Property Outline I. INTELLECTUAL PROPERTY A. Copyrights: i. Given to the author(s) of a literary, dramatic, musical, artistic or architectural work. Part of federal law, are registered in the US Copyright office and are valid for the author’s life plus 70-120 years. Must be original and fixed in a medium Owner has the exclusive right to do and to authorize others to do the following: 1. Reproduce the work 2. Prepare derivative works based on the work 3. To distribute copies of the work to the public 4. To perform the work publicly 5. To display the work publicly ii. The work must be: 1. original 2. creative 3. Fixed in a medium of tangible expression iii. Functional aspects of a work cannot be the basis of the copyright iv. Copyright infringement does occur if the alleged infringer produces the second creation with no influence on the first. v. People are allowed to quote from your book or make a parody of your legal work. vi. US Consitution Art I, § 8, cl.8 – Congress shall have Power… To promote the progress of science and the useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries. vii. 17 USC § 102 – Copyright Act, clarifies the Constitution. viii. OddzOn v. Oman – Koosh ball is a familiar shape and not creative enough. Feel is part of the functionality of the ball, not its artistic value. Artistic expression seems paramount. B. Trademarks i. A word, phrase, logo, or other distinctive indication that is used to indicate the source of the goods and to distinguish them from the goods of others. Subject to both federal and state law, filed with the PTO (fed) and secretary of state (state). If used within 6 years, the trademark is good for up to ten years and is renewable indefinitely. 1. registration is not required to establish rights to the mark nor to begin use of the mark ii. The key issue with trademark infringement is likelihood of confusion. This can consist of 1. Similarity of sight and sound 2. Similar types of products or services associated with the sound.
3. Similarity of customers 4. Similarity of distribution networks If your mark is not distinctive, you have to show secondary meaning 15 USC §§1127, 1052, 1114 (The Lanham Act) – a trademark cannot : 1. so resemble a registered mark as to cause a likelihood of confusion, mistake, or deception 2. be merely descriptive 3. comprise functional matter Qualitex v. Jacobson - Color can be a trademark so long as it is not a functional color. Two Pesos v. Taco Cabana - trade dress (the total appearance of your store) is distinctive and able to be protected.
C. Patents i. The right to exclude others from making, using, offering for sale, or selling the invention in the United States or importing the invention into the United States. Subject to federal law, registered in the PTO, good for 20 years from the first application plus possible extension in certain circumstances. 1. Is not the right to utilize the invention but rather to exclude others from doing so. 2. Granted by the patent agency 3. You must register it or else it doesn’t exist. 4. The more broad you can make the claims the more uses you can prevent people from doing, but cannot be so overarching that it gets into prior art. ii. 35 USC §§101, 103 - Has to be novel, useful, not obvious to someone of ordinary skill iii. Anderson Blackrock v. Pavement Salvage Inc – you cannot get a patent for something that is obvious to anyone in the industry. Just added a heat burner to the front of a paving machine. iv. US v. Adams – Wet battery was not obvious even though most of the components already existed because the operative characteristics were unexpected and far surpassed then-existing wet batteries. Not obvious, market success played a role in the determination. D. Trade Secrets i. Protects confidential information that gives the holder an advantage over competitors that do not have the information. 1. violation is not excused by the fact that the information could have been obtained lawfully if that was not, in fact how it was obtained 2. Must make sure that the info remains as secret. Confidentiality agreements.
3. No need to register, falls under state law but there are both state and federal criminal provisions, until public potentially unlimited duration ii. Ok to independently develop (as opposed to patents) as long as you do not violate any agreement 1. wrongful taking of a TS is not excused by the fact that the info could have been obtained lawfully if that was not how it was obtained. iii. BP v. Sopo – Foreign companies do not always have subject matter immunity. Sopo committed a misappropriation of confidential information. Misappropriation occurs when information is improperly obtained, disclosed or used. E. Transferring Intellectual Property i. 6 elements of property transfer agreements 1. The parties a. Who are they? Have I included all of the parties necessary for the client’s expectations? b. Capacity of the other parties to perform 2. Preconditions a. What has to happen before the other party is on the hook to deliver the kind of performance my client wants? b. What conditions can prevent my client from being able to hold the other party to it? c. Can oral agreements change because of other documents or utterances? 3. Obligations of the other party a. Are the performances of the other party unambiguously described? b. Especially important was drafted by or on behalf of the opposing party. 4. Obligations of the client a. Examine your client’s obligations from the other party’s standpoint 5. Breach and remedies a. What can go wrong? b. Can my client show that the other parties have violated the terms? c. What can my client do about it if they do not perform as specified 6. Termination a. when do the obligations end, and what happens then? F. Infringement i. Prosecution history estoppel – an inventor who narrowed a patent claim in order to persuade the patent office to issue a patent cannot
later claim infringement when a competitor uses what the inventor has deliberately suurendered. ii. Infringement by Equivalents – when the infringer makes only an insubstantial change so that an element described in the patent claims is replaced by an equivalent. iii. Festo v. Shoketsu – A patentee, by narrowing a claim to obtain a patent does not surrender all equivalents to the amended claim element. II. REAL PROPERTY OWNERSHIP A. . Acquisition and creation of real property interests i. By Gift, Devise, or Descent 1. Intent, transfer, acceptance. Delivery verifies intent 2. Brewer v. Brewer - It is generally recognized that to have a valid inter vivos gift three requirements must be met: a. There must be an intention on the part of the donor to make a gift b. There must be a delivery or transfer of the subject matter of the gift c. There must be acceptance of the gift by the donee ii. By Purchase 1. The Property Transfer Agreement is a blueprint for the entire transaction 2. PTA actually transfers title, called “equitable title.” The legal title remains the seller’s until the execution of the deed. 3. Calvin v. Custer County – Legal ownership remains with the seller until the sale is final. In this case though, the US had an equitable title to the land and thus were responsible for the taxes. iii. Adverse possession 1. Hostile, not permissive, open visible and notorious so that the record owner can recognize the possibility of losing the land…Enter, take exclusive possession, open and notorious, adverse or hostile, continuous 2. Limitations Title - Adverse possession must last for the amount of time required by the state statute of limitations. 3. Constructive Notice – Not really, but we’re gonna say it is. If anyone reasonable in that position would have noticed, then you are responsible. JUST AS GOOD AS 4. Totman v. Malloy - If family members engage in adverse possession, can it be considered a hostile taking of the land. There is a presumption that adverse possession by family members is permissive. You must prove that it is hostile.
