Real Estate Transactions Flashcards
(19 cards)
Burnett v. NAR
challenged NAR rules requiring sellers to pay buyer broker commissions via MLS listings.
Plaintiffs alleged the rules artificially inflated seller costs and violated antitrust law.
Jury awards over 1.7 billion; NAR settled for $418 million in 2024.
Settlement ended a 100 yr-old practice, increased transparency, and spurred legislative change (e.g. NJ’s RECPEA)
Contract Negotiation and Execution
Price and terms are agreed upon in a contract of sale
Includes legal property description, price, deposit, and closing date
Brokers typically assist in this negotiation process
Executory[Escrow] Period
Period between signing and closing
Buyer performs dues diligence: title search, property inspection
Contracts may allow seller time to fix issues or include mortgage contingency clauses
Buyer may rescind if unable to secure a mortgage under set terms.
Risk of property loss may fall on buyer unless specified otherwise (eg. Uniform Vendor and Purchaser Risk Act in NY)
Contract merges into deed at closing, ending contract-based claims unless fraus or warranties apply.
Type of Deed : Quitclaim deed
No warranties, conveys only the interest the grantor has.
Grantee assumes the risk
Type of Deed : Special warranty deed
Protects only against defects arising fron grantor’s own actions, not prior ones
Type of Deed : General Warranty deed
Offers all 6 common law warranties
1. Seisin [ownership] – grantor owns the property
2. Right to convey – authority to transfer
3. No encumbrances – no undisclosed 3rd party claims
4. General warranty [defend title] –grantor will defend against lawful claims.
5. Quiet Enjoyment – grantee will not face claims from others with superior title.
6. Further assurances [support future title needs] – grantor will take future actions to perfect title.
First 3 are present covenants (must be true at delivery); Last three are future covenants(apply after delivery).
Fraud for nondicsclosure requires:
- Misrepresentation of material fact
- Scienter (knowledge of falsity)
- Justifiable reliance by buyer
- Damages/injury
“As-is” clauses and merger disclaimers are often used to defend against fraud claims.
- General “as-is” clauses do not automatically block fraud claims.
- Specific disclaimers (e.g.stating buyer did inspection or did not rely on seller) may bar introduction of fraud -related parol evidence.
- Stambosky – show limits on enforceing such clauses
Sue owned a five-acre tract of land, one acre of which had previously been owned by Opal, but to which Sue had acquired title by adverse possession. Sue contracted to convey the full five-acre tract to Peg, but the contract did not specify the quality of title Sue would convey. At the closing, Peg refused the tendered deed and demanded return of her earnest money.
Suppose Peg pays the purchase price and accepts a deed. Subsequently, Sue’s title to the one-acre proves inadequate and Opal ejects Peg from that acre. Peg sues Sue for damages. Which of the following statements applies most accurately to the determination of Peg’s rights
a. Sue’s deed was fraudulent.
b. The terms of the deed control Sue’s liability.
c. The only remedy available for breach of warranty of title is rescission.
d. Peg’s rights are based on the implied covenants that the title conveyed shall be marketable.
B. The buyer’s acceptance of a deed discharges the seller’s contractual obligation to furnish marketable title, and leaves the buyer with remedies only on the covenants in the deed.
Correct Answer: B
“The buyer’s acceptance of a deed discharges the seller’s contractual obligation to furnish marketable title, and leaves the buyer with remedies only on the covenants in the deed.”
Explanation: Once Peg accepted the deed, the contract merged into the deed. If the deed included warranties of title (e.g., general warranty), Peg might have recourse. But if the deed did not contain such covenants, she cannot recover for breach of the contract’s marketable title promise.
- Suppose Sue’s contract had called for the conveyance of “a good and marketable title.” Pursuant to that contract, Peg paid the purchase price and accepted a deed from Sue containing no covenants of title. Sue’s title to the one acre subsequently proved defective and Peg was ejected by Opal. Peg sued Sue. Which of the following results is most likely?
a. Peg will win, because Sue’s deed was fraudulent.
b. Peg will win, because the terms of the deed control Sue’s liability.
c. Sue will win, because the terms of the deed control her liability.
d. Sue will win, because the deed incorporates the terms of the contract.
C. Acceptance of a deed discharges the seller’s liability on the contract. Since the deed here contained no covenants of title, Sue would prevail.
Correct Answer: C
“Sue will win, because the terms of the deed control her liability.”
