Property Law
Professor Gray
Spring 2008
January 10, 2008
Do chapter 7. Last section in chapter 7 deals with mortgages. Recommends
looking at his book on mortgages.
Then Chapter 8 on Recording system, incl. title insurance.
Skip chapter 9, go to Chapter 10. 1st section (a) deals with easements (b) deals
with covenants. Usu. Gives summary of easements and deals mostly with
covenants.
In typical sale of real estate there are 2 critical documents at 2 critical points in
time:
1. Land sales contract – seller agrees to sell and buyer agrees to buy
Blackacre. Statute of frauds – has to be in writing.
2. Deed – at closing seller gives buyer a deed.
Different doctrines apply to each document. Don‟t get them confused.
Authors tend to emphasis the sale of a residence. The basic rules apply to the
sale of commercial or business property also. Typically these sales are more
complicated and should be aware of that.
Questions on Page 462
1.
Could be a problem in state that still have dower or community property
states.
How buyers are to take title should be in there also. No rights of
succession.
Good and merchantable title – could be the equivalent of marketable title.
Odds are overwhelming that the buyer is not buying a lawsuit or litigation
is buyer accepts title. Title a reasonably prudent buyer would accept.
o Insurable title is different. Insurable title is a title that an insurance
company will insure.
Traditional answer is NO. A single or trivial or minor defect in the title
makes the title unmarketable. This is the common law approach. Not
realistically enforceable. Almost all property has some blemish on the
title. If the title is unmarketable, then the buyer is entitled on the date of
closing to get their deposit back and void or cancel the contract. The
seller has to come up with a marketable title as of the date of closing.
2. risky. Should fall back on contract law.
B. Brokers (Ladner on Conveyanceing in Pennsylvania)
Brokers and attorneys are natural enemies
o What a broker wants to see that the deal is closed and the broker
gets commission.
o Attorneys want to slow process down and delay.
Residential sale – usually a buyer is not represented by an attorney when
they sign a real estate sale contract.
o Buyer relies to a significant degree on the broker, however brokers
is typically agent of the seller.
Keep check list of things to check for in closing
Typically broker is agent of the seller
If you represent the buyer before the contract is signed, you should put an
expiration date and time of the offer. If no expiration of offer is in the
contract, then the expiration is a reasonable time as determined by an
court.
Rule governing Brokers
o Licari v. Blackwelder
Broker owes a fiduciary duty to the seller as their agent.
Broker represents the seller and owes a duty to them, not to
the buyer.
Corollary to basic agency principles.
o Notes
Dual Agents
Types of listing agreements
Net listing – under brokers rules, it is unethical to
accept a net listing.
o Seller sets the base price, and if broker sells it
for anything over that price, they keep the
difference as their commission.
o Legal in Pa, but still unethical by brokers rules.
Disclosure Requirement – Title 68 of PA statutes § 7301 –
7315.
Some states impose disclosure requirements on
brokers.
Pa requirements are placed on the seller. And
disclosure rules apply to the seller.
Material defects. State authorized form that seller
must complete.
§7310 recognizes non-liability of the agent, unless the
agent has material knowledge of the defect. Subject
to statute of limitation.
Types of Listing Agreements under MLS
Open listing
Exclusive agency listing – broker will earn the
commission if the broker is the one that sells the
house. Seller retains the right to sell the property
himself. If he sells it himself w/o broker being involved
than no commission to broker.
Exclusive right to sell listing – even if the seller sells
the house w/o broker being involved, the broker will
still earn the commission.
When commission is due – rules are as follows:
o 2 different situations: Pennsylvania rules same
as common law rules
Deal doesn‟t go through
Sellers fault – broker earns the
commission if the broker
produced a buyer ready, willing
and able to perform on the terms
given to the broker by the seller.
This is „ready willing and able‟
test. If the buyer can come up
with the purchase price.
Broker will earn commission even
if the deal falls through.
Deal does go through
Buyer completes the deal and
purchases the property, the
broker earns the commission if
the broker was the procuring
cause of the sale.
Unless it was an exclusive right
to sell listing.
Minority Rule – Ellsworth Dobbs Rule –
Broker does not earn commission
unless and until title passes. If deal
breaks up, broker is out.
Reason – reduces litigation
Statute of Frauds – 1677
o Hickey v. Green
Offer and acceptance made verbally not in writing.
Unequivocal referability – the act of putting house up for sale
does not equivocally infer that there is a contract being relied
upon.
Note 2: Gift of real estate – transfer of the deed. Conveyance is
constituted by the deed itself. To make a gift of real estate must physically
deliver a signed deed to a grantee. Donative intent, delivery and
acceptance. Delivery of a deed. Intent must be spelled out in text of
deed. Property must be spelled out in meets and bounds. Intent to
deliver.
o In most states, a deed does not have to be recorded to be effective.
o Who owns Blackacre? A does. Conveyance from O to A is
effective, but A makes no conveyance back to O. A‟s gift does not
fullfil the gift requirements back to O. Statute of Frauds. A has to
make a new deed back to O to fullfil the statute of frauds.
o Instead O executes deed to O and A as joint tenants. A owns when
O dies. Once deed is transferred, O conveys to O and A has the
effect of changing title. No valid transfer to B signed by the party to
be bound.
Note 3: Don‟t need meets and bounds in the land sales contract. For
urban property, the street number and name is sufficient. Description can
not be ambiguous.
Marketable Title
In the land sales contract, if it is not expressly stated, there is an implied
warranty that the title is marketable. Once you take the deed, your rights
under the contract cease and terminate, including the right to insist that
title is marketable. Doctrine of Merger by Deed.
o There are exceptions to the Doctrine of Merger by Deed.
Lohmeyer v. Bower
o Violation of zoning ordinance and restrictive covenant.
o Both made the title unmarketable.
o Lohmeyer backed out of sales agreement and wanted his deposit
back
o Rule w/ respect to marketability is: the existence of the covenant
makes the title unmarketable. For zoning, it is only the violation of
the zoning ordinance that makes the title unmarketable.
o Zoning constitutes a public restriction on property
o A covenant constitutes a private restriction on property.
A typical title search will not cover zoning
Note 2: Wisconsin case: easement known to purchaser, or open and
obvious, does not make title unmarketable – that is the minority rule.
Majority is that a singe easement or covenant makes the title
unmarketable.
Equitable Conversion
Once the land sales contract is signed, then equitably the buyer now owns
real estate and the seller owns personal property (proceeds from the
sale).
Regarded as personal property in the hands of the seller.
Risk of loss – Pa plurality rule takes position that once land sales contract
is signed the risk of loss passes to the buyer. This can be altered by
contract however.
January 24, 2008
Jones v. Lee
Usual principle (majority rule) if the buyer breaches, the seller keeps the deposit.
Which is the purpose of the deposit. If the deposit
Kraft v. Michael, 70 A.2d 424 – pa rule – if deposit is 10% of purchase price or
less, buyer breaches, seller keeps the deposit. If deposit is more than 10%, then
seller may not be able to keep all the deposit.
Kutzin v. Pirnie
Does not adhere to 10% rule. (new jersey)
Criticism is that this rule does not do anything but promote litigation. This is the
minority rule.
Other remedy available is specific performance. RE contracts are specifically
enforceable in equity. Usually buyer enforcing specific performance.
In equity, seller can seek specific performance. Why would a seller ever wish to
seek specific performance?
