Intro to US Land Transactions

Question 1

What does it mean when we say real estate contracts are executory?

Answer 1

It means that title is not transferred immediately upon signing the agreement because both buyers and sellers must do certain things between the time of the contract and closing.

Question 2

What is the SOF?

Answer 2

For property purposes, the SOF provides: No interest in land can be created or transferred except by a written interest signed by the party to be bound.
Thus, deeds only need to be signed by the seller!

Question 3

What are the 3 requirements under the SOF?

Answer 3

(1) A signature by the party sought to be bound – the seller in real estate transactions.

(2) A property description – the agreement must describe the land covered by the transaction.

(3) A price – the writing must state the sale price.

Note: some courts may imply an agreement to pay a reasonable price if no price is stated, but this is the rare exception.

Question 4

Under the equitable conversion rule, when does a beer become the Owen of a property?

Answer 4

From the date of contracting, not the sate of closing

Question 5

If a house burns down between contract signature and contract closing, what happens?

Answer 5

Under the equitable conversion rule, the buyer becomes the owner, pays the seller the agreed upon price, and the buyer is entitled to the proceeds of the seller’s insurance policy

Question 6

Do sellers have a duty to disclose defects? What is the majority and minority rule?

Answer 6

Majority rule: The seller has a duty to disclose all “material” defects that they know about – whether they are asked about or not.

Minority rule: Some jurisdictions won’t find a violation unless the seller did some act to conceal the defect (or lied) – omitting some information doesn’t count in these jurisdictions

Question 7

What are the minority and majority tests used to determine if a defect is material?

Answer 7

An objective test looking to whether a reasonable person would attach importance to the defect in deciding to buy, OR (the majority view)

A subjective test of whether the defect affects the value or desirability of the property to the buyer. (the minority view)

Question 8

What is the murder doctrine and its exceptions?

Answer 8

Merger doctrine: When a buyer accepts a deed, the buyer is deemed to be satisfied that all the contractual obligations in the purchase agreement have been met.
The purchase agreement is said to MERGE with the deed.

Effect: The buyer can no longer sue the seller based on the promises in the purchase agreement. The buyer can only sue based on what’s in the deed.

Exceptions:
(1) If the promise is “collateral” to the deed. That is, the promise to do something is outside the transaction. [This is the most common way to get around merger now.]
(2) Fraud (hard to prove)

Question 9

What is the majority rule of implied warranty?

Answer 9

Majority Rule: As a matter of law, a builder or developer of housing gives an implied warranty of quality or skillful construction in purchase agreements for new builds.

Question 10

For the breach of a sale contract, what remedies are available to the non-breaching party?

Answer 10

If a purchase agreement is breached, there are three remedies available for the NON-BREACHING PARTY:

Damages

Retention of the deposit (if buyer breaches) or refunding of the deposit (if seller breaches);

Specific Performance

Question 11

What are the 3 kinds of deeds?

Answer 11

General Warranty Deed: warrants title against all defects in title, whether they arose before or after the grantor took title. [Property sold with this deed sells for more than the others.]

Special Warranty Deed: warrants title against the grantor’s own acts (but not of acts of others who came before the grantor). [Sells at a 19% discount to general warranty deed property]

Quitclaim Deed: contains no warrants of any kind. It merely conveys whatever title the grantor had – no matter how bad or good it is. [Sells at a 50% discount compared to General Warranty Deed property]

Question 12

Does a deed need to state exact consideration?

Answer 12

No, it only needs to indicate that consideration was paied

Question 13

Does a deed need a signature from a notary?

Answer 13

No, it only needs to be signed by the seller. However, it can be beneficial to have the deed notarized so there is a public record if it

Question 14

What are the 3 ways one can describe a property in a deed?

Answer 14

Metes and bounds (reference to natural or artificial monuments)
Reference to a government survey, recorded plat, etc.
Reference to the street and number or name of the property.

Question 15

What are the 6 covenants of a general warranty deed?

Answer 15

(1) A covenant of seisin – The grantors warrant that they own the estate they are trying to convey.

(2) A covenant of right to convey – the grantor warrants that he or she has the right to convey the property.
This usually serves the same purpose as #1, but it is possible for someone who has #1 not to have the right to convey (a trustee may have legal title but be unable to convey the title because of the trust’s language).

(3) A covenant against encumbrances – the grantor warrants that there are no encumbrances on the property that are not disclosed. These typically include mortgages, liens, easements, and covenants.
(4) A covenant of general warranty – the grantor warrants that he or she will defend against lawful claims and will compensate the grantee for any loss that the grantee may have because of someone else’s superior title.

(5) A covenant of quiet enjoyment – the grantor warrants that no one with superior title will disturb the grantee’s possession and enjoyment of the property.
Practically, this is the same as #4, and is sometimes omitted in general warranty deed language.

(6) A covenant of further assurances – The grantor promises to execute any other documents required to perfect the title conveyed.

Question 16

What types of mortgages are there?

