Transcript Property I Fall 2008

Property II
Professor Donald J. Kochan
Spring 2009
Class 32-33
21 January 2009
Today’s Materials
TRANSFERS OF LAND
Recording
Buying and Selling Real Estate
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Statute of Frauds
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Marketable Title
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Duty to Disclose Defects
Implied Warranty of Quality
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Warranties of Title
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Title Assurance
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Chain of Title
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Inquiry Notice
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Registration
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Title Insurance
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Delivery
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Mortgage
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Pages 559-635
General Issues re Buying and
Selling Real Estate
Real Estate Agents
 Attorneys and Agreements
 Price Agreements and Mortgages
 The Sales Contract
Investigation of Title (full searches and
abstract searches)
 Function of Closing
 Obtaining Deed and Recording It
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Standard Residential Sales
Contract
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Provisions should include:
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Description of Buyer
Description of the Property (value and metes and bounds) and survey validation
Description of any encumbrances and any exclusions or reservations in the sale
All monetary arrangements
Closing date and terms
Terms of Delivery
Terms and Dates of Possession
The full Deed (including any warranties)
Any financing conditions
Any prorating for tax or utility payments, etc.
A provision for any disclosures
An opportunity for attorney modifications within a limited period of timr
A provision for performance obligations
A provision regarding inspections
A provision regarding seller’s representations
Provisions transferring and guaranteeing title
A provision regarding escrow
A provision regarding risk of loss between contract and closing
Statements regarding statutory and regulatory compliance
Statement of a merger of agreements made during negotiations (full and complete codification of the parties’
agreement)
See supplemental reading examples on page 453 et seq.
Statute of Frauds
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Requires that Real Property sales contracts must be
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In writing
Signed by the party to be bound
Describe the real estate
State the price
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Meant to avoid fraud
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Writing serves as evidentiary proof
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Some courts recognize part performance and estoppel as
exceptions
Marketable Title and
Marketable Title Acts
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One can only sell as much as she has
Rescission of a sales contract is justified by the buyer if
the seller is incapable of transferring marketable title
Substantial defect in title test in Lohmeyer v. Bower –
marketable title exists unless there is a substantial defect
in title
For supplemental reading, see also Conklin v. Davi
Duty to Disclose Defects
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Non-Required Supplemental Readings:
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Stambovsky v. Ackley
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Poltergeists
Johnson v. Davis
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Disclosure obligations for latent defects
Implied Warranty of
Suitability and Quality
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Not universally or uniformly applied
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But, recognized by the Uniform Land Transaction
Act
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Focuses on persons in the “business of selling”
real estate
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For supplemental reading, see Lempke v.
Dagenais
Warranty of Title
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Recognized as a legal cause of action to
prevent fraud in sales and create certainty
for purchasers
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Explicit or Implicit?
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Where does the burden of verifiability lie?
Sample General Warranty Deed
For good consideration, we________________________________________
of_____________________________________, County of_____________________ State
of_______________________________, hereby bargain, deed and convey
to______________________________ of ____________________________ County
of______________________________, State of_____________________, the following described land
in _________________county, free and clear with WARRANTY COVENANTS; to wit:
Grantor, for itself and its heirs, hereby covenants with Grantee, its heirs, and assigns, that Grantor is lawfully
seized in fee simple of the above-described premises; that it has a good right to convey; that the
premises are free from all encumbrances; that Grantor and its heirs, and all persons acquiring any
interest in the property granted, through or for Grantor, will, on demand of Grantee, or its heirs or
assigns, and at the expense of Grantee, its heirs or assigns, execute and instrument necessary for the
further assurance of the title to the premises that may be reasonably required; and that Grantor and its
heirs will forever warrant and defend all of the property so granted to Grantee, its heirs, against every
person lawfully claiming the same or any part thereof.
Being the same property conveyed to the Grantors by deed of
______________________________________, dated___________________19____.
WITNESS the hands and seal of said Grantors this____day of_______, 20____.
