Real Estate Transactions Flashcards

Question

Completed disclosure form pursuant to § 5.008 must be received \_\_\_\_\_\_

Answer 1

* be provided to buyer **before** entering into the contract. * If received _after_ the contract, **buyer has the right to cancel the contract within 7 days of receipt of the form** * A majority of other states have also adopted a statutory disclosure form * Lying amounts to material misrepresentation, giving the buyer a common law remedy * TX doesn’t include a section for noise but does ask whether a home was part of a lawsuit

Answer 2

1. If undisclosed defect discovered during executory period --\> rescind contract, return earnest money, interest, costs & fees 2. If undisclosed defect discovered after executory period --\> rescind contract, return purchase price with interest, damages, costs & fees

Answer 3

Causes of Action for Failure to Disclose * Common law fraud * Fraud in the real estate transaction (TX BUS & COM CODE) * Deceptive Trade Practices Act (DTPA)

Answer 4

* This is the modern rule. Originally, builder was protected by caveat emptor (buyer beware) no duty to disclose and even if the home was negligently constructed there was no liability unless an express warranty was provided * Seller/builder has a duty to disclose material latent defects but not via § 5.008 rules/forms * **Implied warranties of habitability** and **good workmanship** are included in the transaction (may be waived or changed in some circumstances) NOTE: These don't exist in resale/used homes

Answer 5

* **Must provide a home that is safe for human habitation** * Standards by which they are measured are uncertain * Protects average home buyer _who lacks ability and expertise to discover latent defects_ of a new house. (This only covers latent defects.) * Can be waived ***only if*** _a defect is disclosed to the buyer and the buyer specifically accepts the property with that defect._ Waiver occurs only as to that issue – not a general waiver EX: Well-constructed house on toxic waste dump, Well-constructed house over sinkhole

Answer 6

* **Minimal standards of care used in construction of new home** * Standards by which they are measured are uncertain * Defines the _level of performance expected when parties fail to make an express provision in their contract_ * **Cannot waive workmanship unless another standard of care is expressed in the contract. **(This is a gap filler) EX: Inferior workmanship (not complying with building code) in poorly constructing pipes is substandard work but not unsafe for habitation; or Crooked house

Answer 7

Poorly built chimney made home unsafe in that it caught on fire after first use of fireplace Poorly built foundation makes home unsafe in that it could result in walls crumbling, ceilings caving in

Answer 8

If there is a problem, buyers must give notice to the builder so that he/she may have an opportunity to remedy the problem (RCLA (Residential Construction Liability Act)) _Breach:_ can bring a claim under Deceptive Trade Practices Act _Termination:_ Seller cannot choose to terminate the contract, but buyer might be able to (especially if he gets an option period) * Reason for treating buyers and sellers differently --\> buyer is stuck with property and all the problems while seller just gets money and walks away

Answer 9

1. **Recission** (equitable) and keep earnest money 2. **Specific performance** (equitable) 3. Retain the realty and file suit seeking **damages**

Answer 10

* **Rescission** & return of earnest money * **Specific performance** * Sue for breach of contract and **damages**

Answer 11

Compensatory Damages * Award damages for the **loss of bargain (majority rule & TX).** * **Purchase price under contract** – fair market value at the time of breach = “loss of bargain” * Can consider the _resale value only as evidence of FMV_ (it is not determinative)

Answer 12

**Special Damages (available in TX)** May be awarded if 1. The damages were a _natural and probable consequence_ of the breach **AND** 2. The _breaching party reasonably knew or should have known from the facts and circumstances that the damages would be incurred_ Note: Possession is factored into damage award and may lower damages

Answer 13

**Punitive Damages (available in TX)** May be awarded if 1. The _breach was in reckless disregard of the contractual obligations_** OR** 2. The _breaching party intended to harm_ the non-breaching party Note: Possession is factored into damage award and may lower damages

Answer 14

## Footnote During the executory period, _equitable title_ belongs to the** Buyer** and _legal title_ belongs to the **Seller.**