Explanation: Even though the contract promised “good and marketable title,” Peg’s acceptance of a deed with no covenants discharged the contract obligations under the doctrine of merger. Absent fraud or misrepresentation, the deed governs.
- Suppose that before closing, the house on the property had been totally destroyed by fire. In determining the rights of Sue and Peg, the court would most likely consider the doctrine of equitable.
a. Marshaling.
b. Sequestration.
c. Subrogation.
d. Conversion.
D. A majority of courts place risk of loss on the buyer, who is deemed the equitable owner of the property under the doctrine of equitable conversion.
Correct Answer: D – Equitable Conversion
“The doctrine of equitable conversion applies.”
Explanation: Under equitable conversion, once the contract is signed, the buyer bears the risk of loss (unless the contract says otherwise). So if the property was destroyed by fire before closing, VanMeer bears the risk and Landover can demand specific performance.
- Owens contracted to sell a tract of land, Overlea, to Painter by general warranty deed. However, at the closing Painter did not carefully examine the deed and accepted a quitclaim deed without covenants of title. Painter later attempted to sell Overlea to Thompson, who refused to perform because Owens had conveyed an easement for a highway across Overlea before Painter bought the property.
Painter sued Owens for damages. Which of the following arguments will most likely succeed in Owens’ defense?
a. The existence of the easement does not violate the contract.
b. The mere existence of an easement which is not being used does not give rise to a cause of action.
c. Painter’s cause of action must be based of the deed and not on the contract.
d. The proper remedy is rescission of the deed.
C. At closing, the contract merges into the deed and ceases to have an independent existence. Therefor, Painter’s acceptance of the deed constituted a discharge of Owen’s liability on the contract.
Correct Answer: C
“Painter’s cause of action must be based on the deed and not on the contract.”
Explanation: The merger doctrine again applies: acceptance of the deed supersedes prior contractual terms. Since Painter accepted a quitclaim deed with no covenants, Owens is no longer liable on the contract—even though the deed didn’t match what was promised.
- Landover, the owner in fee simple of Highacre, an apartment house property, entered into an enforceable written agreement with VanMeer to sell Highacre to VanMeer. The agreement provided that a good and marketable title was to be conveyed free and clear of all encumbrances. However, the agreement was silent as to the risk of fire prior to the closing, and there is no applicable statute in the state where the land is located. The premises were not insured. The day before the scheduled closing date, Highacre was wholly destroyed by fire. When VanMeer refused to close, Landover brought an action for specific performance. If Landover prevails, the most likely reason will be that
a. the failure of VanMeer to insure his interest as the purchaser of Highacre precludes any relief for him.
b. the remedy at law is inadequate in actions concerning real estate contracts and either party is entitled to specific performance.
c. equity does not permit consideration of surrounding circumstances in actions concerning real estate contracts.
d. the doctrine equitable conversion applies.
D. The agreement was silent as to the common-law doctrine of equitable conversion and no statute replaces it. Therefore, equitable conversion applies to this transactions. Equitable conversion places the risk of loss on the purchaser (Van Meer) as soon as an enforceable contract is entered into.
Correct Answer: D – Equitable Conversion
“The doctrine of equitable conversion applies.”
Explanation: In the absence of contrary contractual language or statute, equitable conversion applies. VanMeer became the equitable owner when the contract was signed, and thus bears the risk of the property’s destruction before closing.
- Metterly, the owner in fee simple of CUNYacre, by quitclaim deed conveyed CUNYacre to her daughter, Doris, who paid no consideration for the conveyance. The deed was never recorded. About a year after the delivery of the deed, Metterly decided that this gift had been ill-advised. She requested that Doris destroy the deed, which Doris dutifully and voluntarily did. Within the month following the destruction of the deed, Metterly and Doris were killed in a common disaster. Each of the successors in interest claimed title to CUNYacre. In an appropriate action to determine the title to CUNYacre, the probable outcome will be that
a. Metterly was the owner of CUNYacre, because Doris was a donee and therefore could not acquire title by quitclaim deed.
b. Metterly was the owner of CUNYacre, because title to CUNYacre reverted to her upon the voluntary destruction of the deed by Doris.
c. Doris was the owner of CUNYacre, because her destruction of the deed to CUNYacre was under the undue influence of Metterly.
d. Doris was the owner of CUNYacre, because the deed was merely evidence of her title, and its destruction was insufficient to cause title to pass back to Metterly.