a. Standing alone, a familial relationship neither puts an end to permissive use inquiry nor shifts burden of proof. b. Non-permissiveness depends on: character of land, who benefited, the way the land was held and maintained, and existence of familial relationship. c. A presumption of permissiveness would encourage claimants to present evidence of familial strife d. The state of mind of a claimant is not relevant to a determination whether the possession fo land is nonpermissive 5. Davis v. Parke - Was the disputed area visible, open, and notorious enough to be considered adverse possession? Trial court says no. However, the appeals court reasons that since there was fencing was present, it was open enough to be considered hostile. a. Grazing alone is not enough because cattle can wander, the boundaries are not concrete, no hostility (permissiveness) b. Occupancy of land with owner’s permission is not adverse possession iv. Discovery and occupation 1. Some titles in the eastern US can be obtained by discovery and occupation a. A grant of land can also come from a patent B. Posessory and Future Interests in Land i. Fee simple absolute - You have all the rights to the property and are subject only to proper regulation by the government. Perpetual and only holder of all bundle of rights in the property (Most complete) a. You say “X and his heirs” which is a term of art. b. The property is not jointly owned and does not have to be given to the heirs. c. To grantee for life (Remainder) (Life estate) ii. Property interests can be divided in several ways: 1. Time Plane - divide ownership over time (e.g. current owner gives to his daughter for life, then to her daughter upon her death) 2. Partition or Partial Sale - sell the east half of a lot to one person and the west half to someone else. a. Two concurrent owners can partition property they both own into two separate parcels, each owned only by one in fee simple. 3. Dividing Stata or Features – For example, when you sell the mineral rights to your land while keeping the surface rights.
iii. Undivided Concurrent Interests 1. Tenancy in Common – two or more people all own undivided interests in fee simple (e.g. to X and Y and their heirs) a. Owners can use the land, but cannot commit waste b. One owner cannot exclude other owners c. An owner can sell his interest but the buyer receives only the interest that the grantor held d. The law assumes grants are tenancy in common e. Chin v. Chin - family members own a house under tenancy in common. Three tenants allow the property to be used by the Schauls, a niece of one of the co-tenants. The Schauls did not pay rent but improved the property. One co-tenant did not like this and demanded his share of the profits from the rent that he could have received. Since there was no actual rent paid, there are no profits to share. Property is sold to pay legal costs. i. Tenant in common is not chargeable with rents and profits where none have been made provided he has employed the property in good faith with a view to make it profitable. ii. All litigation fees are paid from proceeds of sale of property iii. Each tenant in common can use enter and enjoy property iv. 2. Mineral estate – Underground estate given to another, while surface estate remains a. Life tenant – Grantee receives property until death b. Remainder – who the property goes to when the life tenant dies 3. Joint Tenancy w/ Rights of survivorship – Two joint tenants own the fee in undivided interests during their lifetime. But upon the death of one, the survivor owns the entire fee. a. E.g. To X and Y as joint tenants with right of survivorship. b. Often called a poor person’s will c. Estate of Mitchell - Joint tenancy between a man and wife. Divorce proceedings begin, and an injunction is made saying that their property cannot be sold or transferred. Man severs and gives the right of survivorship to his son. The man dies, the property goes to his son, and the woman challenges saying that a transfer occurred. Trial court says that
a transfer happened in violation of the injunction, appeal reverses. They say there was no actual transfer. Always a gamble, you don’t know when someone will die. Should have made an agreement not to sever. Sever is not a transfer. i. The severance of joint tenancy transforms it into tenancy in common, extinguishing survivorship ii. A RIGHT OF SURVIVORSHIP MAY OR MAY NOT HAVE VALUE. Doesn’t exist yet iii. There was no change with respect to control or possession of the property. They always owned an undivided one-half interest 4. Tenancy by the Entirety – only created between husband and wife. Like a joint tenancy in survivorship features. a. Major difference b/w entirety and joint is that it is usually non-severable (except by divorce). b. After divorce tenancy by the entirety is converted to a tenancy in common. c. You can sell an interest in a tenancy in the entirety, but that is all the buyer gets. If she dies, borrower gets nothing d. Goldman v. Gelman - Mrs Goldman mortgaged part of her marital home to pay for counsel (Gelman) during divorce proceedings. Mr. Goldman was aware of this but did not notify the divorce court. Mr. Goldman was awarded the whole house at trial. He then moved to have the mortgage extinguished. Did a mortgage taken on one spouse’s interest in a tenancy by the entirety survive after the divorce proceedings? Yes, because Mrs. Goldman had the legal right to mortgage her part of the property during the divorce proceedings. Mr. Goldman should have brought the mortgage to the court’s attention. i. Each tenant may sell or mortgage subject to the continuing rights of the other. ii. Debra continued to hold an interest in the property as a tenant by entirety until judgment e. Special or limited Warranty Deed – Narrower warranty than general deed. Grantor warrants only against defects created by grantor
f. Quitclaim – Contains no warranty. Conveys only the right, title, and interest of the grantor in the property g. Release – Used to transfer back to the fee owner a subsidiary interest o Conveyance without warranty – Used in situations in which grantor wants to create a claim of title in the grantee but the grantor cannot safely warrant the title. C. Security Interests – a right to look to identifiable property of the debtor as means for repayment of a debt. i. Creditor gets an “invisible piece” of the property, of which the creditor may be able to procure the sale if the underlying debt is unpaid. ii. Attaches to the property and follows it, even after it changes ownership iii. Examples include: 1. Liens 2. Mortgages a. Straight mortgage – Requires judicial foreclosure 3. Deed of Trust a. Can be foreclosed by a private sale by security interest holder without court proceedings D. Marital Property i. Estate of Mitchell - Joint tenancy between a man and wife. Divorce proceedings begin, and an injunction is made saying that their property cannot be sold or transferred. Man severs and gives the right of survivorship to his son. The man dies, the property goes to his son, and the woman challenges saying that a transfer occurred. Trial court says that a transfer happened in violation of the injunction, appeal reverses. They say there was no actual transfer. Always a gamble, you don’t know when someone will die. Should have made an agreement not to sever. Sever is not a transfer. ii. In re Graham - After determining the rule that property is anything that has an exchangeable value or which goes to make up wealth or estate, the court looks to apply the facts here. A degree is not something which, according to the court, can be exchanged for money, is not able to be purchased with money, there is no exchange value, it is personal to the holder, it terminates on the death of the holder and is not inheritable, cannot be assigned, sold, conveyed or pledged. It is also an advanced degree which takes lots of time and hard work to acquire, things which are not exchangeable either. Here, there are no assets which were acquired, and thus there is nothing to split from the proceeds of the marriage upon dissolution.
Uniform Dissolution of Marriage Act does not speak to valuation of degrees. Where there is marital property to be divided, such contribution to the education of the other spouse is taken into consideration Community states 1. Community property is divisible upon divorce 2. The southwest and west 3. If property comes by gift, will, or before marriage it is separate property. You assume community, even if they have been commingled you assume this, unless you can trace it back to one person. 4. Money from the marital estate should be reimbursed if it were used to enhance separate property 5. Inception of title doctrine – If inception of beginning of ownership was before marriage, property is separate 6. Income from separate property. Is money made off the separate property part of the community estate? Texas – Divided. California – Separate property. Common Law States 1. Used in all eastern state plus most of Midwest and west 2. Legacy of gender bias – Coverture converted wife into property of husband 3. Married Women’s Act to Equitable Distribution 4. 3 categories of marital property subject to equitable distribution a. All property owned by either spouse b. Only property acquired during marriage c. Only property acquired from income during marriage. No gifts or wills. (Sounds most like community property states) Professional degrees are generally not property that can be divided 1. A degree’s value comes from personal reputation, skill, and experience. Assuming they will continue their labor is tantamount to involuntary servitude. Human labor is not property. 2. Henry Graham Rule – A grad degree is property. However, some states allow for reimbursements if a spouse paid for a degree. Some states say a degree is separable Ways to value property 1. Market Value Approach – looks at the price a willing buyer would pay to a willing seller. 2. Earnings based –treat income as valued and predictable. a. Capitalization of earnings – projecting a future income stream and then adjusting it by discounting to present value (adjust for inflation).
