Land Sale Contracts Flashcards
(34 cards)
What are the two steps for every conveyance of real estate, and what is the legal effect of each step?
(1) The land contract: conveys equitable title that endures until step 2
(2) The closing: deed passes legal title and becomes the operative document
After the land contract (step 1), but before closing (step 2), which law applies?
Contract law
After closing (step 2), what law applies?
Real property
The time between the signing of the land contract (step 1) and closing (step 2) is commonly called the _______.
escrow period
To satisfy the Statute of Frauds, a contract involving an interest in land must:
(1) Identify the parties
(2) Describe the property
(3) Include the price (the consideration) or a means of determining the price (e.g., the fair market value as determined by an appraisal, AND
(4) Signatures of the party against whom enforcement is sought (i.e., if signature is missing from one party, then the contract will be held unenforceable against that party). There is no requirement that BOTH parties sign the contract.
The terms must be definite enough for a court to enforce the contract; so, if a court can tell from the documents who the parties are, which parcel is being conveyed, and what consideration is being supplied, the statute is satisfied.
If the land description in a real estate contract overstates or understates the amount of land being transferred, what result? Why?
The buyer can pursue specific performance with a pro rata reduction in price.
Land is considered unique, so the preferred remedy for breach of a land contract is specific performance.
What is the one exception to the Statute of Frauds regarding land sale contracts?
The doctrine of part performance
Part performance is an equitable doctrine allowing a buyer to enforce an oral real estate contract by specific performance if:
(1) The oral contract is certain and clear, and
(2) The acts of partial performance clearly prove the existence of a contract
Under the doctrine of part performance, what acts will prove the existence of a contract?
Two of the following three actions:
(1) Buyer has taken possession of the property
(2) Buyer has paid the purchase price or a significant portion of the purchase price
(3) Buyer has made substantial improvements to the premises
NOTE: One of the above standing alone is NOT SUFFICIENT. Two are required because any one on its own could plausibly be explained as indicative of some other kind of agreement. For example, maintaining possession could be plausibly explained as a landlord-tenant relationship, paying the purchase price could be plausibly explained as payment of a debt, and making substantial improvements could be plausibly explained as performance under a different kind of contract.
What is the doctrine of equitable conversion?
Once a contract for a land sale is signed, equity regards the buyer as the owner of the real property. By contrast, at closing, the deed conveys legal title to the buyer.
The right to possession rests with the party who holds legal title, so the SELLER is entitled to possession until closing.
If between contract and closing, the property is destroyed through no fault of either party, who bears the risk of loss?
The buyer, unless the contract says otherwise.
However, the seller MUST credit any fire or casualty insurance proceeds they receive against the purchase price the buyer is required to pay.
What happens if one of the parties dies after the contract but before closing? Why?
The interests of the deceased party pass to their estate.
The buyer has equitable title and is deemed to own the property from the moment the contract is signed. The seller has legal title and has an interest in the purchase price. Thus, the contract remains enforceable, with the deceased party’s estate taking the decedent’s place in the transaction.
NOTE: If the property is specifically devised by will, check to see whether ademption or exoneration rules apply.
What are the two promises implied in every land sale contract?
(1) Seller will provide marketable title
(2) Seller will not make false statements of material fact
What is “marketable title”?
Title reasonably free from doubt and the threat of litigation due to some defect that would render the title unmarketable
What are the 3 common defects that render title unmarketable?
(1) Defects in record chain of title (most often, adverse possession)
(2) Encumbrances (mortgages, liens, easements, restrictive covenants)
(3) Zoning violations
If even a portion of the title rests on adverse possession, it is unmarketable because adverse possession constitutes a defect in the record chain of title. Why?
Because the seller must convey good record title at closing. Title resting on adverse possession that has not been enforced via a quiet title action will not appear in the record, so the seller cannot lawfully convey it.
Generally, mortgages, liens, restrictive covenants, easements, options to purchase, and significant encroachments render title unmarketable unless _______. (+ 2 exceptions)
the buyer has waived them
EXCEPTIONS:
(1) If an encroachment is very slight (a matter of inches) and doesn’t inconvenience the owner of the encroached-on parcel, the encroachment won’t render title unmarketable. But, an encroachment of a foot or more likely will.
(2) An easement that is BENEFICIAL, visible, or known to the buyer does NOT impair the marketability of title.
How do zoning restrictions and zoning violations affect marketability?
Zoning restrictions DO NOT affect marketability.
An existing violation of a zoning ordinance DOES render title unmarketable.
How do future interests held by unborn or unascertained parties affect marketability of title?
When a holder of a future interest is unborn or unascertained, it is IMPOSSIBLE to convey marketable title.
Courts WILL NOT appoint a guardian ad litem to represent the unborn or unascertained parties for the purposes of conveyance.
When must title be marketable? What about for an installment land contract?
Title must be marketable on the closing date. The seller has up until that time to cure any defects causing the title to be unmarketable.
In an installment land contract, the seller need not provide marketable title until the buyer has made his last payment.
What is the seller’s liability under the implied covenant of marketability after closing has occurred?
None.
Once closing occurs and legal title has changed hands, the contract and deed merge, and the seller is NO LONGER LIABLE on the implied covenant of marketability. The seller is then liable only for express promises made in the deed.
What is are a buyer’s duties and remedies if title is unmarketable?
The buyer must notify the seller that title is unmarketable and give the seller reasonable time to cure the defects.
If the seller fails to cure the defects, the buyer’s remedies include:
(1) Rescission
(2) Damages
(3) Specific performance with abatement
(4) A quiet title suit
What is the seller’s covenant not to make false statements of material facts?
If a seller knowingly makes a false statement of material fact that the buyer relied on, actively conceals a defect (e.g., wallpapered over water damage), or fails to disclose known defects in the property, the seller may be liable to the purchaser AFTER closing for those defects.
A seller will be liable for failure to disclose a defect if:
(1) The seller knew or had reason to know of the defect;
(2) The seller realized that the buyer was unlikely to discover the defect; AND
(3) The defect is serious enough that the buyer would have probably reconsidered the purchase had they known of its existence
Factors increasing the likelihood that liability will be imposed on a seller who failed to disclose a defect include: (3 things)
(1) whether the property is a personal residence
(2) whether the defect is dangerous
(3) whether the seller created the defect or made a failed attempt to repair it
