Real Estate Transactions

Question 1

What is the real estate transaction timeline?

Answer 1

1)Offer and negotiate (most argued the price and the length of time and nature of inspections the buyer gets to do, and the length of time till delivery)

2)2) Signing of the purchase agreement (kicks off the period known as the executory period- the period between when we tentatively have a deal to when the deal is done)(conveys an interest in property, most commonly fee simple absolute)
– When the purchase agreement is signed, the buyer gets equitable title in fee simple absolute or whatever else, but not legal title
3) Closing deed delivery
- Buyer now has legal interest too

Question 2

What are the three types of property descriptions?

Answer 2

1.To describe property with reference to the US geological survey
2. A description using metes and bounds
3. Subdivision Plat description

Question 3

What is a U.S. Geological Survey Description?

Answer 3

Divides land into big squares called townships and sections.

Works well for large, rural land (like farms). Not surburban areas

“Northern one-half of the northeast quarter of Section 20, Township 2 North, Range 3 East.”

Question 4

What is the meters and bounds description?

Answer 4

Describes land by measuring distances (metes) and angles/directions (bounds).

Tells you to walk from point to point (stakes, trees, rivers, etc.).

good for irregularly shaped pieces of property. First iron stake is from the public land survey
Example:

“Starting at an iron stake on the east side of the property, then running south 200 feet to a creek, then west 300 feet to a rock.

Question 5

What is the subdivision plat description?

Answer 5

When developers split land into lots and blocks in a city/suburb, they file a map (plat).

The deed refers to the recorded map (not a big description in words).

“Lot 7, Block 2, Green Acres Estates, recorded in Volume 189, Page 45.”

Question 6

What are three ways to pay a seller?

Answer 6

• 1. Cash (almost never happens)- no borrowing, just paying upfront
• 2. Third party financing- someone else loans all or a portion of the money that the buyer needs to the buyer so the buyer can pay the seller and then the buyer pays it off to the third party (most common way). Lenders will usually not loan 100% of the cost
• 3. Seller financing- the seller allows the buyer to pay the purchase price over time. In exchange for allowing the buyer to pay over time, the buyer has to pay interest (least common and most dangerous for buyer). Usually super high interest rates

Question 7

When do buyers get to do a physical defect inspection?

Answer 7

Buyers are given a period during the beginning of the executory period (physical inspection period) to inspect for physical defects.

Question 8

Who pays for physical defect inspections?

Answer 8

The buyer

Question 9

How does a physical defect inspection work?

Answer 9

• The buyer sends to the seller things that the buyer objects to. Buyer has a right to back out of the contract if they see anything they don’t like as long as it’s during the physical inspection period. (cancel or proposal)
• Negotiations will be made for this where price can change, or seller will agree to fix certain defects

Question 10

What is the mortgage contingency?

Answer 10

The contract says the buyer doesn’t have to complete the purchase unless they successfully get a written mortgage approval (loan commitment) by a certain date.

Question 11

What is the deed?

Answer 11

✅ The deed = the document that legally hands over the property.

Question 12

What is a title inspection?

Answer 12

The buyer gets a period to inspect the legal title — making sure the seller has clean property rights (like fee simple ownership) and that the transfer documents (deed, will, etc.) are valid.
-The seller delivers to the buyer or the buyer’s lawyer documents relevant to the title
-Seller must deliver merchantable title — meaning a title good enough that reasonable buyers would accept it

Question 13

Who usually pays for a title inspection?

Answer 13

The seller

Question 14

Which inspection is longer: title or physical defects?

Answer 14

Title

Question 15

What is merchantable title?

Answer 15

Title free from the hazard of litigation

Question 16

Why does having a zoning law not make a title unmerchantable but having a restrictive covenant does?

Answer 16

Because zoning laws apply to everyone equally in an area —
they regulate land use, but don’t create a private dispute over who owns the land or what you can legally sell.

Restrictive covenants restrict that land specifically

Question 17

What things can be signed electronically in real estate?

Answer 17

Purchase agreements, deeds

Question 18

What things cannot be signed electronically in real estate?

Answer 18

Wills

Question 19

In what way are deeds mostly signed?

Answer 19

Physical pen and paper

Question 20

What are the two exceptions for a real estate transaction not needing to be in writing?

Answer 20

1. Part Performance- allows the specific enforcement of oral agreements when particular acts have been performed by one of the parties in the agreement
2. Estoppel- when unconscionable injury would result from denying enforcement of the oral contract after one party has been induced by the other to seriously change his position in reliance on the contract

Question 21

What was the old common law rule for disclosing defects?

Answer 21

Buyer beware- no remedy against the seller for physical defects found after the closing of the property other than fraud

Question 22

What is the modern rule for disclosing defects?

Answer 22

Courts now require sellers to disclose known material defects

✅ No duty to disclose:

Things the buyer already knows

Things the buyer should find with a reasonable inspection

non material defects

Question 23

What are two different standards to see if defect is material or not?

Answer 23

1) Objective standard- is this defect objectively material?
Is this the type of defect that the reasonable buyer would want to know about? (ex- termites)

2) Subjective standard- is the defect material to this specific buyer
Ex- soil that cant grow anything when the buyer wants a house to build a garden
The buyer needs to represent to the seller that they have this particular desire about some physical aspect of the property, and the seller knows about the defect and says nothing about it. If they don’t there is a material defect

Question 24

What is Texas’ stigma statute Duty to Disclose?