b. Multiple of earnings – uses a fixed multiple as a rough guide of future earnings. (e.g. multiple last three years earnings by 7) vii. Cost based methods 1. Historical or book value – how much cost went into creation 2. Replacement costs – what would it cost to acquire new property viii. Cap Rate 1. Property is worth 10 times what it can make in a year 2. K of P makes $100 million a year, worth $1 billion. ix. Take the income over 3 years, take the average and multiply by 7. E. Trusts - a trust is a form of divided ownership in which one person, the trustee, nominally holds “legal” title to the property, but the trustee has the duty to manage the property for the benefit of another person, the beneficiary, who is said to have equitable title. i. Fiduciary duties 1. Duty of loyalty 2. To avoid self-dealing 3. Reasonable and prudent investment 4. Protect and preserve trust property 5. Avoid commingling trust properties 6. Account to the beneficiary ii. The law recognizes constructive trusts. Not really a trust, but is a trust in all intensive purposes. If someone intends to send someone something of value but it accidentally comes to you. You have a duty to hold the property in trust for the rightful owner. iii. Estate of Rothko – Painter…Sold paintings. Court found serious conflicts of interest. Personal interest that conflicted with loyalty. The agreements were neither fair nor in the best interests of the estate. Shows how seriously trustees have to take their duty, b/c the trustees’ actions probably would have been legal if Rothko was still alive. iv. Form of divided ownership, with trustee, trustor, and beneficiaries III. REAL ESTATE TRANSACTIONS: THE PURCHASE AGREEMENT A. Simplified road map of a real estate transaction i. Brokerage: One or both parties sign with a broker; the broker puts the two parties together, acts as an intermediary, and handles basic contractual issues. Must be in writing, exclusive listing agreement ii. Seller must fill out questionnaire listing all the problems in the house. Still owe the broker commission even if he didn’t introduce the buyer and seller iii. Negotiations: Usually negotiate about price and a wide range of other issues
iv. Earnest Money Contract or Agreement of Purchase and Sale: This is the blueprint for the entire transaction. Sometimes this agreement is preceded by an option. v. Fulfilling financing preconditions: Earnest money gives a certain amount of time to apply and be approved for a loan, sale terminates if financing is not obtained vi. Fulfillment of Inspection Preconditions: Buyer obtains inspections of structural, mechanical, etc. aspects of the property. Contract can be terminated if this precondition is not satisfied, can also be terminated if property is condemned or destroyed. vii. Fulfillment of Title Preconditions: Title insurer or lawyer inspects the title and issues a report. Contract can be terminated here too if title is unsatisfactory. viii. Preparation of Core Documents: A lawyer prepares a deed, a promissory note, and a mortgage or deed of trust. ix. Preparation of ancillary documents: multiple disclosures, releases, subsidiary agreements, etc. There may also be multiple deeds or multiple loans. x. Closing, execution of the documents: This can be very simple, and the parties execute all of the documents in accordance with the contract, or very acrimonious as when problems cause a walkout or a blown closing. xi. Title Insurance, Funding, Recording, Delivery, Possession. B. 6 parts of a property transfer agreement: i. parties ii. preconditions iii. sellers obligations iv. buyers obligations v. breach and remedies vi. termination C. Brokerage i. Brokerage Agreement – not a necessary part of a real estate transaction if the parties find each other independently. Brokers advertise, search, and network to find suitable sales and purchases for their clients. They also perform transactional services for their clients 1. typically written, exclusive right to sell 2. Usually has a fixed duration 3. Frady v. May – broker is still due commission after the fixed term is terminated, if the broker was actually the procuring cause of the sale. a. The essential part of this type of agreement is what the contract actually says. The brokerage agreement should clearly establish when money is due and when the relationship terminates. Court held that the
agreement was essentially the same, so the commission is still due. b. Can’t redo a contract to cheat a broker 4. If the buyer defaults, the commission is still due in some circumstances. 5. Everything is negotiable. It is possible to decrease a broker’s commission if they cannot sell for a minimum price. You can also add a clause reducing the commission if the seller finds a buyer independently. ii. Broker’s Liability 1. Some states have strict liability, some have none at all 2. Hoffman v. Connall - Sellers showed broker where the property lines were, and were emphatic. A real estate broker is held to a standard of reasonable care and is liable for making negligent though not innocent misrepresentations concerning boundaries to a buyer. Here, broker was not liable 3. 3 Broker Regimes a. Strict Liability – Any misrepresentation constitutes liability b. No liability – Passing on bad information. No obligation c. Liability if falsely misrepresented 4. Miller v. Keyser – Broker told residents that they could build fences along the back lines of their property. Flood worker denied that. A broker may be held liable under the Texas State Consumer Protection Act even if he did not know that his representations were false or if he did not intend to deceive anyone. Strict liability case, he was liable D. Negotiations for a purchase contract i. Letters of intent 1. If you sign a letter of intent you do have to bargain in good faith. You should add clauses saying that the agreement is not enforceable, only the part saying that it is not enforceable is enforceable. 2. Vestar v. General Dynamics – (Negotating the sale of 50 acres. LOU with exclusivity agreement) The issue in this case was whether damages can be awarded for lost profits based solely on an agreement to negotiate. The court cited California law which requires damages to be certain. In this case the damages were too speculative to specify this requirement. The LOU did not establish terms for the sale, but rather only a starting point from which negotiations could continue. a. An agreement to negotiate is unenforceable under CA law
b. No CA court has affirmatively held agreements to negotiate are enforceable c. Bargaining only in good faith for purposes of reaching an agreement 3. Status Letters – a way of helping the parties to remember the already resolved so that they will not be forgotten. a. Can be more dangerous than letters of intent ii. How Does Litigation Get Settled? 1. Refusal to Bargain: The Firm Fair Offer a. Acceptable selling point, with refusal to bargain b. Boulwareism c. Refusal to bargain is only convincing if rational negotiators will capitulate 2. Concealment of one’s own settlement point a. Opponent may have undervalued his own position, or overvalued the resistance of the negotiator 3. Inducing the Opponent to Start the Bargaining a. You can avoid giving away your settlement point, and begin to assemble data as to the opponent’s settlement point. 4. The Appearance of Irrationality a. Opponent will have to make greater concessions than he would against a rational opponent 5. Blaming the client or some person over whom he has no control a. Final result to be determined by another person impervious to rational arguments 6. Using a mediator a. Trial court judge can assume role b. Undercuts the effort to avoid stating a realistic position as well as blaming the client 7. Appeal to the Merits a. Expressing unshakable conviction in the prediction that one will prevail 8. Throwing oneself on the opponent’s mercy a. Do this when the opponent doesn’t seem cold-blooded and where you have no bargaining power 9. Inducing the opponent to bargain against himself 10. Forcing two opponents to bargain against each other a. Each defendant is exposed to the threat that an agreement will be made with others, and you will use it to make life worse for him 11. Ganging up a. Settling defendant may be retained in a lawsuit and may assist plaintiff in pinning blame on other defendant 12. Flattery
13. Timing a. Person who can afford to wait has an advantage 14. Activity a. Vigorous and aggressive activity moving towards litigation can have good effects but costs money 15. Collateral consequences to opponent a. Negotiators increase expenses on opponent 16. Deadlines and “locking in” a. Deadlines on acceptance of offer to avoid opponent gaining from the finding of info to support their case 17. Focal Point Solutions a. Adoption of a standard solution close to the bargaining position of both parties 18. Drafting an agreement a. Drafter tends to resolve minor points in their favor 19. Control of the Agenda a. Person who sets order of discussion has an advantage 20. False Demand a. Asking for something you don’t really want so that you can give it up for something else 21. Reverse Psychology a. Appearing to ask for the opposite 22. Physical Factors a. Negotiating on familiar ground, among familiar people 23. Direct involvement of the principal a. Having opponent and principal communicate directly 24. Making the opponent feel he or she has negotiated capably 25. The test of strength Willingness to go to the mat iii. Ethics and overreaching 1. El Paso v. Farrah – a bank should not threaten a borrower with a default in a workout situation unless the bank presently intends and has a legal right to carry out the threat. The bank should not enforce a loan agreement’s management clause by lobbying efforts; rather, the bank should either waive a default under the clause or declare a default. E. Conditions and requisites of the Real Estate Agreement Document i. Statute of Frauds – a law requiring that certain kinds of agreements be expressed in writing. 1. The underlying concept is that some types of contracts are too vulnerable to mistaken or fraudulent claims allow them to be proved by oral evidence alone. 2. real estate deals must be evidenced by a writing 3. States have reached very different conclusions about what degree of detail is necessary.
