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Real Estate Flashcards

(53 cards)

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1
Q

*The purchase agreement

A

actually conveys an interest in property

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2
Q

Why there is a purchase agreement:

A

Property is expensive
Many things you want to do your due diligence to check before purchasing land
Statute of frauds

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3
Q

Timeline

A
  1. Offer & negotiation
    -Price; length of time before consummate; length of time and the nature of the inspections that the buyer gets to do
  2. Signing of the purchase agreement
    -Starts executory period
  3. Executory period
    -Period btwn when you tentatively have a deal to when deal is done
  4. Closing (deed delivery)
    -The buyer is completely the owner, and the owner owns nothing
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4
Q

Legal title

A

Transferred at the time of the closing when deed is transferred

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5
Q

Equitable title

A

Transferred when the purchase agreement is signed
*once buyer has equitable title, can sue for specific performance

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6
Q

Components of the Purchase Agreement

A
  1. Names of the parties
  2. Property description
  3. Fixtures and personal property
  4. The purchase price
  5. Inspection period time (physical defects)
  6. Promise to convey merchantable title
  7. Signature
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7
Q

Property description

A

Property must be described so it may be sufficiently identified from any other piece of property in the world—3 different methods

Reference to the US geological survey

Metes and bounds

Subdivision plat description: survey records

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8
Q

The purchase price (3 methods)

A

Cash

*Third party financing (typical mortgage loan, most frequent)

Seller financing (pay back the seller over time, high interest, least common, most exploitative)

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9
Q

Inspection period time (physical defects)

A

Buyers have opportunity to back out during the inspection period

Buyer pays for the inspections on physical defects

If buyer is not satisfied w/ results of any investigation, buyer must deliver a cancellation (of the purchase agreement) or a proposal (for things to be fixed)

Seller does not really have a duty to do anything

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10
Q

Promise to convey merchantable title

A

Merchantable title definition: it is free from the possibility of litigation (Lohmeyer v. Bower)

No encumbrances (a claim or right held by someone other than the property owner); or title defects

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11
Q

Types of defects

A

Title defects

Physical defects

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12
Q

Lohmeyer v. Bower (breach of merchantable title)

A

Mere presence of a zoning restriction does not make a title unmerchantable; BUT a violation of a zoning restriction makes it unmerchantable

Mere presence of a restrictive covenant renders title unmerchantable

Seller has to fix objections to title, or the seller is in breach

Buyers can get damages from seller when there is a breach of merchantable title: recision, return of the deposit, and damages

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13
Q

General rule: Caveat Emptor—Buyer Beware

A

No remedy against the seller for any physical defects with the property after the sale takes place

The only exception is fraud

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14
Q

Stambovsky v. Ackley—moving away from Caveat Emptor

A

Seller has an obligation to disclose material defects that the seller knows about in residential property sales

Seller does not have to disclose when:
-The buyer already knew about the defect
-The defect is one that the buyer should have known / found if they conducted a reasonable inspection

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15
Q

Material defects objective standard

A

A reasonable buyer would want to know about bc it goes towards the principal cause of wanting to buy the property at all

Ex. termites; roof about to collapse
Ex. not objective: uneven floors; peeling paint

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16
Q

Material defects Subjective standard

A

Based on THIS particular buyer

Buyer must represent to seller this is a principal cause of the buyers purchasing the property; & seller knows defect will prevent buyers desire from coming to fruition

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17
Q

Stigma statute

A

TX passed a statute that said certain types of events are not objectively material (suicide, death by natural causes, former owner had AIDS)

This doesn’t mean seller can lie, but seller can be silent.

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18
Q

Deed

A

The delivery of the deed gives the buyer legal title

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19
Q

Purpose of deeds

A

Outlines the rights and duties between the buyer and the seller (grantor and the grantee)

Serves as the basis of a form of title assurance—two types
1. The rights and duties between the grantor and the grantee
2. The rights of the grantor against everyone else

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20
Q

Types of Deeds

A

General warranty deed
Special warranty deed
Quitclaim deed

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21
Q

General warranty deed

A

Most common (in every residential transaction)

Deed where the grantor makes the most promises to the buyer

Includes all covenants of title: present & future (below)

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22
Q

Special warranty deed

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A

Most commercial real estate deals use the special warranty deed (more sophisticated parties who are in a better position to protect themselves)

Includes all covenants of title: present & future (below) BUT more limited in scope—the seller is only making these promises with respect to the seller’s own actions NOT the actions of others

