payment is due orii. beforehand if Me is willing to accept it and

applicable prepayment rules allow it.

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What happens if Mr Defaults?1. Equity of Redemption

b. Equity grants O/Mr a right to redeem land bypayment of debt (with interest) a reasonable

time after law dayc. Happens after default, but before foreclosure.Equity of redemption is paid to the bank

2. Foreclosure by Salea. At public sale, property sold to highest bidder.

Proceeds used to pay mortgage debt.i. If proceeds exceeds debt surplus to O/Mrii. If debt exceeds proceeds L/Me sues O for

deficiency judgmentb. 2 types

i. Judicial Foreclosure1. Full litigation: pleadings, trial, court

supervised sale, post-sale deficiencyproceeding & appeal.

2. Expensive but produces firmest title3. Predominant method of foreclosure

ii. Power of Sale1. Authorized per term in mortgage

instrument

2. Notice is given, then sale by person orpublic official or trustee named inmortgage

3. Less expensive but less secure4. Authorized in more than 25 states

3. Statutory Right of Redemptiona. After a valid foreclosure sale, O/MR has additional

time period to redeem property (varies perstatute: 3- 18 months)

b. Happens after the foreclosure sale. This is paid tothe foreclosure sale purchaser. It is only after thestatutory right of redemption in which theforeclosure sale purchaser gets absolute title

Priorities1. Purchase Money Mortgages

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a. ***ask Kennedy?**2. Senior Mortgage

a. Foreclosure on senior lien wipes out junior liensb. Foreclosure sale purchaser (FSP) gets clear title to

land free of junior liens so FSP should pay up toFMV of landc. Illustration: Blackacre is subject to a senior

mortgage (M-1) of $ 40,000 and a junior mortgage(M-2) of $ 15,000. M1 & M-2 are held by separatelenders. M-1 is in default the debt has beenaccelerated. Foreclosure is imminent. The fairmarket value of Blackacre, free and clear of liensis $ 65,000.

i. Result: Since a first mortgage is being

foreclosed and the second mortgage will bewiped out, the purchaser should pay up to $65,000 because she will get a FSA free andclear of all liens.

3. Junior Mortgagea. Foreclosure on junior liens transfers land to a

foreclosure purchase subject to the preexistingsenior lien

b. FSP gets land subject to the preexisting senior

lien - FSP should pay up to the FMV less theaggregate senior lien.

c. Illustration: Blackacre is subject to a seniormortgage (M-1) of $ 40,000 and a junior mortgage(M-2) of $15,000. M 1 & M-2 are held by separatelenders. M-2 is in default the debt has beenaccelerated. Foreclosure is imminent. The fairmarket value of Blackacre, free and clear of liensis $ 65,000.

i. Result: Since purchaser at the foreclosuresale of the junior lien will take title to the landSUBJECT TO the senior liens, the purchasershould pay no more than $ 25,000 ($65,000-& 40,000).

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The Recording ActsGeneral Rule: The recording acts generally do not affect thevalidity of a deed. A deed is valid and good against thegrantor upon delivery without recordation. An undelivered

deed is void, and some states have a presumption that adeed has been delivered if it has been recorded, thispresumption is rebuttable.Purpose: The recording system establishes a system ofpublic recordation of land titles. The recording systempreserves in a secure place important documents that, inprivate hands, may be easily lost or misplaced. It protectsBFPs against prior unrecorded interests.

1. What do the Recording Acts Do?a. Charges subsequent grantee/claimant with notice

and knowledge of the contents ofi. properly recorded documents andii. other documents - mentioned by specific

reference in a recorded documentb. Can override the common law as between prior

and subsequent claimants to same land2. Types of Indexes

a. Tract Indexi. Documents are indexed by a parcel

identification number assigned to theparticular tract.

ii. 3 drawbacks1. requires a highly skilled clerk2. it is expensive to maintain; and3. it is not easily used with a metes and

bounds method.b. Grantor-Grantee Index

i. Separate indexes are kept for grantors andgrantees.

ii. 4 step title search process1. search up the grantee index to build a

chain of title2. search down the grantor index to find

encumbrances, if a documentspecifically refers to another document

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that is not recorded, you are deemed tohave notice of it

3. read all relevant documents4. perform collateral search for other

documents (bankruptcy court, probatecourt, family court, regular courts interms of judgment liens, etc.)

iii. The reference in the index to a documentsets forth its essentials:

1. the grantor, the grantee, description ofthe land, kind of instrument, date ofrecording, and volume and page numberwhere the instrument can be found setforth in full

a. Description of Landi. Rule: A description of the

property conveyed should beconsidered sufficient if itidentifies the property oraffords the means ofidentification within theinstrument itself or by specificreference to other

instruments recorded in theoffice of the register of deeds.