4. Meyer v. Kesterson - Where there is only one property to which the agreement could apply, and there is no dispute concerning the property or which property is described, extrinsic evidence is permissible, and the agreement will not be invalidated because of an inadequate description. Essentially, the description together with other evidence must make this one parcel of land uniquely identifiable. Additionally, the court held that there was sufficient evidence at trial to fill in the gaps as to many of the missing terms. Was a valid contract for the sale of land Meyer sued for specific performance of what they claimed. Kesterson’s argued that there was no contract because there was insufficient compliance with statute of frauds, with compliance expressed in writing. Court said the agreement was binding because earnest money was received and the property was described enough so that it was the only description. 5. Gagne v. Stevens – more strict as to the statute of frauds, you have to have a good legal description where anyone can find it. Oral testimony is difficult to prove ii. Preconditions 1. Conditions for inspection – usually real estate agreements are reached before all inspections are completed. This is because the inspections cost money and the buyer does not want to expend the money if the parties are not going to reach an agreement. a. Inspections may include: structural, mechanical, electrical, termite, and radiation issues. b. Allen v. Cedar- A condition precedent is a condition that must be met before an agreement becomes a binding contract. In this case, Allen was able to leave the agreement if the condition of an acceptable environmental report was not met. Since Allen continuously tried to get Cedar to pay environmental costs, the court held that this condition was not met and was thus not an enforceable contract. Court says that Allen would have been in a better position if he had just closed on the property and then filed a complaint. i. you can get out of the contract by not approving a condition, but then the deal is off ii. Unless inspection conditions are clear and unambiguous, and unless the parties follow them closely, they can lead to a situation in
which one party claims the agreement is valid while the other argues that it is terminated. 2. Financing conditions a. Frady v. May – The agreement was contingent upon Nichols’ ability to get either financing from a lender or permission to assume the existing loan on the property. b. The buyer may want to create a condition that they can obtain a loan on specified terms before they are obligated to buy. c. Many banks allow people to now pre-qualify prior to choosing a home. 3. Title conditions – the prevailing practice is to build a condition into the purchase agreement that the obligation to purchase is expressly made subject to a satisfactory title. a. This sometimes leads to a “free look” iii. Options – an option is an agreement that allows one party, usually the buyer, to decide within a specified time period whether to complete the transaction. Basically it allows the buyer to either buy or walk away. 1. Technically requires a separate payment so that it is supported by consideration. 2. Options should include: a. The term b. Whether it is extendable c. How is it to be exercised so that both parties clearly know that the ultimate agreement is enforceable. 3. Beale St. v. Miller- you have to actually go through the motions and put the full amount out there a. You need to be very clear on how the option is exercised b. You cannot deny a stipulation in the contract if the purchaser exercises the option c. Intent to exercise an option is worthless F. Escrow Agreements and Earnest Money – escrow agreements happen when the seller wants to ensure that the buyer has invested in the purchase by putting up a certain amount of money in advance (known as earnest money). The buyer wants to be sure of getting the earnest money back if the agreement terminates. The solution is to put the money in the hands of an ostensibly neutral party. i. In the matter of Akivis – Escrow agent paid when he should not have. He should have put in a certification that if either party certified to him that the event had occurred, then he will release the money.
1. An escrowee must make an independent determination of compliance with the condition, except under circumstances where determination is beyond escrowee’s ability to do so. 2. If the escrowee receives a notice of compliance from the seller, they cannot just go and release the funds, they have to verify. G. Provisions of a typical Real Estate Agreement i. Parties objectives can be summarized as follows: 1. To obtain the expected benefits of the agreement – seller wants the complete sales price, buyer wants to obtain clear title to a valuable piece of real estate. 2. To reduce risk (and shift it to the other person or a third party) – the agreement should resolve risks about physical inspections, financing, closing costs, fees, and many other future aspects of the transaction. 3. To reduce ambiguous obligations to the other – The buyer wants everything to be perfect, the seller wants to sell as is. Both sides want to expand the other side’s liability and minimize their own. 4. To increase the clarity of obligations owed by the other party – When ambiguous language exists, one side will attempt to clarify it in ways that reduces it, the other in a way that expands. H. Liability Outside (and Inconsistent with) the agreement i. Parol Evidence Rule: a common law doctrine that disallows the use of communications preceding execution of a written document to contradict the written document. Basically, you cannot introduce oral conversations to alter a written contract. 1. For example, if the written contract says $100,000, the buyer is prevented from relying on earlier discussions about a price of $50,000. 2. However this does not apply if written evidence governs only some of the terms and the parties made earlier oral agreements that supply the other terms. a. A proponent of an oral agreement may claim that it does not contradict the argument but only adds to it. 3. It is possible to create a merger clause which states that the written document sets forth the entire agreement of the parties. 4. Fraud is an exception to this rule. ii. Claims that may create extra-contractual liability 1. Fraud – knowing misrepresentation – intention to deceive and a reliance on that misrepresentation 2. Innocent misrepresentation 3. Negligent misrepresentation 4. Nondisclosure, or silence
5. Consumer laws of special statutes creating more stringent duties 6. Warranty claims – Contractual actions made by promises 7. Strict liability 8. Agreements made after the signing of the contract iii. Actual Fraud - requires proof not only of an affirmative misrepresentation, but also awareness of the falsity, intent to deceive, and reliance by the damaged party, which must have caused the damage. 1. However, Woodlands v. Jenkins provides a cause of action for misrepresentations even in the absence of awareness or intent. This is a new interpretation of fraud. a. Fraud occurs if: i. Person make a false representation of past or existing material fact to another person to induce the making of a contract ii. False representation is relied upon by the person entering into the contract iii. Awareness not required for recovery iv. Nondisclosure as a basis for fraud liability 1. Stambovsky v. Ackley – In determining that a seller was liable for fraudulent misrepresentation when he did not disclose that the house he was selling was reported to be haunted, the court held: a. First, the court concluded that due to defendant's reports of the alleged haunting in national and local publications, she was estopped to deny the poltergeists' existence and thus, as the court stated, "as a matter of law, the house [was] haunted." Noting that reports of hauntings lowered the resale value of the house, the court held that while caveat emptor prevented an action for damages, it did not prevent the equitable remedy of recission. Here, recission was appropriate since defendant not only took unfair advantage of plaintiff's ignorance as to the house's reputation, but defendant herself also had created and perpetuated that reputation v. Negligent Misrepresentation or warranty 1. A warranty is basically a promise that a certain thing has certain qualities. The seller is liable for the 2. Amyot v. Luchini – The court held that, to be actionable, misrepresentations in the disclosure form had to at least be negligently made. Accordingly, the court found that the lower court should not have granted the buyer summary judgment or instructed the jury on his innocent misrepresentation claims.
