Land Sale Contracts

Question 1

What “essential terms” must be included in a land sale contract under the Statute of Frauds?

Answer 1

1. Description of the property
2. Identification of the parties
3. Price and manner of payment (if agreed upon)

Question 2

When will a court give specific performance of a K in the absence of a writing? (e.g. an oral K)

Answer 2

Doctrine of part performance – when the buyer does 2 out of the 3 things

1. Possession of land by purchaser
2. Making substantial improvements
3. Payment of all or part of the purchase price

The seller may or may not be able to obtain specific performance

Question 3

Under the doctrine of equitable conversion, what does each party to a land sale contract possess between signing and closing?

Answer 3

Buyer:

Real property

Seller:

Personal property (bare legal title and possession of the property)

Question 4

What is the standard for the implied covenant of marketable title?

Answer 4

1. It is reasonably free from doubt
2. A reasonably prudent buyer would be willing to accept it
3. It is free form questionst that might present an unreasonable risk of litigation

Question 5

What things may render a title unmarketable? (Generally)

Answer 5

1. Defects in record chain of title
2. Encumbrances
3. Zoning restrictions

Question 6

What defects in record chain of title will render title unmarketable?

Answer 6

1. Significant variation in the description of hte land from one deed ot hte next
2. A deed in the chain was defectively executed
3. Evidence that a prior grantor lacked capacity to convey the property
4. Title was acquired by adverse possession

Question 7

What is the effect of a mortgage or lien on marketable title?

Answer 7

As long as the purchase price is sufficient and the seller is able to satisfy the mortgage at the closing, the closing will result in marketable title

Question 8

What is the effect of an easement on marketable title?

Answer 8

An easement that reduces the value of the property renders it unmarketable

But, some courts say that if it was a beneficial easement (e.g. utility easement to service property) or one that was visible or known to buyer, it is not an encumbrance

Question 9

What is the effect of a restrictive covenant on marketable title?

Answer 9

It renders title unmarketable

Question 10

What is the effect of an encroachment on marketable title?

Answer 10

A significant encroachment (either on seller’s land or his neighbor’s land) constitutes a title defect, but it is still marketable when:

1. It is very slight and does not inconvenience the owner of the land it encroaches on
2. The owner encroached upon indicated that he will not sue on it
3. It has existed for so long that it has become legal by adverse possession (if the state allows adversely possessed title to be marketable)

Question 11

What is the effect of a zoning restriction on the marketability of title?

Answer 11

Zoning restrictions themselves don’t affect the marketability of title, but existing violations of zoning restrictions will render it unmarketable

Question 12

At what time must title be marketable?

Answer 12

At the date of closing

In installment land contract – when delivery is to occur / buyer has made last payment

Question 13

What are the buyer’s and seller’s remedies if title is unmarketable?

Answer 13

Buyer must first notify the seller and give reasonable time to cure, even if that means extending the closing date. If seller doesn’t cure:

1. Rescission
2. Sue for damages for breach
3. Specific performance with an abatement of the purchase price
4. Require seller to quiet title (some JXs)

Seller cannot get damages for breach or specific performance.

Question 14

What is the seller’s liability for unmarketable title after closing?

Answer 14

After closing, the contract merges with the deed, and unless there is fraud, seller is no longer liable for the implied covenant of marketable title.

However, buyer can sue for violation of promises made in the deed, if there are any.

Question 15

When is the presumption that time is not “of the essence” overcome and what is the effect on the closing date?

Answer 15

Time is considered “of the essence” if:

1. The contract so states
2. The circumstances indicate that it was the parties’ intention
3. One party gives the other notice that she desires to make time of the essence w/in a reasonable time prior to closing

If time is of the essence, then the closing date is binding and the party who fails to tender performance by the closing date is in total breach, and can’t enforce the K anymore

Question 16

When is a party’s tender of performance excused?

Answer 16

When the party has repudiated the K, or if it’s impossible for the other party to perform (e.g. seller can’t get marketable title)

Question 17

What happens if neither party tenders performance by the closing date?

Answer 17

The closing date is automatically extended indefinitely until one of them does so

Question 18

What remedies are available to the buyer when the seller breaches K?

Answer 18

Damages:

1. Difference b/w contract price and market value of land on date of breach
2. Incidental damages

Specific performance:

1. If title is marketable, seller must convey title when buyer has tendered purchase price
2. If seller can’t give marketable title and buyer still wants title, buyer can obtain title with an abatement of the purchase price reflecting the defect

Question 19

What remedies are available to the seller if the buyer breaches K?

Answer 19

Damages:

1. Difference b/w K price and market value of the land on date of breach
2. Incidental damages
3. Liquidated damages if K required buyer to deposit “earnest money”

Specific performance:

1. Must give specific performance even if buyer is the one in breach for “mutuality of remedy”

Question 20

Under what theories may a seller of existing land and buildings (i.e. not new constructions) be liable to the purchaser for defects in improvements?

Answer 20

1. Misrepresentation/fraud (knowing/negligent, false statement, materially affected, buyer relied)
2. Active concealment
3. Failure to disclose (knows/reason to know, defect not obvious/unlikely to be discovered, defect is serious)

Question 21

To whom do real estate agents owe duties and what are those duties?

Answer 21

Unless specified otherwise, they are the agents of the seller and thus owe fiduciary duties to the seller.

Still, they have a duty to disclose to the buyer material information about the property if they have actual knowledge of it.

Question 22

What purposes do title insurance policies serve?

Answer 22

1. Insures that a good record title of the property exists as of the policy’s date
2. Agrees to defend the record title if litigated

Question 23

Who is protected by an owner’s title insurance policy?

Answer 23

Only the person who owns the policy (i.e. the property owner or the mortgage lender)

It does not run with the land to subsequent purchasers

Question 24

Who is protected by a lender’s title insurance policy?

Answer 24

It protects the lender and follows any assignment of the mortgage loan

Question 25

To hold a seller of an old construction liable for defects, what must be proven under a fraud/misrepresentation theory?

Answer 25

1. Knowingly or negligently made a false statement of fact
2. Buyer relied on the statement
3. Materially affected the value of the property

Question 26

To hold a seller of an old construction liable for defects, what must be proven under a failure to disclose theory?

Answer 26

1. Seller knows or has reason to know of the defect
2. Defect is not apparent, and seller knows buyer is unlikely to discover it upon ordinary inspection
3. Defect is serious and would probably lead buyer to reconsider purchase