2. Indexing Problemsa. Non-Specific Reference Problem

i. Mother Hubbard Clause1. Def: A deed in writing which is intended

to convey an interest in real estate andwhich describes the property to beconveyed as all of the grantorsproperty in a certain county, is amother hubbard instrument.

2. Purpose: mother hubbard clauses areseldom used, but are convenient fordeath bed transfers and in situationswhere time is of the essence andspecific information concerning the legal

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description of the property to beconveyed is not available.

3. Rule: a mother hubbard clause is valid,as between the parties, but does not

impart constructive notice to asubsequent purchaser unless he hasactual notice.

ii. general reference to a lease1. Rule: If a deed is made with a reference

to a lease, if it is a specific reference, itwill impart constructive notice.

b. Wrong Name on a Deedi. Doctrine of Idem Sonans : though a persons

name has been inaccurately written, the

identity of such person will be presumed fromthe similarity of sounds between the correctpronunciation and the pronunciation aswritten.

1. Constructive Notice?a. Majority Rule: The title searcher is

charged with constructive noticewhen all the spellings are the same(Reed, Read, Reid) because the

spelling is not material. 2exceptions: (a) when thealternative spelling is unusual(Black and Blaq) (b) when the initialletter of the alternate name isdifferent (Kane, and Cain)

i. Purpose: the presumption isthat they are the sameperson. If the buyer wants toobject to a seller whose chainof title has this irregularity,the buyer has the burden ofproof of proving that they aredifferent people.

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b. Minority rule: Idem Sonans doesnot give constructive notice to agood faith purchaser for value.

c. Illustration:

i.

T1: O

William Elliotii. T2: William Elliott A.

1. Can you be sure that theWilliam Elliot and WilliamElliott are the sameperson? Yes, under themajority rule.

c. Mis-Indexed Deedsi. Majority Rule: Indexing is NOT an essential

part of the record, and mis-indexing a deeddoes NOT render the deed unrecorded. Apurchaser is charged with constructivenotice.

ii. Minority Rule: A mis-indexed deed does notimpart constructive notice.

Types of Recording Acts1. Race

a. Rule: As between two grantees the person who

wins the race to record prevails; knowledge of aprior purchasers claim is irrelevant.

i. First to record wins. Does not protect BFPsb. purpose: its purpose is NOT to protect a BFP; its

justification is an incentive to record. It is a brightline, easily implemented test to quickly decidedisputes.

c. Illustration

i. T1: OA (not recorded)

ii. T2: O B, notice, but records.1. Result: B prevails over A because he

recorded first.d. only 2 states have Race type Recording Statutes

for Deeds2. Notice

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a. Rule: A subsequent purchaser is protected againstprior unrecorded instruments if he has no notice ofa prior unrecorded instrument, even if thesubsequent purchaser has failed to record.

i. Subsequent grantee wins if he is a BFPb. purpose: solely to protect the BFP.c. drawback: it depends upon an off record fact to

determine who has better title. It diminishes theability of the recording act to strengthen titles.

d. Illustration

i. T1: O A, not recorded

ii. T2: O B, no notice, and is a BFP, but doesnot record

1. Result: B prevails over A because of theRecording Act. However, B has a strongincentive to record because if A sells toC, (who would be a BFP because he hasno notice of Bs prior unrecorded deed)C would prevail over B.

e. Illustration- Sheltered Doctrine

i. T1: O A, not recorded

ii. T2: O B, no notice, and is a BFP, but doesnot record

iii. T3: A records his deed from Oiv. T4: B records his deed from O

v. T5: B C, who finds As deed, and ascertainsfrom facts off record whether B had notice ofAs deed at the time of conveyance and whenvalue was given; which B did not.

