Land Sale Contracts & Conveyances Flashcards
Land Sale Contracts & Conveyancing
Land sale contracts — subject to the Statute of Frauds (SoF) and must be:
1. In writing;
2. Signed by the parties to be bound; and
3. Articulate essential terms:
• identify grantor and grantee,
• intent to convey,
• consideration to be paid,
• description of the land.
Exception — partial performance: a land sale contract outside the SoF is enforceable against the seller if the 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 to the land.
Land sale process:
1. Contract—agreement to buy/sell land
2. Escrow period—transfer of funds through escrow
3. Closing—escrow completion to deed delivery
4. Conveyance—successful deed transfer, upon which property is conveyed to the new owner
Equitable Conversion & Risk of Loss in Land Sale Contracts
Equitable conversion—during escrow (after land sale K but before deed delivery), buyer owns the real property, but seller owns personal property (i.e., the right to proceeds of the sale).
• Seller holds legal title in trust for buyer
• Action against seller for claims arising before the K—any judgment against seller is converted into an interest in sale proceeds; judgment is not enforceable against real property (i.e., buyer is protected)
Risk of loss—if property is destroyed before closing through no fault of the parties, buyer bears the risk of loss in most jurisdictions
• Applies even if buyer has not taken possession
• Parties can contract differently
• Seller must credit any insurance proceeds from loss against the purchase price
Death of a party—if buyer or seller dies before closing, rights to the contract pass according to interests held
• Seller ’s interest—passes as personal property
» I.e., seller’s estate can sue for sale proceeds
• Buyer ’s interest—passes as real property
» I.e., buyer’s estate can sue for delivery
Implied Promises in Land Sale Contracts
Every land sale contract contains two implied promises:
1) Promise to provide marketable title
» Promise that title will be free from risk of litigation upon closing
»_space; Defects rendering title unmarketable:
a. Acquired by adverse possession,
b. Encumbered by interests (e.g., servitude, mortgage, future interest); but seller has the right to satisfy outstanding mortgages or liens with sale proceeds, or
c. Zoning ordinance violations existing at sale
»_space;Can be waived by buyer (but not seller)
2) Promise to make no false statements of material fact
»Seller must not materially misrepresent facts or make false statements concerning the property
»Seller has a duty to disclose known, latent material defects, which may be disclaimed if disclaimer is clear and specific
»New property—seller/builder is subject to an implied warranty of quality in construction
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
• Merger—if buyer fails to notify seller before closing, contract merges with the deed and seller is not liable for contractual promises
No Implied Warranty of Fitness or Habitability
Buyer beware (except sale of new home by builder).
Deeds
A deed passes legal title from seller to buyer
Requirements— to be effective, a deed must be:
1) Lawfully executed— deed must be (i) signed by grantor, (ii) identify the parties, (iii) unambiguous description of the land, (iv) words of intent; AND
2) Delivered— requires intent to be bound by the conveyance
» Title passes upon effective delivery; cannot be rescinded
» Present intent controls; physical transfer not required
»Third-party or conditional transfers—if a deed is transferred with conditions or via a third party, courts look at grantor’s intent and whether she retains control to rescind transfer
»Acceptance—grantee must accept the deed; acceptance is usually presumed; non-existent/void entity cannot accept deed
» Rejection by grantee = ineffective delivery
Three 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 attaching while grantor owned the land
3) Quitclaim— transfers whatever interest grantor purports to have in property; no covenants included
» i.e., grantor is not even promising he has title to convey.
General Warranty Deeds & Covenants for Title
General warranty deeds include six covenants for title:
• Note — these covenants concern condition of title, not condition of the property itself
Present covenants — only breached at the time of delivery:
1. Seisin — grantor covenants that he is the rightful owner (i.e., 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:
1. Quiet enjoyment — grantor covenants that grantee will not be disturbed by a third party’s claim of lawful title
2. Warranty — grantor agrees to defend against lawful claims of title by others
3. Further assurances — grantor promises to perform future acts reasonably necessary to perfect the title conveyed
Special Warranty
Warrants against defects in title only for grantor themself (not grantor’s predecessors).
Bona Fide Purchaser’s for Value (BFP’s)
A BFP is one who purchases property for value (i.e., gives pecuniary consideration) without notice of a prior conveyance
• Note — whether a buyer is a BFP is important in the context of recording statutes
Purchasers:
• Includes mortgagees for value
• Does not include donees, heirs, or devisees
» Not protected by the recording statutes unless the Shelter Rule applies
Notice — a buyer has notice of a prior conveyance by any of:
• Actual notice — actual knowledge, from any source
• Inquiry notice — what a reasonable inspection of the land would reveal (regardless of whether buyer actually inspects)
• Record notice — knowledge from a routine title search
» E.g., a previous conveyance properly recorded in the chain of title (not a wild deed)
Recording Statutes
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
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”
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”
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”
The Shelter Rule
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 / anyone who takes from a BFP will prevail against any interest the BFP would’ve prevailed against.
• 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
A recorded deed that isn’t connected to chain of title (e.g., due to a clerk’s filing error or the failure to record a prior deed)
• incapable of giving constructive/record notice
• cannot exist in a tract index system
Estoppel by Deed
A grantor who conveys title to land he does not then own is estopped from subsequently acquiring the same land
• Title automatically passes to the benefit of grantee
• Prevents one from conveying land they do not presently own and later validly acquiring it (e.g., through a will)
