Arameh Real Property Outline 2nd Semester

REAL PROPERTY I. The Law of Servitudes a. License i. A license is a non-possessory right to enter the land and in a way that would otherwise constitute a trespass, revocable at any point. ii. A license grants the same type of permission as an easement, but it lacks the security and longevity of an easement. A license can be revoked at any time, expressly or impliedly. Any act that is inconsistent with the continuation of the license (such as death, sale of property) will constitute a revocation. iii. Licenses do not have to comply with the SOF. iv. If the license is in writing, look at the language of the instrument and the surrounding circumstances to determine if the parties actually intended an easement. v. A license does not run with the land. b. Profit i. A profit is a non-possessory right to enter the land and remove something from it (wild animals, timber, minerals, or fish). c. Easement i. An easement a non-possessory right to enter the land and use it in a way that would otherwise constitute a trespass. It involves a conveyance of the right to use the land without the transfer of title. ii. Introduction to Easements 1. Servient Estate a. The servient estate is the parcel of land burdened by the easement. b. The owner of the servient estate can use the land for all purposes not inconsistent with the easement that has been granted. However, some jurisdictions recognize an “exclusive easement,” which begins to resemble a sale. 2. Dominant Estate a. The dominant estate is the parcel of land benefiting from the easement. b. It is possible to have an easement without a dominant estate if the easement is in gross. An easement in gross follows the person, not the land. Real Property Outline II Allyson Rinella Tiffany Schatz 3. Easement Appurtenant a. An easement appurtenant follows the land. b. If there is a close call between an easement appurtenant and an easement in gross, the easement appurtenant is favored. c. Scope i. The scope of an easement appurtenant is that it is limited to every inch of the dominant estate and nothing more. If the easement is used to benefit another parcel of land, this is a misuse that is a trespass, even if that use does not increase the burden on the servient estate. The reason for this is to prevent future over-burdening of the servient estate should the dominant estate increase in size, beyond the scope originally served by the easement, then severed, leaving multiple parcels that exceed the scope of the original easement that would potentially be served by the easement. We don’t want that. ii. A misuse of the easement constitutes a trespass. Courts usually issue an injunction rather than damages because damages would look like a forced sale of an easement, and this would afford landowners little protection against trespassers. iii. Reasonably foreseeable development or divisibility of the dominant estate is within the scope of the original easement appurtenant. Reasonably foreseeable doesn’t afford the servient landowner much protection. iv. The reasonably foreseeable development applies to implied easements by necessity also. v. An easement appurtenant is divisible if the land is severed. Real Property Outline II Allyson Rinella Tiffany Schatz vi. An easement appurtenant is assignable to a future owner of the dominant estate or a portion of that estate. vii. There is no natural limitation on the scope of an easement appurtenant. viii. An easement for ingress / egress does not give the easement beneficiary the right to go under the land. 4. Easement in Gross a. An easement in gross follows the person. There is no dominant estate. b. At common law an easement in gross was not transferable. Under the modern trend, if the parties intend for the easement in gross to be transferable, then the easement can be transferred. We look for the words, “heirs and assigns.” The Restatement says that easements in gross are assignable unless there is specific language restricting the assignability of the easement. The modern-modern trend says that a commercial easement has an implied potential for assignability. c. Scope i. An easement in gross is divisible. The “one stock” rule is applied for commercial easements that says that the owners of a divided easement must act as one so as to not overburden the servient estate. ii. A misuse of the easement constitutes a trespass. Courts usually issue an injunction rather than damages because damages would look like a forced sale of an easement, and this would afford little protection to landowners against trespassers. iii. An easement for ingress / egress does not give the easement beneficiary the right to go under the land. iii. Easements 1. Five Types of Easements a. Express Easement i. Creation Real Property Outline II Allyson Rinella Tiffany Schatz 1. An express easement must comply with the SOF. 2. If properly executed and in compliance with the SOF and the land is subsequently sold after the conveyance of the easement, the beneficiary of the easement continues to hold the easement. If the easement is not in writing or otherwise not in compliance with the SOF, we assume that a mere license was granted, and a license does not run with the land. ii. Duration 1. If the conveyance does not address duration then the assumption is FSA. However, if there is clear language as to another duration, that language will be honored. b. Implied Easement by Necessity i. Creation 1. An implied easement by necessity can arise as a matter of law if a parcel of land is landlocked. 