Land Sale Contracts and Closing

Question 1

Two step process in every conveyance of real estate

Answer 1

1. The land contract
   
   • conveys equitable title
   • land contract endures until step 2
2. The closing
   
   • deed passes legal title
   • becomes the operative document

• Process has a long gap of weeks-months between the two steps so buyer can get financing, search title, inspect, etc…
• If all goes well, then closing takes place.

Question 2

Land Contract SoF Standard

Answer 2

All land kx must:

• be in writing
• signed by the party to be charged,
• describe the land, and
• be supported by consideration

Question 3

The doctrine of part performance SoF exception

Answer 3

• When met, equity will intervene and decree specific performance for an oral contract for the sale of land.
• Doctrine satisfied if 2/3 of the following are met:
  
  • Buyer takes physical possession of the land
  • Buyer pays all or a substantial part of the purchase price
  • Buyer makes substantial improvements

Question 4

Risk of loss problem

Answer 4

• Historically, buyer is deemed owner at time the k is signed
  
  • subject to the condition that he pay the balance of the purchase price at closing
• Buyer bears risk of loss if damage/destruction not caused by either party occurs between contract and closing.
  
  • called “equitable conversion”
• This doctrine is harsh, so most land contracts modify it to allocate the risk of loss to the party in possession of the premises prior to closing, usually the seller.

Question 5

2 implied promises in every land contract

Answer 5

1. Seller implicitly promises to provide marketable title at the closing
2. Seller implicitly promises not to make any false statements of material fact.

Question 6

Marketable title standard

Answer 6

Marketable title is title free from reasonable doubt. It is title free from lawsuits and the threat of litigation.

Question 7

Marketable Title vs. Insurable Title

Answer 7

• Marketable title = merchantible title
• Insurable title is of lesser quality
  
  • Not necessarily free from lawsuits and the threat of litigation.
  • Simply a title that some title insurance company is willing to insure.

Question 8

3 circumstances that will render the title unmarketable

Answer 8

1. Adv. Possession
2. Encumbrances
3. Zoning Violations

Question 9

Adverse possession & Marketable title

Answer 9

• Maj. says that title acquired by AP is unmarketable, bc seller must be able to provide good record title. WIthout that, buyer subject to future litigation.
• Min. says that tile acquired by AP is marketable, bc holder of a successful AP claim typically has quieted title to the property which confirms ownership interest.

Question 10

Encumbrances and marketable title

Answer 10

• Marketable title means an unencumbered fee simple.
• Servitudes or liens on the property render title unmarketable, unless the buyer has waived them.
• Most properties will be subject to an easement or covenant, which buyer usually agrees to exempt from the guarantee of marketable title.

Question 11

Marketable title & zoning violations

Answer 11

• Title is unmarketable if the prop violates a zoning ordinance.
• Mere presence of a set of zoning ordinances is of no consequence. It’s the plot’s violation of that ordinance that spoils the title, bc it subjects the property to threat of litigation.

Question 12

VA law on marketable title

Answer 12

• If the vendor does not own the amount of acreage sepcified in the k, buyer’s right to claim a breach of the covenant of marketable title depends on whether the sale is in gross or per acre.
  
  • in gross: no guarantee as to size of land. Treated as the sale of the whole unit of prop as named in the k, and the acreage number mentioned in the k is ignred
  • Per acre: covenant is breached if the seller cannot deliver the contract’s specified number of acres.

Question 13

Seller’s Duty to Disclose

Answer 13

• Seller implicitly promises not to make any false statements of material fact.
• Maj: seller liable for failing to disclose latent, material problems.So, he’s responsible for his material lies as well as his material omissions.

Question 14

Duty to Disclose and Implied warranties of fitness or habitability.

Answer 14

• The land contract contains no implied warranties of fitness or habitability.
  
  • The common law norm is caveat emptor, or “let the buyer beware”.
• Exception: Implied warranty of fitness and workmanlike construction applies to the sale of new homes by builder-vendors.

Question 15

Seller’s Duty to Disclose in VA

Answer 15

Seller of 1 to 4 dwelling units must:

• disclose the physical condition of the prop under contract, or
• must say that the property is being conveyed “as is”, and
• disclose any changes to the condition of the property that occur between signing of the k and closing

Question 16

Effect of seller breaching VA disclosure rule

Answer 16

Misrepresentation by the seller allows the buyer to terminate the k.

Question 17

VA Builder disclosure rule

Answer 17

• Builder of a new dwelling must disclose all known material defects that would violate any applicable building code.
• Disclosure must be in writing.

Question 18

When the land contract no longer controls

Answer 18

At closing.

Question 19

Effect of closing

Answer 19

• Deed becomes the operative legal document
• Deed passes legal title to seller

Question 20

Deed requirements to be legally passed to buyer.

Answer 20

LEAD

Lawfully executed and delivered.

Question 21

Lawful execution of a deed

Answer 21

The deed has to be:

• in writing,
• signed by the grantor
• lawfully executed in accordance with the given jurisdiction’s formal statutory requirements

Question 22

Delivery of a deed

Answer 22

• Deed must be delivered.
• Standard is legal, not literal.

