REAL PROPERTY MBES Flashcards

Question

# REAL PROPERTY MBES - FORECLOSURE CAN AN JUNIOR INTEREST FORECLOSE ON THE MORTGAGOR'S PROPERTY WHEN THERE IS A SENIOR INTEREST LIEN ON THE PROPERTY?

Answer 1

A mortgage is a lien on real property used to secure repayment of a debt. A lender (mortgagee) may generally foreclose on a mortgage if the debtor (mortgagor) defaults on the mortgage loan. A foreclosure terminates any interest in the foreclosed property that is junior (lower in priority) to the interest being foreclosed but does not affect any senior interest (higher in priority). When no recording act is provided (as seen here), the "first in time, first in right" rule is used to prioritize interests.

Answer 2

Transfer of deed to third party Grantor's agent Transfer treated as if grantor retained deed, even when grantor instructs agent to deliver deed to grantee at some future time or upon happening of some event Grantee's agent Transfer treated as if it was made directly to grantee Independent third party Transfer made with condition placed on transfer to grantee: if grantor retains absolute right to recover deed, no transfer if grantor does not, present transfer treated as present gift that cannot be voided OR conditional transfer creates future interest in grantee Transfer conditioned on death of grantor (death escrow): effective if grantor intends to make present gift ineffective if grantor intends that gift be effective only upon grantor's death A deed is a legal instrument that transfers an interest in real property from the owner (grantor) to another (grantee). To be valid, the deed must be signed by the grantor, identify the grantor and the grantee, contain words of transfer, and identify the land with reasonable certainty—as the farmer's document does here. A property interest may then be transferred by delivering the deed to the grantee, and acceptance is presumed if the transfer is beneficial to the grantee. A grantor can deliver the deed to the grantee through an independent third party. But if the third party's transfer to the grantee is conditioned on the grantor's death, then the grantor's delivery of the deed to the third party must evidence the intent to make a present gift to be effective. This typically occurs when the grantor relinquishes the right to take back the deed by placing it beyond the grantor's control. Here, the farmer's deed expressed his present intent to "now transfer my farm" because it was delivered to the neighbor (independent third party) with no right to take it back. The son is presumed to have accepted this beneficial gift, so the transfer was effective when the deed was delivered to the neighbor (Choice A). This means that the deed took effect before the farmer's will became effective upon his death (Choice D). The son is therefore entitled to ownership of the farm.

Answer 3

A deed is a legal instrument that transfers ownership of real property from the owner (grantor) to another (grantee). But for a transfer by deed to be effective, the deed must be: delivered by the grantor – demonstrates the grantor's present intent to convey ownership to the grantee and accepted by the grantee – presumed if the transfer is beneficial to the grantee. **Delivery is presumed when the deed has been recorded in the county land records since the recording creates a rebuttable presumption that the deed is intended to be presently operative. Physically handing over a deed is not required and does not conclusively prove a grantor's present intent to convey property **(Choice C).

Answer 4

A real covenant is an agreement between parties to do or not do something on land (e.g., maintain a retaining wall) that is enforced by an action for money damages. The promising parties are bound to the covenant under contract law, but their successors in interest are bound only if the covenant runs with the land. This occurs when the following elements are met: Writing – covenant is in a writing that satisfies the statute of frauds (purchasers' deeds) Intent to run – promising parties intend for the covenant to run to their successors in interest (deeds say "the owners, their heirs, and their assigns") Touch and concern – covenant relates to the use, enjoyment, or occupation of the land (maintain the retaining wall) Horizontal privity – promising parties simultaneously transfer the land and create the covenant (covenant was created when the man sold the parcels to the purchasers) Vertical privity – successors have an unbroken chain of ownership from the original parties (the purchasers' successors have the same ownership interest) Notice – person to be bound had notice of the covenant (deeds containing the covenant were recorded) Therefore, the covenant can be enforced by the purchasers' successors in interest—**so long as it was not terminated** (Choice C). **A covenant can be terminated in the same manner as an easement, including by abandonment. Abandonment occurs when an affirmative act—something more than neglect or nonuse—shows a clear intent to relinquish the covenant. This occurred 15 years ago, when the previous owners jointly decided to dismantle the wall.** Therefore, the covenant no longer exists and cannot be enforced by the new owner.

Answer 5

The owner of an interest in real property may give that interest to a lender (mortgagee) to secure a debt—usually through a mortgage or a deed of trust.* The debtor (mortgagor) can freely transfer the mortgaged property to a buyer unless the lender and the debtor had agreed otherwise. After the transfer, the mortgage remains attached to the property and the debtor remains personally liable for the mortgage debt. But the buyer's obligations depend on whether he/she: took subject to the mortgage – in which case the buyer does not agree to pay and is not personally liable for the debt or assumed the mortgage – in which case the buyer expressly agrees to pay and becomes primarily liable for the debt, while the debtor becomes secondarily liable as a surety. A buyer who assumed a mortgage as part of the purchase price may not raise defenses—e.g., duress, statute of limitations, lack of legal capacity—that the debtor could have raised to avoid the mortgage obligation. Otherwise, the buyer would be unjustly enriched.

Answer 6

Available negative easements Common law Modern view View Solar access Conservation Light - old common law - not applicable Air Support Water access View Solar access Conservation The English common-law Doctrine of Ancient Lights enabled landowners to protect their right to light by preventing neighbors from building any structure that blocked the landowner's access to sunlight. This doctrine has been rejected in the United States. As a result, landowners can only restrict another's blockage of light if they are protected by statute or enter into an agreement with the neighboring landowner to create a negative easement—neither of which is seen here. The court should therefore hold in favor of the dentist.