2. Since there is no utility in a landlocked parcel, an easement arises by operation of law across the land from which the landlocked parcel was severed at the time that it became landlocked. ii. Scope 1. Reasonably foreseeable development and division of the dominant estate is okay. iii. Duration 1. An implied easement by necessity lasts until the easement is no longer necessary. Just as the easement arose by operation of law, it is so terminated. Real Property Outline II Allyson Rinella Tiffany Schatz iv. Public Trust Doctrine – Public Easement by Necessity 1. The public trust doctrine asserts that all navigable waterways are owned in trust by the state for the public good. 2. This means that rapine property (all property that abuts a waterway) ends at the median tide line. 3. Since waterways are used less and less frequently for transportation, the modern trend is to expand the public trust doctrine to include the part of the dry sand area that is reasonably necessary to maximize recreational use of waterfront property. 4. One cannot adversely possess against public property. 5. Generally the public trust doctrine is construed broadly since it is for the public good. c. Implied Easement by Prior Existing Use i. Creation 1. An implied easement by prior existing use can arise by operation of law when there is an apparent and necessary quasi-easement across the property that existed prior to the conveyance/severance of the property, where the purchaser knew or should have known that the easement would continue after the conveyance. Since an owner of land cannot have an easement in her own property, the concept of a quasieasement is used by a party seeking an implied easement by prior existing use to show that the previous owner’s use of the Real Property Outline II Allyson Rinella Tiffany Schatz easement shows its apparentness and necessity. 2. To get an implied easement, the party seeking the easement must show that at the time of severance, the quasi-easement was both apparent and necessary. 3. “Oops Doctrine” The implied easement based upon prior existing use has been called an “oops doctrine,” meaning that the parties intended to put the easement in the deed and just forgot. 4. If the economic hardship looks unfair or unduly burdensome, then the court is more likely to find an implied easement by prior existing use. However, if it is not that big of an economic hardship to find another route that does not constitute a trespass, then there’s a strong argument not to find an implied easement. ii. Duration 1. The duration of an implied easement by prior existing use is in FSA. d. Prescriptive Easement i. Creation 1. A prescriptive easement is an easement that arises by operation of law similarly to an adverse possessor gaining title to property. 2. An easement can arise by prescription if there is actual use that is adverse/hostile, so as to not constitute a license, open and notorious, so as to give notice to the servient estate owner, as exclusive as the nature of the land claimed requires, under a claim of right (most jurisdictions take the Real Property Outline II Allyson Rinella Tiffany Schatz objective approach), and as continuous as required by the land claimed for the statutory period. 3. The presence of a gate can go to show adverse and is helpful when showing an easement by prescription. If there is no gate, it is a stronger argument that the use was by license. 4. The trespass does not need to use the same path each time to acquire an easement by prescription. 