Land Sale Contracts Flashcards
(24 cards)
Land Sale Contracts
Every Conveyance of land requires a two step process.
First, the land sale contract. It endures only until the closing.
Two, Closing. At closing, the land sale contract dies, and the Deed becomes the operative instrument.
Land Sale Contract
What is it? Land sale contracts are the first step in conveyance of real estate. It conveys equitable title to the purchaser.
Requirements: The land sale contract must satisfy the statute of frauds. It must be in writing, signed by the party to be bound by the contract (the defendant). It must identify the parties, describe the property, and include the purchase price in a way descriptive enough for a court to enforce.
Inaccurate description of land in land sale contract
If the land description in a land sales contract overstates or understates the land to be transferred, the remedy is specific performance with a pro rata reduction in price that reflects the defect.
Doctrine of Partial Performance
What is it? The doctrine of partial performance is an exception to the Statute of Frauds for land sale contracts. It allows buyer to enforce an oral contract by specific performance if:
Requirements: (1) Oral contract is certain and clear AND (2) Acts of partial performance prove existence of contract. There must be two out of the three following acts: (possession, paid (significant portion of) purchase price, or (substantial) improvements to property).
Doctrine of Equitable Conversion
Land contract conveys equitable title from the seller to the buyer. The deed conveys legal title and the right to possess.
Equitable title is relevant for determining who has the risk of loss. Once equitable title transfers from seller to buyer in land sale contract, the buyer holds the risk of loss UNLESS THE K SAYS OTHERWISE.
Typically, K will say otherwise.
Implied Covenants in Land Sale Contracts
Every land sale contract has an implied covenant of marketability at closing, and seller may not make false statement of material facts.
Implied Covenant of Marketable Title
What is it? The implied covenant of marketable title is seller’s implied promise to provide good record title (reasonably free from doubt / threat of future litigation, that a reasonable prudent buyer would accept) on the date of closing.
Common defects making title unmarketable: defects in record chain (e.g., adverse possession), encumbrances (mortgages not satisfied at closing, liens, unknown/detrimental easements, restrictive covenants, significant encroachments), zoning ordinance violations (but not zoning restrictions).
When does it come up? It is automatically implied in every land sale contract. The buyer can only seek a remedy for breach of the implied covenant of marketability before closing.
Remedy: Buyer must notify seller and give reasonable time to cure defects, even if extending closing date is necessary. If the seller fails to cure, buyer may rescind contract, sue for damages, get specific performance with reduced purchase price, or (in some jx) get seller to quiet title.
*Will be tested on bar.
Promise to not make false statements of material fact
Second implied promise in a land sale contract is that the seller will not make false statements of material fact.
Seller is also liable for material omissions of latent defects.
To be liable for failure to disclose, the seller must have known (should have known) of the defect, realized the buyer was unlikely to discover the defect, AND defect must be serious enough that buyer would probably reconsider purchase.
Disclaimer of liability
The seller cannot use a general disclaimer to avoid the implied covenants.
No implied warranties of fitness or habitability
Caveat emptor: Buyer beware (except sale of new home by builder).
Deed
If the buyer permits closing to occur, the land sale contract merges with the deed. The seller is no longer liable for the land sale contract promises, only for what the deed promises.
The deed passes legal title from the grantor to the grantee.
Test: To pass legal title from the grantor to the grantee the deed must “LEAD”: Lawfully Executed and Delivered.
LEAD the Deed
The deed must be lawfully executed and delivered to transfer the legal interest in the land.
To be lawfully delivered, the deed must be written and signed by the grantor, have an unambiguous description of the property, identify the parties, and contain words of intent to transfer. The deed does NOT need to have/recite consideration to make the deed valid.
The description does not need to be perfect, just unambiguous and at least provide a good “lead.”
Delivering a deed requires the grantor’s unequivocal present intent that title pass immediately. Does not need to be an actual physical/manual transfer of the deed (although that is allowed).
Acceptance of delivery is presumed. But if a grantee expressly rejects deed, the delivery is defeated and title is not passed.
Delivery with Conditions
Delivery with oral conditions: If a deed is absolute on its face, any oral condition that accompanies the deed is dropped when the deed is transferred, and delivery is satisfied.
Delivery with written conditions: A deed with a written condition is generally valid when delivered. If the condition is the grantor’s death, the deed creates a future executory interest in the grantee.
Delivery by third party with instructions to deliver the deed to intended grantee is valid delivery.