Answer 15

When the buyer accepts the deed at closing… 1. Buyer is deemed to be _satisfied_ that all contractual obligations have been met 2. The _promises in the contract **merge** into the deed_ * Physical obligations still exist after the deed is accepted * The terms included in the deed are what survive closing 3. **Legal title (the formal right of ownership and the evidence of such ownership) is transferred to grantee** 4. **Covenants of title in the deed apply** * Marketability of title no longer provides ground for recission 5. Ends the executory period

Answer 16

At CLOSING, for title to transfer… 1. The deed **must comply with the SOF** 2. There must also be a **proper execution, delivery & acceptance **

Answer 17

Requirements for a **valid deed** (subject to SOF) (5) 1. Writing 2. That identifies the grantor and grantee 3. Contains words of conveyance 4. Provides an adequate physical description of the property 5. Contains the signature of the grantor \*No requirement of consideration\*

Answer 18

Execution _requires_ **the signature of the grantor**. Without a valid signature, the deed is VOID and passes no title **Valid signature** = 1. Grantor signs 2. Grantor gives grantee permission to sign 3. Grantor gives some other person permission to sign

Answer 19

**Forgery:** A signature made without the grantor’s consent. **A forged deed is _void_,** even as to a bona fide purchaser (Not Grantor’s signature = VOID) **Fraud: ** An intentional perversion of the truth for the purpose of inducing another to part with some valuable thing belonging to him or to surrender a legal right * **A deed obtained by fraud is voidable**; a bona fide purchaser can prevail * Grantor’s signature, but Grantor did not intend to convey this much/is otherwise mistaken EX: BFP prevails: grantor signs the document without reading it --\> grantee sells to a BFP --\> BFP keeps the land but grantor can bring a claim of fraud against grantee

Answer 20

This is a fact question! * In TX, recording a deed creates a rebuttable presumption that the grantor intended to convey the land * If the grantee has physical possession of the deed, a rebuttable presumption exists that delivery has occurred * These presumptions may be overcome by showing: * That fraud, accident or mistake accompanied the delivery or recording **OR** * That grantor had no intent of divesting himself of title (no delivery)

Answer 21

**Majority view/TX:** If there is an attempted conditional delivery in a grantee, the _title is immediately transferred and the condition has no effect_ _Minority view_: If there is an attempted conditional delivery in a grantee, there is _no delivery_ and the title remains with the grantor

Answer 22

A conditional delivery to a third party is valid if: 1. Grantor has an _intent to convey an interest NOW _**AND** 2. It is not revocable _EX:_ Every regular real estate closing. The deed is delivered to the escrow agent at the title company with the verbal instruction/condition not to hand it over to the grantee until they comply with all terms of the contract, i.e. sign docs & pay money.

Answer 23

## Footnote When third party is instructed to deliver the deed to the grantee upon grantor’s death

Answer 24

**Deed in a Box:** Grantor executes a deed conveying property to a grantee and places it in a safe deposit box where it is discovered after grantor’s death. Here there is _no delivery because grantor did not manifest any requisite intent to convey the interest_

Answer 25

**Deed in a Box with key**: Grantor executes a deed conveying property to a grantee and places it in a safe deposit box. Grantor gives the only key to grantee. Courts are likely to find that this was _a proper delivery because by giving the key to grantee, grantor relinquished his ability to revoke_

Answer 26

Courts are _more likely to find delivery where the grantee is a close relative_ on the theory that the conveyance is consistent with prudent estate planning

Answer 27

Grantee’s acceptance of a deed is presumed * A grantee _can disclaim_ a conveyance _within a reasonable time_ * If no acceptance then deed is VOID and passes no title

Answer 28

System of title assurance = * Covenants of Title + * Public Record System/Title Search + * Recording Statues and the Priority System + * Title Commitment + * Title Insurance Policy

Answer 29

**Impact of the recording system:** * _Clear rules_ promote alienability and economic efficiency while avoiding self-help * Makes it _easy to establish the owner_ of land; allows for ownership & possession to be independent * Provides a repository for documents that might otherwise be lost * Protects certain purchasers and sometimes creditors against prior unrecorded interests

Answer 30

The search will reveal… * The _history of all of the past owners_ of the land back to a certain point in time * _All conveyances_ entered into by the various owners * Whether _any other interests_ exist in this land **A prudent buyer should always conduct a search of the public records to check the state of title to the property**!

Answer 31

A search of public records should answer: 1. WHO is the current owner AND 2. WHAT do they own?