5. The mere fact that there is no path does not mean that the trespasser cannot acquire an easement by prescription, though it certainly is easier if there is a path. ii. Duration 1. The duration of a prescriptive easement depends on the nature of the easement acquired. The duration of a prescriptive easement is tied to the circumstances giving rise to the easement. Why did this trespasser want this easement? iii. Termination 1. Just as a trespasser can acquire an easement by prescription, so can the servient landowner prescriptively acquire the land back by blocking use of the easement for the statutory period. iv. Public Prescriptive Easement 1. A public prescriptive easement is a collective prescriptive easement, otherwise similar to a prescriptive easement. Absent a showing of permission, students at a university, residents of a town, etc. can claim collective prescriptive easement of roads, as an example. That’s why the Real Property Outline II Allyson Rinella Tiffany Schatz Rockefeller’s close down Rockefeller Center and that’s why there’s a guard at Pepperdine. e. License + Estoppel = De Facto Easement i. Creation 1. A de facto easement can be created if the owner of the servient estate grants a license to the owner of the dominant estate and the owner of the dominant estate spends money on reliance of this license. In essence, the servient estate owner is equitable estopped from revoking the license. 2. The owner of the servient estate must know or have reason to know that the owner of the dominant estate is spending large amounts of money. 3. Duration a. A de facto easement created by license plus estoppel lasts until the owner of the dominant estate has recouped his financial losses. (ex. If the owner of the dominant estate had built a house in reliance on a road, then he has an easement by license plus estoppel, but if the house burns down and he collects the insurance proceeds, he has, in effect, recouped his losses, so the easement no longer exists.) 2. Maintenance of the Easement a. User(s) of the easement are responsible for the upkeep of the easement. Thus, if just the beneficiary uses it, then he is responsible for its upkeep. However, if both the beneficiary and Real Property Outline II Allyson Rinella Tiffany Schatz Ways to Create Duration the owner of the servient estate use it, then they can share costs. 3. Location of the Easement a. At common law, and today the general rule, once an easement is in a fixed place, the owner of the dominant estate cannot move it without the beneficiary’s permission. b. Under the modern trend, the easement holder can move the easement as long as it does not unduly burden the beneficiary. 4. Duration of an Easement a. The natural duration of an easement depends upon the type of easement. b. If an easement does not have a built-in termination, then the default is a FSA. 5. Termination of an Easement a. Merger i. One cannot own an easement across his own land, so if the beneficiary of the easement purchases the servient estate, his easement merges into a FSA and his easement is terminated. To re-activate the easement upon the sale of the servient estate, the individual must reacquire his possessory right. b. Abandonment i. An easement is abandoned when there has been behavior clearly expressing an interest in terminating the easement. Mere non-use will not constitute abandonment. c. The court will terminate an easement if it is regularly misused. d. If an easement does not have a built-in termination, then the default is in FSA. Express Implied Implied Prescriptive License Easement Easement Easement Easement plus by by Prior Estoppel Necessity Existing Use Language of As long as FSA FSA, but Until $$ deed – there is a does losses fallback is necessity. depend on have been Real Property Outline II Allyson Rinella Tiffany Schatz FSA. the purpose of the easement. recouped. Ways to End Merger, Prescription, Abandonment d. Ways to Create a Servitude i. Express Reservation 1. An express reservation is a provision in a deed creating some new servitude that did not exist before as an independent interest. The deed itself actually creates the property interest and conveys it in the same instrument. 2. At common law the grantor could not reserve an interest in a third party. This law probably remains the majority. At common law the grantor could reserve an interest in himself. 3. At modern trend, the grantor can reserve an interest in a third party. ii. Implied Reservation 1. An implied reservation can be found when there is no express provision in a deed creating a new servitude, but it can be gleaned from the circumstances surrounding the conveyance. When the servient estate was sold the parties intended to reserve an interest, but they just forgot to include it in the deed. 2. The implied reservation has a high standard of necessity, since we will be more reluctant to change a deed that purports to convey less (because of the burden). iii. Exception 1. An exception is a provision in a deed that excludes from the grant some pre-existing servitude on the land. iv. Implied Grant 1. An implied grant can be found when there is no express provision in the deed, but it can be gleaned from the circumstances surrounding the conveyance. When the dominant estate was sold the parties intended to reserve out an interest, but they just forgot to include it in the deed. 2. The standard of necessity is lower for an implied grant than for an implied reservation since we are not as Real Property Outline II Allyson Rinella Tiffany Schatz reluctant to change a deed that purporting to convey more (benefit). v. Lost Grant Approach 1. If the person seeking the easement has used it for as long as people can remember, then it is assumed that he had a grant and lost it. There must be acquiescence by the owner of the servient estate. Drawing the line between license and acquiescence can be very fact sensitive. 