Equity court will order seller to tender deed to buyer, if buyer can not come up w/
balance of purchase price, seller now has a vendor‟s lien on the property. If
works the same way that a mortgage does. Since buyer isn‟t making any
payments, then seller forecloses the mortgage. Sheriffs sale to recover the
balance of the selling price. Seller purchases the property at sheriffs sale for a
nominal fee. Has a judgment against buyer and seller can collect the purchase
price and keep title to the property at the same time.
Mutuality of remedy doctrine – if buyer can seek SP as a remedy, then so can a
seller.
Note 5: Time is of the essence
If you represent a buyer before the land sales contract is signed, pay attention to
this.
Bar Exam alert***
Typically in land sales contract, the contract will set the date of closing.
If buyer does not show up at closing, how much time does buyer have to come
up - a reasonable time. What‟s a reasonable time? Whatever some judge thinks
is reasonable. Problem for seller, b/c its hard to know what a reasonable time is,
seller does not have the right to sell it to somebody else. What is typically done
is, in the contract, the closing is set, and the words “time is of the essence” are
included in the contract.
MAGIC WORDS – time is of the essence, then if buyer does not show up at
closing, the buyers right to perform is terminated. The ship has sailed. The
buyer no longer has any rights under the contract.
Puts the buyer in breach. Seller could be in breach also if they do not close on
date specified.
*****IMPORTANT****
Suppose contract did not specify that time is of the essence, just set closing date.
Buyer did not come to closing, can seller pin down buyer? Yes, the seller can
write a letter to buyer, registered mail, return receipt requested – buyer, you
didn‟t show up at closing, I hereby elect a new closing date, ________. As to the
new closing date, time is of the essence. Now if buyer does not show up on new
date, then buyers rights are terminated. Ship sailed.
Have to make some effort to give buyers some reasonable time. Works both
ways. Buyer can write letter to seller.
Bar exam question: the contract called for closing, time was not of the essence,
so seller sends letter to buyer that they didn‟t show up, 3 days later. 3 days is
not a reasonable amount of time. Must give buyer a reasonable time. (30-45
days should be reasonable)
Review checklist: (attorney for the buyer should review before buyer signs
a RE contract)
Should be a clause making sale contingent on the sale of the old house.
Have to take a look at amount of deposit, amount of hand money. (when
contract is used as offering contract, put an expiration date and time on
offer)
Deal with the risk of loss. Either make sure covered under sellers
insurance or you get binder from your insurance company so that buyer is
covered
Fixtures and personal property. Someone should walk through property
and identify which fixtures will be convey with property. Make sure these
are included in the Land sales contract.
Warranty of fitness and suitability - Mechanical items are suitable for their
purpose. Heating, AC
Deal is subject to buyer acquiring adequate financing. Don‟t use the terms
„adequate financing‟ - specify amount of mortgage, term of mortgage,
possibly amortization of mortgage, interest rate, etc.
Pay attention to the time is of the essence clause.
May have clause in contract that contract can not be recorded. Creates a
cloud on the title. (slander of title – if you record a land sales contract you
are not supposed to)
Make sure deposit amount is not more than 10%
THE DEED
General Warranty Deed
Deed that has all present and future covenants in it
o Covenant of Seisin
o Covenant of right to convey
o Covenant against encumbrances
o Covenant of general warranty
o Covenant of quiet enjoyment
o Covenant of further assurances
o Seller is warranty against all defects in title whether done by him or
any other in the chain of title. Greatest warranty one can give
Special Warranty Deed
Only warrants against defects in the title that the seller themselves has
caused.
Much more limited set of warranties
Quit-Claim Deed
Deed without warranties.
“As is” Deed.
No recourse against the seller
Short form Deed
By statute
Short form deed if buying a unit in a condo or certain subdivisions
In the land sales contract, if it is not expressed, it is implied that the seller will
convey by GENERAL WARRANTY Deed. Can‟t sue on contract after deed has
been executed because of the doctrine of merger of deed. All rights under the
contract cease when deed is executed.
In a deed, unlike the land sales contract, unless short form, you NEED the legal
description of the property
Brown v. Lober
NO breach of future covenant, no breach, no remedy.
Present covenant is broken when it is made, if it is broken at all.
Future covenant entails an interference with the quiet enjoyment.
When you buy RE, you can not rely solely on the warranties in the deed, but
must also make sure you get title insurance.
Frimberger v. Anzellotti
Usually a building code violation does not breach marketability and therefore
does not breach a present covenant.
However, in this case with environmental violations, courts are reluctant to
establish a precedent.
Note 3: No. problems with the environmental regulations don‟t normally fit into
the common law.
**area where the law is developing**
Rockafellor v. Gray
This is an area that confuses students.
Do not confuse this with land use covenants that are imposed in deeds from a
common grantor, or subdivider of property, or land use covenants that exist
between neighbors.
This is covenant of title. Does this run with the land?
Title is from a sheriff‟s sale. Have to be careful about RE that has gone through
foreclosure.
Pennsylvania follows the Schofield – the covenant of seisen runs to a remote
grantee.
Page 531 – pay careful attention to these! On Exam
On final, when he asks about it, tell you in a schofield or a non-schofield
jurisdiction. Pa and Illinois are schofield jurisdiction.
January 31, 2008
Page 531
Know that a Schofield jurisdiction is or a non-Schofield jurisdiction means
Schofield jurisdiction is one that a chose in action can be assigned to the next
grantee.
A Non-Schofield jurisdiction it can not be.
Notes and Problems
2. a. nothing – nominal damages if anything. B hasn‟t lost anything here.
Just because he sold for a lower price, is not related to the fact that A didn‟t have
title. If you run into this again, the answer is $0, and/or nominal damages.
b. nothing – C has not recovered from B, B has not liquidated his
damages yet. All he can recover is nominal damages.
c. at least 15,000.
d. a. B can recover nothing, because the cause of action was assigned to
C.
b. Nothing – the chose in action has been assigned to C.
c. A could probably recover 15,000. C‟s rights are subrogated to B when B paid
the damages to C. Now B can recover from A for the amount paid in damages to
C.
Subrogation – Like the insurance company situation. A gets into a car accident
with B. Insurance Co. pays to have A‟s car fixed. The insurance company can
now recover against B for the cost. A‟s claim against B is subrogated back to the
insurance company.
3. Go through it both as Schofield and non-Schofield jurisdiction.
Non-Schofield
B can sue A on the original warranty in the deed from A to B, but only recover
nominal damages. C can not sue B because of QC deed, and can not sue A
because non-Schofield.
D can sue C.
Limit on recovery. If D sues C, D could recover 20,000. D may be out 24,000,
but the party giving the warranty is the upward limit on damages.
Schofield
B‟s chose in action has passed on to D so D can sue A for a maximum of 15,000.
OR D could sue C for 20,000.
D can sue A directly under Schofield action and the max he can recover is
15,000 (the original sales price) but since in the deed from C to D, there were
warranties, D could sue C for 20,000. If D recovers from C the 20,000, D‟s claim
is subrogated to C. If C sues A, he is still capped at the 15,000 original sales
price A sold the property for, even though C paid D 20,000.
Moral of this story is BUT TITLE INSURANCE.
4. b.
Tulsa v. Pulp 1988 case – if personal representative knows of the existence of a
creditor of the decedent, a newspaper notice is not enough, must send notice.
Doctrine of Estoppel by Deed – usually on multistate
RE owned by O. While RE is owned by O, A conveys title to B by Quit Claim
deed. Can A do that? Yes. Fraudulent? No. Few months later, O conveys RE
to A. This kicks in doctrine of Estoppel by Deed. When A acquires title from O,
A only has title for a millisecond. Immediately passes to B because of A‟s prior
deed to B.
This is a common law doctrine. This can however, cause problems in the
recording system and title search.
