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Realty Contracts Flashcards

1
Q

Statute of Frauds

A

Requires a writing signed by the party to be charged for a transfer of an interest in realty.

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2
Q

Exceptions to the Statute of Frauds

A

Include:

  • The doctrine of part performance
  • Equitable estoppel
  • Promissory estoppel
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3
Q

Doctrine of Part Performance

A

A showing of at least two of the following three facts must be made:

  • Payment of all or part of the purchase price
  • Taking of possession
  • Making substantial improvements
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4
Q

Equitable Estoppel

A

Based on an act or a representation

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5
Q

Promissory Estoppel

A

Based on a promise

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6
Q

Essential Terms for a K of sale (to Comply with SOF)

A

Include:

  • Description of the property
  • Description of the parties
  • Price
  • Any conditions of price or payment that have been agreed
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7
Q

Proper Description of the Property

A

To satisfy the SOF, a description of the property must involve an identifiable parcel. A land that allows a buyer to purchase any acres “chosen by buyer” is too indeterminate to satisfy the SOF.

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8
Q

Time for Performance of a Realty K

A

As with other contracts, if no time is stated, then performance is to occur within a reasonable time.

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9
Q

Time is of the Essence Clause

A

Means that nonperformance at the time specified in the K (the closing date) will be considered a material breach) and a party cannot enforce performance. But some courts will consider an acceptance of a late payment as a waiver of a time-is-of-the-essence clause.

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10
Q

Circumstances Where a Court will Still Enforce SP Despite Breach of Time-is-of-the-Essence Clause

A
  • The breach was not due to gross negligence or deliberate or bad faith by breaching party
  • The non-breaching party could be adequately compensated for the injury caused by the delay
  • The forfeiture that would otherwise result would be harsh and unreasonable
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11
Q

Seller’s Remedies in Law for Buyer’s Breach

A

Include:

  • Expectation Damages
  • Foreseeable Consequential Damages
  • Reasonable Reliance Damages
  • Recovery of Down Payment
  • Liquidated Damages
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12
Q

Seller’s Remedies: Expectation Damages

A

Measured by K price - the market price at time of breach (or K price - resale price in a minority of jurisdictions).

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13
Q

Seller’s Remedies: Foreseeable Consequential Damages

A

Can include mortgage interest payments that the seller is required to make after the buyer’s breach

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14
Q

Seller’s Remedies: Reasonable Reliance Damages

A

Can include repairs, costs of inspections, etc.

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15
Q

Seller’s Remedies: Recovery of Down Payment (in Absence of Liquidated Damages Clause)

A

(Traditional rule)- buyers could recovery the entire amount of the down payment

(Modern rule)- restricts recovery to a down payment that equals 10% or less of the purchase price (seller must return amount by which down payment exceeds damages caused by buyer’s breach)

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16
Q

Seller’s Remedies: Liquidated Damages

A

Clause in a realty K that states that the seller may retain the entire amount of down payment if the buyer breaches. Is generally enforceable if it is reasonable.

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17
Q

Important Factors for Determining if a Liquidated Damages Clause is Reasonable

A
  • The injury caused by the breach is one that is difficult or incapable of accurate estimation (judged at time K was made or at time loss occurs)
  • The liquidated damages are a reasonable forecast of the harm caused by the breach.
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18
Q

Liquidated Damages Clause v. Earnest $

A

Earnest $ is usually seen as a demonstration of a purchaser’s willingness and ability to carry out a K (therefore a K that accounts for earnest $ will not be seen as a liquidated damages provision).

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19
Q

Punitive Damages

A

Are only available if buyer’s breach was willful (same thing goes for the buyer’s damages)

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20
Q

Seller’s Remedies in Equity for a Buyer’s Breach

A
  • Rescission of the K

- Mutuality of Remedy Rule (would allow seller to require SP (has fallen out of favor))

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21
Q

Buyer’s Remedies at Law for Seller’s Breach of K

A
  • Include:
  • Expectation Damages
  • Foreseeable Consequential Damages (e.g. lost profits)
  • Reliance Damages (e.g. cost of inspections)
  • Restitution of the Down Payment
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22
Q

Buyer’s Remedies: Expectation Damages

A

Measured by K price - market price at time of breach (or K price - resale price in some jurisdictions).