1. Result: C prevails over A because of thecommon law sheltered doctrine. Asrecordation puts C on notice as to As

deed so C cannot claim to be asubsequent purchaser without notice.However, Cs claim is protected underthe sheltered doctrine.

f. half the states have a Notice statute3. Race-Notice

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a. Rule: A subsequent purchaser is protected againstprior unrecorded instruments only if thesubsequent purchaser (1) is without notice of theprior instrument and (2) records before the prior

instrument is recorded.i. Subsequent grantee wins if he is a BFP and ifhe records first

b. Illustration:

i. T1: O A Bank, mortgage, not recorded

ii. T2: O B, BFPiii. T3: B gains notice of A Banks mortgageiv. T3: A Bank records the mortgage

1. Result: A prevails over B because of thecommon law rule of first in time first inright. (Remember, both notice and race-notice statutes protect subsequentpurchasers against prior unrecordeddocuments. In this case, B is thesubsequent purchaser, and A Bank holdsa prior unrecorded instrument. If Brecorded before A Bank, he wouldprevail because of the Recording Act.)

The Standard Title Search1. Rule: Properly recorded documents within a chain of

title reached by a standard title search do impart noticeto subsequent grantees.

2. The standard title search for each grantee begins whenhe deed is delivered to him, and ends when the deedout is recorded by the next grantee; not when hedelivers his deed to the next grantee.

a. Illustration:

i.

T1: A

B, deed is delivered.ii. T2: B records the deed from A

iii. T3: B C, deed is delivered

iv. T4: C D, deed is deliveredv. T5: C records the deed from B

1. Result: Bs standard title search windowis from T1-T5, and is charged with

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constructive notice of all properlyrecorded documents within that window.

Extended Title Search

1. In some cases, a document outside the standard titlesearch will impart notice:a. Collateral search for a subdivision restriction

problemi. Does a subsequent grantee have to search

up the chain of title to the development plan;search for restrictions in the developmentplan; and then search down the deeds ofother grantees from the same commongrantor to find restrictions? Is he charged

with constructive notice of these restrictions?1. Rule: The courts are split as to whether

the extended title search is required.b. Wild Deed Problem

i. Rule: an extended title search is not required,because a wild deed not be picked up in astandard title search

1. Illustration:

a. T1: O A, deed recorded

b. T2: A X, deed is not recordedc. T3: A B, deed is recorded

d. T4: X Y, deed is recorded

e. T5: B C, C recordsi. Result: C prevails over Y

because he does not haveconstructive notice eventhough Ys deed from X isrecorded. It is not connected

to the chain of title because Xnever recorded his deed fromA; therefore it is a wild deed.

c. Early Recorded Deed Problem (and the afteracquired title doctrine)

i. Illustration:

1. T1: X O, deed is recorded

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2. T2: A B, by warranty deed, but Oactually owns the land; B records

3. T3: O A, (B would not own the land perestoppel by deed) A records.

4. T4: A C, who has no notice of As earlydeed to B.

a. Does C have to do an extendedtitle search to find Bs earlyrecorded deed from A, and chargedwith constructive notice?(Remember, the standard titlesearch window for A would beginwhen A is delivered the deed fromO, and Bs deed was recordedbefore this occurred)

ii. Majority Rule: An extended title search is notrequired, and a subsequent purchaser is notcharged with constructive notice of an earlyrecorded deed.

1. Purpose: As between a grantee whotakes the land per estoppel by deed anda BFP, courts favor the BFP. In theprevious illustration, B could have

protected himself by recording his deedagain after A recorded his deed from O.

d. Late recorded deed problemi. Illustration:

1. T1: O A, not recorded

2. T2: O B, he is not a BFP, but herecords his deed

3. T3: A records his deed from O

4. T4: B C

a. Does C have to search for the laterecorded O-A deed, and chargedwith constructive notice?(Remember, the standard titlesearch window for O ends when hisdeed out is recorded by B.)

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ii. The courts are split as to whether a laterecorded deed imparts constructive notice

1. Morse v. Curtis: A purchaser is notbound to examine the record after the

date of a recorded conveyance todiscover whether the grantor made aprior conveyance recorded later.

a. Result: Subsequent purchaser is aBFP, and prevails over the granteeunder the late deed.

b. Purpose: Limits title searches. If aprior deed recorded after the firstrecorded deed gives constructivenotice, the title searcher must

search under the name of everyowner to the present time to see ifthe owner gave a prior deedrecorded after the first recordeddeed.

2. Woods v. Garnett: A deed recorded late after another deed from the sameowner gives constructive notice tosubsequent purchasers.

a. Result: subsequent purchaser isnot a BFP and grantee under laterecorded deed prevails.