Sweeney v. Sweeney
Analogous to gifts. Intent, delivery, acceptance. In RE, under statute of frauds,
an interest in RE must be transferred in writing. End up with the requirement that
there must be intent and the deed must be delivered. No only need intent to
convey the title, but also have the separate question of intent to deliver.
Deals with the question of a making of a conditional delivery. Can you make a
conditional delivery?
If every state except NC you can not make a conditional delivery directly to the
grantee.
Rosengrant v. Rosengrant
When you deliver a deed to an escrow agent, can you revoke that deed?
You can not make a transfer to an escrow agent revocable.
February 7, 2008
Mortgages
Strict foreclosure only exists in a handful of estates.
Foreclosure by judicial sale – if the borrower defaults on a mortgage, then the
lender will bring a foreclosure proceeding. In most states it is an equitable
proceeding. If the borrower can‟t make good w/in a short period of time, the
court will grant a decree of foreclosure and the prop will be sold at a sheriff‟s sale
with the object of paying off the loan.
FMV $100,000. 60,000 mortgage. At sheriff‟s sale, in theory, someone should
bid 100K. then bank will get 60K for loan and whatever left over given to
borrower. This is homeowners equity. Borrower has the chance of getting
something back on their equity.
In strict foreclosure, the buyers are cut off and do not get to retain their equity in
the property.
Function of an acceleration clause in a mortgage
Should be in every properly drawn mortgage
Gives them the right to make mortgage due in full upon default.
If you miss a payment that constitutes a default, if there‟s a default then
the whole principle balance of the loan comes due
The security can be sold to pay off the full principle balance of the loan.
Level Payment Mortgages
Mortgages usually set up
Borrow money for property
Set up to make a payment of a fixed amount every month for the next so
many years
The way the payment is calculated is front loading the interest
In the early years of the mortgage you are paying mostly interest and little
on the principle. In the later years you are paying more on the principle
than on the interest.
Why? Interest on mortgage is tax deductible. Big interest deduction in the
yearly years of the mortgage. Really a welfare payment for the middle-
class
Declining Balance Mortgage
Pay interest on the balance actually owed, so that as the balance
declines, the interest declines.
Balloon Mortgage
Written this way prior to the new deal, most residential mortgages
Make a large down payment, mortgage for 5 or 10 years
Did not pay any principle each month, only paid interest for 5 years
At end of 5 years had to come up with the full principle balance at the end
of the 5 years.
National Housing Act of the New Deal brought about level payment
mortgages. Object was to help the American dream.
Secondary Mortgage Market
Fannie Mae, Freddie Mac
These quasi federal agencies buy and sell mortgages. Lenders can assign
their mortgages to these agencies.
If there is not enough money out there to make residential mortgage
loans, then these agencies buy up mortgages so the lenders can give
more mortgages
When too much money out there, then federal agencies will sell
mortgages back to the banks.
When a mortgage is written, typically 2 documents. Note and the mortgage itself.
Mortgage was a deed in conveyance. Note was an IOU. Mortgage was security
for payment of the loan. Common law doctrine the mortgage follows the
note. If the note is assigned, the mortgage goes with it. Note is evidence of the
debt.
Can have a mortgage without a Note. Non-recourse Mortgage. No note, just
mortgage. Lender is taking the position that if you don‟t repay the loan, all they
can do is take the property and sell it. Can‟t sue borrower personally on the note.
Why? May do in a Partnership situation. Tax shelter. For tax shelter
advantages, they set up a LP. To get the tax advantage the mortgage MUST be
a non-recourse.
Deficiency Judgments
FMV 100K. 60K mortgage. 40K in equity.
Homeowner goes into default
Property is foreclosed and there is a sheriff‟s sale
The only bidder at the foreclosure sale is the bank itself
If you represent the lender, how much would you advise them to bid on
property? Some small amount - $1000
Acquire property for 1000. credit for this, bank pays, and sheriff hands it
back over.
Balance due on loan 59K.
Then sue mortgagor for the balance still owed of 59K.
Sue for a deficiency judgment against borrower.
2 principle mechanisms adopted to deal with this
o Pa and ½ states have the Deficiency judgment act.
o Pa‟s is fully described in chapter 6 of Gray‟s book.
o Other ½ adopted a Statutory Redemption Period
California
This is regularly tested on the Bar exam (multistate)
PA Deficiency Judgment Act
If the lender is the successful bidder at it‟s own foreclosure sale
Before bank can sue for a deficiency on the Note, the bank has to get the
court to make a determination as to what the FMV of the RE is.
Bank is credited of the proceeds of the sale to pay off the debt.
60K mortgage, If the property is worth 100K, before they can sue, the
court must determine the FMV of the property. If the FMV is 100K, bank
can not sue. If FMV is 39K, then they can get a deficiency judgment for
what they did not get. 39K, plus 1K cash from sale = 40K for the 60K
mortgage still due. They can sue borrower for 20K.
Bank gets credit for the value of the property they received at the
foreclosure sale.
Bank can not use a strawman to get around the statute.
Legitimate outsider bids 10K on property. They win. Bank gets 10K from
proceeds of the sale. Bank can then sue the borrower for the difference in
the amount due.
Statutory Redemption Period
Ca. and ½ of states
When you have a sheriffs sale, foreclosure sale, if there is a judicial
foreclosure and a sheriffs sale, after the sale the borrower has a whole
year to redeem the property.
The borrower has a year from the sheriff‟s sale to redeem the property at
the amount that was bid at the sale.
This way, the lender would not bid a nominal amount so that the borrower
could redeem for that nominal amount and the debt is discharged.
Bank has to hold on to the property for the entire year
Can redeem from 3rd party also.
After the year, they can sue the borrower for a deficiency judgment for the
difference between the bid and the mortgage outstanding.
Trust Deed
Type of mortgage used in Statutory Redemption states
Mortgage is written as a trust deed. If there is a default on the loan, the
property can be sold by a trustee as a private sale not a sheriff‟s sale.
Public in that it is advertised in the newspaper. Auction conducted by
trustee.
Trustee could be bank itself (varies from state to state)
Trustee sale, statutory redemption period does not apply.
Ca eventually passed a statute that says that if you have a trustee sale,
you can not obtain a deficiency judgment.
No reason to use a trust deed in PA
In Pa, Gray can find 5 cases that deal with Trust Deeds.
What happened, they are all from southeastern part of the state. Can do it, but
there is a danger in it. If you have a trustees sale, subordinate liens and
mortgages are not discharged.
If you foreclose a mortgage you have to be able to discharge the subordinate
liens.
Junior Mortgages
Property worth 100K, 60K mortgage, 40K equity.
The equity you own in the property worth 40K. that equity interest is an
asset you own. It is an asset that you can pledge in order to get another
loan. This is where Jr. mortgage lenders come in
Homeowner needs to borrow 10K. Loan you the 10K in a home equity
loan. The security for that loan is the equity in your house.
In theory, if you borrow the 10K and then you can‟t make the payments on
that loan, they can foreclose the Jr. Mortgage at a foreclosure sale.
o What is the maximum amount a reasonable bidder would bid?
40K, the value of the equity you are purchasing.
o If someone comes in and bids that, 10K will be given to lender,
borrower gets 30K, but the buyer of that interest, they now own the
equity in the property. If they want to keep the property, they have
to make the payments to the 1st mortgage.
o 1st lender still has recourse on the 1st owner
o Generally, everyone assumes that all defaults end in a foreclosure,
but they don‟t. the lender can just sue on the Note.
o Reason this is not the way things go is because there is a triggering
clause in most mortgages that says a default on a jr. mortgage it
constitutes a default on the 2nd mortgage and vice versa.