Answer 7

Types of option contracts Option to purchase Gives exclusive right to purchase property at specified price, usually within specified time Right of first refusal Gives first opportunity to purchase property if it ever goes up for sale An option contract for the purchase of real property is formed when one party (the option holder) receives the exclusive right to purchase the property (i.e., "exercise the option") during a specified time period in exchange for consideration. Under an option contract: the grantor cannot revoke the option during the specified time period. the option does not terminate upon the death or incapacity of the grantor (Choice A) and the option holder can make a "counteroffer" without losing the right to exercise the option (Choice B). **The option holder must exercise the option pursuant to the terms of the contract. However, the mailbox rule—which treats the acceptance of an offer as valid when mailed—does not apply to option contracts. Instead, the grantor must receive the option holder's decision to exercise the option within the time period specified in the contract.** Otherwise, the option holder loses the option and any consideration that was paid.

Answer 8

A covenant is a promise to do or not do something on the land. When an injunction is sought to enforce a covenant (as seen here), it is called an "equitable servitude." ** An equitable servitude can be expressly created in a written agreement**. But here, no express equitable servitude was created because the two-story height restriction was not written in the couple's deed, the speculator's deed, or the recorded subdivision plan. **An equitable servitude can also be implied from a common scheme* if three elements are met:** **Intent to create common scheme** – the owner intended to impose a servitude on all lots in the subdivision (here, the deeds to most of the lots contained a two-story height restriction) **Restrictive servitude** – the intended servitude is a promise not to do something on land (here, a promise not to build a three-story residence) **Notice** – the person to be bound by the servitude had actual, record, or inquiry notice of the servitude (here, the speculator received actual notice through the rancher's letter, and the couple had inquiry notice because no three-story residences were on the other lots) (Choices C & D) Nevertheless, if the common scheme arose after some of the lots were already sold, then the previously sold lots will not be incorporated into the common scheme or subject to the implied equitable servitude. Since the rancher's scheme was created after the lot was sold to the speculator, neither the speculator nor the couple is subject to the implied equitable servitude. As a result, the court will likely rule for the couple.

Answer 9

Obligations upon debtor's transfer of mortgaged property Subject to mortgage Grantee does not agree to pay & is not personally liable for debt Original debtor remains personally liable for debt Upon default, lender can collect unpaid debt from original debtor only Assumption of mortgage Grantee expressly agrees to pay & becomes primarily liable for debt Original debtor becomes secondarily liable for debt. Upon default, lender can collect unpaid debt from original debtor OR grantee Original debtor can recover any amount paid from grantee The following mortgage documents are used to convey an interest in real property to a lender (i.e., mortgagee) to secure repayment of a debt: Promissory note – a formal "IOU" in which the borrower promises to repay the debt according to the listed terms Mortgage deed – a document that gives the lender a security interest in the property until the note is paid These documents may contain a "due on sale" clause, which allows the lender to demand full payment of the remaining mortgage debt if the debtor transfers the mortgaged property without the lender's written consent. The lender may waive this clause, but the debtor is still liable on the note unless the lender releases the debtor from that obligation (Choice A). This is true even when, as here, the debtor transfers mortgaged property to another (the grantee) who assumes the mortgage. A grantee who assumes the mortgage expressly agrees to pay and becomes primarily liable for the debt, while the original debtor becomes secondarily liability as a surety. This gives the lender the right to sue either party upon default, and the original debtor can recover any amount paid from the grantee.

Answer 10

Defects rendering title unmarketable Future interest if future-interest holder has not agreed to transfer title Private encumbrance (eg, mortgage, covenant, option, easement) Significant physical defect (eg, incurable encroachment) Title acquired by adverse possession & not quieted by judicial decree Zoning-ordinance violation All land-sales contracts have an implied warranty that the seller will convey marketable title to the buyer upon closing unless otherwise stated. Title need not be perfect to be marketable, but it **must be free from an unreasonable risk of litigation such that a reasonable person would accept and pay for it.** Therefore, title can be rendered unmarketable by a future interest if the holder of that interest does not agree to the transfer. If the seller cannot convey marketable title by the time of closing, then the buyer can refuse to close.

Answer 11

A defeasible life estate is a present possessory interest that terminates upon the end of the measuring life or the happening of a stated event. If title passes to someone other than the grantor when the present interest terminates, then the estate is followed by a remainder and an executory interest. A life estate is a present possessory interest that terminates upon the death of an individual (e.g., "to my companion for life"). The future interest that follows a life estate is called a reversion (if title reverts to the grantor) or a remainder (if it passes to someone other than the grantor). A remainder is vested if the interest is not subject to a condition precedent and is created in an ascertainable grantee. In contrast, a defeasible life estate is a life estate that may be terminated upon the death of an individual OR by the occurrence of a stated event (e.g., "to my companion for life or until she vacates the premises"). A defeasible life estate is followed by a reversion (if the estate reverts to the grantor) or an executory interest (if the estate passes to a third party). These future interests may be transferred during life or upon death. Here, the owner devised her residence to the companion "for life or until she vacates the premises, and then to my nephew." This means that the companion received a defeasible life estate and the nephew received two future interests in the residence—a vested remainder and an executory interest.