_______________________________________
Grantor
_______________________________________
Grantee
STATE OF
COUNTY OF
General Warranty Deed
Covenant of Seisin
 Covenant of Right to Convey
 Covenant Against Encumbrances
 Covenant of General Warranty
 Covenant of Quiet Enjoyment
 Covenant of Further Assurances
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Supplemental Reading: Brown v. Lober,
Frimberger v. Anzellotti, Rockafellor v. Gray
Delivery
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“To be effective, a deed must be delivered
with the intent that it is presently
operative.” D&K
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Supplemental Reading:
Sweeny v. Sweeny;
Rosengrant v. Rosengrant
Mortgage
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Acquisition/Financing Issue
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Real Estate Transactions are facilitated by this separate
financing market
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Equity and “Equity of Redemption”
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Foreclosure Issues
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Supplemental Reading:
Murphy v. Financial Development Corp.,
Bean v. Walker
Title Assurance
Generally
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Verifiability – assurance adds to an incentive to invest
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Priority Issues
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Confidence in Ownership
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Evidentiary issues for judicial resolution and assignment of rights
between conflicting claims of ownership
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Public Records Issues
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Protections for bona fide purchasers
Indexes
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Read the Note on “How to Search Title”
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Understand Tract Index
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Understand Grantor/Grantee Index
Most common
 More likely to efficiently discover title issues
 Alphabetical listings
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Luthi v. Evans
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Assignment of oil and gas leases case
Notice issues – analyze the discussion of
generality v. specificity of recording
Subsequent purchaser protection issues
and types of notice
Orr v. Byers
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Misspelled name and constructive notice case –
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idem sonans – even when a name is inaccurately
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Burdens – what is a reasonable search for a
purchaser?
written the identity can still be determined from
similarity when recording even if not precise; but
if the written name is “material” or the
misspelling was meant to mislead then it does
not apply
Recording Acts
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Types of Acts
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Race
Notice
Race-Notice
Pay careful attention to examples 2-6 in the text
– they are very instructive for the difference
between the three types of recording acts
Understand the virtues and downsides of each
for both sellers and purchasers
Race-Notice Statute in California
“Every conveyance of real property or an estate for years
therein, other than a lease for a term not exceeding one
year, is void as against any subsequent purchaser or
mortgagee of the same property, or any part thereof, in
good faith and for a valuable consideration, whose
conveyance is first duly recorded, and as against any
judgment affecting the title, unless the conveyance shall
have been duly recorded prior to the record of notice of
action.”
California Civil Code sec. 1214
Who is protected? And when, why, and how?
Messersmith v. Smith
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What is an action to quiet title?
Why do we care whether a purchaser has actual
or constructive notice of an adversary claim to
title?
Multiple deed issues – which TITLE is legally
enforceable is the question
Significance of which recording doctrine applies
Chain of Title
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Sequence of passing title – map it
How far back must one go to trace the
chain? What can a purchaser discover?
How is this related to the utility of
recording?
Pay attention to Example 7
For Fun: “The Ideal Title Opinion”
Property Lore and Humor (there are several versions that can be found):
“A New Orleans Lawyer sought an F.H.A. loan for a client. He was told the loan would be granted if
he could prove satisfactory title to a parcel of property being offered as collateral. The title to the
property dated back to 1803, which took the lawyer three months to track down. After sending
the information to the F.H.A., he received the following reply (actual letter):
‘Upon review of your letter adjoining your client’s loan application, we note that the request is
supported by an Abstract of Title. While we compliment the able manner in which you have
prepared and presented the application, we must point out that you have only cleared title to the
proposed collateral property back to 1803. Before final approval can be accorded, it will be
necessary to clear the title back to its origin.’