Answer 32

* Search the deed indexes looking for deeds with the same property description * Search for deeds of trust, mechanics liens, easements, covenants, any adverse conveyances * May need to search other records as well: probate court filings, judgments in district and county courts, family court records

Answer 33

: Searching back in time using the Grantee index Searching forward in time with the Grantor Index Use the information from the index to pull the recorded documents

Answer 34

1. As the purchaser, begin by searching the grantee index starting with your grantor/seller in the current transaction. 2. You need to _find the deed that your seller received when he took title to the property_ (when seller was the grantee) 3. When you find that entry in the index, it will also tell you the name of the grantor in that transaction 4. You will need to then take the name of the grantor in that transaction and look in the grantee index to find when that person received title to the land. 5. You will continue this process until you have searched back in time for a sufficient number of years. 6. **Most residential transactions in TX will search back 40 to 50 years.** (Anything beyond this has probably been taken care of by SOL, adverse possession, etc.)

Answer 35

After going back, the buyer will then begin searching from that point forward in the GRANTOR indexes looking for any adverse conveyances by each grantor and making sure each part of the chain of title links up. The search is conducted **using each grantor’s name** 1. from the date the grantor is shown to have received the interest (_date of the instrument)_ 2. _until the date the next person recorded_ (not necessarily the date of the instrument). Follow this process through the present date with present grantor’s name.

Answer 36

STEP 3: Use the information from the index to pull the recorded documents * Can’t rely solely on the indexes because buyer is charged with knowledge of public documents * If the searcher finds adverse conveyances by the grantor, the process will also need to include searching for documentation indicating whether the adverse conveyance has terminated (if possible) or still remains on the title.

Answer 37

RULE: FIRST IN TIME, FIRST IN RIGHT PREVAILS A person cannot convey more than what they have There are some limited exceptions to the first in time rule

Answer 38

**C/L** =\> Equitable interest (1st in time) vs. Bona fide purchaser (2nd in time) = BFP wins **C/L** =\> Estoppel of 1st in time by bona fide purchaser (2nd in time) = BFP wins **Statutory** =\> Recording statute vs. BFP/GFC = BFP/GFC wins _Note:_ A GFC MUST rely on a recording statute because the other two exceptions only apply to BFPs!

Answer 39

**BFP Wins. **Equitable interests cannot be enforced against a subsequent BFP (“a subsequent good faith purchaser for value”) Equitable interests = 1. Purchasers on a contract 2. Beneficiaries of a trust (declared trust, constructive trust, resulting trust) 3. Those holding a benefit of a restrictive covenant 4. Mortgagees (majority/TX) – If mortgage is title jurisdiction à legal interest 5. Rights arising by estoppel (easement by estoppel) 6. Possibly holders of an implied easement

Answer 40

**BFP Wins** If the person first in time has by words or conduct given the appearance that the state of title was different than what it really is, a BFP will be able to estop the person first in time from asserting their priority

Answer 41

**BFP/GFC Wins** * If there is a document that is required to be recorded but isn’t, the person first in time may lose their priority * Depends on jurisdiction (**race, notice, race-notice**)

Answer 42

Title Assurance allows buyers to protect themselves from _getting a bad title_, * usually through the use of a Recording System. * **Deed covenants are a form of title assurance as a cause of action**, but the recording system allows diligent buyers to do their homework before they pay.

Answer 43

**Chain of Title:** the recorded sequence of transactions by which title has passed from a sovereign to the present claimant

Answer 44

All information about a title (that is recorded) is kept at one location. Purpose: 1) To try and prevent confusion and litigation on deeds by providing constructive notice to the world, & 2) Recording Statutes, to grant incentives to individuals to comply with the statutes in order to assure that their interest is not lost.

Answer 45

**Tract Index:** rarely used; each piece of land has a unique I.D. # so that all documents related to that land are organized together. \* Tract Indexes would help avoid many notice problems with G/G indexes. Grantor/Grantee Index: (Majority/TX) - Two separate indexes are each organized by the last name of the grantor or grantee.

