5. Land Sale Contracts and Conveyancing Flashcards
(15 cards)
Land Sale Contracts
♣ Subject to SoF and must be:
• 1. In writing
• 2. Signed by parties to be bound; and
• 3. Includes essential terms (e.g. consideration to be paid, description of land)
Exception – partial performance
♣ A land sale contract is outside SoF if buyer does any two of the following:
• 1. Pays all or part of the purchase price
• 2. Takes possession and/or
• 3. Makes substantial improvements
Land Sale Process
♣ 1. Contract – agreement to buy/sell land
♣ 2. Escrow period – transfer of funds through escrow
♣ 3. Closing – escrow completion to deed transfer
♣ 4. Conveyance – successful deed transfer, upon which property is conveyed to the new owner
Equitable Conversion
♣ During escrow (after land sale contract but before deed delivery), buyer owns the real property, but seller owns personal property (e.g. the right to proceeds of the sale).
♣ Seller holds legal title in trust for buyer
Death of a Party
♣ If buyer or seller dies before closing, rights to the contract pass according to interest held
- Seller’s interest – passes as personal property (e.g. seller’s heirs can sue for sale proceeds)
- Buyer’s interest – passes as real property (e.g. buyer’s heir can sue for delivery)
Risk of Loss
♣ If property is destroyed before closing through no fault of the parties, buyer bears the risk of loss.
♣ Parties can contract differently.
♣ Seller must credit any insurance proceeds from loss against the purchase price.
Every land sale contract contains two implied promises
♣ 1. Promise to provide marketable title
• Promise that title is free from risk of litigation
• Defects rendering title unmarketable:
o 1. Acquired by adverse possession
o 2. Encumbered by interest (e.g. servitude, mortgage, future interest); but seller has the right to satisfy outstanding mortgages or liens with sale proceeds, or
o 3. Zoning ordinance violations existing at sale
♣ 2. Promise to disclose and make no material false statements
• Seller must not materially misrepresent facts or make false statements concerning the property
• Seller must disclose latent material defects
• Seller cannot limit liability through disclaimers
• New property – seller/builder is subject to an implied warranty of fitness/quality in construction
o Remedy for Breach
♣ Buyer must notify seller before closing and give reasonable time for seller to cure defects
♣ If seller fails to cure, buyer can rescind, file for damages, demand specific performance, or file suit to quiet title
♣ If buyer fails to notify seller before closing, contract merges with the deed and seller is not liable
Deeds
A deed passes legal title from seller to buyer
Requirements:
♣ 1. Lawfully executed – must be signed by grantor and must reasonably identify parties and land; and
♣ 2. Delivered – requires intent to be bound by conveyance
• Title passes upon effective delivery; cannot be rescinded
• Present intent controls; physical transfer not required
• Acceptance – grantee must accept deed; acceptance is usually presumed upon valid delivery
• Rejection by grantee = ineffective delivery
3 types of deeds:
♣ 1. General warranty – includes six covenants for title
♣ 2. Special warranty – grantor assures that
• a) he has not conveyed the land to another and
• b) the land is free from encumbrances made by grantor
♣ 3. Quitclaim – transfers whatever interest grantor purports to have in property
• No covenants included; grantor is not even promising he has title to convey
General Warranty Deeds and Covenants for Title
o General warranty deeds include six covenants for title:
o Present Covenants – (only breached at the time of delivery):
♣ 1. Seisin: grantor covenants that he is the rightful owner (e.g. has title, possession) and that deed covers described land
♣ 2. Right to convey: grantor covenants that he has the right to convey
♣ 3. Against encumbrances: grantor covenants that the land is free from encumbrances (e.g. servitudes, mortgages).
Future Covenants – (only breached after delivery):
♣ 4. Quiet Enjoyment: grantor covenants that grantee will not be disturbed by a third party’s claim of lawful title
♣ 5. Warranty: grantor agrees to defend against lawful claims of title by others
♣ 6. Further Assurances: grantor promises to perform future acts reasonably necessary to perfect the title conveyed
Bona Fide Purchasers for Value
BFP: purchases property for value (e.g. gives pecuniary consideration) without notice of prior conveyance
Purchasers:
♣ Includes mortgagees for value
♣ Does not include donees, heirs, or devisees
Notice
♣ Buyer has notice of prior conveyance by:
• Actual notice – actual knowledge, from any source
• Inquiry notice – reasonable inspection of land would reveal (regardless of whether buyer actually inspects)
• Record notice – knowledge from routine title search
Recording Statute:
o If a prior conveyance or interest is not recorded, a subsequent purchaser/mortgagee may be protected under a recording statute.
♣ Level of protection depends on the type of recording statute
o Notice Statutes
♣ Subsequent BFP always prevails
♣ Whether or not she recorded first, a subsequent BFP always prevails over a prior grantee who fails to record.
♣ Sample language: “No conveyance or mortgage of an interest in land shall be valid against any subsequent purchaser for value without notice thereof unless it is recorded.”
o Race-notice statutes
♣ First subsequent BFP to record prevails
♣ Sample language: “No conveyance or mortgage of an interest in land shall be valid against any subsequent purchaser for value without notice thereof whose conveyance is first recorded.”
o Race Statutes
♣ First grantee to record prevails, regardless of whether buyer is a BFP
♣ E.g., non-BFP purchaser who records first prevails over BFP
Sample language: “No conveyance or mortgage of an interest in land shall be valid against a subsequent purchaser whose conveyance is first recorded”
Shelter Rule:
o One who takes from a BFP will prevail against any interest the transferor-BFP would have prevailed against, even if the transferee had actual notice of a prior conveyance
♣ Protects donees, heirs, or devisees of BFPs who cannot qualify as BFPs and would not otherwise receive protection under notice or race-notice statutes.
Wild Deeds
o A recorded deed unconnected to the chain of title (e.g. due to a clerk’s filing error)
o Record notice cannot be derived from a wild deed
Estoppel by Deed
o One who conveys land in which she has no interest is estopped from denying the validity of the conveyance if she subsequently acquires the same interest.
o Prevents one from fraudulently conveying land and later validly acquiring it (e.g. laundering title).
Real Estate Brokers and Agents
o Most real property sales are negotiated by real estate brokers
o Seller’s Agent (listing broker)
♣ Broker who obtains listing from seller e.g. engaged by seller to assist in sale of property
♣ Has fiduciary duty to seller
♣ Earns commission from sale of property once the sale closes
• Seller’s agent may still earn commission if the sale fails to close due to seller’s fault (e.g. seller backs out)
o Buyer’s Agent (selling broker)
♣ Primary relationship is with buyer, e.g. shows buyer potential properties buyer may purchase
♣ Typically compensated by receiving a portion of listing broker’s commission, e.g. gets paid out of seller’s agent’s commission
♣ Owes a fiduciary duty to seller because buyer’s agent is technically a subagent of the seller’s agent.
o Duty to Disclose
Agents have a duty to disclose material information about which they have actual knowledge.
