REAL PROPERTY MBES Flashcards
MBE REAL PROPERTY: Titles; Delivery and Recording of Deed; Notice Statute
Define what a notice statute is in recording a deed.
When there is a notice statute in place, this means that a purchaser need only purchase the property without notice of the prior interest to prevail.
If a reasonable investigation would have disclosed the existence of prior claims, then the grantee is considered to possess inquiry notice, and cannot prevail against those claims.
First in time, first in right.
MBE REAL PROPERTY: Land Sale Contract; Formation
What is necessary for a land sales contract to be valid? Does the Statute of Frauds apply to these types of transactions?
Yes, the Statute of Frauds applies. In order to satisfy the Statute of Frauds, a land sale contract must be in writing, signed by the party to be charged and contain all the essential terms.
An oral agreement will not suffice to enforce the agreement.
MBE REAL PROPERTY: Doctrine of Part Performance
Explain the doctrine of part performance in a land sale contract.
Under the doctrine of part performance, either party to a land sale contract may seek specific performance when the acts of performance constitute persuasive evidence of the existence of a contract.
Such acts include payment of all or part of the purchase price, possession by the purchaser, or substantial improvement of the property by the purchaser. Most jurisdictions require at least two acts to establish sufficient part performance.
Specific performance may be permitted when the party seeking enforcement has reasonably relied on the contract and would suffer such hardship that the other party will be estopped from asserting the Statute of Frauds as a defense to the contract.
MBE REAL PROPERTY: Ownership; Present Estates
What is a fee simple determinable?
A fee simple determinable is a present fee simple estate that is limited by specific durational language. Common durational language includes “so long as”, “while”, or “during”. Upon the happening of the stated condition, the present estate is automatically terminated and full ownership is returned to the grantor (or his successor in interest). The grantor’s retained future interest is called a POSSIBILITY OF REVERTER which is freely alienable by the grantor during life and at death.
MBE REAL PROPERTY: Disputes about use of land; Easements
Explain what easements are and the scope of an easement.
Easements are presumed to be appurtenant (i.e. tied to the land), unless there are clear facts to the contrary.
An easement appurtenant is transferred with the land to which it relates.
If the easement was previously used on the servient estate by an earlier owner, then the court may find that the parties intended the easement to continue IF
the easement use was apparent (open and obvious); and reasonably necessary to the dominant land’s use and enjoyment.
REAL PROPERTY MBE: Ownership; Concurrent Estates
Explain tenancy by the entirety. What is it?
Tenancy by the entirety is a joint tenancy between married persons with a right of survivorship. The same rules for joint tenancy apply to tenancy by the entirety.
Property can be owned in a tenancy by the entirety only if the owners are married at the time that the property was acquired.
REAL PROPERTY MBE: Ownership; Present Estates
What is a life estate?
A life estate is a present possessory estate that is limited in duration by a life. Upon the end of the measuring life, the title reverts to the grantor or specified remainderman. This future interest is known as a reversion.
Unless otherwise specified, the measuring life is the life of the grantee.
An owner’s will cannot revoke a prior valid transfer of a life estate in the land by a warranty deed to another party.
REAL PROPERTY MBE: Ownership; Present Estates
What type of estate is created when a deed, through the use of the phrase, “provided that” is part of the deed language?
The deed, through the use of the phrase, “provided that” creates a FEE SIMPLE SUBJECT TO A CONDITION SUBSEQUENT, and the landowner retains a right of reentry.
Upon violation of the condition subsequent, the landowner has the right to terminated the interest conveyed. The owner can now exercise this right, regain ownership of the property and even prevent any sale of the property.
Although the owner may waive the right to terminate a fee simple subject to a condition subsequent, the mere failure to assert it does not constitute a waiver.
Rule against perpetuities does not apply to a reversionary interest, such as the right of entry.
REAL PROPERTY MBE: Disputes about the Use of Land; Easements
What interest is created when an owner makes an oral promise to someone that allows the person to make use of a driveway?
The owner’s oral promise to another party constitutes a license , which is a non-possessory right to enter the land of another for some delineated purpose.
Generally. a license is revoked upon the transfer of the servient estate. While the license cannot be revoked if detrimentally relied upon, the other party must show evidence that he expended money or otherwise relied on the owner’s promise to his detriment.
Easements, presumed to be appurtenant, are connected with the land, and must be in writing to be valid. Licenses are not required to be in writing.
REAL PROPERTY MBE: Titles; Adverse possession
How can a party acquire title to land by adverse possession?
An individual may gain title to land by adverse possession by possessing the land in a manner that is continuous, open and notorious, actual, exclusive, and hostile.