a. Basically disclosures are not warranties. b. Luchini’s hired a professional engineer to help them sell their house by inspection. He noted the foundation is stable and floor framing satisfactory c. After purchase, Amyot discovered the foundation was defective, with repair estimates around $100,000 and sued the Lucchini’s d. False statements by a seller in a real estate listing could be grounds for rescission of sale, even if innocently made and negligently acted upon e. Enactment of the new statute: seller is required to make representations on a wide range of house features. The legislature intended to offset the seller’s increased disclosure by the lower liability standard for misrepresentations vi. Consumer legislation 1. Many states have laws outlawing deceptive acts or practices 2. Kleczec v. Jorgenson: One of sellers did the plumbing on the house sold to the buyers, though he was not licensed to do so. An inspector pointed out plumbing defects to him, but he did not inform the buyers. The sellers represented that they had received no "issued" notice of any code violations. Were the sellers required to give notice of the plumbing defects to the buyers before sale? a. Yes, Though no written notice was issued, not disclosing the oral notice was misleading. Basically violates the state’s law against deceptive acts or practices. b. State inspectors orally informed him that a licensed plumber must install the plumbing. Sufficient. IV. REAL ESTATE TRANSACTIONS: FINANCING AND CONVEYING A. Real Estate Lenders and Loan Documentation i. Federally Sponsored Programs 1. Fannie Mae and Friends – resemble private stock companies since they issue securities, but are backed by the government. 2. Federal National Mortgage Association was created to encourage the development of a nationwide market for residential purchases 3. Mortgage Market is covered by a mixture of federal, state, and private law that follows custom and usage 4. These programs succeeded in a. Stimulating investment b. Creating uniform documents and practices
c. Serving as conduits for public guarantees d. Establishing a nationwide market in lending for residential properties Secondary Mortgage Market 1. Mortgage-backed securities – pools of mortgages obtained by investors 2. Entrepreneurs document loans and sell them to Fannie Mae 3. That’s why it is difficult to change the contract terms 4. S&L Crisis of 1980s – Cost-of-funds expenses rose above 10% and inflation put them into deficit because they loaned out for thirty-year loans. Also, savings and loans were owned by small entities. They made bad loans to a developer and the banker would charge an up-front fee. You pay it out of the proceeds of the loan. Retail Lenders (Originators) 1. Local mortgage companies and financial institutions which originate loans at the retail level. 2. Required to give a written good faith estimate of all relevant costs associated with the loan as well as an explanation of key terms in layperson language. Wholesale Financiers 1. Buy loan rights from originators in the secondary mortgage market. Key terms Included (Quartet) 1. Interest rate 2. Term or Duration of Payments 3. The amortization 4. Amount of the Purchase that is borrowed Prospective borrower fills out a loan app and gives it to a retail lender. It has core elements 1. Negotiation of terms – Charge differing interest rates, conditions of the loan are negotiated. Lender may insist on a co-borrower 2. Good faith estimate of settlement costs, loan explanations 3. Flat rate, adjustable, and other mortgages – Adjustable tied to the T-Bill, ARM 4. Credit Quartet – rate, term, amortization, and amount 5. Core documents – Note, Deed, Security instrument (security instrument is usually either a straight mortgage or a deed of trust) 6. Purchase agreement or Earnest Money Contract – Blueprint of all the processes 7. Loan commitment letter – Sets out an agreement that is not necessarily enforceable, but that the lender will honor 8. Inspections, Appraisal, Survey – Conditions of the loan. Helps the buyer-borrower.
9. Closing documents – Communicate lender requirements about execution of documents, avoidance of charges, initialing pages, etc. 10. Recording of the deed and security instrument – In the office of public recorder or county clerk’s office. Then the title company delivers the deed B. The Core Documents i. In General ii. Promissory Note - a promise to pay a certain amount on a certain date or dates. In the event of a default, the lender has the right to pursue a deficiency action. 1. Deficiency – when a foreclosure does not pay the entire indebtedness, the amount unpaid is called the deficiency. The difference between the loan amount and the price paid at foreclosure. Some states don’t allow this. a. Lenders are required to sell at fair market value. b. Some states have limited or banned deficiencies. 2. Deficiency Action - the lender’s suit on the promissory note for the unpaid amount. 3. Deficiency Judgment – a successful deficiency action. 4. Property can be sold with or without an assumption of the promissory note. a. Seller can remain liable for the note after the sale. b. Buyer who buys “subject to the mortgage” without “assuming the note” does not have any personal liability or loss (other than the property) c. 3 different system: i. IL – The bid is evidence of the value of the property. Amount left on the loan – the bid on the property ii. TX – Depends on the fair market value. Amount left on loan – the fair value. iii. CA – Anti-deficiency legislation. Do not allow deficiency judgments 5. Acceleration of the note – Upon default. Lender can declare an entire balance due and payable, so that it can recover everything due through one collection effort 6. Often, the only bidder at a foreclosure sale is the holder of the note. They could bid far less and make the deficiency far larger than necessary. States have limited deficiency judgments 7. There is such a thing of a promissory note with no personal liability, when you give the deed of trust 8. Moore v. Bank Midwest - loan that was sold, an assumption of a loan by a buyer and a second that took it subject to the
property. Fair market value of the property if less than the value of the loan. Battle of the Appraisers. a. “Subject to” sale - HSA sold it to MGM, but MGM did not take liability for it. The loan went bad and it wasn’t worth as much as was owed, so MGM stopped making payments iii. The Deed 1. The Description: What does the deed convey? a. More than just a mere contract since it immediately transfers legal title from grantor to grantee. b. Important Parts i. Granting clause – accomplishes the business of the deed, conveys the property ii. Property description – identifies the land conveyed, adequate to satisfy the statute of frauds, and sufficient for a surveyor to identify the land unambiguously. iii. Grantee clause- identifies the recipients iv. Habbendum clause – establishes the type of ownership (fees simple, etc) v. Warranty Clause – grantor undertakes to “warrant and forever defend” the title against other claimants, establishes the document is a general warranty deed, and the grantor is liable for invalid conveyance. vi. Exceptions to title – The deed must also detail which parts of the property are not conveyed. vii. Acknowledgement – a sworn statement before a person who takes oaths (a notary) that the conveyance is genuine. c. Ferriter v. Bartmess – Case about the deed from 1943 whose boundaries became disputed. “The Shanty”. Always prefer the definite over the indefinite. A deed should be interpreted liberally. If there is a transfer and have an ambiguity and one interpretation seems to be stingy and one seems to be liberal – go with the liberal one. An unambiguous deed must be interpreted according to its written language, without evidence of grantor’s intent i. Monuments get priority over meets and bounds, roads, etc. Even if they are no longer there but you can prove what it used to be.