Answer 12

A person can acquire title through adverse possession by possessing the property in a manner that is: Open and notorious – apparent or visible to a reasonable owner Continuous – uninterrupted for the statutory period Exclusive – not shared with the owner Actual – physical presence on the land Nonpermissive – hostile and adverse to the owner In most jurisdictions, possession is hostile if the possessor objectively demonstrates an intent to claim the land—regardless of the possessor's subjective intent. However, a minority of jurisdictions does consider the possessor's subjective intent. Some of these jurisdictions require that the intent be based on the possessor's good-faith belief that he/she has the legal right to possession, while others require that the intent be based on bad faith (i.e., aggressive trespass). If the jurisdiction here considers the homeowner's subjective intent, then his possession was not hostile and the land on which the shed was located would belong to the buyer—not the son. This is the buyer's best argument because the following arguments do not defeat the homeowner's adverse possession:

Answer 13

Under the merger doctrine, a contract for the sale of land merges with the deed, and any obligations contained in the contract can only be enforced if they are incorporated into the deed. The doctrine of merger provides that all obligations contained within a land-sale contract merge into the deed once the deed is delivered to and accepted by the buyer. Any obligations contained within the land-sale contract can be enforced thereafter only if they are incorporated into the deed.*

Answer 14

An easement is a nonpossessory right to use another's land (i.e., the servient estate) for a specific, limited use. An express easement arises when it is affirmatively created by the parties in a writing that complies with the statute of frauds (e.g., a deed). **And unless limited by the easement's express terms, the easement holder has the right to use the servient estate in any manner that is reasonably necessary to use and enjoy the easement—here, to accommodate vehicles attending the company's meditation retreats.** **An easement also anticipates reasonable and natural development of the easement holder's land (i.e., the dominant estate). ** Therefore, the easement holder may increase the manner, frequency, and intensity of the easement's use—so long as that increase does not unreasonably damage or interfere with the use or enjoyment of the servient estate. Here, the company reasonably expanded the use of its land by offering yoga classes, which caused an increase in traffic across the easement. However, the increased use was not excessive because there is no evidence that it unreasonably damaged or interfered with the owner's servient estate (Choice C). Even if it did, available remedies include self-help abatement (e.g., blocking off the easement), damages, or an injunction—not termination of the easement. Therefore, the court should not allow the owner to terminate the easement.

Answer 15

A mortgage is an interest in real property that serves as security for the repayment of a debt or other obligation. If the loan secured by the mortgage goes into default, then the mortgage holder (i.e., the mortgagee, typically a bank) may foreclose on the property and use the proceeds from the foreclosure sale to satisfy the outstanding debt. Here, the bank received a mortgage on the parcel of land to secure the limited partnership's repayment of the loan. Since the limited partnership defaulted on the loan, the bank has the right to foreclose on its mortgage.

Answer 16

A right of first refusal is a contractual right to purchase property before any other person if the owner later decides to sell, so it is a contingent future interest that is generally subject to the Rule Against Perpetuities (RAP).* RAP renders such interests void if there is any possibility that they could vest or fail more than 21 years after the end of some life in being at the creation of the interest (here, the grandmother's life). Therefore, RAP will help determine whether the grandmother will be able to enforce the right-of-first-refusal clause. *RAP does not apply to a right of first refusal (1) granted in a lease to a current leasehold tenant or (2) in most jurisdictions, created in a commercial transaction.

Answer 17

Fee simple absolute (FSA) is absolute ownership of property for a potentially infinite duration and has no future interest. Like an FSA, a defeasible fee is ownership of potentially infinite duration. But unlike an FSA, a defeasible fee can be terminated by the occurrence of a stated event. Defeasible fees are limited by specific durational or conditional language (e.g., "so long as," "but if"). However, language that limits only the purpose of the transfer (e.g., "for the purpose of") creates an FSA. Here, the man's deed to the local church did not include conditional or durational language. Instead, he conveyed the building "for the purpose of using the building to further religious education." This conveyance created an FSA—not a defeasible fee. As a result, the church had absolute ownership of the building, and the man had no interest in the building to devise to the friend (Choice A). Since the church later conveyed all of its interest in the building to the investor, the court should find that proper title is vested in the investor.

Answer 18

Under a race-notice recording statute (as seen here), a subsequent property interest has priority over an earlier interest if the subsequent interest-holder was a bona fide purchaser (BFP)—i.e., a person who paid value and lacked notice of the prior interest—and the first to record. There are three types of notice: V Actual – when the purchaser has personal knowledge of a prior interest Inquiry – when a reasonable investigation would have disclosed the existence of prior claims (e.g., someone other than the seller is obviously using the property) Constructive (i.e., record) – when a prior interest was properly recorded in the land records and appears in the property's chain of title

Answer 19

The answer you selected is not the best choice in this situation. Answer choice A is correct **Under the doctrine of equitable conversion, a buyer receives equitable title to real property upon entering a land-sale contract. In contrast, the seller retains legal title and acquires the equitable right to receive the purchase price upon closing. As a result, a judgment obtained against the seller after the execution of the land-sale contract is not enforceable against the real property—even if the claim arose before the contract was executed. ** Here, the owner incurred a debt to a creditor prior to entering into a land-sale contract with the couple for the owner's house. But since the creditor obtained a judgment against the owner after the land-sale contract was executed, that judgment cannot be enforced against the house. That is because the couple's equitable interest in the house is protected under the doctrine of equitable conversion. Therefore, the couple will likely prevail.

Answer 20

A deed is a legal instrument that transfers an ownership interest in real property. To be valid, a deed must: be in writing and signed by the grantor (but not the grantee)* unambiguously identify the grantor and the grantee unambiguously describe the land and include words of transfer. A deed that names a nonexistent grantee is void as to that nonexistent grantee. So if a nonexistent grantee was conveyed an interest in a tenancy in common, then the grantor would retain the nonexistent cotenant's interest and have a tenancy in common with the other cotenant(s) named in the deed.