D. The deed, once it has been delivered, has conveyed title. Its destruction does not cause any change in the title that was passed by its delivery. That would require another writing (or adverse possession, which hasn’t happened). Doris, therefore, was the owner of the property when she accepted delivery of the deed and continued to be even after she destroyed the deed. Doris’s successors in interest should thus prevail.
Correct Answer: D
“Doris was the owner… the deed was merely evidence of her title.”
Explanation: A delivered deed conveys title, even if it’s later destroyed. Since delivery occurred and no new deed reconveyed title to Metterly, Doris retained title. Her physical destruction of the deed was legally ineffective to revert ownership.
Hahne
Hahne sued def. for specific performance of an oral agreement to sell real estate.
Issues:
1. Whether written communications satisfied the Statute of Frauds.
- S. Dakota – Contracts for sale of land must be:
in writing and signed by party to be charged or their authorized agent.
- Hahne failed to produce any writing signed by D. ; oral statements are not writings. ; Letter and draft not signed by Burr. ; Email from D’s grandson- explicitly rejected sale
- Whether the court erred in rejecting partial performance and estoppel exceptions to the statute.
-** Exceptions to SOF**
A. Partial Performance -permits specific performance fot oral land agreen=ments if partially performed. Partial performance must be “unequivocally referable” to the contract. –
Hahne asserrts
- $15,000 payment (disputed as rent/downpayment) even if down payment, payment alone=insufficient
- Possession of Land - Irrelevant - Hahne already had possession under the expired lease, he was a holdover tenant, not new owner.
B. Estoppel (Equitable and Promissory)
Equitable Estoppel Elements:
1. False representation or concealment of material facts
2. Other party lacked knowledge of true facts.
3. Misrepresentation made to induce reliance
4. Deterimental reliance occured
Promissory Estopppel Elements:
1. Substantial economic detriment to the promisee
2. Foreseeability of harm by promisor
3. Reasonable and justifiable reliance by the promisee.
- Without clear evidence of detrimental reliance, estoppel failed
Holding : alleged oral agreement = unenforceable under statute of frauds.
Hanhe leased land from D for 3 years. Hahne claime parties reached oral agreement on all sale terms. Hanhe had closing docs, including deed and certificate of value prepared.
Hanhe gave D a $15,000 check (disputed as either rent/downpayment)
D’s grandson emailed Hahne that D would not proceed with sale.
Hahne filed suit for specific performance.
Lohmeyer
Claim: Buyer sought recission of real estate contract due to unmerchantable title.
Def. Response: Denied the title was unmerchantable and counter claimed for specific performance
Holding: In favor of recession – title was unmerchantable due to existing violation of zoning ordinance and private restrictions.
Facts
- Lohmeyer agreed to buy lot. After signing, discovered 2 violations affecting property: 1. house violated city ordinance + private dedication restriction requiring a 2-story house. L- claimed he would not have entered the contract had he known.
- Contract stated that the title would be free and clear of encumbrances, but subject to restrictions and easements of record.
- Lohmeyer requested recession, Def. refused, demanded specific performance.
Legal Issues:
1. Do municipal ordinance violations render title unmerchantable?
2. Do private restrictive covenant violations render title unmerchantable?
3. Does a “subject to restrictions of record” clause in a contract shield the seller from these violations?
Reasoning
- Merchantable Title Standard (Kansas)– a marketable title is one free from reasonable doubt. Unmarketable = exposes the holder to potential litigation/involves substantial defects that could cause injury to buyer. Minor or immaterial defects do not render title unmarketable.
- City Ordinances v. Private Restrictions –
– City Ord.: Existence of the ordinance does NOT equal encumbrance on title. BUT violation of such an ordinance can render title un marketable if it exposes buyer to litigation
– Private covenants (eg dedication declarations): Even existence alone of restrictive covenants is an encumbrance on title. Violation of such covenant definitely renders title unmarkeable under nearly all authority.
- Contract Language: “Subject to Restrictions of Record” : The clause that title is conveyed subject to “restrictions of record” does not excuse existing violations of those restrictions. The violation, not the existence, of restriction is what makes the title unmerchantable.
Ct -
- Property violated both”: Municipal ordinance setback rule + Private dedication covenant (req. 2 story)
- Violations exposed Lohmeyer to risk of litigation and potential costs to bring the property into compliance.
- SO, title =unmerchantable.
The contractual promise - to provide a warranty deed with good merchantable title was breached.
Recission was appropriate bc the sellers could not deliver merchantable title due to existing violations of legal and private land use restrictions.