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23
Q

Buyer’s Remedies: Restitution of Down Payment (English Rule)

A

Rule that claims that if the seller fails to deliver marketable title, the buyer may seek restitution + interest and reasonable expenses incurred in investigating title. However, restitution in excess of down payment are prohibited unless seller acted in bad faith or assumed the risk.

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24
Q

Buyer’s Remedies: Restitution of Down Payment (The American Rule)

A

If the seller fails to deliver marketable title, the buyer is not restricted to restitution of his down payment.

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25
Buyer's Remedies in Equity for Seller's Breach
- Rescission of the K | - Specific performance (in case where seller breached K by failing to sell or failed to deliver marketable title).
26
Buyer's Remedies: SP When Seller has Failed to Provide Marketable Title
Buyer may seek specific performance, with an abatement in the purchase price that reflects the decrease in value caused by the title defect.
27
Marketable Title
Title that is reasonably free from doubt in both fact and law. All Ks for the sale of real property include an implied promise to convey marketable title.
28
Title is Not Marketable If:
- There are defects in the chain of title - Encumbrances - Encroachments - Zoning Violations
29
Defects in Chain of Title
Include: - Title acquired by adverse possession - Defective execution of a deed; or - Significant variation of the land description from one deed to the next
30
Defects in Chain of Title: Adverse Possession (Majority v. Minority Rule)
The majority rule claims that title acquired by AP renders title unmarketable. The minority rule holds that title acquired by AP is still marketable if: - the possession has been for a very long time - the risk that the record owner will sue is remote; and - the probability of the record owner's success is minimal
31
Encumbrance
A right or interest that another person has in real property that diminishes the value of the property but is consistent with the conveyance of a fee interest in the property.
32
Types of Encumbrances
Include: - Mortgages - Liens - Easements - Covenants and servitudes
33
Title Encumbrances: Easements
An easement renders title unmarketable if it reduces the value of the property. However, an easement that benefits the burdened estate, such as the installation of utilities, and which is visible or known to buyer, does not render title unmarketable.
34
Excepted Encumbrances
An encumbrance that is excepted in the K of sale may not serve as the basis for a finding that title is unmarketable.
35
Encumbrances that Can be Satisfied at Closing
If the purchase price at closing is sufficient for the seller to satisfy the encumbrance with the transfer of the land, the buyer cannot claim that title is unmarketable.
36
Encroachment (Significant v. Slight)
- A significant encroachment renders title unmarketable - A slight encumbrance such as a boundary overlap of inches, will not render title unmarketable. - An encroachment does not render title unmarketable if the owner says he will not rely on the encroachment as a basis for suit.
37
Zoning Restrictions v. Zoning Violations
The existence of a zoning restriction does not make title unmarketable. However, a zoning violation may render title unmarketable.
38
Remedies for When Title is Unmarketable
Include: - Rescission from K - $ damages for beach of K - SP with an abatement of the purchase price
39
Equitable Conversion
When a purchase agreement/K of sale is formed, there is a bifurcation of title (equitable title passes to the buyer while the legal title remains with the seller until the deal closes).
40
Risk of Loss for Equitable Conversion
The majority rule places the risk of loss on the buyer (equitable owner) after there is a binding K for the sale of realty (K for sale). The minority rule places risk on seller until legal title or possession of property has been given.
41
Seller's Duties
Include: - Duty to Provide Marketable Title - Duty to Disclose Defects - Implied Warranty of Quality
42
Seller's Duty to Disclose Defects
Seller has a duty to disclose to buyer material latent defects known to seller but not readily observable and not known to buyer.
43
Duty to Disclose Defects: Residential v. Commercial
Generally, the duty applies only to commercial builders and developers of new residential homes.
44
Duty to Disclose Defects: Real Estate Agents and Brokers
May also be liable for failure to disclose material latent defects.
45
What is a Material Defect?
Generally, material is limited to defects that affect health and safety. -However, some states define material to include defects that affect value (subj. or obj. standard depending on the state).
46
Duty to Disclose Defects: Types of Structures:
Most states claim that the duty applies to new homes. However, some states extend the duty to used homes.
47
Implied Warranty of Quality
Claims that homes are built and remodeled with workmanlike quality. Covers significant latent defects caused by poor workmanship.
48
Implied Warranty of Quality: Discovery of Defects