Answer 21

All contracts for the sale of land have an implied warranty that the seller will convey marketable title to the buyer upon closing unless otherwise stated. To be marketable, title must be reasonably free from doubt and under no threat of litigation, such that a reasonable person would accept and pay for it. I**f the seller cannot convey marketable title (e.g., due to a zoning violation), the buyer can rescind the contract and refuse to close. The buyer can also choose to accept the land with the defect and enforce the contract—as the buyer seeks to do here (Choice B). If the seller refuses to perform, then the buyer can: rescind the contract and seek restitution seek specific performance with an abatement of the purchase price* or sue for damages. Specific performance is only available when money damages are inadequate. Since land is considered unique and money damages cannot compensate for the loss of unique property, this remedy is generally available to buyers of land. And since the seller refused to transfer title u**pon closing, the buyer will likely prevail in this suit for specific performance. *For example, the buyer can seek a price adjustment to compensate for the defect.All contracts for the sale of land have an implied warranty that the seller will convey marketable title to the buyer upon closing unless otherwise stated. To be marketable, title must be reasonably free from doubt and under no threat of litigation, such that a reasonable person would accept and pay for it. If the seller cannot convey marketable title (e.g., due to a zoning violation), the buyer can rescind the contract and refuse to close. The buyer can also choose to accept the land with the defect and enforce the contract—as the buyer seeks to do here (Choice B). If the seller refuses to perform, then the buyer can: rescind the contract and seek restitution seek specific performance with an abatement of the purchase price* or sue for damages. Specific performance is only available when money damages are inadequate. Since land is considered unique and money damages cannot compensate for the loss of unique property, this remedy is generally available to buyers of land. And since the seller refused to transfer title upon closing, the buyer will likely prevail in this suit for specific performance. *For example, the buyer can seek a price adjustment to compensate for the defect.

Answer 22

A deed is a document that transfers an interest in real property from the owner (grantor) to another (grantee). To effectively transfer an interest in real property, the deed must be: delivered by the grantor – evidenced by the grantor's intent to presently convey ownership to the grantee and accepted by the grantee – presumed when the conveyance is beneficial to the grantee. **The grantor's intent to transfer is presumed in certain instances (see image above)—but not when the grantor keeps the deed**. In that situation, the **outward and visible acts of the grantor must evidence an intent to make a present transfer** of the property interest.

Answer 23

An equitable mortgage can be established when a debtor gives an absolute deed—i.e., a deed that is free of encumbrances and transfers unrestricted title to property—to a lender with the intent to secure a loan. The debtor-grantor must prove by clear and convincing evidence that the deed was intended as security for a loan—not as an outright transfer. The deed recipient, like any other lender, may then bring a foreclosure action if the debtor defaults.

Answer 24

A future-advances mortgage (i.e., "line of credit") is a mortgage given by a debtor (mortgagor) in exchange for the right to receive money from the lender (mortgagee) in the future. Priority with regard to proceeds from a foreclosure sale depends on whether the advances are: optional – in which case, the future-advances mortgage has priority with respect to amounts loaned before the future-advances mortgagee received notice of a subsequent mortgage or obligatory – in which case, the future-advances mortgage has priority with respect to amounts loaned before and after the future-advances mortgagee received notice of a subsequent mortgage.

Answer 25

Under the Rule Against Perpetuities, a contingent future interest must vest or fail within 21 years after the end of a relevant life in being when the interest was created. If not, then the interest is void ab initio under the common law. The Rule Against Perpetuities (RAP) applies only to **contingent future interests—i.e., future interests that are held by unknown/unborn persons or subject to a condition precedent. **Under the common law, RAP renders a contingent future interest void ab initio (i.e., from the beginning) unless the interest must vest or fail within 21 years after the end of a relevant life in being when the interest was created. Here, the woman conveyed land to her son for life, then to his widow for her life, and the remainder to his children. The son was only five years old at the time of the conveyance, so his widow and children were unknown or unborn persons. As a result, the widow and children held contingent future interests that are subject to RAP. However, the identity of the son's widow and children would be immediately identifiable upon the death of the son—the relevant life in being when the interests were created—so their interests do not violate RAP.

Answer 26

Fair Housing Act Applicability Prohibits discriminatory actions in sale/renting of dwelling based on race, color, religion, sex, handicap, national origin, or familial status—including: refusing bona fide offer discriminating in terms, conditions, privileges, or services of purchase/rental advertising preference for or discrimination against buyer/renter falsely representing dwelling's availability for inspection, sale, or rental inducing sale/renting with discriminatory representations about neighborhood denying reasonable modifications to accommodate handicap at occupant's expense Exceptions Act does not apply to: religious organizations private clubs that incidentally provide lodging to members familial status for senior housing owner of ≤ 3 single-family dwellings* owner-occupied dwellings with ≤ 4 units* sale/rental of single-family home by private owner *These exceptions do not apply to discriminatory advertisements or when owner is assisted by a real estate agent, broker, or salesman. The federal Fair Housing Act (FHA) prohibits discrimination in the sale, rental, and financing of homes as well as other housing-related transactions (e.g., advertising, homeowner's insurance, zoning). Among other protected classes, the FHA prohibits discrimination on the basis of familial status, which includes having custody of children under the age of 18 and being pregnant. Here, the man's application was rejected based on his status as a custodial parent of a minor child. Therefore, he will likely prevail in his suit against the developer for violating the FHA.