Answer 46

**Grantor/Grantee Index: (Majority/TX)** Two separate indexes are each organized by the last name of the grantor or grantee. (Must perform two separate title searches to find the Root of Title.) ## Footnote 1) **_Grantee Index:_** search backwards in time for the most recent grantee, then search until we find when their grantor got title. 2) Pull the actual deed to see what interest was conveyed, execution date, and whether or not the interest was conveyed to any others. \* Repeat for grantees until **Root of Title** is found (_D/F is 60 years, depends on jurisdiction)_ 3) **_Grantor Index:_** search forward in time from our grantor’s grantor until we find our grantor. Then we can drop his grantor’s name, and only search our guy to present date until a complete **Chain of Title** is made.

Answer 47

Recording Statutes require deeds to be recorded, inter alia, in order to legally assert superior title. **Effects:** 1. _Validity of Deed_: Recording Statutes do not usually affect the validity of deeds. 2. _Common Law Winner_: Recording Statutes provide that a subsequent bona fide purchaser is protected against prior unrecorded interests.

Answer 48

Analysis: First, draw out ALL conveyances with execution and recording dates. 1. Who is the CL (first-in-time) winner? --\> First EXECUTED in the CHAIN of TITLE. 2. Jurisdiction Rule 3. Who is trying to change CL result?—\> “attacker is trying to change CL result” 4. Multiple Prongs- begin with the top conveyances, do most recent LAST. 5. Re-attack will usually happen after Sheltered party’s sheltered deed attacked; then the will use their own to re-attack.

Answer 49

**Pure Race Jurisdiction:** Successful attacker must show 1) Subsequent Deed (deed was EXECUTED after) 2) Purchaser- deed paid for, NOT gift (hence most deeds recite some consideration) 3) 1st to Record

Answer 50

**Pure Notice Jurisdiction (TX): **Successful attacker must show— 1. Subsequent Deed (deed was EXECUTED after) 2. Purchaser- deed paid for, not gift (hence most deeds recite some consideration) 3. Attacker was W/O Notice of Prior Deed: --\> Attacker must show they were w/o: 1. _Actual Notice_- actual subjective awareness of previous deeds even if they are not recorded (pure fact Q) 2. _Inquiry Notice_- if the purchaser had gone out to the land in question, would they have learned about a prior conveyance or would they have become suspicious (MUST inspect land) --\> Analysis: would anything about property Condition raise questions such that a reasonable would be suspicious. 3. _Constructive Notice_- if purchaser HAD DONE title search, would they have learned about the other deed. --\> Was the other deed UNRECORDED on the date the attackers deed was executed OR Recorded and OUTSIDE Title Chain?

Answer 51

**Race-Notice Jurisdiction** --\> Successful attacker must show— 1. Subsequent Deed (deed was EXECUTED after) 2. Purchaser- deed paid for, not gift (hence most deeds recite some consideration) 3. 1st to Record 4. Attacker was W/O Notice of Prior Deed: (\* SAME as Pure Notice Requirement)

Answer 52

* **Majority**: the attacker must search backward in grantee index until “root of title found” (the conveyance where chain of title started). Then search forward in grantor index starting with the root until their grantor is found, and they can drop grantor’s when new are found. * _Wild Deeds_ (outside chain of title) do NOT give constructive notice; usually original conveyor gives to multiple people; and the prior executed deed is recorded after subsequent deed executed. * ** Minority**: attacker/purchaser must expand title search to include all conveyances made by their grantor’s conveyor. * Constructive Notice will exist if the remote grantor re-conveyed the property b/c the attacker/purchaser should have (would have) seen during title search. (\*bad policy)

Answer 53

**Mother Hubbard Clause**: omnibus clause in deed that references “all land in location/all other land” owned by the grantor. * Valid to transfer rights between two original parties * Does NOT provide constructive notice to later purchasers. \***Policy**: not fair to subsequent purchasers; subsequent purchaser would be expected to look at every deed made by the grantor ever to make sure no Mother Hubbard clause was ever made. *Luthi v. Evans:* “Kufahl”

Answer 54

**Shelter Rule:** once a party locks in priority as a BFP, subsequent purchasers from that party will still have priority, no matter how much notice they had of a prior interest. When someone CAN mount a successful recording statute attack on prior parties; they can pass title to subsequent grantees, who are sheltered from prior parties. _Caveat_: **BUT** sheltered party is not protected from future attacks by subsequent purchasers/grantees UNLESS they record. _**\*\* Re-Attack**:_ the most subsequent purchaser can always re-attack; and the sheltered party can re-attack after sheltered conveyance attacked.