Takeaways -
- Violations of zoning laws or private covenants can render title unmerchantable even if the restrictions themselves are disclosed
- “Subject to restrictions of record” clause does not shield the seller from liability when the property violates those restrictions.
- Buyer may rescinf contracts when they are exposed to the hazard of litigation due to such violations.
Stambovsky
Stambonsky- buyer, sued to rescinf contract of sale and recover his $32,500 down payment, after discovering the property was widely reputed to be a haunted house.
Def. counter claimed for specific performance.
Facts - buyer did not know of town folklore. Seller actively promoted house’s haunted status for years. Stam. argued stigmatization impaired the property’s value and resale potential.
Issues
1. Does the doctrine of caveat emptor bat the buyer from recession due to undisclosed reputational stigma?
2. Can a seller’s promotion of paranormal activity estop them from denying the haunted nature of the home?
3. Does equity permit recession where a material defect was undisclosed but unlikely to be discovered through normal inspection?
Holdings
1. Haunted Repuation = Legally Significant Condition
- Def.’s prior public representation estopped her from denying the home;s haunted status.
- Because of those representations, the house was legally haunted.
- This condition materially impaired the value and marketability of home.
2. Caveat Emptor Does Not Apply Rigidly in Equity
- Generally, NY applies strict caveat emptor: sellers have no duty to disclose property defects unless:
– There is a fiduciary relationship, OR
– The seller engaged in active concealment
- However, equity will not enforce a contract when material facts within the exclusive knowledge of one party are withheld from the other.
- Recission is appropriate where nondisclosure materially affects the contract and discovery is not reasonable possible.
3. Active Creation of Stigma
- Def. actively… so def could not claim she owed no duty to disclose it to her buyer.
- Buyer had no reasonable way to uncover this stigma through due diligence.
4. Contractual Defenses Fail
- Merger/as-is clause in the contract did not bar recession:
– It applied to physical conditions, not to intangible reputational defects
– Even a broad clause cannot excuse nondisclosure of facts exclusively known to one party.
Takeaways
- Psychological/reputational defects may render a property unmarketable under equitable principles if:
1. The defect materially affects value
2. The seller created/pubilicized the defect, AND
3. The buyer could not reasonably discover the defect.
- Established that equity may intervene despite caveat emptor where common sense and fairness demand relief.
-
Johnson
Established - a duty for residential sellers to disclose latent material defects
Issue: Whether a seller of residential property has a legal duty to disclose latent material defects known to them but not known/discoverable by buyer.
Facts - Plain. buy home from Johnson. Before making 2nd deposit, Plain. notice buckling plaster, stains ,etc. Johnson says, they are minor issues that have been fixed.
Disputed fact: Whether Johnson also claimed no prior issues with the roof.
After paying full deposit – heavy rain revealed major leaks. Plain- sued for recession, return of deposit, damages-based on fraud + misrepresentation
Johnsons counterclaimed for liquidated damages.
Holding
1. Misrepresentation by Affirmative Statement
- Fraudulent misrepresentation need not occur at contract signing to be actionable.
- If made prior to conveyance + relied upon, –> misrepresentation can justify recession.
- Holding- Sellers cannot avoid liability by making misleading statements after the contract is signed but before closing.
2. Distinction between misfeasance and nonfeasance
- Historically, cts imposed liability for active wrongsoing (misfeasance) but were reluctant to penalize mere inaction (nonfeasance)
- However, where inaction is calculated to mislead or induce false belief, it effectively amount to concealment and can support liability.
3. Decline of Caveat Emptor.
- The ct strongly criticized strict caveat emptor (buyer beware)in modern real estate transactions
- Rejected outdated rules allowing sellers to exploit buyer’s lack of knowledge when the seller had exclusive knowledge of material facts.
- Affirmed that modern quirty and fair dealing require disclosure of known, hidden defects.
4. New Rule in Florida: Duty to Disclose
- Seller must disclose known facts that materially affect the value or desirability of the property and are not observable or known the the buyer.
Conclusion - Johnson’s fraudulent concealment entitled buyer to recession, return of deposit..
Takeaways - Sellers have affirmative duty to disclose latent defects that:
1. Materially affect the property’s value
2. Are not readily observable
3. Not known to the buyer
- Misleading explanations/affirmative statements can constitute fraud.
-Florida officially rejects strict caveat emptor in favor of modern principles of disclosure and fairness in real estate transactions.