Answer 27

Buyer's remedies Rescission & restitution Rescind (ie, cancel) agreement Seek return of paid deposits & other restitution Specific performance Seek injunction ordering seller to transfer title with abatement of purchase price Generally available since property is considered unique (ie, money damages would not make buyer whole) Damages Loss of bargain = market value at time of breach − contract price Liquidated damages = amount designated in sales contract as compensation for breach Incidental & consequential damages that were contemplated during sales contract or reasonably foreseeable In a land-sales contract, the buyer promises to pay the purchase price and the seller promises to transfer marketable title at the time of closing. When, as here, the seller refuses to perform, then the buyer can: rescind the contract and seek restitution seek specific performance or sue for damages. Specific performance—i.e., court-ordered performance of a contractual obligation—is available only when money damages are inadequate. Since land is considered unique and money damages are inadequate to compensate for the loss of unique property, this remedy is generally available to buyers. Therefore, specific performance is the principle that will permit the first buyer to obtain the seller's performance of the contract.

Answer 28

A mortgage is an interest in real property given to a lender (mortgagee) to secure repayment of a debt. The debtor (mortgagor) can freely transfer the mortgaged property to a grantee unless the mortgage states otherwise. After the conveyance, the mortgage remains attached to the property and the debtor remains personally liable for the debt secured by the mortgage. In contrast, the grantee's obligations depend on whether the grantee: took subject to the mortgage – then the grantee does not agree to pay and is not personally liable for the debt or assumed the mortgage – then the grantee agrees to pay and becomes primarily liable for the debt, and the debtor becomes secondarily liable as a surety. However, **the debtor is relieved of personal liability for the mortgage debt if the lender releases or impairs the mortgaged property.* In some states, a release completely discharges the debtor's personal liability. In other states and under the Restatement, the debtor's personal liability is discharged only to the extent of the value of the released property.**

Answer 29

A defeasible fee is an ownership interest in real property that has the potential to last forever but can be cut short if a specified event or condition occurs. One type of defeasible fee is a fee simple determinable (FSD), which is created with durational language (e.g., "so long as," "during," "until"). The future interest that follows an FSD is either: a possibility of reverter – in which case, the estate automatically reverts back to the grantor when the specified event occurs (presumed if not expressly stated) or an executory interest – in which case, the estate automatically passes to a third party when the stated event occurs. Here, the owner's will conveyed an FSD in the building to the religious organization (to the religious organization "for so long as it is used for religious purposes"), and he did not pass the accompanying future interest to a third party. As a result, the owner retained a possibility of reverter, which was freely alienable by the owner during life and upon death. The owner devised his possibility of reverter, along with his remaining real property interests, to the companion by will—leaving no real property interest for the son to inherit.

Answer 30

A common-interest community is a real-estate development in which individually owned lots or units are burdened by a covenant that imposes an obligation to pay dues to an association. The association is typically governed by a board, which exercises the association's power to manage common property, administer the covenants, and carry out functions set forth in the declaration or granted by statute. But the board must act reasonably when exercising its discretionary powers.

Answer 31

In cases involving real property, law applied by forum court should be determined by conflict-of-laws rule that would be applied by state where property is located Exceptions Document specifies application of specific jurisdiction's laws Issues regarding effect of marriage on interest in land Collateral issues (eg, whether transferor perpetrated fraud) Issues regarding mortgage note (eg, validity of note) Foreclosure-related issues that do not affect interest in land (eg, mortgagee's right to sue mortgagor for underlying debt before foreclosure) Conflict-of-laws issues arise when significant aspects of a legal action are divided between two or more states, creating a conflict as to which state's law applies. If the conflict involves real property, then the general rule is that the law applied by the forum court should be determined by the conflict-of-laws rule that would be applied by the courts of the situs state (i.e., the state where the property is located) (Choice A). The conflict-of-laws rule of the situs state typically calls for the application of its own local law (i.e., law of the situs).

Answer 32

Cotenants owe a duty of fair dealing—but generally not a fiduciary duty—to each other. However, a fiduciary duty may be imposed on cotenants who: jointly purchase property in reliance on each other or acquire their interests at the same time from a common source (e.g., by gift, will, or inheritance). This duty primarily arises when the co-owned property is sold at a tax or mortgage foreclosure sale and purchased by a cotenant. The other cotenants then have the right to reacquire their original interests by paying their share of the cost paid to acquire the property (based on the cotenant's ownership interest) within a reasonable time.

Answer 33

Absent contrary language, all land-sale contracts have an implied warranty that the seller will convey marketable title to the buyer upon closing. Title is marketable if it is reasonably free from doubt and unreasonable risk of litigation, such that a reasonable person would accept and pay for it. One defect that renders title unmarketable arises when a future interest is held by person(s) who have not agreed to the transfer. The future interest following a life estate is called a remainder when held by someone other than the grantor. Remainders (as with life estates) are transferable during life, devisable by will, and descendible by inheritance (Choice B). This is true in most jurisdictions* regardless of whether the remainder is vested or contingent.

Answer 34

A life tenant has the obligation to pay ordinary taxes on the real property, but only to the extent that the life tenant receives a financial benefit from the property. When the life tenant occupies the land, the financial benefit is measured by its fair rental value.

Answer 35

A landlord and tenant have a legal relationship based on both: privity of contract – their shared interest in the lease agreement and privity of estate – their successive right to possess the property (i.e., the tenant's current right of possession is immediately followed by the landlord's future right of possession). Unless the lease states otherwise, either party can freely transfer his/her interest under the lease. Assignment is a complete transfer of a tenant's interest to a third party (assignee) for the remainder of the tenant's lease term (as seen here), so: the original tenant retains privity of contract and remains liable for all covenants in the lease (e.g., rent)and the assignee gains privity of estate and becomes liable to the landlord for the rent and any other covenants in the lease that run with the lease. Because of this privity, the original tenant (the student) and the assignee (the employee) are jointly and severally liable for the landlord's entire harm arising from a breach of the lease (e.g., failure to pay rent).* This means that the professor could recover $3,000 in unpaid rent from the student and/or the employee. Therefore, the employee can be held liable to the professor. *However, if the landlord is able to mitigate the harm (e.g., by finding another tenant), damages will be reduced accordingly.