Answer 55

**Hughes Rule:** when deed is given, grantee has implied authority to fill in their name; but the deed is NOT valid until the name is filled in. ## Footnote Ex: *_Board of Education v. Hughes_*: Hughes given deed w/o name, then mounted recording statute attack; court allowed it b/c Hughes had implied authority to put his name on the deed.

Answer 56

**Estoppel by Deed:** (Common Law) a deed executed before the grantor has true ownership passes automatically when the grantor becomes the T.O. * Only applies to COMMON LAW result. * \*SPOT: Use to determine CL Winner, & should be RED FLAG for a potential chain of title problem --\> Constructive Notice?

Answer 57

1) **Negotiations** (price, closing date) 2) **Purchase Agreement**- creates obligations but title has NOT transferred. 3) **Executory Period**- buyer can get inspection, secure financing etc. 4) **Closing**- transaction completed; title to property transfers via deed (formal written document).

Answer 58

Why would a party breach? Market can change/appeal of deal can become bad for either. * _Falling Market_: buyer might breach to try and get a better deal elsewhere. * _Rising Market_: seller might breach to try and get more $.

Answer 59

**Rescission**: Most common remedy especially when no change in FMV because no one loses much; both parties get walk, the K no longer exists. 1. When allowed? Rescission doesn’t ripen until closing date, either party has until then to tender performance. * _Buyer breach_: seller can sell to another party. * _Seller breach:_ buyer can recover partial payments made and walk way.. 2. Attempted rescission prior to closing is breach

Answer 60

**Specific Performance:** Property law sometimes allows b/c all land is unique, and damages are seen as insufficient. * _Seller Breach_: most common; b/c of uniqueness courts will force sale. * _Buyer Breach_: courts rarely force purchase; only when the seller cannot still sell the property at a commercially reasonable price will it be allowed.

Answer 61

**Buyer Options**: always has the option to walk (best in flat market). _What if FMV of property has risen since K signed and period between where defect in title found?_ **Minority Rule**: allows buyer benefit of bargain, title minus value of defects on the property. **Majority Rule (English Rule)(TX):** the buyer is limited to rescission of the K, unless, as a matter of good policy, the breach was intentional.

Answer 62

**Delivery (Big D)**— required for deed to be operative 1. **Intent:** requires the irrevocable intent to transfer property rights NOW; 2. **Delivery** (small d): Delivery requires some act that the court can point to that constitutes a handing over of the deed. 3. **Acceptance:** presumed, unless absolutely rejected by the grantee.

Answer 63

** Intent:** requires the irrevocable intent to transfer property rights NOW; 1. Future Interest can be transferred (*Gruen*) 2. _Rosengrant Rule_: when the grantor has the ability to revoke the deed at any time; intent is NOT met. (ex. both names on envelope at bank) 3. Deed can show intent. 4. Gift— intent will usually be a JURY question

Answer 64

**Delivery (small d)**: Delivery requires some act that the court can point to that constitutes a handing over of the deed. 1. _Sweeny Rule_: Grantor must have departed with possession of the deed at some point; but it can come back to them or be destroyed and be valid. 2. Deed can be placed in hands of 3rd party 3. * cannot just show the deed and make an oral promise * cannot be “ripped” from the grantor’s hands.

Answer 65

**Conditional Deeds Delivery:** 1. **Condition Written In Deed**: * normal delivery requirements, * intent can be ascertained from deed language 2. **Oral Condition**: * MUST be delivered to 3rd party. * _Parole Evidence_ = inadmissible when given directly to grantee, only allowed when 3rd party holder.

Answer 66

**Doctrine of Merger**: after DELIVERY OF DEED; the implied duty to deliver marketable title is GONE, and the buyer can ONLY rely on Deed covenants for title promises. * **Effect:** not ALL deeds have title promises, thus, buyer can have limited recourse. * Ex: Violation of Zoning regulations is breach of the duty to deliver marketable title but NOT a breach of deed covenants. * **Applicability:** ONLY applies to duty to deliver marketable title; does NOT apply to condition duties. * _Remedy_: buyer can get damages against seller for condition breach but CANNOT rescind, just cost to rectify.