The Bona Fine Purchaser for Value1. Requirements to be a BFP

a. must give value, ANDi. Note: Donees and Devisees are not BFPs

because they do not give value.b. have NO notice both at (1) the time of the

conveyance and (2) when the value is giveni. Daniels v. Anderson: A buyer who, prior to

the payment of any consideration receivesnotice of an outstanding interest, pays theconsideration at his or her peril with respectto the holder of the outstanding interest.

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Such a buyer is not protected as a bona fidepurchaser and takes the property subject tothe outstanding interest.

1. Purpose: Consummation of the

purchase, after notice of the outstandinginterest, is a fraud upon the holder ofthat interest.

2. What happens when a buyer receives ACTUAL notice ofan outstanding interest subsequent to paying some, butprior to paying all of the purchase price? (such as aninstallment land contract)

a. Majority / Pro Tanto Rule: the buyer is protected tothe extent of the payments made prior to notice,but no further.

i. 3 methods of applying the pro tanto rule1. award the land to the holder of the

outstanding interest and award thebuyer the payments that he or she hasmade.

a. ***this is the most commonmethod.

2. award the buyer a fractional interest inthe land proportional to the amount paid

prior to notice.3. allow the buyer to complete the

purchase, but to pay the remaininginstallments to the holder of theoutstanding interest.

3. What happens when a buyer receives CONSTRUCTIVEnotice of an outstanding interest subsequent to payingsome, but prior to paying all of the purchase price?

a. Rule: constructive notice will not be fatal to a BFPwho is midway through paying value.

i. Purpose: After the deed is delivered, there isno expectation to search the deed forconstructive noticeIf constructive noticethreatens him with loss of title, he will haveto undertake a title search before each andevery payment.

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4. Types of Noticea. Actual: Actual notice is subjective personal

knowledge of a specific factb. Constructive: knowledge that is imputed to a

person by operation of law whether or not theyactually know, rather than personal knowledge.i. 2 types:

1. Record Notice: a properly recordedinterest imparts notice that is properlydescribed. This is so whether or not thesubsequent purchaser finds thedocument

2. Inquiry Notice: under certaincircumstances, a purchaser is required

by law to make a reasonable inquiry tofind out if there is a prior unrecordedclaim on the property. The law imputesknowledge of what the subsequentpurchaser would have known had heinquired.

a. Typesi. similarity in subdivision plot

1. ???what does this

mean???ii. a minority of jurisdiction hold

that a quit claim deed in thechain of title puts the personon notice to look for priorunrecorded deeds. Themajority rule is that it doesnot put you on notice.

iii. inquiry notice of anunrecorded instrument that isexpressly mentioned in arecorded instrument

1. Harper v. Paradise: adeed in the chain of title,discovered by theinvestigator, is

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constructive notice of allother deeds which werereferred to in the deeddiscovered.

2. NOTE: the courts aresplit as to whether thisrule applies tocommercial leases.

iv. inquiry notice of an adverseclaim revealed by a person inpossession of property.

1. Waldorff Insurance v.Elgin National Bank:Actual possession is

constructive notice to allthe world, or anyonehaving knowledge of saidpossession of whateverright the occupants havein the land. Suchpossession, when open,visible and exclusive, willput upon inquiry those

acquiring any title to orlien upon the land sooccupied to ascertain thenature of the rights theoccupants really have inthe premises.

Marketable Record Title Acts (MRTA)Uniform Simplification of Land Transfers Act (USLTA) versionof MRTA

1. Root of Title: root of title means a conveyance or othertitle transaction, whether or not it is a nullity, in therecord chain of title of a person, purporting to create orcontaining language sufficient to transfer the interestclaimed by that person, upon which that person relies

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as a basis for marketability of title, and which was themost recent to be recorded as of a date 30 years beforethe time marketability is being determined. MRTAextinguishes most pre-root of title interests.

a.

3 groups of pre-root interests that are notextinguished by a market record title:i. Mention by actual reference to a pre-root

deed.1. You can re-record your interest if it is

getting close to becoming pre-root.ii. As time marches forward, the root marches

forward. If an encumbrance is recorded, onceit slips past the root, it is gone. When it getscloser to the root, the owner of the easement

must re-record to preserve its validity.1. NOTE: Recording an interest after the

effective date of the root of title doesnot revive an interest previouslyextinguished.

iii. Visible easements, railroad and utilityeasements, mineral rights, tax liens.

b. Rule: A person has an unbroken chain of title if theofficial public records disclose a conveyance or

other title transaction, of record not less than 30years before the time marketability is determined,and the conveyance or other title transaction,whether or not it was a nullity, purports to createthe interest in or contains language sufficient totransfer the interest to:

i. the person claiming the interest; orii. some other person from whom, by one or

more conveyances or other title transactionsof record, the purported interest has becomevested in the person claiming the interest.