Answer 36

Unless otherwise stated, an implied covenant of marketable title is part of a land-sale contract, regardless of the type of deed created. Under this covenant, the seller promises to deliver title that is reasonably free from doubt and under no threat of litigation, such that a reasonable person would accept and pay for it. However, under the merger doctrine, any obligations contained in the land-sale contract merge into the deed and are extinguished at closing.* As a result, these obligations are enforceable only if they are contained in the deed.

Answer 37

Ways to avoid foreclosure Equitable redemption* Mortgagor pays full amount of outstanding debt (as increased by acceleration clause) plus any accrued interest Deed in lieu of foreclosure Mortgagor conveys all interest in mortgaged property to mortgagee Renegotiating debt Parties renegotiate terms of promissory note & mortgage *Many states also recognize a statutory right of redemption that permits a mortgagor to reclaim the property after a foreclosure sale. A mortgagor (debtor) may convey all interest in the mortgaged property to the mortgagee (lender) in lieu of foreclosure so long as both parties agree. This "deed in lieu of foreclosure" allows the mortgagee to take immediate possession of the property without the formalities of a foreclosure sale. However, the mortgagee takes the property along with any junior interests attached to the property—e.g., the savings and loan association's second mortgage. And if the mortgagee accepts a deed in lieu of foreclosure without reserving the right to foreclose (as seen here), then its mortgage is extinguished.

Answer 38

A vested remainder is subject to complete divestment if the occurrence of a subsequent condition will eliminate the remainder interest (e.g., "then to my heirs; but if none survive my friend, then to my lawyer").

Answer 39

A fixture is tangible personal property (i.e., chattel) that is attached to real property in such a manner that it is treated as part of the realty and used for some larger component or function of the land (e.g., to separate adjoining properties). Fixtures are considered an integral part of the land to which they are attached. Consequently, a fixture automatically transfers with the land unless the conveying instrument (e.g., deed) provides otherwise. Here, the wall became part of the woman's land, which was then sold to the buyer. Since the wall is a fixture, it was included in the valid sale to the buyer. Therefore, the man cannot prevent the buyer from tearing down the wall

Answer 40

A mortgage is an interest in land that a debtor (mortgagor) gives to a lender (mortgagee) as security for a debt. The debtor can freely transfer mortgaged land to a grantee unless the mortgage states otherwise. After the conveyance, the mortgage remains attached to the property and the debtor remains personally liable for the debt secured by the mortgage. But the grantee's obligations depend on whether the grantee: took subject to the mortgage (presumed) – in which case the grantee does not agree to pay and is not personally liable for the debt or assumed the mortgage – in which case the grantee expressly agrees to pay and becomes primarily liable for the debt, and the debtor becomes secondarily liable as a surety. In either instance, the lender can foreclose on the mortgage if the debtor defaults on the loan (Choice B). However, the grantee will only be liable for any deficiency resulting from a foreclosure sale if the grantee assumed the mortgage.

Answer 41

Tenancy at will Creation Express agreement Implied when person allowed to possess premises without paying rent Duration Indefinite period Termination At any time with reasonable notice (unless otherwise agreed) A tenancy at will is a leasehold estate that has no specific term and continues so long as the landlord and the tenant desire. This tenancy can generally be terminated by the landlord or the tenant. But if only one party is expressly given the right to terminate the leasehold, the arrangement may be deemed unconscionable if, for example, the arrangement is unfair due to one party's superior bargaining power. In such a case, both parties are given the ability to terminate the lease.

Answer 42

A deed is a legal instrument that transfers an interest in real property from the owner (grantor) to another (grantee). To be valid, the deed must be signed by the grantor, identify the grantor and the grantee, contain words of transfer, and identify the land with reasonable certainty—as the farmer's document does here. A property interest may then be transferred by delivering the deed to the grantee, and acceptance is presumed if the transfer is beneficial to the grantee. A grantor can deliver the deed to the grantee through an independent third party. But if the third party's transfer to the grantee is conditioned on the grantor's death, then the grantor's delivery of the deed to the third party must evidence the intent to make a present gift to be effective. This typically occurs when the grantor relinquishes the right to take back the deed by placing it beyond the grantor's control.

Answer 43

A deed is a legal instrument that transfers ownership of real property from the owner (grantor) to another (grantee). But for a transfer by deed to be effective, the deed must be: delivered by the grantor – demonstrates the grantor's present intent to convey ownership to the grantee and accepted by the grantee – presumed if the transfer is beneficial to the grantee. Delivery is presumed when the deed has been recorded in the county land records since the recording creates a rebuttable presumption that the deed is intended to be presently operative. Physically handing over a deed is not required and does not conclusively prove a grantor's present intent to convey property (Choice C).

Answer 44

Joint tenancy is a concurrent estate in which each cotenant has an equal, undivided interest in property with a right of survivorship. This means that a joint tenant's interest disappears at death and the remaining joint tenants' interests automatically expand proportionally to absorb it. As a result, a joint tenancy cannot be devised by will or inherited through intestate succession. To create a joint tenancy, the property must be conveyed with the express intent to create survivorship rights and four unities must coexist (PITT): Possession – tenants share an equal right to possess or use the property Interest – tenants have an equal interest in the property Time – property interests simultaneously vest in all tenants Title – property interests received in the same instrument of conveyance A conveyance that meets some but not all of these requirements creates a tenancy in common, in which each tenant has an equal right to possess the entire property but no survivorship rights. As a result, a tenant in common's interest can be devised or inherited.