2. All the servient landowner has to do is show some objection, since this shows a lack of acquiescence to begin the SOL all over again. e. Negative Easements i. A negative easement conveys no right to enter the property, but the beneficiary has some say over what the landowner does with his land. A negative easement affects the servient estate owner’s right to use the land. A negative easement often requires an affirmative effort on the part of the landowner. This is an affirmative covenant. Other covenants merely restrict the servient owner’s use of the land. This is a prohibitive covenant. ii. Four Types of Negative Easements Recognized at Common Law 1. The right to stop a neighbor from blocking your window. -- Light 2. The right to stop your neighbor from interfering with air flowing to you land in a defined channel. -- Air 3. The right to stop your neighbor from removing the support of your building. -- Lateral Support 4. The right to stop your neighbor from interfering with the flow of water in an artificial stream. – Water iii. Three Additional Types of Negative Easements Recognized in the American Modern Trend 1. The right to an unobstructed view. 2. A solar easement for solar collectivity (very rarely recognized) 3. Conservation easement f. Covenants i. Covenants are court-created negative easements. Since there were so few negative easements recognized at common law, courts got around the restrictions by calling them covenants. ii. Covenants Running With the Land Real Property Outline II Allyson Rinella Tiffany Schatz 1. There is never a problem enforcing a covenant between the original parties, but problems arise when subsequent owners of land try to enforce the covenants. 2. The benefit of a covenant runs with the land, so the only person that can enforce a covenant is the owner of the benefited estate. 3. Who can sue? a. At common law the benefit flowed to the land retained by the grantor at the time the covenant was created. Any land conveyed by the grantor prior to the creation of the covenant did not benefit from the covenant. Only subsequent owners of the grantor’s land can sue to enforce the covenant. b. The courts expanded on this rule by saying that if there appeared to be a common scheme for all the lots in question, then everybody in the common scheme has standing to enforce against everybody else. Virtually all jurisdictions adopt the common scheme doctrine for standing. c. 3rd Party Beneficiary Rule NY says that a covenant is a contract, and since we acknowledge 3rd party beneficiary contracts, we should allow covenants to have 3rd party beneficiaries too. P must show that the original grantor intended to restrict all the lots for the benefit and use of all the lots. This would allow prior purchasers to exercise rights under the covenant too. This is an expansion of the common scheme doctrine. 4. Two Types of Covenants – The same covenant can be both. Attorneys often argue in the alternative. a. Real Covenant – Damages i. If the P can show that the covenant was a real covenant then he is entitled to damages. A real covenant requires privity, the intent to run to future parties, and it must touch and concern the land (it cannot be a personal contract). ii. The common law courts thought that paying damages was more burdensome than an injunction, so the requirements Real Property Outline II Allyson Rinella Tiffany Schatz for a real covenant are stricter than the requirements for an equitable servitude. iii. There were different requirements for the benefit and the burden to run to subsequent purchasers. It was possible for one side to run but not the other. iv. Privity 1. Burden to Run a. For the burden to run to a subsequent purchaser, we must show horizontal and vertical privity. b. Horizontal Privity i. Instantaneous / Successive Privity means that the covenant was created when there is a grantor-grantee relationship. The restriction begins at the same time as the conveyance. ii. Mutual Interest Privity exists if the two parties shared a mutual property interest other than the covenant, such an easement, landlord-tenant, or a mortgage. These parties can enter into a covenant at any time, even though there is no grantor-grantee relationship. c. Vertical Privity i. The degree of privity is an estate of the same duration. Real Property Outline II Allyson Rinella Tiffany Schatz ii. If the property is leased, there is no vertical privity. iii. If the land is sold, then there is vertical privity. 