The defects must be discovered within a "reasonable time" of construction or remodeling.
49
Duty of Implied Warranty of Quality: Types of Structures
Applies to new and remodeled homes (does not apply to commercial structures).
50
Implied Warrant of Quality: Who is Bound?
The implied warranty of quality is imposed on contractors, developers, and other commercial vendors of real property.
51
Implied Warranty of Quality: Disclaimers
Most jurisdictions permit the enforcement of an unambiguous disclaimer of the implied warranty of quality. However, some jurisdictions do not give effect to a general disclaimer for residential premises.
52
Implied Warranty of Habitability: SOL
- In some jurisdictions, the SOL begins to run when construction is completed. - In other jurisdictions, the SOL begins to run when the buyer to whom the warranty was made takes possession of the premises. - In other jurisdictions, the SOL begins to run until the purchaser discovers or should have discovered the breach.
53
Merger of Covenants
- Traditionally, covenants in a purchase agreement merge into the deed at closing (and the buyer will have to sue on the basis of a breach of any covenant contained in the deed). This includes the implied covenant of marketable title. - However, under the modern trend, merger does not apply to matters that are collateral to or not mentioned in the deed.
54
Quitclaim Deed
A deed that conveys no warranties or covenants (not even the implied warranty of marketable title). Seller simply conveys whatever interest they have and the buyer will have no option to sue in the future.
55
Warranty Deed
A deed that does contain one of the covenants of title. Therefore, the buyer might be able to sue. Includes general warranty deeds and special warranty deeds.
56
General Warranty Deed
Contains all six covenants of title, which covers the period prior to the sale. The seller warrants there are no defects in the chain of title.
57
Special Warranty Deed
May contain some, or all, of the covenants. Or when the seller warrants that no defects have occurred during his or her ownership.
58
Covenants of Title
Include present covenants and future covenants
59
Present Covenants
Do not run with the land and can be breached only at the time of closing. The buyer's successors in interest are unable to sue on these covenants. Include the covenants of seisin, right to convey, and the covenant against encumbrances.
60
Covenant of Seisin
The grantor promises that they own the property.
61
Covenant of Right to Convey
The grantor promises he or she has the power to convey the property.
62
Covenant Against Encumbrances
The grantor promises that there are no encumbrances (visible or invisible) on the property.
63
Encumbrance
Any right in a third person that diminishes the value or limits the use of the land granted.
64
Covenant Against Encumbrances: Exceptions in the Deed
An encumbrance expressly noted/excepted in a deed cannot serve as the basis for a breach of the covenant against encumbrances. -Remember that exceptions in the purchase agreement are unimportant because it merges with the deed.
65
Covenant Against Encumbrances: Damages for Easements
Jurisdictions are split on whether damages can be awarded for a visible or known encumbrance. Remember actual notice and constructive notice (when easement is recorded in the proper place in the record books).
66
Future Covenants
Run with the land and breach can be at the time of closing or afterwards. Include covenants of quiet enjoyment, warranty, and further assurances.
67
Covenant of Quiet Enjoyment
The grantor promises that the grantee will not be disturbed by a third party asserting a valid claim to the land. Every warranty deed (general or special contains a covenant of quiet enjoyment unless it is expressly excluded).
68
Covenant of Warranty
Grantor promises to defend the grantee against any third-party claim.
69
Covenant of Further Assurances
The grantor promises to do everything reasonably necessary to perfect the grantee's title.
70
SOL Covenants
SOL for present covenants --> starts when title passes SOL for future covenants --> starts when breach occurs
71
Real Estate Brokerage: Seller's Agent's Duty of Disclosure
A real estate broker who lists a seller's real property for sale is the seller's agent, and as such, owes the seller a fiduciary duty of disclosure, which requires disclosure of any information that would be beneficial to the seller in negotiating the sale of the property.
72
Real Estate Brokerage: Buying Agent's Duty of Loyalty and Obedience
A real estate broker who contracts with a buyer to assist in purchase or RP is the buyer's agent, and as such, owes the buyer fiduciary duties of loyalty and obedience.
73
Buyer's Agent's Duty of Loyalty
Requires the broker to give his or her undivided loyalty to the buyer and to put the buyer's interests before the broker's own interests.
74
Buyer's Agent's Duty of Obedience
Requires the broker to follow the buyer's lawful orders.
75
Selling Agent's Liability to Buyer
A broker who lists a seller's real property for sale is liable to the buyer for any intentional misrepresentations of fact known to the broker.

Real Property (12 decks)

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