Answer 45

A buyer who assumed a mortgage as part of the purchase price may not raise defenses—e.g., duress, statute of limitations, lack of legal capacity—that the debtor could have raised to avoid the mortgage obligation. Otherwise, the buyer would be unjustly enriched. Here, the owner executed the deed of trust under duress after the supplier threatened to falsely report health code violations to the health department. However, the chef assumed the obligation to pay the promissory note as part of the purchase price for the restaurant, so the chef cannot raise duress as a defense to the enforcement of the deed of trust (Choices C & D). Therefore, the chef cannot assert duress against the trustee to avoid foreclosure. *Some states use a deed of trust in place of a mortgage. For most purposes, a deed of trust is treated the same as a mortgage.

Answer 46

he English common-law Doctrine of Ancient Lights enabled landowners to protect their right to light by preventing neighbors from building any structure that blocked the landowner's access to sunlight. This doctrine has been rejected in the United States. As a result, landowners can only restrict another's blockage of light if they are protected by statute or enter into an agreement with the neighboring landowner to create a negative easement—neither of which is seen here. The court should therefore hold in favor of the dentist.

Answer 47

A covenant is a promise to do or not do something on the land. When an injunction is sought to enforce a covenant (as seen here), it is called an "equitable servitude." An equitable servitude can be expressly created in a written agreement. But here, no express equitable servitude was created because the two-story height restriction was not written in the couple's deed, the speculator's deed, or the recorded subdivision plan. An equitable servitude can also be implied from a common scheme* if three elements are met: Intent to create common scheme – the owner intended to impose a servitude on all lots in the subdivision (here, the deeds to most of the lots contained a two-story height restriction) Restrictive servitude – the intended servitude is a promise not to do something on land (here, a promise not to build a three-story residence) Notice – the person to be bound by the servitude had actual, record, or inquiry notice of the servitude (here, the speculator received actual notice through the rancher's letter, and the couple had inquiry notice because no three-story residences were on the other lots) (Choices C & D)

Answer 48

The following mortgage documents are used to convey an interest in real property to a lender (i.e., mortgagee) to secure repayment of a debt: Promissory note – a formal "IOU" in which the borrower promises to repay the debt according to the listed terms Mortgage deed – a document that gives the lender a security interest in the property until the note is paid These documents may contain a "due on sale" clause, which allows the lender to demand full payment of the remaining mortgage debt if the debtor transfers the mortgaged property without the lender's written consent. The lender may waive this clause, but the debtor is still liable on the note unless the lender releases the debtor from that obligation (Choice A). This is true even when, as here, the debtor transfers mortgaged property to another (the grantee) who assumes the mortgage. A grantee who assumes the mortgage expressly agrees to pay and becomes primarily liable for the debt, while the original debtor becomes secondarily liability as a surety. This gives the lender the right to sue either party upon default, and the original debtor can recover any amount paid from the grantee. Here, the bank waived the "due on sale" clause when the investor sold the mortgaged land to the developer. This means that the remaining loan debt did not need to be paid in full at that time, but it did not release the investor from liability on the note. Instead, the investor became secondarily liable when the developer assumed the mortgage (Choice B). As a result, the bank can sue the investor for the default on the note.

Answer 49

A defeasible life estate is a present possessory interest that terminates upon the end of the measuring life or the happening of a stated event. If title passes to someone other than the grantor when the present interest terminates, then the estate is followed by a remainder and an executory interest.

Answer 50

A real covenant is an agreement between parties to do or not do something on land (e.g., maintain a stone wall) that is enforceable by an action for money damages. The promising parties are bound under contract law, but their successors in interest are bound only if the covenant runs with the land. This occurs when the following elements are met: Writing – covenant is in a writing that satisfies the statute of frauds (here, the owner's deed to the farmer) Intent to run – promising parties intend for the covenant to run to their successors in interest ("The parties intend a covenant running with the land") Touch and concern – covenant relates to the use, enjoyment, or occupation of the land (maintaining the stone wall) Horizontal privity – promising parties simultaneously transfer the land and create the covenant (the covenant was created when the owner conveyed a farm to the farmer) Vertical privity – successors have an unbroken chain of ownership from the original parties (the successors acquired, by purchase or other means, the same ownership interests as the original parties) (Choice D) Notice – person to be bound had actual, record, or inquiry notice of the covenant (**required only if the person to be bound was a purchaser**) Here, the son likely had no notice of the covenant requiring the owner's successors (the son) to pay half of any reasonable expense incurred in repairing the stone wall because it was never recorded. But since the son inherited the farm, he is not a purchaser who required notice of the covenant to be bound by it (Choice A). Therefore, the court most likely will rule for the son because the horse breeder's expenditures were not incurred for a reasonable repair.

Answer 51

The statutory period in this jurisdiction is 10 years, but the childcare center's manager has used the playground for only 4 years. **However, under the doctrine of tacking, an adverse possessor may tack on the predecessor's time if there is privity between successive adverse possessors. Privity is satisfied if the possessor takes by nonhostile means (e.g., by descent, devise, contract, deed). Here, there is no privity between the successive adverse possessors because the childcare center's manager was operating the business for her own benefit—not pursuant to an agreement with the daycare owner or other nonhostile means. **

Answer 52

The primary issue in this case is which party bears the risk of loss. Most states follow the logic of the doctrine of equitable conversion and place the risk of loss on the buyer during the executory period—i.e., the period between the execution of the real-estate contract and closing. This is true regardless of whether the buyer takes possession of the property during that period. However, a minority of jurisdictions have adopted the Uniform Vendor and Purchaser Risk Act. Under this act, the risk of loss remains with the seller until the buyer takes possession of or receives legal title to the property. Since the owner (seller) had possession of the warehouse at the time it was destroyed, the most important issue in awarding judgment is whether the jurisdiction has adopted the Uniform Vendor and Purchaser Risk Act.