Answer 24

A seller does not have a duty to disclose things like AIDS, HIV, a death by natural causes, suicide, or an accident unrelated to the condition of the property on the property. These are not material. A seller must be honest when asked but they need not offer this information and may stay silent on it

Question 25

What gives a buyer legal title?

Answer 25

the deed

Question 26

What are the three kinds of deeds?

Answer 26

General warranty deed Special warranty deed Quitclaim deed

Question 27

What is a general warranty deed?

Answer 27

A deed where the seller makes 6 promises (covenants) to the buyer, 3 being present covenants about the current state of the title, and 3 future covenants to defend title if problems show up later - Usually only the grantors sign the deed and the grantees acceptance/consent is by the delivery of the deed - Takes effect between seller and buyer upon delivery, but it needs to be recorded to affect third parties (the world

Question 28

What are the three present covenants in a general warranty deed?

Answer 28

Promise 1) The Covenant of Seisin- Promise 2) The covenant of right to convey Promise 3)Covenant against encumbrances-

Question 29

What are the two future covenants in a general warranty deed?

Answer 29

Promise 4) The covenant of general warranty and quiet enjoyment promise 5) The covenant of further assurances

Question 30

What is the covenant of seisin?

Answer 30

the promise that the type of property interest that the deed says it is conveying is indeed the property interest that is received by the buyer. If this is broken the buyer has the right to sue

Question 31

What is the covenant of right to convey?

Answer 31

Promise 2) The covenant of right to convey – The grantor has the power to transfer this property

Question 32

What is the covenant against encumberances?

Answer 32

Promise 3)Covenant against encumbrances- There are no encumbrances on this property - BUT this is limited because there is often a list of acceptable encumbrances that the buyer has accepted - Sometimes there are exceptions for encumbrances that the buyer should have seen when a reasonable visual inspection (ex- an easement with a gravel drive by your house). In some jurisdictions the buyer is prohibited from suing the seller under this doctrine for failing to list the encumbrance when they could have discovered it

Question 33

When are present covenants broken?

Answer 33

At the time of giving the deed

Question 34

What is the covenant of general warranty and quiet enjoyment?

Answer 34

The promise that the buyer's possession wont be disturbed by someone asserting a superior right to the buyer with respect to this property. - This would not apply if the person was just a trespasser, they must have a legal right to the property

Question 35

What is the covenant of further assurances?

Answer 35

Promise 6) The covenant of further assurances- if in the future the buyer needs the seller to produce additional documentation relevant to the buyers’ rights to the property that were recovered by the seller, the seller will provide that documentation

Question 36

What is a special warranty deed?

Answer 36

- Used in commercial deals - The specialty warranty has all the same promises as above, but their scope is limited - The seller is only making these promises with respect to the seller’s own actions, not the actions of others

Question 37

What is a quitclaim deed?

Answer 37

Quitclaim deed- the least protective and makes no promises from the grantors to the grantees. - Basically, I convey to you whatever interest I have in this property if any

Question 38

What are two examples where quitclaim deeds are used?

Answer 38

- 1. In the context of divorce (one spouse quitclaiming the house to the other spouse) - 2. In the context of cleaning up titles in estate matters

Question 39

What is the principal way to search the land record?

Answer 39

The grantor and grantee's name

Question 40

What kind of evidence is in the recording system?

Answer 40

. This means that the records evidence rights that may exist they don’t necessarily evidence rights that definitely exist

Question 41

What is cloud on title?

Answer 41

Cloud on title- there isn’t an actual title defect but on the public record it looks like there is, so the buyer would want that corrected on the record with something that says that that record is fake. You cannot delete anything from the record, it is always there, you would have to file another document that says that something got cancelled

Question 42

What is the general common law rule for who prevails when two people receive property interest and what is the exception?

Answer 42

General common law rule- first in time, first in right. The party in time who receives the interest prevails over parties who received the interest later. Exception: The recording act, instances where B prevails over A

Question 43

What kind of documents can be recorded?

Answer 43

Instruments that are capable of transferring property rights from one person to another are capable of being recorded (ex- covenants, easements, deeds, judgements)

Question 44

What kind of interests operate outside of the recording act?

Answer 44

interests that vest by operation of law are not affected by the recording acts ( Ex- you become the owner of a property because you have adversely possessed it, the land was not conveyed to you via an instrument) (Ex- interests you acquire through intestacy) (Ex- if one spouse in a community property acquires property using community funds and the deed only lists that one spouse, the other spouse gets ½ of that property via operation of law)

Question 45

What are the three kinds of recording acts

Answer 45

The race system The notice system The race-notice system

Question 46

What is the race system?

Answer 46

The race system- of the two grantees whoever records their title first wins (notice doesn’t matter)

Question 47

What is the notice system?

Answer 47

The notice system- B will prevail over A even though A is first if at the time B takes delivery of the deed from the owner B was a Bonafide purchaser - Bonafide purchaser- B at the time of taking the delivery of the deed cannot have notice that the property has already been conveyed to A and B must have given value for the interest (it needs to be a sale, not a gift)

Question 48

What is the race-notice system?

Answer 48

The race-notice system- B prevails over A if they are a Bonafide purchaser and they must record their deed before A records

Question 49

What is the shelter principal?

Answer 49

The shelter principle says that someone who gets property from a good-faith purchaser (BFP) inherits that same protection, even if they wouldn’t qualify as a BFP themselves.