In actual fact, when 1st mortgage forecloses, all jr. mortgages are
discharged.
This has been tested on the bar exam pretty regularly
Construction Loans
Project to build on vacant land
To build the structure, developer will need to borrow money – construction
loan
The construction lender, the loan is a short-term loan
o Loan $ for structure to be built
o Construction loan then paid off by a 1st mortgage – take out lender
No construction lender will make a construction loan unless there is a take
out lender commitment letter. Typically in place before construction
lenders will lend the $$
o Tri-Party agreement
Construction loan itself. Developer wants to build 10 story appt building.
Will cost 10M to build. Our construction lender is going to dole out the $$.
o This could create a problem. Various liens by mechanics, sundry
liens will be filed against the property. Project goes belly up, who
gets paid first? The construction lender will want the 1st position at
any sheriff‟s sale. Or should the first dole out, then intervening lien
holders, etc…
o Resolved by the Future Advances Doctrine (Obligatory Advances
Doctrine)
If the advances under the construction loan were obligatory,
then the bank gets paid off before anybody. If the advances
were optional, then it is inter-dispersed between bank and
intermediate lien holders. Banks will want it both ways.
February 14, 2008
If the advances where the dole outs under the construction
loan where obligatory then the full amount of the mortgage
dole outs will be paid to the construction lender before any of
the mechanics liens get paid. Where as if the dole outs
where optional, the intervening liens will take precedents
inter-dispersed between the dole-outs.
Important to determine whether the dole-outs where
obligatory or optional. Bank wants it both ways.
If dole outs are obligatory then lender has lien priority.
If the dole outs are optional, then they can have more
control over not giving money if the project is going
badly.
Usually on bar exam – know rule
Because lenders draft their loans to have dole outs to be
both obligatory and optional, the courts are free to do what
they think is fair and the black letter law can not be applied.
Pa Statute on future advances
1992, pa modified its statute. Now effectively applies
the CA approach
o For a mechanics lien to get lien priority over a
later dole out of a construction mortgage, even
where the advances where optional, the lien
holder must also send notice to the
construction lender.
o Battle in legislature b/w lobbyist for the banks
and the lobbyist for the unions.
Subordination Agreements (alter lien priority)
A way of making a senior mortgage a jr mortgage.
Have to be careful with these. Plenty of law to the effect that open ended
subordination agreements are prima facie fraudulent.
o Cases come mostly from the western states. Gray knows of no
case law on this in Pa.
o Should have an agreement spelled out between all 3 parties, the
bank.
Another situation Gray warns of – retirement homes – when an elderly
person decide to sell house and move to retirement facility, they only have
a license for the premises which is subordinate to any mortages.
Other contexts where subordination agreement is legitimate.
o Construction loan paid by a take-out commitment – becomes 1st
mortgage. This may be recorded first and has lien priority.
Developer may enter into lease agreements with future tenents.
The mortgage was entered into before the leases. The mortgage
has priority over the leases. The mortgage payments are going to
be paid by the rent payments made by the tenants. In this situation
the bank is reluctant to foreclose, the leases being subordinate to
the mortgage, will be discharged. Which is the income of the
property. The bank won‟t want to foreclose as it will discharge all
the leases. Jr. interests will be discharged.
Due on Sale Clauses – Bar Exam
Principle: due on sale clauses are valid and enforceable everywhere in
the country without exception. Total federal preemption on this.
1970‟s – period of high inflation. As interest rates where starting to go up,
brokers had to find creative ways of making it possible for homebuyers to
finance the purchase. Brokers emphasized the sale of houses that
already had a low interest mortgage on them. Banks started putting due
on sale clauses in mortgages so that when the house was sold, the buyer
could not take over the existing mortgage with the lower interest rate.
Litigation and statutes passed in ½ of the states.
Gov‟t passed laws mandating due on sale clauses. Conflicted with state
law that said due on sale clauses are illegal. Conflict was resolved in
1982 by SC. Fidelity Federal Savings and Loan v. Delaquista. Banks won
and the brokers lost.
Later that year after SC decision, congress passed a statute Garn – St.
Germain Act, it purports to constitute total federal preemption even if the
bank is not regulated by the federal gov‟t.
Mortgage Take Over
60/40 Blackacre
If you want to buy Blackacre
o Options are to refinance – go to bank and get mortgage
o Other way, is Take Over – pay off seller for the seller‟s equity and
take over the old mortgage. (if lender does not enforce due on sale
clause)
o 2 forms
Assume old mortgage
Become personally liable on the debt or note.
Take subject to the old mortgage
Don‟t assume any personal liability on the note
Except in PA – no distinction between assuming and taking
subject – buyer is treated as having obligation to indemnify.
Buyer is always personally liable.
Miscellaneous Items:
Suppose your told on the bar exam: there is a piece of property with a
70K mortgage on it, seller sells to buyer. Buyer gives seller 100K cash.
o Q: FMV? 170K. the presumption, which is rebuttable is that the
cash that the buyer gives the seller is for the equity in the property.
Why? Presumption is if you are giving the $ to the seller, it
is for the equity otherwise you would be giving it to the bank.
Deed in Lieu of Foreclosure:
Usually in commercial foreclosures
If the mortgage goes into default, can the lender and the borrower sit
down and the borrower simply give over the property? Yes – Deed in lieu
of foreclosure.
Can not, in the loan agreement ahead of time, enter into an agreement
that if the loan goes into default the borrower is obligated to deed the
property over to the lender.
Doctrine of clogging the equity of redemption. Obscure old equity
doctrine. A lender can not insist on a collateral advantage. This may
come up in the context of situations where lenders have become greedy.
They loan money on a project that looks like it can make a ton of money.
Lenders may want to also be an investor. Arrangement called an equity
kicker.
o Lender makes it more difficult for borrower to pay off the loan.
Can you have a mortgage on a lease? Yes.
Ground leases – a ground lease is a financing device. A wealthy
landowner owned valuable property. They want income from this
property, but don‟t want to develop it themselves. So, they rent it to a
developer on a long term ground lease – 60 year lease. Basic deal is that
the owners get worry-free income. The developer who signs a long term
ground lease, say 99 yrs, is going to develop the property. Developer is
going to have to borrow money for the construction. The security for those
loans is the leasehold.
If a lender loans money on the security of a lease, then the lender must be
careful about it. They must insist on a 3 party agreement between them,
the landowner and the ground lease holder.
If default on the lease, the landowner must notify the bank.
Lender‟s Right to Possession
States are split 50/50 on this.
Classic principle – if there‟s a default then the lender has the immediate
right of possession.
This view prevails in ½ states including PA.
This is a valuable right in the commercial context
o Suppose developer is the current owner of a shopping center with
1st big mortgage. Developer has plans to pay off mortgage with
tenant rent.
o Property is not fully rented, not 1st class tenants, not being
managed properly. Mortgage goes into default.
o It is valuable for the lender to have the immediate right of
possession and step in themselves and put a management team in
to manage property properly.
Installment Contracts
The installment land contract has been described as a poor persons
mortgage – creative financing.
These can be dangerous also to buyers.
In conventional land sale you have a land sales contract. In an installment
contract, the closing is set for 20 yrs from now. Over the next 20 yrs,
buyer makes monthly installment payments to seller.
This is in fact a loan – disguised mortgage.
Advantage of this arrangement is that the seller could quickly eject the
buyer upon default without the need of foreclosure. Buyer faced danger of
losing all payments made up to this point.
Title to the property is with the seller. Seller could still get a mortgage on
the property. Could also have an existing mortgage.