1. NOTE: If anything appears of recordpurporting to divest the claimant of thepurported interest, the chain of title isbroken.

c. Illustration:

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i. 1950: O A, A records

ii. 1955: OB, B records

iii. 1980: OC, C recordsiv. 2006: D is thinking about buying the

property. No one is in possession.1. Title search begins in 2006, the MRTA

requires you to go back 30 years to1976, and then go as far back asneeded to find the first recorded deed,which becomes the root of title. In thiscase, the 1955 deed is the root deed.As to the pre-root period, the MRTAextinguishes these interests. Moreover,a defect in the root deed isextinguished.

2. Result: As between A and B, B winsbecause MRTA wiped out As claim

3. Result: As between B and C, B winsbecause of first in time, and therecording act.

Ohio Law version of MRTA1. 2 differences under the Ohio statute from the USLTA

version

a. Under Ohio law you must go back 40 years andnot 30 years for root of title

b. Under Ohio law, a deed that is nullity cannot be aroot of title.

Land Registration- The Torrens System1. Under a registration regime, the State makes an

authoritative ruling that the given person owns the

given parcel of land.a. This system is voluntary2. How it Works :

a. If an owner wants to register land, it begins byfiling an application.

i. NOTE: Only a fee holder or a remaindermancan file.

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3. the title insurers liability depend upon the:a. coverage clause ***as kennedy***

i. Title company insures that title will be vestedin the insured

ii. Title company insures against any defect inor lien or encumbrance on titleiii. Title company insures marketability of title

1. Hazardous Waste?a. Hazardous Waste is a affects the

physical condition of the land, anddoes NOT render titleunmarketable.

b. NOTE : title insurance does coverunrecorded liens. If the state

attached a lien to the propertybecause of the hazardous waste, atthe time or prior to the signing ofthe policy, the TIC would have toindemnify the insurer.

i. *** However, the possibility ofa future lien does not amountto a title defect.***

b. the exclusionary clauses; and

i. losses arising from government regulationsaffecting the use, occupancy, or enjoyment ofthe land, unless a notice of enforcement orviolation is recorded in the public records.

ii. title flaws the insured knew about but failedto disclose to the insurer;

iii. a collection of off-record defects: claims ofpersons in possession not shown by thepublic records, unrecorded easements,implied easements, and easements arising byprescription.

iv. Standard policies also exclude defects thatwould be revealed by a survey or inspection.

1. Rogge v. Chelsea Title: In the absence ofa recital of acreage, a title companydoes not insure the quantity of land.

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Title companies are in the business ofguaranteeing title, not acreage. Anyonewho buys real estate without the aid of asurveyor runs the risk that he may not

receive all the land for which he paid. Inbrief, title insurance is no substitute fora survey.

c. listed exceptionsi. the insurance policy will not protect against

known risks.4. Tort Claim : Is there a duty to search for and disclose

any reasonably discoverable defect that would affectthe insureds decision to close the contract topurchase?

a. Majority Rule: A title insurance company is notliable in tort for negligence in searching records.

i. Purpose: the duty of a title company, unlikethe duty of a title searcher, does not dependon negligence, but on the agreementbetween the parties.

ii. NOTE: If, however, the title company agreesto conduct a search and provide the insuredwith an abstract of title in addition to the

policy, it might expose itself to liability fornegligence as a title searcher in addition toits liability under the policy.

iii. NOTE: The title company could also besubject to negligence if the act complained ofwas the direct result of duties voluntarilyassumed by the insurer in addition to themere contract to insure title.

b. Minority Rule: A title insurance company is liable intort if it negligently fails to discover and discloseinformation that would be of interest to theinsured.

i. Purpose: the insured has the reasonableexpectation that the title company will searchtitle.