d. Grant with reservation - I give you all of this land but reserve a certain portion for myself. 2. The Warranty a. General - most complete type of warranty, may provide several types of covenants: i. Warranty of seisin (rightful ownership) ii. Property is free from encumbrances (phone company owns an easement you don’t know about) iii. Covenant of quiet enjoyment, this means (phone company puts up a fence on its easement): 1. It is a covenant against ouster by another claimant, or 2. A warranty that the grantor will defend the title b. Limited (Special) – the grantee receives a warranty only for claims that were created by the grantor. No guarantee about previous defects, just about defects created by that person. c. Quitclaim - only promise that I don’t own it i. Purpose is to clear up a title ii. For example, if a third person has an encumbrance on the title, and that threatens a transaction (buyer is reluctant to purchase), but the third person freely admits “I don’t own that interest,” the parties may ask the 3rd party to execute a quitclaim. d. Brown v. Lober - an owner breached the covenant, but statute of limitations had run, and there was no usurpation of quiet enjoyment (Removal of coal). To have an ouster you have to bring an action to quiet title. Buyers of property found out that they only had 1/3 mineral rights to their property iv. The Mortgage or Deed of Trust and the Vendor’s Lien 1. Straight Mortgage - requires court action for foreclosure, with all of the delay associated with such action. This costs the lenders more and results in higher credit costs for borrowers. A security instrument given to the lender, telling them “I the buyer defaults on the loan, the lender has a right to file a lawsuit for foreclosure” a. Bank of NY v. Sheik - Court orders the sale of the property. Borrower wants to set aside the foreclosure sale because the price was inadequate. A court may use its equitable powers to set aside a
judicial sale only when fraud, collusion, mistake, or overreaching casts suspicion on the fairness of the sale. 2. Deed of Trust Mortgage - the buyer-borrower conveys to a trustee who has the duties of a mortgage holder. The trustee has the power to sell the property upon breach by the buyer borrower. Lowers credit costs. Private sale of the property, does not have to go to the courts. Deed of trust conveys property in trust to a trustee who acts for the benefit of the lender. Not really a trust. It decreases the costs associated with a straight mortgage, and may make more mortgage funds available at a lower cost (Western States). Don’t have to go to court for foreclosure. Designated spot for public foreclosure. Challenged and often end up in court. a. Dreyfus v. Union Bank – Explains a workout scenario. i. Anit-deficieny agreements – once you have foreclosed on a property you have satisfied the debt. ii. If someone goes into bankruptcy, you have to go to court to get permission to lift the stay against foreclosure iii. Banks generally don’t want to foreclose, so they’d like to work with the borrower. A private sale is simply an auction. At a foreclosure sale, the prices are reduced. The bidders usually don’t have the information, time to inspect, time to check the title. If the debtor thinks they will lose big, they will try to sell it themselves. C. Documenting the Mortgage or Deed of Trust i. Deed of Trust Document 1. Everything is important, it is a lender oriented document. 2. The lender will generally win all arguments and negotiations surrounding the document. 3. Lender will try to get the first security interest in the property. There is a due on sale clause. a. Due on Sale Clause – the lender can entitle himself to the entire indebtedness upon a sale of the property, including a transfer of the property 4. It is a valid security interest. If you sell the property to someone else, it is still burdened with this document 5. Borrower has a right to reinstate. 6. There are default provisions
a. Can accelerate the loan if someone does not pay the payments, if they do not keep up the property, if they do not fulfill other financial obligations. b. Before accelerating, the lender must give notice in compliance with statutes in most states. The borrower is given the opportunity to cure the default by paying the amounts then due, and thus the borrower can reinstate the loans and its payment schedule. 7. Trustees can be replaced. 8. Lender wants to maintain the protect the property as security a. May require hazard insurance b. Will have the right to foreclose if no payment of taxes, condo association dues, etc. ii. Straight Mortgage Document 1. Much of a straight mortgage document is functionally identical to the provisions of a deed of trust (an escrow for taxes, preservation of the property, etc) 2. Major difference is that you grant and convey a security interest to a lender instead of a trustee. Need judicial foreclosure. D. Mortgage Foreclosure i. The Process 1. Bank Fund v. Vivado - The second notices did not include an amount to cure the foreclosure. Court sided with Vivados because if they were not misinformed of their statutory rights in the notice of foreclosure, they might have found the money to pay off the loan in time. They may have been told about the cure amount orally, but it wasn’t put into the notice document. 2. Hoffman v. Ameriquest – Misspelled the address on the foreclosure notice. Borrower knew or should of known of the notice. Therefore, the foreclosure proceeding was valid in despite the mistake. 3. To reconcile Vivado and Hoffman, the rule could be that as long as you actually get notice then you are liable, but in the other case the notice was given but incorrectly ii. The Equity of Redemption and Foreclosure 1. Equity of Redemption - Even after acceleration, even after notice of a foreclosure sale (and even after sale in some jurisdictions), the borrower can redeem the property by paying all amounts due: the total accelerated loan principle, interest, and costs a. Courts don’t like this right, not common
2. Emanuel v. Banker’s Trust – foreclosed property sold at a public auction. Was an issue about whether you could file the certificate of the sale with the clerk. Held: The fact that the court had not entered an order confirming the sale did not extend the time for redemption, because no objection had been filed to the sale. (Weird Case) a. It clearly appears that the mortgagor did not elect to redeem until after the filing of the clerk’s certificate of sale. Consequently, the election was late and the right to redeem was already extinguished. 3. Clogging the Equity of Redemption – adding terms which remove the equity of redemption or make it hard to exercise. a. Ringling- EOR can be bargained for with consideration iii. Wrongful Foreclosure - A mortgage deed holder who forecloses in the absence of a default under the promissory note, mortgage, or deed of trust. 1. It is a property cause of action which gives right to a remedy without any consideration of any intent or negligence of the defendants. 2. Hwang v. Stearns - Stearns wrongfully commenced a foreclosure action against Mrs. Hwang, which violates her property rights at issue. Furthermore, Ms. Hwang’s cause of action is based on property law, and she is not required to show that the Stearns intended to harm her or that they were negligent. A property tax foreclosure was not available to D because: 1) The notice of default did not specifically state that there was a tax default when initiating default; and 2) There was nothing in their deed of trust that obligated the deed of trust to keep the property taxes current. a. Wrongful foreclosure is a property cause of action, which gives remedy without consideration of the defendants. Property tax deficiency cannot support foreclosure because there is no provision in the deed of trust concerning it E. Liens that can arise by operation of law i. Vendor’s Lien - Automatic lien arising based upon payment of the purchase price. 1. This type of lien may provide a safety belt, or extra means of securing the indebtedness, for the lender who pays the purchase price. 2. Disadvantage of a Vendor’s Lien is that it does not provide for a private foreclosure and therefore requires judicial action