If there is an existing mortgage on the property, there is no guarantee the
seller makes the payments every month. Mortgage is superior to the
installment contract.
Could installment contract be recorded? Usually have a clause that
contract will be void if recorded.
Pa has passed a statute governing these contracts. But it only applied in
Philadelphia and Allegheny counties.
February 21, 2008
Act VI notice
Act 91 – If a homeowner becomes delinquent for a reason that is not their fault,
lender must give forbearance until borrower can sort things out.
Act VI – Pennsylvania – discussed in Chapter 6 of his book
Protect residential borrowers
Notice requirement if lender is going to foreclose a residential mortgage.
Notice required when Bank is going to Foreclose
In about ½ of states, dealing with sale by trustee.
But in Pa, you foreclose with judicial proceeding, there are constitutionally
mandated notice requirements.
In many states that are not statutory redemption states, if you foreclose a
1st mortgage, you have to join as party defendants, holders of jr.
mortgages, jr. liens, and lease holders. – Pa it doesn‟t work this way.
In Pa, you can NOT join any other defendants to a foreclosure action.
Once you get a judgment of foreclosure and the property goes to sheriffs
sale, you must send notice to all jr. mortgages, jr. lien holders, lease
holders, etc. They have a right to bid at the sheriff‟s sale. This means you
have to do a title search.
In California, when there is a sale by trustee, that the trustee must send
notice to all jr. mortgage, but this in not the case in all statutory redemption
states.
Silent Seconds
A way to circumvent to get a bank mortgage when they do not qualify.
Chapter 8 Title Assurance
Between land sales contract there are 2 things a buyer must do
1. mortgage
2. Title search
(3. Title insurance)
A. The Recording System
2. Indexes
March 6, 2008
Page 578 Note 2
2. Diagram these problems. It will help on the exam
ET owns Whiteacre
Types of Recording Acts
Ex. 2 - In a race jurisdiction, whether you are a bona fide subsequent purchaser
makes no difference. Who ever records first wins. Only 2 or 3 states are race
jurisdiction – NC is one of them.
Ex. 3 – In a notice jurisdiction, you have to be a bona fide purchaser to win.
Recording first will not get you a win.
Ex. 4 – Race-Notice statute. For B to be protected, B must be a subsequent
bona fide purchaser AND record first. If B has notice, then B is not a protected
party and A wins.
Bona Fide Purchaser – (only relates to the recording system) – must be a
chronologically subsequent purchaser for value without notice of the prior
conveyance. To be a bona fide purchaser, less than full fair market value is good
valuable consideration, but nominal consideration is not.
3 types of Notice that will make a purchaser NOT bona fide.
Actual Notice
o If B actually knew of the O to A deed when he purchased his deed,
then B is not a bona fide purchaser.
Record Notice
o If the O to A deed was properly recorded in the chain of title, B
takes with record Notice of the O to A deed. (whether he did a title
search or not, whether he found the deed or not)
Inquiry Notice
o Various situations when you purchase RE that you must make
inquiry. You have to ask questions.
o 2 Principle situations are:
Must go out and look at the land. You take with notice of
what you would find if you went out and looked.
15 USC § 1701
In most states, incl. Pa, you have to actually read the
documents or the instruments in your chain of title.
Problems and Notes Pg. 582
1. O A who does not record. O dies leaving H as his heir.
H B who records. Who wins – in this case B wins.
2. O A, who does not record. O B bona fide purchaser, does not
record. A records then A C. B records, then C records.
Who wins in Notice: C wins b/c he is a subsequent BFP, w/o notice of the O to B
deed.
Who wins in Race-Notice: C wins because A recorded before B.
Look at this from the point of view of the most recent purchaser – C. What is the
title search that C would do when C purchases from A.
3. O A mortgage for Blackacre for 10K. A does not record. FMV is 50K.
O B mortgage 14K. B records. B has actual knowledge of the O A
mortgage. B has jr. mortgage. OC mortgage for 5K. C has no notice of the
OA mortgage and C records. O defaults and sells for 20K. C thinks the only
mortgage ahead of him is a 14K mortgage.
A is superior to B b/c B had actual knowledge.
B is superior to C.
C is superior to A.
Circularity of liens.
Look at from most recent mortgagee
C thinks he is jr. to a 14K mortgage, and there is enough $$ to satisfy B‟s
note and C‟s note.
Give C his 5K. look at it from the point of view of the most recent
purchaser.
March 27, 2008
Page 594, 595 in Book
4 Classes left after tonight. Finish up chapter tonight. Then start on Covenants in
Chapter 10. We will do covenants first then easements.
Notes and Questions on Page 594-5
Example 8: the Guillette case: when you do a title search, you must read deeds
to adjacent lots when your deed came from a common grantor. Split of authority
on this.
***BAR EXAM ALERT***
Example 9: A conveys Blackacre to B by a general warranty deed. B records. A
subsequently acquires title to Blackacre from O. A records the deed from O to A.
A then conveys Blackacre to C, a purchaser for value who has no actual
knowledge of B‟s deed. C records. Who prevails, B or C? The issue is: Does the
A-to-B deed give C constructive notice?
Like selling short on the stock market.
Look at from point of view of most recent purchaser
You can not find the A to B deed by doing ordinary title search, the
sensible view is that you take free of it, estoppel by deed. When you
search A‟s name in the Grantor index because of the time of filing.
o Better view
o C takes free of estoppel by deed.
Jist of Ayer opinion was b/w B and C, B would win. If C is subject to
estoppel by deed, for C to do a title search to pick this up they would have
to search A‟s name all the way back to the beginning of time. You would
have to search every name in the chain of title all the way back in the
grantor index.
Wheeler v. Young – C wins which is the better view rather than Ayer case
in Mass.
Example 10: O conveys to A, who does not record. O subsequently conveys to
B, who knows of the conveyance to A. B records. A records. Later B conveys to
C, a purchaser for value who has no actual knowledge of the deed from O to A.
C records. Who prevails, A or C? The issue is: Does the deed from O to A,
when recorded, give constructive notice to C?
Look at from the view of the most recent purchaser
In a conventional title search, C would not find the O to A deed. Therefore
C takes free of it.
Case is Morse v. Curtis (Mass.)
There are a few jurisdictions that that come to the opposite result on this.
o Woods v. Garnett case, A would win, and you would have to search
all the names in the chain of title
Know these cases by name.
If exam question is silent then use better view, which is wheeler v. young
and morse v curtis.
Question 1: (Page 596) better view is that C wins in a race-notice state.
Question 2:
a. A to B, no rec
O to A, no rec
B to C, rec
A to D, rec
O to E, rec
Notice: E is the subsequent bona fide purchaser – E wins
Race-Notice: E wins b/c he is the first to record in the chain of title.
b. O to A, no rec
O to B, no rec, know of deed from O to A
O to C, no rec
B to D, no rec
A rec.
B Rec
D rec
Notice: D wins, most subsequent purchaser and could not find other deeds in
the chain of title.
Race-Notice: D did not record first. If contest b/w A and B, A wins. Even though
C is subsequent bona fide purchaser, C did not record 1st. A wins.
If after D records, A conveys to E, who promptly records, who prevails in a notice
jurisdiction? E wins b/c subsequent bona fide. Race Notice: E recorded first, (A
recorded first) others are out of the chain of title.
Only argument for D is if your in a Woods and Garnett jurisdiction. Then you
should have searched O‟s name all the way forward and would have found the
other O deeds out.
Question 3:
In most states you have to read the instruments in your chain of title. When you
see the date on the deed, even though it was recorded on a later date, you have
to go back and search A‟s name from the date of the deed.