DEeivery by Escrow: Grantor can use an escrow agent once certain conditions are met. Once the conditions are met, the title passes to the grantee.
Three types of deeds
Quitclaim Deed: Contains no convenants for title. Only conveys what the grantor ACTUALLY has at the time of conveyance (e.g., if grantor has nothing, then the grantee gets nothing). The worst type of deed (for the buyer).
General Warranty Deed: Warranties against all defects in title, including those attributable to the grantor’s predecessors. Best deed for the buyer (seller liable for any problems from anyone coming before the buyer).
Special Warranty Deed - Like the general warranty deed, but the grantor only makes the promises on behalf of herself, not her predecessor owners.
General Warranty Deed:
Warranties against all defects in title, including those attributable to the grantor’s predecessors. Best deed for the buyer (seller liable for any problems from anyone coming before the buyer).
Six covenants for title:
(a) present covenants (breached at delivery). (1) Seisin –> grantor owns the property it is conveying. (2) Right to convey –> Grantor can transfer. (3) Against encumbrances (no servitudes, liens on land).
(b) Future covenants (breached if grantee disturbed in possession). (4) Quiet enjoyment –> no 3d party lawful claims to the title. (5) Warranty –> Grantor promises to defend if there is 3d party superior claims. (6) Further assurances –> grantor will perfect title if it turns out to be imperfect.
Recording System
Used when a grantor conveys the same property to more than one grantee. Central question is who gets the property?
Three types of recording statutes: Race statute jx (minority), notice jx (50%), and race-notice jx (50%).
Race Jurisdiction
In a race jx, B wins if he records properly before A.
Notice of prior conveyance to another doesn’t matter.
Race Statute: “A conveyance in interest in land shall not be valid against a subsequent purchaser for value unless the conveyance is first recorded”
Notice Jurisdiction
In a notice jx, the last BFP to take wins.
B wins if he was a BFP when he took, regardless of whether or not he records before A does. Basically, if A doesn’t record before B buys, then A is SOL.
Notice Statute: A conveyance of an interest in land shall not be valid against any subsequent purchaser without notice thereof (B) unless the conveyance is recorded.
Race-notice Jurisdiction
B wins if B is a BFP at time he takes and he records properly before A.
Whichever BFP that records first wins.
Race notice statute: “A conveyance of an interest in land shall not be valid against any subsequent purchaser for value without notice thereof whose conveyance is first recorded (B).
Bona Fide Purchaser
To be a BFP, the subsequent purchaser (or mortgage lender) of the property must take for value and without notice of prior conveyance.
Purchaser: Recording statutes don’t protect donees, heirs or devisees unless the shelter rule applies.
Value means substantial pecuniary consideration
Notice: AIR (Actual notice, inquiry notice, or record notice)
Types of Notice for BFP
If a purchaser has actual, inquiry, or record notice, then the purchaser is not a BFP.
AIR:
Actual notice is literal knowledge of the first purchaser’s existence. Includes word of mouth, newspaper, or any other source.
Inquiry Notice: Inquiry notice means that a subsequent grantee is held to have knowledge of any facts that a reasonable inquiry would have revealed, even if he made no inquiry. The presence of a third party on the property, a deed’s reference to an unrecorded instrument, and the absence of the grantor’s deed from the chain of title all impute inquiry notice on the purchaser. A type of constructive notice.
Record Notice: If A’s deed was recorded properly in the chain of title when B took, B is considered to have record notice. Note: if A records before B takes, B is automatically defeated because B is not a bona fide purchaser!
Chain of Title
Importance? To give record notice, the deed must be properly recorded in the chain of title.
What is it? Chain of title is the sequence of recorded documents capable of giving record notice to subsequent takers. Usually established through a title search of the grantor-grantee index.
Chain of Title Problems
(1) Shelter Rule: Anyone who takes from a BFP will prevail against any interest the BFP would have prevailed against. THe transferee is “sheltered” by status of the BFP-transferor. Applies to donee or someone with knowledge of the O to A transfer. rationale–want to make BFP’s life easier.
(2) “Wild Deed”: A wild deed is a recorded deed not connected to chain of title in the public record. A wild deed cannot be used to establish record notice of its existence, bc it isn’t feasible to find it.
(3) Estoppel by deed: If someone conveys realty he d/n actually have an interest to, he is estopped from denying the validity of that conveyance if he ever does get title to that property. However, this only applies to the grantee’s rights against the grantor, not a subsequent BFP.