Answer 67

General Warranty Deed Special Warranty Deed Quitclaim Deed

Answer 68

**General Warranty Deed**: * full guarantee of the title that is represented; * usually contains six covenants concerning title, which promise that the title is absolutely free of the warranted defect. * Magic Words: “Grants, sells, and conveys” “warrant and forever defend” (no exceptions) * Contains _covenants of title_ that _warrant against any defect in the title, whether caused by the grantor in this transaction or some prior grantor_ GWD is often required by lenders “Against every person” --\> applies to everyone, not just Grantor

Answer 69

**Special Warranty Deed**: * contains all of the covenants of a general warranty, SWD only protects grantees from defects in title that arise AFTER the grantee enters the chain of title; not those that arose before. * Affords no protection against acts or omissions of third parties Any covenants of title only apply to defects caused by the acts or omissions of the grantor * Grantor’s Fault? -\> This will be a fact question/jury question. * Magic Words: “warrant and forever defend…claims by, through, or under Grantor but not otherwise.” * “Grants, sells, and conveys” --\> these words put promises into the document * “By and through or under Grantor” --\> Grantor’s fault = Express Covenant of Special Warranty May be ideal if grantor is the only owner/has owned the property for a long time

Answer 70

**Quitclaim Deed: No protection – hated in TX** * contains NO covenants/warranties of title whatsoever, * Merely conveys whatever right, title or interest the grantor may have in the property * Grantor not liable for _ANY_ defect in title. * Grantor is not promising that he owns the property or that if he has title that it is good title * Magic Words: “Quitclaim”; “Whatever rights I have I am giving to you.” “Grantor quitclaims to Grantee all of Grantor’s right, title & interest” (Language contains no warranties or representations as to what grantee is getting) May be helpful… If grantor wants to get rid of the property but does not know what he has To take care of marketable title issues

Answer 71

Split between present and future covenants; & only exist in GWD and SWD. **Present Covenants**: all three give rise to one cause of action; * _Accrual_: **UPON delivery.** * _Expiration:_ **SOL starts ticking as soon as delivered**. * “I’m giving you good title now, I can convey, no encumbrances except those that are EXCEPTED in the deed.” **Future Covenants**: all three give rise to one cause of action; * _Accrual_: **UPON actual interference** (usually Quiet Title action) * _Expiration_: **SOL begins running on actual interference**. * “If anyone messes with you I am liable.” **Exceptions:** when the grantor “excepted” the specific covenant in the deed or “excepted” a certain servitude etc.

Answer 72

1. Implied covenant of no prior conveyances 2. Implied covenant against encumbrances 3. Express covenant of general warranty

Answer 73

Present Covenant I own what I’m conveying to you

Answer 74

Present I have the right/power to convey to you (Trust)

Answer 75

Present covenant I promise there are no encumbrances on the property \*Encumbrances include liens, easements, and covenants\* \*During executory period --\> violation of ordinance or regulation is ground for recission based on marketability of title \*After closing --\> cannot rescind (legal obligations have shifted)

Answer 76

Present Covenant I promise I have not conveyed the estate or any interest in the estate to anyone other than you

Answer 77

\*Only warrants quality, not quantity\* Future I will defend your title against lawful claims and I will pay for losses suffered

Answer 78

Future I will execute any documents to make you secure in your title

Answer 79

(not a standard covenant) “warrants and defends that Mr. Dickens is receiving 99 acres”[1] Present Protects buyer if he ends up getting a smaller quantity than he was supposed to [1] The words “more or less” would defeat warranty of quantity

Answer 80

Future covenants are breached only when the buyer/grantee is actually disturbed by one with paramount title, an event termed an eviction (can be constructive) SOL begins from date of eviction These run with the land, so a remote grantee can sue within the limitations period

Answer 81

Eviction: (1) an assertion of superior title[1] AND (2) a yielding thereto [1] Assertion must be by one who in fact has superior title

Answer 82

1. **Mere knowledge of a holder of superior title.** No one has yet interfered with the grantee’s possession. 2. **A voluntary yielding** to someone with superior title that is unasserted EX: If T abandons Blackacre once he finds out about M (who has superior title) à no eviction 3. **Standing your ground** 4. **Purchase of an outstanding title when that title is not asserted**