Answer 16

Types of Collateral:
Residential
1 to 4 family homes (up to 4 units)
Commercial
Larger apartments & non-residential

Permanent v. Construction
Perm on completed existing buildings
Construction loans finance development projects

Question 17

What are the differences between government and private mortgages?

Answer 17

Government-Insured (FHA, VA)
Include “mortgage insurance,” allows higher L/V ratio
More “red tape,” longer approval process
No “due-on-sale” clause

Conventional
Normally max L/V=80%, unless private mortgage insurance (PMI)
Majority of all loans before & after “Mortgage Crisis”

Question 18

What are the 2 components of a mortgage?

Answer 18

(1) Promissory Note: Contract establishing debt.
(2) Mortgage Deed: Secures debt with real property collateral (potentially conveys title if certain conditions are met).

Question 19

In most, but not all states, who actually owns the house under a mortgage?

Answer 19

The borrower holds title and the mortgage company gets aa lien against it

Question 20

Which comes first, the judicial or statutory right of redemption?

Answer 20

Judicial

Question 21

What is judicial redemption?

Answer 21

Judicial Right of Redemption: This is the right that courts (using their equitable powers) give to borrowers. It allows buyers a reasonable time to pay back any past payments BEFORE the court will order a foreclosure.
Borrowers have a right to redeem up until the court issues a foreclosure. (That’s what foreclosure means. The foreclosure of the borrower’s right to redeem.)

Question 22

What is statutory redemption?

Answer 22

Statutory Right of Redemption: This is a time period AFTER foreclosure that the borrower has to recover the property.
The borrower must pay all back payments, interest, foreclosure fees, etc

Question 23

What is a deed of trust, and what are its benefits?

Answer 23

Under a deed of trust, a borrower conveys title to a person (usually a third-party organization) to hold in trust to secure payment of the debt to the lender. The trustee is given the power to sell the land without going to court if the borrower defaults.

Used to go through a foreclosure without using the courts

Question 24

What is the difference between title assurance vs title insurance?

Answer 24

Title Assurance is a broad term including surveys, maps, title opinions, anything having to do with title to property

Title Insurance is a specific contractual obligation

Question 25

What is the heart of title assurance?

Answer 25

The Public Records System – that is, the place where documents impacting land are recorded (deeds, mortgages, leins, etc).

Question 26

Why have both title assurance and insurance?

Answer 26

The insurance is a backup in case the public records are inaccurate

Question 27

What is the theory of marketable title?

Answer 27

when one person has a record title to land for some designated period of time, inconsistent claims or interest are extinguished.

Question 28

What does chain-of-title mean?

Answer 28

(1) It means sequence of transactions by which title has passed throughout history.

(2) But it also means the period of time for which records must be searched and the documents that must be examined within that period.
Note: in this sense of “chain of title,” constructive notice is given of those documents contained within that period of time.
State recording acts vary on how much time is included within the chain of title, but the standard time is 40 years But sometimes extended searches are required by the recording acts.

Question 29

What are the 3 different types of recording jurisdictions for marketable title?

Answer 29

Race jurisdictions: Under a race statute, as between successive purchasers of property, the person who wins the race to record prevails.

Notice jurisdictions: If a subsequent purchaser has notice of a prior unrecorded instrument, the purchaser cannot prevail over the prior purchaser.

Race-notice jurisdictions: a subsequent purchaser is protected against prior unrecorded interests only if the subsequent purchaser (1) is without notice of the prior interest and (2) records before the prior interest is recorded.

Question 30

What are the characteristics of a race jurisdiction?

Answer 30

The subsequent purchaser’s knowledge of the prior purchaser’s claim is IRRELEVANT – just must win the race.
Don’t need to determine who knew what and when. So it helps avoid legal battles over that difficult “knowledge” question.
Limits title searchers inquiries to matters on the record. (Anything off the record doesn’t matter.)

Question 31

What are the characteristics of a notice jurisdiction?

Answer 31

The main reason for a notice statute is fairness between two conflicting claims.

HOWEVER, a notice jurisdiction protects subsequent purchasers who never record, so long as they aren’t on notice of the prior purchaser before they get their interest in land.

And notice statutes are less efficient because “what constitutes notice” is often not clear and must be litigated.

Note: About half the states have notice statutes.

Question 32

What are the 3 types of notice?

Answer 32

(1) Actual notice: is where a person is personally aware of a conflicting interest in real property, often due to another’s possession of the property.

(2) Record notice: Notice of a prior interest that would be revealed by doing a title search.

(3) Inquiry notice: Notice based on a purchaser’s duty to investigate relevant circumstances. (Ex. Are there circumstances that would lead a reasonable person to inquire about another person’s interest in the property?)

Note: 2 & 3 are both types of constructive notice.

Question 33

What are the characteristics of a race-notice jurisdiction?

Answer 33

Race-notice tends to strike a balance between the two competing interests of Race & Notice statutes.

Race-Notice statutes help to eliminate lawsuits turning on extrinsic evidence about which deed was delivered first. And helps to avoid “notice” only questions.

Race-notice also punishes non-recording, so it helps make the records complete.

Note: Michigan is a race-notice state, as are the remaining half of the states.