Persons Protected by the Recording System
Daniels v. Anderson
Purchaser paid part of the purchase price and was entitled to full
reimbursement
Lewis v. Superior Court
Purchaser only gets benefit of the bargain
Inquiry Notice
Harper v. Paradise
In most states you are obligated to read the instruments in your chain of
title.
In reading it, you might find something that puts you on inquiry notice
Waldorff Insurance and Bonding v. Eglin National Bank
When buying real estate you must go out and look at the land. You take
with notice of what you would find if you went out and looked.
The way around it is to get an estoppel letter from each tenant if your
buying property with multiple units.
Marketable Title Statutes
Tell you how far back in your title search you have to go.
Rule of thumb is 60 years.
In NY and PA there are no marketable title statutes – usually doesn‟t
come up on the multi-state bar exam
Registration of Title
Torrens System (pg 619)
System of title registration that exists in the commonwealth countries.
Canada, Australia, New Zealand. Not in the United States except in very
few jurisdictions
Gist – a duel certificate system. For each parcel of land in the county, the
master certificate is in the Torrens office. The person who owns the lot
has possession of the duplicate certificate. It‟s like money or a negotiable
instrument. Keep under lock and key. Bona fide purchaser has nothing to
do with this.
There‟s no extensive title searches, no adverse possession. Any interest
on that piece of property must be noted on the torrens certificate and on
duplicate.
If you want to sell Blackacre, turn certificate into torrens office and they
issue a new certificate.
Problem in US is our constitution. In this country you can not take
someone‟ property without due process of law.
April 3, 2008
Title Insurance
Should get it.
The warranties in the deed (present and future covenants) are not entirely
reliable.
Local practice varies.
Do own title search, get title insurance and go look at the land
A title insurance policy is insurance that the title search companies search
was accurate.
If they do a title search and find a defect, under policy they will exclude
that. They are not insuring you against defects they find, it is against
defects they don‟t find.
Walker Rogge v. Chelsea Title
Title company prevailed.
Discrepancy in the acreage involved. This was not a title defect they were
insuring against.
They had a clause in the policy about accurate survey. The exclusion
language in the policy prevailed.
Dated spotted survey – this is old speak for accurate survey
Lick Mill Creek Apts. V. Chicago Title Insurance Co
Title insurance does not insure against hazardous waste.
Keep in mind that the type of title insurance when you buy at the time of
purchase may no longer be adequate a few years down the road.
When a client is improving property, may want to get a new title policy.
Chapter 10 Private Land Use Controls
B. Covenants Running with the Land
1. Historical Background
a. Covenants Enforceable at Law: Real Covenants
B finds out that A wants to put up a pig sty on A‟s land. Can
they enter into an agreement? Yes.
Covenant between A and B is enforceable.
A is the covenator because they made the promise, B is the
covenantee.
A‟s land is burdened, and B‟s land is benefited.
This is a negative covenant because A has promised NOT to
do something
No problem with B enforcing this against A.
Problems begin when these 2 lots are sold.
B to X to Y; A to C to D
40 Years since the covenant was originally entered into
between A and B.
D wants to put in a pig sty and Y wants to stop him
Can Y stop D from putting up the pig sty?
Can a non-party (Y) enforce against another non-party (D)?
Contract principle that you can not assign a liability.
Y can enforce covenant against D if the covenant „runs with
the land‟
o What are the requirements for a covenant to ‘run with the land’
There are 2 possible ways or 2 tests that if they are met, the
covenant runs with the land and Y can enforce against D.
The covenant can run at law [requirements]
Has to be in writing signed by covenator
Intent
Touch and concern
Privity of estate
Notice – covenant has to be recorded. (This is not a
traditional requirement, but in most places this is now
the practical requirement.)
The covenant can run in equity [requirements]
Sometimes called: Equitable servitude
Writing
Intent
Touch and concern
Notice
At Law
Intent
o Often times intent is expressly stated.
o If not stated, almost always, it will be implied.
I, A, promise not to put up a pig sty. Intent is presumed.
o Intent will not be implied, and must be expressly stated, except
under one of the resolutions under Spencer‟s case.
Dealing with a covenant that constitutes a promise to do
something affirmative with respect to something not yet in
being.
In Spencer‟s case, there was a promise to maintain a party
wall that did not yet exist.
Touch and Concern
o The covenant must touch and concern the land
o Usually not a problem. If the covenant relates to the use of the
land, or the maintenance of the land, or the cultivation of the land,
or the safety of the land, etc.
o A promise to pay rent touches and concerns the land
o A promise to pay for fire insurance – if the proceeds of the policy
must be used to repair or to rebuild then a promise to pay
insurance premiums will touch and concern.
Privity of Estate
o The way the language is used, we are talking about Privity of estate
between Y and D such that Y can enforce the covenant against D?
o How to determine if there is Privity of estate b/t Y and D?
3 types of Privity
Vertical – each of the parties to the current lawsuit,
must be able to trace their title back to an original
covenanting party? Yes, then they have vertical
privity.
o Vertical privity may be broken by an adverse
possession in the chain of title.
Horizontal – there must have been a simultaneous
transfer of an interest in land between A and B when
the covenant was entered into.
o Tip off is: B was a common grantor.
Subdivider.
o Common grantor or subdivider privity.
o Set of grants by a common grantor.
o It is hard to know when you need this type of
privity.
o An easement is an interest in land. Neighbors,
in exchange for a covenant, grant an easement
– this is horizontal privity.
Tenurial – the kind of Privity you have when the
covenant is originally found in a lease
o Landlord/tenant privity
***********EXAM ALERT!!!!!!!!!!!*************
At Equity
Intent
o Same as above
Touch and Concern
o Same as above
Notice
o The Coventator must have notice of the covenant
Actual Notice
Record Notice
Covenant was recorded, and D could have found it
Inquiry Notice
o If D has notice then covenant runs in equity and Y can enforce
against D
o Called an EQUITABLE SERVITUDE.
Tulk v. Moxhay
This case developed the notion of an equitable servitude.
The traditional difference between real covenants and equitable servitudes
relates to the remedy sought.
o The remedy for breach of a real covenant is damages in a suit at
law.
o The remedy for breach of an equitable servitude is an injunction or
enforcement of a lien in a suit in equity.
o GRAY does not agree with this. He thinks that even the remedy for
the breach of a real covenant is equitable.
Sanborn v. McLean
Negative reciprocal easement – court came up with this doctrine
The original lots were burdened, and the common grantors retained lot
was benefited. Then by operation of law, and equal and opposite
restriction was created. Whereby the grantors retained lot was burdened
with the same covenants that it was benefited by.
Equal and opposite - Newton‟s law of property
There are 3 theories available allowing a prior purchaser to enforce a
restriction against a subsequent purchaser. One is negative reciprocal
easement
Describe the 3 ways in which it is possible for a prior purchaser in a subdivision
to enforce a restriction against a subsequent purchaser.
(see diagrams on paper)
1. Common Grantor‟s retained lots
2. Third party beneficiary theory
3. negative reciprocal easement
Bill Clem Method
Baseball guy
He will decide it when it happens
King Louis Horse Principle
You never know what can happen in a year
Put things off until you have to
Neponsit Property Owners Association v. Emigrant Industrial Savings Bank
Does the obligation to pay run with the land?
This is a promise to pay money. How does this have anything to do with
the land? In this sense it does.
The payments went to common areas of the neighborhood.
A homeowners fee does touch and concern the land in this case.