Answer 83

**A Constructive Eviction** The holder of superior title has the _right to obtain possession_ and if that _right is asserted_ and the covenantee may _anticipate its actual exercise and surrenders possession_ as a result

Answer 84

This is an eviction as long M is really the true owner. Covenantee leaves after receiving a letter threatening suit a from holder of superior title = eviction

Answer 85

Covenantee leaves in response to holder of superior title filing suit = **EVICTION** Covenantee must prove that the other party did in fact have superior title in order to establish breach of warranty

Answer 86

**Purchase** by a covenantee of an outstanding paramount title, when that title is **actually and hostilely asserted = EVICTION**

Answer 87

Court judgment against a covenantee does not require a yielding – it is **automatically a constructive eviction** Once judgment is entered regarding the trespass to try title action, the breach of the covenant of warranty has occurred and SOL starts to run

Answer 88

Foreclosure sale = **constructive eviction**

Answer 89

If covenantee cannot obtain possession because someone with paramount title is already in possession

Answer 90

Present covenants are breached at the time the deed is transferred **--\> **SOL runs immediately Future covenants are breached once there is an eviction **--\> **SOL doesn’t run until eviction happens **TX SOL is 4 years from day of breach**

Answer 91

**Express Covenants =\>** Covenants not implied by law must be expressly included in the deed. Quitclaim = none Special Warranty (form) = covenant of special warranty General Warranty (form) = covenant of general warranty

Answer 92

**Implied Covenants** No covenants are implied by common law – they come from statute TX Property Code § 5.023: “grant” or “convey” creates: 1. Covenant of no prior conveyances 2. Covenant against encumbrances

Answer 93

**Note on timing of consideration and notice:** In a situation where the buyer is making some payments, gets notice of a prior interest, and then continues making payments in order to acquire legal title, the court will most likely find that the buyer took title to the property with notice of the prior interest. This defeats BFP status.

Answer 94

**This CAN be a bank or lender ** Requirements: * In good faith * No actual, inquiry, or constructive notice of a prior interest at the time the subsequent interest is acquired * For consideration, not a donee – must acquire interest for good and valuable consideration (a bargained for exchange). A mortgagor gives purchase $ in exchange for title, therefore is a BFP Exchanged consideration at the time of acquiring the interest in the land (purchase money, vendor’s lien, DOT, mortgage) Receives more protection because the injury that results from the payment of money that creates the equity supporting giving preference to the innocent party that paid money over the first-in-time negligent party

Answer 95

(1) open, visible, and unequivocal acts of occupancy (2) that indicate exclusive dominion over the property (this is like adverse possession) \*Possession that is ambiguous or appears subservient to the holder of legal title is not sufficient to trigger a duty to inquire and will not impute notice\*

Answer 96

**Issues with timing:** * Wild deed (the recorded deed is disconnected from the chain of title) * Recording too late (no constructive notice in TX) * Recording too early **Issues with indexing:** * **Improperly recorded deed** (defective, doesn’t comply with statute) --\> When a deed is actually recorded but **not properly recorded, there is no constructive notice**.

Answer 97

Impact of a Quitclaim Deed * *TX:** A person taking a quitclaim deed does not act in good faith as a matter of law – TX HATES QUITCLAIM DEEDS * *Minority**: A quitclaim deed in the chain of title puts the purchaser on inquiry notice, requiring them to conduct a reasonable investigation. However, the purchaser might still qualify as a BFP if the investigation does not reveal any prior interest. – “You better inquire!” * *Majority**: Quitclaim deed is treated liked any other deed – “Whatever” _Note_: it matters what the quitclaim is being used for and when it appears in the chain of title

Answer 98

**Bona Fide Purchaser** * In good faith * No actual, inquiry, or constructive notice of a prior interest at the time the subsequent interest is acquired * For consideration, not a donee – must acquire interest for good and valuable consideration (a bargained for exchange) **IN GOOD FAITH** * Any forgery in the chain of title defeats good faith (even if the purchaser is unaware of the forgery) * A low amount of consideration may be evidence of the absence of good faith * A quitclaim deed in the chain of title may impact (depends on jurisdiction)

Answer 99

GFC = a person or entity who takes an interest in the property (1) in good faith and (2) without notice of any prior interest. The difference comes in the consideration.