5. Title Insurance v. Deed Covenants

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a. title insurance usually covers defects of record.Deed covenant protect both on and off-recorddefects

b. deed covenants are not subject to contract

exclusionsc. title insurance only protect current owners; theydo not run with the land. Warranty deeds can runwith the land (future covenants run with land;present covenants are often assignable)

d. insurance policies usually have inflation escalationclauses. Common law deed warranties are limitedto the maximum the person received who madethe warranty.

Land Use ControlsA. Judicial Land Use Controls

1. Private Nuisancea. Rule: A private nuisance is a nontrespassory

invasion of anothers interest in the private use

and enjoyment of land. ???ask about handoutdefinition???

i. NOTE: Generally, the law of nuisance protectsordinary use, not abnormally sensitive use.

b. Elements of the Cause of Action : One is subject toliability for a private nuisance if, but only if:

i. his conduct is a legal cause of an invasion ofanother's interest in the private use andenjoyment of land, and the invasion is either:

1. intentional and unreasonable, ORa. Intent

i. Acts for the purpose ofcausing [nuisance], orknowledge that [nuisance] issubstantially certain to resultfrom his conduct.

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b. Unreasonablei. Threshold Test

1. does a defendantsconduct cross a

threshold to make itunreasonableii. Balancing Test

1. The gravity of the harmis weighed against theutility of the actorsconduct

a. Factors affectingthe gravity of theharm

i. The extent ofthe harminvolved;

ii. the characterof the harminvolved;

iii. the socialvalue that thelaw attaches to

the type of useor enjoymentinvaded;

iv. the suitabilityof theparticular useor enjoymentinvaded to thecharacter ofthe locality;and

v. the burden onthe personharmed ofavoiding theharm.

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b. Factors affectingthe utility of theactors conduct

i. the social

value that thelaw attaches tothe primarypurpose of theconduct;

ii. the suitabilityof the conductto thecharacter ofthe locality;

andiii. the

impracticability of preventingor avoiding theinvasion.

2. unintentional and negligent reckless, orabnormally dangerous

c. Damages

i. Old Common Law: where a nuisance hasbeen found and where there has been anysubstantial damage shown by the partycomplaining an injunction must be granted.

ii. Modern Rule:1. Court can issue an injunction

conditioned on the payment ofpermanent damages to the plaintiffswhich would compensate them for thetotal economic loss to their propertypresent and future caused by thedefendants conduct.

a. Rule of Permanent damages:Where a nuisance is of such apermanent and unabatablecharacter that a single recovery

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can be had, there can be but onerecoveryPermanent damages areallowed where the loss recoverablewould obviously be small as

compared with the cost of removalof the nuisance.b. Purpose: The law of nuisance

affords no rigid rule to be applied inall instances. It is elastic. Itundertakes to require only thatwhich is fair and reasonable underall circumstances.

2. Coming to the Nuisancea. Residential landowners may not

have relief if they knowingly cameinto a neighborhood reserved forindustrial or agricultural endeavorsand have been damaged thereby.

i. The majority rule is thatmoving into the vicinity of anuisance does not completelybar a suit for damages orinjunctive relief, but it is a

relevant factor.b. Court may order injunction, but

require plaintiff to indemnifydefendant for the reasonableamount of the cost of moving orshutting down. Relief such as this islimited cases only wherein:

i. A developer hasii. with foreseeability, brought

into a previously agriculturalor industrial area thepopulation which,

iii. makes necessary the grantingof an injunction against alawful business, AND

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iv. for which the business has noadequate relief.

c. Purpose: In addition to protectingthe public interest, however, courts

of equity are concerned withprotecting the operator of a lawful,albeit noxious, business from theresult of a knowing and willfulencroachment by others near hisbusiness

iii. Nuisance claims can be resolved 1 of 4 ways :1. injunction2. let activity continue if defendant pays

damages

3. let activity continue by denying all relief4. order injunction if the plaintiff pays

damages2. Public Nuisance

a. Rule: A public nuisance is an unreasonableinterference with a right common to the generalpublic.

i. There must be substantial harm caused byintentional and unreasonable conduct, or by

conduct that is negligent, reckless, orabnormally dangerous.

1. Factors affecting unreasonableness:a. Significant interference with public

health, safety, peace, comfort, orconvenience

b. whether the conduct is proscribedby statute

c. whether the conduct is continuingin nature or has producedpermanent or long-lasting effects.

b. Public nuisance protects public rights; privatenuisance protects rights in the use and enjoymentof land- only owners of interest in land can bringsuit.