An adverse possessor may take on his predecessor’s time as long as there is privity between the successive possessors. Privity is satisfied if the possessor takes by any non-hostile means (such as descent, devise, contract or deed).
The majority of jurisdictions do not require that the possession be hostile in the sense that the possessor purposefully seeks to defeat the owner’s title. Instead, the possessor, by possessing the land, must objectively demonstrate an intent to claim the land as his own.
REAL PROPERTY MBE: Ownership; Concurrent Estates
What are the rights of each party that each hold an interest in property as tenants in common?
Tenants in common have the unrestricted righty to possess the whole property. Further, co-tenants are entitled to the land’s natural resources in proportion to their share of the property. Accordingly, each tenant in common is entitled to the natural resources on the entirety of the land.
No right of survivorship with a tenancy in common. As a tenant in common, each tenant can freely transfer his interest in the land.
REAL PROPERTY MBE: Mortgages and Security Interests; Transfers
Where there is a mortgage obligation on a property that is transferred, what are the rules to determine what the transferee-buyer’s liability on the mortgage?
If a deed is silent or ambiguous about the transferee-buyer’s liability on the mortgage, then the buyer is considered to have taken the property subject to the mortgage obligation. If the buyer take title subject to the mortgage, he is not personally liable upon default, but the property may be sold at a foreclosure sale to satisfy the outstanding mortgage loan obligation.
If there is a deficiency after distribution of the sale proceeds, only the transferor-seller is personally liable for it.
If, on the other hand, the buyer ASSUMES the mortgage, then upon default, the buyer is personally liable for any deficiency.
REAL PROPERTY MBE: Titles; Delivery and Recording of Deed
Where there is a race-notice statute in the jurisdiction, what does this mean for a subsequent purchaser?
Where there is a race-notice statute in the jurisdiction, this means that in order for the subsequent purchase to prevail, he would have to take without notice (of any mortgage or encumbrance) and also be the first to record.
REAL PROPERTY MBE: Disputes about the Use of Land; Easements
Explain when and how an easement by necessity is created?
An easement by necessity is created when property is virtually useless without the benefit of an easement across neighboring property.
Both the dominant and servient estates must have been under common ownership in the past. The necessity of the easement must have arisen when the unified property was severed in the dominant and servient estates.
REAL PROPERTY MBE: Easements by prescription
Explain when and how an easement by prescription is created?
An easement by prescription requires the use to be continuous, actual, open, and hostile for the statutory period. Unlike adverse possession, the use need not be exclusive.
REAL PROPERTY - MBE - RESTRAINTS ON ALIENATION
WHEN IS THE RIGHT OF FIRST REFUSAL ENFORCEABLE?
A restraint on alienation is a provision that restricts the transferability of real property. An unreasonable restraint is disfavored because public policy encourages the free transfer of property interests; therefore, direct (or absolute) restraints on alienation are void. However, a partial restraint—one that is for a limited time and a reasonable purpose—is generally valid.
A right of first refusal is a partial, promissory restraint on alienation that gives its holder a preemptive right to acquire property prior to its transfer to another party. This right is generally reasonable if the holder of the right can purchase the property under the same terms offered to another. If so, the right of first refusal is valid and enforceable by an injunction. As a result, the organization can compel the owner to sell the building to the organization at the below-market price.
REAL PROPERTY - COVENANT OF MARKETABLE TITLE
DOES THE IMPLIED COVENANT OF MARKETABLE TITLE CARRY OVER TO THE DEED?
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.
REAL PROPERTY MBE - FORECLOSURE RIGHTS AND JUNIOR INTERESTS
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. As a result, the house remains subject only to the savings and loan association’s mortgage.
REAL PROPERTY MBES - VESTED vs CONTINGENT REMAINDERS AND CONDITIONS
A remainder is a future interest in real property that is capable of becoming possessory upon the expiration of a life estate or term of years. Remainders are either:
vested – not subject to any condition precedent AND held by an identifiable living person (e.g., “then to my son and daughter”) or
contingent – subject to some condition precedent (other than the natural termination of the prior estate) OR held by an unknown or unborn person (e.g., “then to my heirs, but only if they survive my friend”).
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”).
Here, the accountant conveyed a life estate to the friend and a remainder to his heirs. The** remainder was contingent while the accountant was alive because his heirs were unknown. But it vested once the accountant died and his heirs (the son and the daughter) became known** (Choice A). That vested remainder, however, is subject to complete divestment if neither survives the friend. As a result, the son holds a vested remainder subject to complete divestment.
https://www.themisbar.com/learners/index.php?service=multipleChoice&id_task=463939#:~:text=A%20fixture%20is,deed)%20provides%20otherwise.