Answer 100

(5) A deed is properly recorded when… SOF, acknowledged, timely, proper sequence, county 1. Deed **complies with SOF** 2. Deed is **acknowledged** (grantor swears that he is who he says he is) 3. **Timely recorded** 4. Deed is **recorded in the proper sequence** (NOT a wild deed) 5. Must be **recorded in the proper county**

Answer 101

(D DOT Mortgage, easements leases CODs, abstract liens) * Deeds * Deeds of trust * Mortgages * Express easement agreements * Leases longer than one year * Contract for deed * Abstract of judgment * Home equity lien, mechanic’s lien, extension of a mortgage or DOT lien

Answer 102

**Consideration** – purchaser or creditor (depends on statute) **Must properly record first** Lack of good faith or actual knowledge is irrelevant States: LA, NC **RULE: Person who wins the race to record wins!** Even a subsequent purchaser with actual knowledge of the prior interest!

Answer 103

**Consideration** – purchaser or creditor (depends on statute) **Must properly record first** **Good faith/no notice of any kind** States: Half (CA, GA, MI, NJ, NM) A subsequent purchaser is protected against a prior unrecorded instrument only if the subsequent purchaser: 1. _is without notice_ of the prior instrument 2. _records before the prior instrument is recorded_

Answer 104

**TEXAS** **Consideration –** purchaser or creditor (depends on statute). **\*\*TX includes GFC & BFP!!\*\*** ** Good faith/no notice of any kind** States: Half (TX, IL, MA, VA, FL) **A subsequent purchaser can prevail only if the subsequent purchaser has no notice of the prior unrecorded instrument**. A BFP still wants to record to prevent future BFPs

Answer 105

Equitable interests * Purchasers on a contract * Beneficiaries of a trust (declared trust, constructive trust, resulting trust) * Those holding a benefit of a restrictive covenant * Mortgagees (majority/TX) – If mortgage is title jurisdiction --\> legal interest * Rights arising by estoppel (easement by estoppel) * Possibly holders of an implied easement (Disagreement)

Answer 106

1. The amount it takes to eliminate the encumbrance OR 2. If the encumbrance cannot be removed, the diminished FMV as a result of the presence of the encumbrance \*\*Note: You can also obtain injunctive relief to postpone a foreclosure proceeding in order to give covenantor a chance to pay off the encumbrance (lien)\*\*

Answer 107

If there is a partial or complete failure of title, grantee recovers… 1. Value of the land at the time of eviction, taking into account appreciation and depreciation OR 2. Value of the land plus improvements OR 3. **Purchase price plus interest (Majority view + TX)** \*Depends on jurisdiction\* and who you are suing **Purchase Price** =\> Grantor is only liable in actual damages for the purchase price the grantor received when making the warranties. Technically, this means that grantee can receive more than what she paid (if suing a remote grantor – breach of a future covenant) EX: B sells to T for $50k. T sells to R for $80k using quitclaim deed. R can sue B but B is only liable for $50k. If T sells to L for $110k and L sells to R for $80k, R can sue T and recover $110k.

Answer 108

SPLIT IN AUTHORITY (1) Can only recover the amount of interest and taxes in excess of fair rental value during time of possession (TX) (2) Can recover full amount of interest and taxes paid on the property

Answer 109

Can recover full amount of interest and taxes paid on the property

Answer 110

Other Recoverable Damages * **Attorney’s fees and costs** --\> costs and attorney’s fees the grantee incurs in defending an eviction suit against a lawful title are recoverable from the grantor * **Improvements to the Property** --\> If improvements are made in good faith, grantee can recover the enhanced value of the land as a result of the improvements **This is recovered from the person awarded possession (Majority view + TX)** **Other Rules** * No duty to mitigate damages in order to recover * Knowledge of an encumbrance does not prevent your ability to bring a claim but can impact the award of damages **Note: If covenantee ends up paying for nothing and has no recourse through covenants of title, he may be able to use theory of unjust enrichment against seller**

Real Estate Transactions Flashcards

(134 cards)