3. Chrissikos v. Chrissikos - In this situation, a resulting trust arose in favor of father in law. The trial court properly encumbered the homestead to secure the purchase price of the property. a. Resulting Trust - arises by operation of law when title is conveyed to one person but the purchase price or a portion of it is paid by another. i. To create a resulting trust, the payment must have been made at the time of purchase and the person seeking to impose a resulting trust must have paid the money in the character of a purchaser. ii. No resulting trust exists in favor of one who pays the purchase money by way of mere loan to another and the conveyance is taken in the name of the borrower. iii. A resulting trust differs from a true trust in that it does not have a trust agreement. Basically, the resulting trust is a creature of the law of remedies, that enables the creditor to follow the debt into an item purchased if the creditor is the one who paid the purchase price. iv. NO MAJOR DISTINCTION BETWEEN A RESULTING TRUST AND VENDOR’S LIEN ii. Construction Liens 1. Mechanics, Construction, and Materialman’s liens are not recorded, tax liens are recorded. 2. Lee’s Home Center v. Akins - Tennessee statutes authorize mechanics or materialmen’s liens which arise as a matter of law from the work or delivery of materials, even though the homeowner did not hire the subcontractors, did not have a contract to pay them, and paid the general contractor in full.The burden is on the homeowner to show that amounts paid to the general contractor made its way to the subcontractors. The homeowner must take precaution to make sure everyone gets paid. (Statute Overturned Later) 3. (Odd placement) a. Subject-to financing – Desperate situations b. Seller financing – Seller finances the buyer’s mortgage c. An assumption deed of trust doesn’t release the original borrower – If it’s really crummy property d. Estoppel letter – Written statement confirming the balance due, all terms of the note, that you are
relying on payor’s representations, and that there are no claims against the note V. REAL ESTATE TRANSACTIONS: TITLE INSURANCE A. Seller’s Duty under the Agreement i. Record Title - the person (or persons) shown as the owner in public records. Sometimes the record title holder will not be the holder of “good” title. 1. For example, an adverse possessor has gained title, so that the record title holder no longer owns it. ii. Good Title - a person has good title if the title can be defended against anyone who might claim it through litigation. iii. Marketable Title - a title that is not only good in the sense of being defensible, but about which there is no reasonable doubt (this does not mean free from every doubt). iv. Insurable Title - a title that a reasonable insurer would insure at competitive rates 1. Contractual Obligation of the Seller to Furnish Title Insurance – In many states, title insurance is routinely made a term of a property transfer agreement (earnest money agreement). This serves three purposes: a. It prevents the transaction unless title insurance can be obtained b. It means that an insurer has examined the title and found it free of substantial defects. c. The insurance itself provides some protection v. Title Insurance Protects Purchasers by: 1. Preventing the transaction unless title insurance can be obtained 2. An entity who is in the business of evaluating risks found it free of substantial defects 3. The insurance provides protection vi. Permitted Encumbrances 1. An encumbrance is any right to, or interest in, land which may subsist in a third party to the diminution of the value of the estate, but consistent with the passing of the fee by conveyance. 2. The property transfer agreement usually will provide that the title may be subject to certain encumbrances that both parties expect. vii. Conklin v. Davi – The purchasers refused to complete an agreeupon real estate transaction because the sellers’ title depended on adverse possession. Plaintiffs contracted to sell a property to defendants in Ridgwood. Purchasers refused to sign, alleging misrepresentations.
1. Many titles of imperfect record are nonetheless marketable. The law only assures to a buyer a title free from reasonable doubt, but not every doubt. A title of imperfect record can be marketable and insurable and thus meet the terms of the contract. B. Public Recording Acts i. Race Form of Statute - favor the claimant who records first 1. E.G. North Carolina 2. If a grantor gives deeds to 2 different purchasers, whoever wins the race to the clerk’s office wins title. Regardless of notice 3. Provides certainty ii. Pure Notice - protect a subsequent purchaser only if the purchaser did not have notice of the earlier interest at time of purchase. Does not require the second purchaser to record first. One problem is that it decreases the purchaser’s ability to rely upon the public record and to obtain certainty in examining the title (disproving notice can be difficult because it places the duty of a reasonable inquiry on the purchasor 1. E.G. Texas (shocker) 2. Actual notice – self explanatory 3. Inquiry Notice – where the court says where you should have notice, you actually have notice. Awareness of facts sufficient to put a reasonable person upon inquiry. 4. Constructive Notice – where you should have notice because something is in public record. 5. Notice must be acknowledged (before a notary) as a protection against fraud. Mistakes can cause a notice to get recorded without being acknowledged. 6. Sanchez v. Telles - The purported deed did not contain the required signatures of the grantor and should never have been recorded. Furthermore, the fact that neither the grantor nor her daughter signed the deed make it void. A deed which is void cannot pass title even from an innocent purchaser from the grantee. iii. Race/Notice - protect subsequent purchasers without notice, but only if they are the first to record. If you buy with notice or do not record the property, then you lose. 1. E.G. New York 2. Vitale v. Pinto - The court held that the Vitale was in open possession of the property and the Lloyd is guilty of negligence for having failed to inquire of Vitale as to her interest in the property. NY property law will act to void an unrecorded conveyance of an interest in property as against a recorded subsequent lien only when the subsequent transaction is made in good faith and the subsequent
purchaser is a bona fide purchaser; such is not the case here. 3. Vitale leased a residence from owner Pinto for 6 years. The lease agreement included an option to purchase the property free of encumbrances. Vitale paid $4000 for the option, and Pinto retained ability to mortgage up to $15,000 on the residence. Plaintiff didn’t record the deed. Pinto executed a mortgage of $38,000 with Lloyd Capital, who was unaware Vitale was a tenant with an option to buy. Vitale attempted to use the option, and it was unsuccessful. iv. Meanings of Notice on the Acknowledgment Requirement 1. Constructive notice – If the 1st purchaser records the deed, the 2 nd purchaser will be charged with notice, even if the 2nd purchaser hasn’t examined the record. 2. Actual Notice – Even if the 2 nd purchaser never examines the record, the 2 nd purchaser does not acquire valid title if that purchaser knew of the 1 st interest 3. Inquiry notice – 2 nd purchaser only suspects that an earlier interest exists. If the suspicion is strong enough that a reasonable person would have found out about the 1 st notice, 2 nd purchaser is charged with an inquiry notice v. How Statutes Work - The public recording system has two important features: 1. the examiner’s ability to trace record title from the recorded documents, and 2. The provisions in the state’s recording act that cut off most interests of claimants who do not record. 3. Acknowledgment requirement – Instruments affecting real property cannot be recorded unless it is acknowledged vi. Sale to a Remote Purchaser – no good answer here C. Title Search and the Chain of Title i. The Title Search – you have to look at multiple offices, but the search only has to be reasonable 1. Ellingsen v. Franklin Co. – Emphasizes the burden that title searches must be reasonable. Even if an instrument is recorded and theoretically discoverable, the court sided with the title examiner saying that the county should have recorded in the place title examiners usually search. Not reasonable to have to search the engineer’s office. Plaintiff landowners sued Franklin County to quiet title against county’s claim of a road easement over their property. ii. The Chain of Title: How it influences the title search 1. Grantor-Grantee Index – places a brief description of the document (deed of trust, etc) next to the name of the grantor. Basically, this is an index saying who has granted what to whom