Does the burden run here? Yes
Why does the HMO foreclose instead of just sue for money due. In
contract law, you can not assign a liability. The bank is an assigne, and
so they are not personally liable on the debt because they are not a party
to the contract.
When your remedy at law is inadequate, your remedy must be in equity.
Analogous to assuming a mortgage and taking subject to the mortgage.
This leads to a companion principle of the traditional view was that
whether a covenant runs at law or at equity enforcement is equitable.
Certainly the rule when you have promises to pay money.
Other types of promises:
o Not to use prop. for anything other than a residence, there is some
authority that if the covenant runs at law, and the assignee violates,
the covenant runs at law, the P can seek and recover money
damages.
Caullett v. Stanley Stilwell & Sons
Covenant was not enforceable because the benefit was of a personal
nature and not a benefit of the land
Therefore, it does not touch and concern the land.
Scope of Covenants
Hill v. Community of Damien of Molokai
Shelley v. Kraemer
Know this case by name
Racially restrictive covenants are patently unenforceable
In a suit for injunctive relief or money damages
Often times, when they have asked a question about covenants in the
essay section, frequently they are not testing you solely on the mechanics,
(intent, touch and concern, etc) they are also testing you on public policy
issues.
Western Land Co. v. Truskolaski
Change circumstances in this case were not sufficient to avoid the
enforcement of the covenant.
Rick v. West
This is a common problem
Developer sold off lots. Residential use only.
Suddenly he couldn‟t sell lots anymore, wants to sell to a developer who
will put up a hospital
Covenants in the other deeds are enforceable
You make a deal, you have to stick with it
Put enforcement or repeal of these restriction in the hands of a homeowners
associations. But you have to do that from the beginning. Pay attention to
whether the benefits are benefits in gross. Later the homeowners may have
some flexibility in this.
Pocono Springs Civic v. MacKenzie
Real property can not be abandoned.
Common Interest Communities
You should be able to distinguish between a homeowners association, a
cooperative and a condominium.
HOA. There are variations. But typically in a subdivision you have a
homeowners association with requirement that each lot owner be a member of
the HOA.
Cooperative or a condominium. The cooperative form of ownership. Most of the
law comes out of NYS. Cooperative apartments mostly comes out of NY. The
cooperative association owns the land and the building. Each person who
occupies a unit owns stock in the cooperative. Usually stock representing 1/25 of
the cooperative. And has a long-term proprietary lease on the individual unit.
The cooperative ownership entails the ownership of stock in the cooperative and
a proprietary lease. On the cooperative there is a single blanket mortgage. The
borrower being the cooperative. So each month, each unit occupant has to pay
their share of the mortgage. The IRS regards the proportionate share of the
interest as deductible on the individuals tax return.
When an individual wants to transfer their unit, they sell their stock and assign
their lease. Usually with the consent of the cooperative association.
Since each unit occupant is liable for a proportionate share of the monthly
mortgage payments, the association is responsible for making sure that the unit
owner is able to pay the monthly payment. They have a vital interest in who
purchases the unit.
NY precedent holds that the ownership interest is in personal property, not real
property.
Condominium. Common areas are owned by the condominium association.
Each individual unit or apartment is owned by the occupant of that unit. There
are 500 separate fee simples in a 500 unit building.
Nahrstedt v. Lakeside Village Condo.
The court said the woman could not keep the cat.
If the various regulations including no pets, are contained in the
declaration or bylaws then they can be enforced.
On the other hand, if you have a rule that is adopted by a board, the court
will review this more intensely for reasonableness and abuse of discretion,
etc.
For next week:
Easements. Its easy but regularly questioned on the bar exam.
Do landlord tenant material after easements. Don‟t have to read the
landlord/tenant in the book
April 17, 2008
Drunk night
Final 2/3 of grade
It‟s a matter of accumulating points
Don‟t spend too much time on something that is not worth many points.
Chapter 10
Easements
Subject unlike covenants
Heavily tested on bar exam
o In covenants its easy to slip public policy in
o Test on labeling mostly. Makes it a very popular subject for testing
Diagram
Parcel B is benefited by easement, dominant parcel
Parcel A is burdened by easement, subservient parcel
Distinguish between affirmative and negative easements
o Most easements are affirmative.
o What is a negative easement?
Ex: easement to light or to air
Suppose that on parcel B the roof of the house has
solar collectors. Then A wants to put up a tall building
or fence that blocks the sunlight from hitting solar
collectors.
B can prevent this if B has a negative easement.
Its not that B can do something on A‟s land. Its that B
can prevent A from doing something on A‟s land.
Rule: easement to light or air will not be implied, must
have express agreement.
o Benefit that is appurtenant and a benefit that is en grosse.
Benefit that is Appurtenant
Fancy word for next door or adjacent
B has an easement or benefit that is appurtenant
Benefit that is „en grosse‟
30 miles down the road the Autobahn society has a
deal with A such that every Sunday afternoon, their
members come to parcel A and look for birds.
The society has an easement or benefit that is en
grosse.
Means that the land they own is not adjacent to parcel
A. they have an easement or benefit that is en
grosse.
o Rules on negative and affirmative easements are essentially the
same
Main thing is to identify if you are dealing w/ negative or
affirmative easement
o Most easements are expressly stated in a deed for example.
Could have separate deed or instrument creating easement
Usually they are not a problem.
Bar Exam: like to test esoteric ways of easement. Just put right label on it.
Esoteric ways to run into an easement
By implication or necessity
o Hypo: 2 variations
1. told that A owns both parcels (diagram) and A conveys
parcel B to B. A is a common grantor!!
Easement by necessity or Implication
To have an easement by implication or necessity you
MUST START OUT WITH A COMMON GRANTOR
OR SUBDIVIDER!!!
Dealing with is a forgetful grantee. Nothing in deed to
B that mentions an easement
So B goes into possession and B gets up next
morning and use the path or easement to get to public
road. Overnight A has blocked the path.
B sues A. B will probably win
B‟s theory is that there was created an easement by
implication or necessity. Implied in the grant to B. B
should have insisted that the language be put in deed
but forgot. B should win the lawsuit that there is an
easement by necessity or implication.
o Technically, necessity is the test to see if there
was an easement or not.
2. B owns both parcels. B conveys parcel A to A. (reverse
of above)
Implied reservation of an Easement
B was a forgetful grantor when he conveyed the
parcel to A.
Can only have this if you START OUT WITH A
COMMON GRANTOR OR SUBDIVIDER!!
B will argue that when A puts up a fence there was an
implied reservation of an easement
Test: strict necessity. (Van Sandt case does not
adopt the strict necessity test)
o Reason was because usually a deed is drafted
by the grantor. Any instrument is strictly
construed against the party that drafted it.
o Suppose not dealing with common grantor, just neighbors.
B asks A if he can use the path across Parcel A to get to the
road. A says yes. Years go by, and A blocks the path.
Nothing in writing. A gave B a license.
Traditionally a license was oral permission to use someone
else‟s property.
Historically was oral permission (common law)
Licenses are revocable.
o Today typically in writing
B sues A.
Historically courts came to B‟s rescue. Created a new
citatory: an Irrevocable License/License Coupled with an
Interest
Now called: Easement by Estoppel
NO COMMON GRANTOR!!
Prescriptive Easement
o Easement acquired in a way analogous to adverse possession.
o Open, notoriously, continuously they will acquire and easement by
prescription
o Why call it this? Reason it that most easements do not entail
possession, but do entail regular use.
o In Pa, hostility is an objective requirement.