Annoyed, the lawyer responded as follows . . . :
‘Your letter regarding title in Case No. 189156 has been received. I note that you wish to have title
extended further than the 194 years covered by the present application. I was unaware that any
educated person in this country, particularly those working in the property area, would not know
that Louisiana was purchased by the U.S. from France in 1803, the year of origin identified in our
application. “For the edification of uniformed F.H.A. bureaucrats, the title to the land prior to U.S.
ownership was obtained from France, which had acquired it by Right of Conquest from Spain. The
land came into possession of Spain by Right of Discovery made in the year 1492 by a sea captain
named Christopher Columbus, who had been granted the privilege of seeking a new route to
India by the then reigning monarch, Isabella. The good queen, being a pious woman and careful
about titles, almost as much as the F.H.A., took the precaution of securing the blessing of the
Pope before she sold her jewels to fund Columbus’ expedition. Now the Pope, as I’m sure you
know, is the emissary of Jesus Christ, The Son of God. And God, it is commonly accepted,
created this world. Therefore, I believe it is safe to presume that He also made that part of the
World called Louisiana. He, therefore, would be the owner of origin. I hope to hell you find His
original claim to be satisfactory. Now, May we have our loan?’
. . . And the loan was granted!”
Bd. Of Education of Minneapolis v.
Hughes
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Blank name on Deed case
Statute of Frauds Issues
Discusses when a deed becomes operative
How does recording affect subsequent
purchasers?
When and how is delivery of a deed made
effective?
Read Example 8, 9, and 10 and the
corresponding notes
Guillette v. Daly Dry Wall, Inc.
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Subdivision Plan Case
Restrictions in some deeds by a common
grantor but not in all deeds – was there
notice (actual or constructive)
Search of recorded “subdivision plans” and
whether that creates sufficient notice to
purchasers
Daniels v. Andersom
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Right of First Refusal case
What is equitable conversion?
Installment Contracts – When do rights vest and
when does notice matter (outset or also along
the way)?
Bona Fide Purchaser Issues – when does one
become so?
A bona fide purchaser takes title to property
without notice of the interests of others
Pro Tanto Rule/Equity
Lewis v. Superior Court
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Escrow case
More on the definition of bona fide
purchaser
Timing of notice
Wrongdoer implications in equity
Good Faith in Transfer Issues
Actual v. Constructive Notice Distinctions
Notice Issues
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Actual
Constructive
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Record
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Inquiry
Harper v. Paradise
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Lost deed case
Good Faith “Purchasers for Value” Issues
Inquiry Notice – A purchaser is not absolved
from liability to another owner if simply because
they do not have actual notice if they should
have been able to “ascertain through diligent
inquiry the contents of the earlier deed and the
interests conveyed therein,” even if unrecorded.
Triggering knowledge and events – if you are on
notice as a purchaser that you should “inquire”
then you must make reasonable inquiry
Waldorff Insurance and Bonding,
Inc. v. Eglin National Bank
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Actual possession by another as
constructive notice
Ascertaining adverse ownership claim by
physical occupation of another
Registration
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The “Torrens System”
Facilitates Conclusive Certification of
Titles? Why yes or no?
Readings explain why not widely adopted
in the United States
Title Insurance
Controls Risk – Typical Reasons for
Insurance
 Employing Agents with Specialized
Expertise Minimizes Costs, i.e. a service
market like many others
 Inadequacies and Inefficiencies of Public
Records in Protecting Private Titles
 Uniform Policy Forms – American Land
Title Association (“ALTA”)
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Walker Rogge Inc. v. Chelsea Title
and Guaranty Co.
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Title Insurance Company Disclosure Duties
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Title Insurance Company Search Duties
“Reasonably Discoverable Information”
contractual duties
Focus on the contractual agreement rather than
inherent duties
Lick Mill Creek Apartments v.
Chicago Title Insurance Co.
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Regarding insuring marketability and
freedom from encumbrances/defects
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Importance of Exclusion Clauses
Concluding Thoughts
Understand that this is all about
verifiability, documentation, certainty,
predictability, assignment, disclosure,
discovery, etc.
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Think about the obligations and
protections the law places on sellers and
buyers and subsequent purchasers
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