23
Q

Quitclaim deed

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A

The least protective

Makes no promises whatsoever

Used in context of divorce & cleaning up property titles in estate matters

24
Q

Present covenants

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A

Covenant of seisin

Covenant of the right to convey

Covenant against encumbrances

25
Covenant of seisin
the type of property interest that the deed says it is conveying is indeed the property interest received by the buyer Broken when property interest to be conveyed is not the one received
26
Covenant of the right to convey
the grantor has the power to transfer this property This is violated you try to convey property you do not own or do not have the right to convey
27
Covenant against encumbrances
promise that there are no encumbrances Encumbrance ex. easements, restrictive covenants, mortgages Exception: Buyers cannot sue for encumbrances that the buyer could have discovered by doing a reasonable inspection or things that could be physically observed -Buyers can still sue even if the encumbrances are recorded (so record notice does not apply in this context
28
Future Covenants
Covenant of general warranty Covenant of quiet enjoyment The covenant of further assurances
29
Covenant of general warranty
Broken if someone asserts a superior right to the buyer with respect to the property Note: mere presence of a third party with a superior right does not breach this covenant—there MUST be an assertive action
30
Covenant of quiet enjoyment
Today there is no distinction between a covenant of general warranty & covenant of quiet enjoyment
31
The covenant of further assurances
If in the future buyer needs seller to produce additional documentation relative to the buyers rights in the property that were received from the seller, the seller will provide that documentation
32
Recording General Rule
Priority is established by first in time first in right
33
Recording Acts
Exceptions to the general rule of priority
34
Types of Recording Acts
Race system Notice system Race-notice system
35
The Race System
Of the two grantees, whoever records their title first wins
36
Benefits of The Race System
The notice component introduces uncertainty & litigation This is super easy to administer
37
Downsides of the race system
Produces harsh results No room for fairness
38
The Notice System
B will prevail over A even though A is first in time if at the time B takes delivery of the deed, B was a bona fide purchaser
39
Bona Fide Purchaser Requirements:
B at the time of taking delivery cannot have notice of the fact that the property has already been conveyed to A B must have given value for the interest (needs to be a sale, not a gift)
40
Race-Notice System
B must be a bona fide purchaser AND B must also record their deed before A records
41
The Shelter Principle
when the grantor is a bona fide purchaser, the grantee prevails even if they do not qualify on their own
42
Interests unaffected by the recording acts
interests that vest by operation of law
43
Policy Rationale behind Recording Acts
Recording acts create stability of title A is in the best position to protect themselves bc all they have to do is record B is the innocent party who purchases in “good faith,” so we are going to put the loss on the person who could have protected themselves
44
Mortgagee
have an exclusive right to the sale value of the property before any other creditors have an opportunity to get a cut of the sale value
45
Debtors Equity
the amount of value the owner gets after all creditors are paid
46
Payments secured by the mortgage loan:
Principal Interest Property taxes Insurance premium
47
Judicial Foreclosure
Mortgage Go to court, sue, get a judgement Usually have a certain amount of money you have to pay at the time of sale
48
Non-judicial Foreclosure
Deed of Trust Mortgage Mortgage with a power of sale Don’t go through the courts; private parties facilitate the sale Still waiting requirements; advertising requirements; and an auction
49
Deed of Trust Mortgage Structure
Adds a third party: trustee Legal title of the property is transferred to the trustee Lender is designated as the beneficiary Borrower repays the loan, & once it is completely paid off, trustee transfers the legal title to the borrower If borrower defaults, lender will send notice to the trustee to commence the foreclosure process
50
Why have the deed of trust system?
Quicker to not use the judicial party It is cheaper than going through the courts Trustee is supposed to be a neutral party
51
Foreclosure Process
1. Failure to pay 2. Notice 3. “Grace period” governed by the requirements of the loan 4. If no payment, proceed to auction
52
Purchasers Options at Foreclosure Auction
Someone bids: Lender gets paid off & surplus goes to the borrower Lender purchases the property at foreclosure: The creditor can credit bid up to the amount they are owed, then they have to pay real money Sale cancelled (why might this happen?): Low bidding: cancelled if it is so low that is shocks the conscience or is grossly inadequate In a lot of jurisdictions: if less than 20% of the market value Procedural issues Grace period violated Did not tell owner when sale would take place
53
When property sells for less than the money that is owed by the debtor (different jurisdictional approaches)
1. Normally—deficiency judgement: debtor is still liable for the amount 2. Cannot collect a deficiency in a mortgage context 3. Can only collect a deficiency if you foreclose judicially

Property (6 decks)

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