Divisibility or Aportionability
o Within reason, the benefit is divisible or apportionable as long as in
doing so, it doesn‟t interfere with A‟s enjoyment with their property.
o Suppose B sells part of parcel B to a condominium and they put up
a 500 unit apt building and 500 people are using the easement.
this would unreasonably interfere with A‟s enjoyment of his
property
Profit
o The right to also sever something from the property of another
Minerals, timber, crops
o In medieval times it was used as a mineral lease
This is basically everything you need to know about easements for the bar
exam
Willard v. First Church of Christ, Scientist
o Owner of vacant lot used for church parking sold the lot and the
seller attempted to reserve an easement in favor of the church (3rd
party).
o Court has to deal with traditional rule that you can not reserve an
easement for the benefit of a third person
o Did not involve a subdivide.
o Traditional rule is that you can not reserve an easement for the
benefit of a 3rd person
o Ca court overruled doctrine and accepted the easement
o Case illustrates an area where the law is not straight forward.
o Problem with the old rule is that it is easy to get around if you know
what your doing
Van Sandt v. Royster
o Quasi-easement
o One part of the lot is burdened for the benefit of another portion of
the lot
o When the common grantor subdivided, now only owns lot 4,
suddenly it turns into a real easement.
o The other lots are burdened and lot 4 is benefited.
o Once the subdivision occurs the quasi-easement turns into a real
easement.
o No prescriptive easement because there was permission
Brown v. Voss
o Doctrine of equitable discretion
Landlord Tenant Law
Common Law Leases
o Estate or term for years
Lease is for a fixed definite period of time
You can have a lease for 1 day, 1 week, 1 month – all also
called an estate or term for years
o Periodic tenancy
The initial period had to be for a year or less and the period
automatically renewed itself until one side gave notice of
termination.
In Pa, you can have a periodic tenancy from year to year or
month to month
Title 21 of Pa statutes is landlord/tenant statutes
o Tenancy at will
To be a true tenancy at will, the lease has to be terminable
at will by either party.
Usually nothing in writing and the deal is that you pay the
rent every month.
There is an old rule from 1600‟s by Lord Cook: if the
conveyance is to T as long as L will‟s it. This is a true
tenancy at will, court said yes. Reverse is not the case. If
the lease is to T as long as T wills it, can the landlord
terminate? No. defeasible life estate.
o Tenancy at sufferance
Where you find this in a hold-over situation
T has a 1 year lease from Jan 1 to Dec 31. T doesn‟t leave
Jan 1 of next year. At that point T is a hold-over tenant.
Technically T is a tenant at sufferance.
At common law, L could hold T for a whole another year or
term at twice the original rent. Pa does not have a double or
triple rent statute.
If the hold-over is for less than 24 hours most courts will treat
this a de minimus.
Land lord could also just boot him out
Basic principle is that land lord should not use self-help to
get rid of a tenant. Jordon v. Talbot
Pa is a little quirky.
Terminating a Lease
o If you have a term, usually no problem
o At will, must give tenant notice to terminate.
o Rules differ from state to state
o Basic rule: year to year periodic – 6 months notice. 1 month, 1
month notice.
o Notice requirement is governed by statute in each state
o 1 year written lease don‟t really need notice to terminate
Eviction by Landlord
o Most states you have a „forcible entry and detainer‟ statute
Could use action in ejectment, but that gets you on the
regular trial calendar
Evict a non-paying tenant
Serve a notice, hearing in 14 days. Judge wants to
know if you paid the rent, sees proof. 2 weeks and
you‟re out.
o Pa is screwed up
While there is a forcible entry and detainer statute, they are
in the district justice rules
Have to bring proceeding before district justice, can appeal
de novo to court of common pleas.
Standard Landlord Tenant Doctrines
o Constructive Eviction
Assume that under the lease, the LL has the duty to make
repairs
Storm blows off portion of roof. In spite of T‟s demands, L
refuses to make repairs
So T moves out and stops paying rent. L sues for unpaid
rent.
What result?
LL will sue for unpaid rent.
T‟s best defense is to claim a „constructive eviction‟.
LL had duty to make repairs and didn‟t. place is no
longer habitable.
o Problem with this is that to successfully assert
this defense, T has to move out promptly
otherwise T losses defense.
o The availability is often difficult to keep.
Also possible that T could defend on the grounds the
LL breached on the grounds of an implied covenant of
enjoyment.
Breached the implied warranty of inhabitability
o Implied Warranty of Inhabitability
Lease says nothing about duty to make repairs
Have a local housing ordinance that requires LL to keep
residential rentals in good repair.
What are the rules on the duty to make repair?
o CL Rule: the Tenant had the duty to make
repairs. (unless lease states otherwise)
Tenantable repairs
Modern Rule: 47 states: Implied warranty of inhabitability in
a residential lease
That means that a LL has the duty to make repairs.
Case in Pa: Pugh v. Homes, superior court case
affirmed w/o opinion by supreme court. 384 A.2d
1234.
LL has to keep a residential unit habitable both at
beginning and during the term of the lease
Breach of this implied warranty is a defense to
eviction or a suit for unpaid rent.
If business or commercial lease then CL rule applies. ONLY
RESIDENTIAL Leases
o Landlord Tort Liability
Suppose duty to make repairs in on the tenant.
There are still situations where LL could be liable in tort
If LL is a volunteer. He‟s not required to make repairs
but he does anyway and screwed it up.
To common areas. If multi unit structure and duty on
business tenant to make repairs, common areas are
still LL responsibility
Hidden defect exception. If hidden defect on
premises, and LL knew or should have known, LL
liable.
o Surrender of Premises
L enters into 4 year lease with T.
End of 2nd year, T moves out and stops paying rent.
LL retakes possession and re-lets the property to X
T was paying 1K rent, rents to X for 500/mo.
Is T still liable for 500/mo rent?
CL Rule: LL is entitled to sit on hands and do nothing
and doesn‟t have to re-let to X. but when L re-let to X,
L has accepted a Surrender of premises and T is off
the hook.
Modern View: (not adopted in PA) the contract
doctrine of mitigation of damages kicks in. LL is
obligated to mitigate damages. When L re-lets to X,
this does not constitute surrender of premises.
L could sue T for difference in rent.
o Retaliatory Eviction
Lease to T of residential unit.
Doesn‟t meet local standards.
T snitches on LL of violations.
L pissed and seeks to evict T
Defense is eviction is retaliatory. If T can prove that the
eviction was retaliatory, T can stay indefinitely, even after
term of lease.
Even if L refuses to renew the lease. How long can he stay?
As long as the LL‟s intentions remain bad.
Some call this a new tenancy – Judicial Tenancy.
o Assignment and a Sub-Lease
L leases to T for 4 years. At end of 2 years, T needs to
move. T wants to transfer lease to T1.
T transfers to T1. 2 years left on the lease.
How do you tell if assignment or sublease.
If T transfers to T1 the entire remaining 2 years,
assignment
If T transfers to T1 a term less than the remaining 2
years, then sublease.
if its an Assignment than L can sue T1 directly for rent
for the last 2 years.
o Privity of Estate between L and T1.
If it‟s a sublease, L can not sue T1 directly. L would have to
sue T and T would have to sue T1.
o Lease says that property can not be assigned, sublet or transferred
w/o L‟s written consent.
This clause is enforceable in most states (incl. pa)
Generally this is the law.
Some states say that LL consent can not be
unreasonably withheld.
o Reason can not be discriminatory
o Lease between L and T. Clause that can not be assigned w/o
consent.
L signs written consent to assign. Next day T1 assigns to
T2.
Does T1 need written consent to assign to T2? No
Rule in Dumpers Case
Under these clauses, if L consents to the first
assignment than L has consented to all future
assignments.