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.
REAL PROPERTY MBES - SUBJECT TO MORTGAGES
A DEBTOR CAN FREELY TRANSFER MORTGAGED LAND TO A GRANTEE UNLES THE MORTGAGE STATES OTHERWISE. CAN THE LENDER FORECLOSE ON THE PROPERTY HELD BY THE NEW GRANTEE? IS THE GRANTEE HELD PERSONALLY LIABLE FOR THE DEBT?
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.
REAL PROPERTY MBES - NOTICE REQ AND RECORDING STATUTE
WHAT IS REQUIRED FOR A SUBSEQUENT PURCHASER FOR VALUE TO PREVAIL OVER A PRIOR GRANTEE’S INTEREST?
Recording acts create a framework for prioritizing competing property interests to ensure certainty of title. There are three types of recording statutes.*** A race-notice statute can be identified by the words “without notice” and “first record” (as seen here). Under this type of statute, a good-faith purchaser for value (i.e., a bona fide purchaser or BFP) has priority over an earlier-acquired interest in the property if the BFP:
lacked notice (actual, record, or inquiry) of the earlier interest at the time the BFP acquired an interest in the property and
recorded that interest before the earlier interest was recorded.
**
Here, the buyer purchased the property without notice of the mother’s prior transfer to the daughter (Choice C). But the buyer will not prevail because the daughter recorded her deed first.
REAL PROPERTY MBES - TERMINATION OF AN AT WILL TENANCY
WHO CAN TERMINATE AN AT WILL TENANCY?
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.
Here, the landlord owned the only commercial shopping center in town, so he had superior bargaining power over the tenant. And the landlord insisted on an at-will tenancy for a minimum of 10 years that gave him the sole right to terminate the lease. Given these circumstances, the court will likely deem the lease unconscionable and find that both parties had the right to terminate it (Choice C). Therefore, the landlord is unlikely to prevail in the breach-of-lease action.
REAL PROPERTY MBES - FORECLOSURE
CAN AN JUNIOR INTEREST FORECLOSE ON THE MORTGAGOR’S PROPERTY WHEN THERE IS A SENIOR INTEREST LIEN ON THE PROPERTY?
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.
REAL PROPERTY MBES - DELIVERY OF DEED
WHEN DOES A DEED BECOME EFFECTIVE VERSUS A WILL? IS DELIVERY TO A PERSON WHO IS GIVEN INSTRUCTIONS VALID DELIVERY?
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.
REAL PROPERTY MBES: DELIVERY OF A DEED
WHAT ARE THE REQUIREMENTS FOR AN EFFECTIVE TRANSFER OF PROPERTY BY A DEED?
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).
REAL PROPERTY MBES - TERMINATION OF A REAL COVENANT
WHAT IS NEEDED TO ENFORCE A COVENANT IN A DEED? CAN THE COVENANT IN THE DEED EVER BE TERMINATED?
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.
REAL PROPERTY MBES: ASSUMPTION OF A MORTGAGE
WHEN THE BUYER PURCHASES THE PROPERTY FROM THE SELLER AND ASSUMES THE MORTGAGE, CAN HE RAISE ANY OF THE DEFENSES AGAINST THE LENDER THAT HAD BEEN AVAILABLE TO THE ORIGINAL DEBTOR?
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.
REAL PROPERTY MBES: AVAILABLE NEGATIVE EASEMENTS
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.
REAL PROPERTY MBES: OPTION CONTRACTS
WHEN DOES THE OPTION HOLDER’S ACCEPTANCE OF THE OPTION BECOME EFFECTIVE? DOES THE MAIL BOX RULE APPLY?
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.
REAL PROPERTY MBES: COVENANTS AND EQUITABLE SERVITUDES
WHAT IS REQUIRED FOR AN EQUITABLE SERVITUDE TO BE IMPLIED FROM A COMMON SCHEME?
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.
REAL PROPERTY MBES: ASSUMPTION OF MORTGAGES
WHO IS LIABLE ON A MORTGAGE DEBT WHEN THE GRANTEE AGREES TO PAY (ASSUME) THE DEBT?
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.
REAL PROPERTY MBES - UNMARKETABLE TITLES
WHAT ARE THE DEFECTS WHICH RENDER A TITLE UNMARKETABLE?
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.
REAL PROPERTY MBES: LIFE ESTATES AND REMAINDERS
EXPLAIN A DEFEASIBLE LIFE ESTATE AND WHAT IS THE FUTURE INTEREST IN THIS TYPE OF ESTATE?
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.