Question 23

Deed delivery test

Answer 23

• Test is solely of present intent.
• Granter must manifest the present intent to part with legal control, regardless of whether the deed instrument is actually/literally transferred to grantee.
  
  • e.g. Eli Manning’s parents say they want to give him Blackacre. He accepts but asks them to hold onto the deed. Blackacre is still his.

Question 24

Effect of recipeint expressly rejecting the deed

Answer 24

Deed is still grantor’s

Question 25

Effect of deed transferred with an oral condition

Answer 25

deed is transferred to grantee if grantor has present intent to transfer. If not, it’s still grantor’s.

Question 26

Delivery into escrow and agent

Answer 26

• Grantor can make future conditional delivery by using an escrow agent
• Agent- a third party with the deed and instructions to deliver in the future
• If grantor doesn’t reserve right to revoke/recall deed, escrow is binding even if grantor dies or changes his mind. Agent is agent of both parties
• If grantor reserves right, escrow is invalid. Agent is grantor’s agent only.

Question 27

The three types of deeds

Answer 27

1. Quitclaim
2. General Warranty Deed
3. Special warranty Deed

Question 28

Quitclaim deed

Answer 28

• Worst deed a buyer could hope for.
• No covenants
• Grantor is not even promising he has title to convey.
• Usually used for deathbead transfers and other contexts where time is of the essence.

Question 29

General Warranty Deed

Answer 29

• Best deed a buyer could hope for.
• Has 6 covenants grantor makes on behalf of herself and her predecessors
• Grantor willingly assumes the sins, if any, of her predecessors, and promises grantee that she will be held accountable for the transgressions of those who preceded her.

Question 30

Covenants of the General Warranty Deed

Answer 30

• First 3- Present Covenants
  
  • Breached at the instant of delivery.
  • SoL for breach runs from moment deed is delivered
• Last 3- Future Covenants
  
  • Not breached until some future date, when grantee is disturbed in possesion
  • SoL for breach will not begin to run into this future date

Question 31

Names of the three present deeds

Answer 31

1. The covenant of seisin
2. The covenant of right to convey
3. The covenant against encumbrances

Question 32

The covenant of seisin

Answer 32

• Grantor promises that he owns the land that he now conveys
• Example: In 2010, O sold Blackacre to A. Later, A learned O only owned 90 of those 100 acres. A has claim for breach of covenant of seisin. SoL begins to run at delivery of deed, 2010.

Question 33

Covenant of the right to convey

Answer 33

• Grantor promises that he has the power to make this transfer.
• Grantor promises he is under no temporary restraints on alienation (restrictions on his power to sell) or disability that would compromise his capacity to make this transfer.

Question 34

The covenant against encumbrances

Answer 34

Grantor promises that there are no servitudes or liens on the property

Question 35

Names of the 3 future covenants

Answer 35

1. Covenant of quiet enjoyment
2. Covenant of warranty
3. Covenant for further assurances

Question 36

The covenant for quiet enjoyment

Answer 36

• Grantor promises that grantee will not be disturbed in possession by a third party’s lawful claim of title.
• Grantor is promising grantee: “There is no one else out there with a claim to this land that is superior to your claim. I’m not a dirty double dealer. No one else is going to come knocking on your door with paramount legal title, to usurp or deprive you of your rights.”
• Grantee’s CoA against grantor begins to run when grantee is disturbed in possession by a party’s assertion of paramount title.

Question 37

The covenant of warranty

Answer 37

• grantor promises to defend grantee against any lawful claims of title asserted by others.
• grantor is promising that if there is someone else with superior title, grantor will indemnify grantee.
• “Grantee, I just promised that no one else has a claim superior to yours. Now I add that in case someone else with superior title does materialize, and I’m telling you, that won’t happen, but if it does, I will step up to the plate. I promise to defend you against anyone else’s claim of paramount title.”

Question 38

The Covenant for Further Assurances

Answer 38

• Grantor promises to do whatever future acts are reasonably necessary to perfect grantee’s title, if it later turns out to be imperfect.
• Grantor is saying, “If it later turns out that we needed to sign the deed in blue ink rather than the black ink we used, find me and I will cooperate. Or, if I need to authenticate my signature at some future date, so be it, I’ll do it. I promise to do whatever administrative or ministerial things I need to do to perfect the title if it later turns out to be imperfect.”

Question 39

Statutory Special Warranty Deed

Answer 39

• Provided by statute in most states
• Grantor makes 2 promises only on behalf of himself, not his predecessors.
• Promises:
  
  • that he has not conveyed this property to another.
  • that Blackacre is free from encumbrances created by the grantor.

Question 40

VA Statutory Special Warranty Deed

Answer 40

• This is the kind of deed most frequently seen in VA.
• Seller warrants only that the seller herself has done nothing to create a title defect.

Question 41

VA Defective Deeds law

Answer 41

A deed to a dead person is void, but the doctrine of equitable conversion will allow a deed to be made to the dead person’s estate.

(equitable conversion: a purchaser of real property becomes the equitable owner of title to the property at the time he/she signs a contract binding him/her to purchase the land at a later date.)