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i. NOTE: The interference caused by thedefendant can be both a public and a privatenuisance at the same time.

c. Damages

i. Money damages1. To recover damages for and individualaction for a public nuisance one musthave suffered harm of a kind differentfrom that suffered by other members ofthe public.

ii. Injunction1. To maintain a proceeding for an

injunction to abate a public nuisance,one must:

a. Have the right to recover damagesor (injury in fact)

b. Have authority as a public officialor

c. Have standing to sue as arepresentative of the generalpublic eg as a citizen in a citizensaction.

3. Trespass

a. Intentional Trespass: one who intentionally:i. enter land;ii. remains on land; oriii. fails to remove from the land a thing he is

under a duty to remove, irrespective if harmis thereby caused

b. Unintentional Trespass: one who unintentionally:enter land; remains on land; or fails to removefrom the land a thing he is under a duty toremove, but only if his presence causes harm.

c. Liabilityi. You are only liable for unintentional trespass

if harm is caused to the land; whereas one isliable for intentional trespass whether or notharm is caused to the land.

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B. Private Land Use ControlsI. EasementsGeneral Terms

1.

Definition: an easement is a non-possessory interest inland owned by another that authorizes the holder tomake some use of the land. Usually, the effect of aneasement is to burden one parcel of land for the benefitof another parcel.

2. servient estate: the lot that burdens from an easementa. every easement has a servient estate

3. dominant estate: the lot that benefits from theeasement

a. not every easement has a dominant estate

Classification of Easements1. Affirmative or Negative

a. affirmative easement: easement granted by theservient owner giving the dominant owner theright to enter or perform an act on the servientland. The Easement authorizes affirmative useof the servient land.

b. Negative easements: an easements that prohibits

B from making certain uses of his land. Ex. B willbuy an easement from A to prohibit A from makingany uses of his land that interfere with Bs view ofthe ocean for example

i. Common Law Negative Easements : blockinglight, blocking air flowing through your landin a defined channel, removing the supportof your a building (usually by excavating orremoving a supporting wall), and blockingthe flow of water through an artificialchannel are the negative easementspermitted at old common law.1. Purpose: Judges were not disposed to

create new types of negative easementsbecause negative easements are not aseasy to discover as affirmative

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easements, such as an easement ofway. To expand the list would increasethe risk to the purchaser that the landwas subject to undiscoverable rights.

ii.

Modern Negative Easements : Modern courtsallow a conservation easement. An owner ofland can give a public body or a privateorganization a conservation easement,preventing the servient owner from buildingon the land.

1. NOTE: Conservation easements areperpetual in duration, are transferable,and can be in gross.

2. Appurtenant or Gross

a. appurtenant: an easement that benefits a parcelof land.

i. Attributes1. This type of easement runs with the

land.a. Ex: railroad purchases rights of way

to operate across farmland, this isan easement in gross

2. Assignability : easements apertenent are

automatically assignable. If you buy theserviant estate, you are automaticallyburdened, unless you are a BFP.

3. Divisibility : easements apertenent aredivisible so long as they do notunreasonably burden the servient estate

a. Courts have held that 4 parcels isallowed, but 40 parcels wouldunreasonably burden the servientland.

b. gross: intended to benefit and to be personal to anindividual rather than to benefit a parcel of land.

i. Attributes1. not transferable, and extinguishes on

the holders death. ***NOW dont

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terminate at death of owner ofeasement rather intent.

2. Assignability : easements in gross werenot assignable at old common law, but

are now if the parties intended3. Divisibility : easements in gross aredivisible so land as the users follow theone stock rule.

a. One Stock Rule: If there be adivision, the easement must beused or exercised as an entirety. Ifthere be two or more owners of aseasement, they could make nodivision of it, but work together

with one stock.i. The easement can be divided,

but it can be only be usedjointly by unanimous consent,and one party can effectivelyveto another partys use ofthe land. You cannot divide itinto independent units.

c. What if there is an ambiguity?

i. Court looks to the intent of the parties, andwhatever the parties intend, that is what iscreated

1. courts first look to the instrument itself2. courts will then look at the purpose and

the circumstances surrounding the grant3. if the court still cannot tell whether it is

an appurtenant or gross, the default isan easement appurtenant.

3. By Means of Creationa. Express Easements

i. 2 ways to create an express easement1. created by grant

a. title goes from grantor to granteein a conveyance, and along with

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