Answer 53

If a future-advances mortgage is optional, then the future-advances mortgagee has priority with respect to amounts loaned before receiving notice of a subsequent mortgage. But if the advance is obligatory, then the future-advances mortgagee has priority with respect to amounts loaned before and after receiving notice. A future-advances mortgage (i.e., "line of credit") is a mortgage given by a debtor (mortgagor) in exchange for the right to receive money from the lender (mortgagee) in the future. Priority with regard to proceeds from a foreclosure sale depends on whether the advances are: optional – in which case, the future-advances mortgage has priority with respect to amounts loaned before the future-advances mortgagee received notice of a subsequent mortgage or obligatory – in which case, the future-advances mortgage has priority with respect to amounts loaned before and after the future-advances mortgagee received notice of a subsequent mortgage.

Answer 54

There are three types of concurrent estates (i.e., cotenancies): Tenancy in common – a tenancy in which each cotenant has a separate and possibly unequal interest in the property with no right of survivorship Joint tenancy – a tenancy in which each cotenant has an undivided and equal interest in the property with the right of survivorship Tenancy by the entirety – a joint tenancy between married persons that is recognized in about half of the jurisdictions Tenancies in common are devisable (by will) and inheritable (by intestate succession)—but joint tenancies and tenancies by the entirety are not. And though all three concurrent estates are alienable during a tenant's lifetime, a tenancy by the entirety can only be conveyed with the other tenant's consent.

Answer 55

A land-sales contract is executed when the seller promises to deliver marketable title—i.e., title free from unreasonable risk of litigation—and the buyer promises to pay the purchase price. These promises must be performed on the closing date set forth in the contract if the parties set a strict closing deadline, which occurs when: express language in the contract makes time of the essence the circumstances strongly suggest that the parties intended it to be or one party gives the other party notice that time is of the essence. But when time is not of the essence, strict adherence to the closing date is not required in equity. Instead, performance is due upon closing or a reasonable time thereafter. And so long as performance can be rendered within a reasonable time after the closing date, the delay does not provide grounds to rescind the contract and the other party must perform.*

Answer 56

The Statute of Frauds requires that an express easement, as a real property right, be in writing. Answer choice C is incorrect. Generally, in order for an easement by implication to exist, there must be a prior existing use (i.e., a quasi-easement). Here, the path across the daughter’s lot only came into existence after the lot was deeded to his daughter.

Answer 57

A member of a common-interest ownership community, such as a condominium, is not entitled to withhold payment of assessments to set off against a default by the association in fulfilling its duties to the member.

Answer 58

The privity of estate held by the original tenant terminates upon a successful assignment by the tenant to the assignee (but does not terminate upon a sublease). However, because the original tenant remains in privity of contract with the landlord (both are parties to the lease agreement), the original tenant remains liable for all the covenants in the lease—even after a successful assignment. Absent an agreement by the landlord to release the original tenant from liability (i.e., a novation), the original tenant remains liable to the landlord for the entire duration of the lease. Here, the individual, the original tenant, remains liable to pay the five months of rent due under the lease that has not been paid. Answer choice B is incorrect. The Statute of Frauds does not make the oral assignment by the individual of his leasehold interest to his friend unenforceable because the lease of property for one year or less is not subject to the Statute of Frauds.

Answer 59

The buyer gave her assent to terminate the contract by permitting the seller to withdraw from the contract. Consequently, the contract was rescinded by mutual consent and could not be reinstituted by the buyer unilaterally. Answer choice B is incorrect because, although the inter vivos transfer of a joint tenancy interest severs the joint tenancy and creates a tenancy in common, such a transfer is permitted. Answer choice C is incorrect because, although a contract to transfer an interest in land must be in writing pursuant to the Statute of Frauds, the majority rule is that the rescission of such a contract may be oral.

Answer 60

A land sales contract must generally be in writing, signed by the party to be charged, and contain all the essential terms, in order to be enforceable. However, even if there is no writing involved, a party may be entitled to specific performance if she has detrimentally relied on the oral contract. In this case, the buyer detrimentally relied on the sale when she accepted an offer for the sale of her own home. This reliance would likely subject the buyer to such hardship so as to estop the seller from asserting the Statute of Frauds as a defense.

Answer 61

The covenant against encumbrances guarantees that the deed contains no undisclosed encumbrances. A special warranty deed contains this covenant but only warrants against defects arising during the time the grantor has title.

Answer 62

A landowner has a right to lateral support from adjoining land. If the adjoining land has been improved (i.e., is not in its natural state), t**he excavating landowner is strictly liable for any damage caused by the excavation only if the land would have collapsed in its natural state** (**regardless of the improvement**).

Answer 63

The agreement between the farmer and the owner of the woodlands created a profit à prendre, which is a nonpossessory right to enter another’s land and remove specific natural resources. As a property right, a profit is subject to the applicable recording act.

Answer 64

Under the “equal dignities” rule, when the act performed by an agent on behalf of the principal is required by law to be in writing, the agent’s authority must also be established in writing. Consequently, when an agent signs a deed, the agent’s authority must also generally be in writing.

Answer 65

An assignment is a complete transfer of the tenant's remaining lease term. Any transfer for less than the entire duration of the lease is a sublease. Here, the agreement between the retailer and the distributor is a sublease, not an assignment, because it extends for only two years of the remaining five years of the lease. As such, it is not covered by the lease provision that requires the owner's permission before rights under the lease can be assigned.

REAL PROPERTY MBES Flashcards

(89 cards)