2. Grantee-Grantor Index – List of who has granted property to the person. 3. What is a reasonable title search – have to obviously go back as far as the statute requires 4. Wild deed – a document from a person who has no previous chain of title whatsoever, likewise will not be found 5. In re Dlott – Basically you only have to check back to the prior owner. It may now be possible to uncover the second conveyance; however, the MA rule is that a grant outside the chain of title does not impose constructive notice. a. Massachusetts law provides that a conveyance of an estate in land is not valid against any person unless the transfer is recorded or unless that person has "actual notice" of the unrecorded conveyance. Mass. Gen. Laws ch. 183, § 4. The statutory requirement of "actual notice" has been strictly construed. Knowledge of facts which ordinarily would put a party upon inquiry is not enough. b. Purchasers should not be required to look beyond the registry of deeds further than is absolutely necessary 6. Nally v. Bank of NY - The crucial fact is that the Owens’s executed their mortgage after the execution of the deed to Nally but before the recording of the deed to Nally. Later the deed to Nally was recorded after the recording of the mortgage held by the Owens’s. Bank of NY’s search failed to identify the Owenses mortgage, which was within the chain of title; thus, the new lender and bank had constructive notice of the mortgage; a. A mortgage provides constructive notice to subsequent purchasers when it is properly acknowledged and recorded. However, a record outside the chain of title does not provide notice to bona fide purchasers for value. These rules apply to both purchasers and mortgagees b. The concept of "chain of title" to a tract of land is described as follows: In a title search, the prospective purchaser or his abstractor assesses the marketability of title to a tract of land by determining the "chain of title." Beginning with the person who received the grant of land from the United States, the purchaser or abstractor traces the name of the grantor until the conveyance of the tract in question. The particular grantor's name is not
searched thereafter. As the process is repeated, the links in the chain of title are forged. c. Equitable Subrogation - when a 3rd person pays a debt owned by another, and it enables that person to “step in the shoes” of the earlier creditor, and claim the rights of the earlier creditor against the debtor d. Bona Fide Purchaser (BFP) – a buyer who: i. purchased the property in good faith for value (but does not have to be fair market value) ii. had no knowledge or notice rights of another ON N First mortgage to lender N 2 nd Mortgage to O O Records 2 nd mortgage (will not be found because N recorded his deed after that) N records the deed from O N gets a new mortgage with Bank of NY and pays off the first lender (They found out when they got the property to the present. Court says, if you looked at the deed you would have seen the actual date, not the filing date) 7. Witter v. Taggart – Restrictive covenant found in the dominant chain but not the servient chain. To impute legal notice for failing to search each chain of title or "deed out" from a common grantor "would seem to negate the beneficent purposes of the recording acts" and would place too great a burden on prospective purchasers. Therefore, purchasers like the Taggarts should not be penalized for failing to search every chain of title branching out from a common grantor's roots in order to unearth potential restrictive covenants. a. Basically the Witters should have prevented these problems by recording in the servient chain the conveyance creating the covenant rights so as to impose notice on subsequent purchasers of the servient land. i. Dominant – party whose land is benefited by the covenant (here Witter, who claimed a right to preserve scenery) ii. Servient – the land that is burdened (the Taggarts since, they are prevented from building the dock by the easement) b. Purchasers are legally bound to search only within their own tree trunk line and are bound by constructive or inquiry notice only of restrictions which appear in deeds or other instruments of conveyance in that primary stem. Property law principles and practice have long established that a
deed conveyed by a common grantor to a dominant landowner does not form part of the chain of title to the servient land retained by the common grantor. c. The guiding principle for determining the ultimate binding effect of a restrictive covenant is that in the absence of actual notice before or at the time of purchase or of other exceptional circumstances, an owner of land is only bound by restrictions if they appear in some deed of record in the conveyance to that owner or that owner's direct predecessors in title. d. Bishops case says the opposite, basically an absence of docks should have created inquiry notice. (overruled, preference for notice through a reasonable title search) iii. Legislation 1. Marketable Title Legislation – authorized a search for only a fixed period and extinguished interests pre-existing that period. a. Model Marketable Title Act – a model statute that has been adopted in various forms by different states. Says that: i. If a person can show a record chain of 40 years and no other claimant has filed a notice of claim to the property during the 40 year period, then any pre-existing interest is extinguished. ii. Major flaw is that interests which arise under (or are left unclear by) documents filed during the past 40 years are not cut off. 1. E.G. if a grantor has conveyed subject to an exception, the exception is not cut off. iii. Another Flaw is that claimants may file many claims on record for the precise purpose of avoiding the cutoff effect. b. Many states that do not have a marketable title act accomplish something similar through the statute of limitations. 2. Indexing by Tract a. The Torrens System – way of indexing property by tract D. Title Insurance i. The Title Insurer’s Contractual Liability under the Policy 1. Title policies always contain extensive exclusions, both specific and general. The purpose of these exclusions is to
limit the liability of the insurer to risks that the insurer can reasonably control, underwrite, and evaluate. 2. Manley v. Cost Control – Wetlands - If the policy says by its terms that it does not cover certain encumbrances, then within the policy you cannot have liability. You can have liability outside the policy, if the title company was negligent in doing their title work (extra-contractual liability). Also, if the title company gave an assurance, so there would also be extra-contractual liability for misrepresentation or fraud. ii. Extra-Contractual Liability – sometimes the purchaser-insured seeks extra-contractual liability because: 1) the insurance is insufficient 2) because other potential defendants are insolvent, and/or 3) the policy limits do not cover actual loss 1. Somerset v. Chicago Title - Company tries to build a $10 million project but govt halts construction. Company tries to sue title company. Court holds that there is no liability under the contract, case was remanded to find out if there was extra contractual liability. There might have been a duty assumed. iii. The Title Policy 1. Usually covers 4 risks: a. Title b. Defects or encumbrances c. marketability d. access 2. Standard Exclusions: a. Laws, ordinances, regulations (zoning laws) b. Eminent domain rights c. All defects agreed to by the insured d. All defects known to the insured but not to the company e. All defects resulting in no loss f. All defects attaching after the policy date g. All defects because the insured did not pay value 3. Conditions and Stipulations – sets out the important terms 4. Declarations – contains specifications of the insured, the property, existing encumbrances, amount of insurance. 5. Exceptions – really no difference from exclusions E. Third Party Liability i. Attorneys – can be liable for negligence, fraud, breach of fiduciary duty, etc. ii. Abstractor - prepares a package for a title examiner that contains all of the documents affecting a particular parcel of real estate. The collection of documents is called an “abstract of title” iii. Surveyors
iv. Lenders F. Curing Title - The process of clearing up problems (defects) in the title i. Ways to cure 1. Further Examination 2. Quitclaim 3. Boundary Agreement – a written understanding between adjoining property owners about where the boundary is located. 4. Affidavits – this is used sometimes to support the seller’s competence, make sure you have the correct party to the transaction, etc.