2. Benefit to Run a. For the benefit to run to a subsequent purchaser, we did not have to show horizontal privity, but must show vertical privity. b. Vertical Privity i. The degree of vertical privity was any interest at all. ii. The benefit will run whether the land was leased or sold. v. Intent to Run to Future Parties 1. There must have been intent to run to future parties rather than just a promise between the two original parties. 2. Look for “heirs and assigns” or the “covenant will run with the land.” 3. At common law, courts would imply an intent to run to express covenants to covenants that were in esse (fairly-permanent and already in existence – levee, wall, fence, etc). 4. Under the modern trend, if the nature of the covenant is such that it only makes sense that the covenant will run with the land, then the courts will imply intent. Generally, as long as the covenant touches and concerns the land, then intent can be implied. vi. Touch and Concern Real Property Outline II Allyson Rinella Tiffany Schatz Lot 1 Sold to Yahne Lot 5 Lot 9 Real Property Outline II Allyson Rinella Tiffany Schatz 1. Only those covenants that go to the use of the land should run. vii. A subsequent bona fide purchaser of the servient estate without notice of the covenant can defeat the covenant. The beneficiary of the covenant seeking to enforce the covenant will have to show that there was notice. Thus, notice can requirement if the SBP claims protection under the recording act. In that sense, notice can be seen as a fourth requirement for a real covenant. viii. Courts will never imply a real covenant. b. Equitable Servitude – Injunction i. If the P can show that the covenant was an equitable servitude then he is entitled to an injunction. An equitable servitude requires notice of the restriction, the intent to run to future parties, and it must touch and concern the land (it cannot be a personal contract). ii. Creation 1. Express Covenant 2. Implied Covenant -- Common Scheme Doctrine (Not all jurisdictions) a. The common scheme doctrine can be used to imply a covenant where there is a common owner of two or more lots so situated as to bear the relation. b. A common scheme can only begin with an express covenant. Lot 2 Sold to Lot 3 sold to Fox Lot 4 sold to Pevec Rinella with with express with no restriction express restriction restriction for for “residential use “residential use only” only” Lot 6 Lot 7 Lot 8 Lot 10 Lot 11 Lot 12 c. Under the common law the benefit runs only to the land retained by the grantor at the time the burdened lot was sold. Therefore, if lot 4 has an implied covenant, it was restricted at the time lot 2 was sold. Thus, all the lots except lot 1, are in the common scheme and thus have the benefit. d. If the court determines that a common scheme exists, then is arose by operation of law when the first deed mentioning the restriction was conveyed. iii. Notice 1. Record Notice a. Record notice is notice of the restriction that can be obtained by looking at the chain of title. b. Because of the common scheme doctrine is important for the purchaser of land to search all deeds out from the original grantor, not only the chain of title for the particular lot in question. c. Constructive notice is notice of the restriction that can be obtained by looking at the lots around. Even if there is nothing in the records office records office to indicate that there is a covenant, D can be charged with the knowledge just by common sense and looking at the lots. Real Property Outline II Allyson Rinella Tiffany Schatz iv. Intent to Run to Future Parties 1. There must have been intent to run to future parties rather than just a promise between the two original parties. 2. Look for “heirs and assigns” or the “covenant will run with the land.” 3. For the common scheme intent will be implied, but otherwise intent should be express. 4. Under the modern trend, if the nature of the covenant is such that it only makes sense that the covenant will run with the land, then the courts will imply intent. Generally, as long as the covenant touches and concerns the land, then intent can be implied. v. Touch and Concern 1. Virtually all negative covenants touch and concern the land. 2. In England affirmative covenants did not touch and concern the land. 3. In America we acknowledge that some affirmative covenants do touch and concern the land. 4. The problem with affirmative covenants is that they can 1) make the person appear as an indentured servant, 2) courts could get involved over and over, and 3) affirmative acts cost money. 5. Where affirmative covenants are limited in duration and scope, and reasonably necessary for the use and enjoyment of the property, courts will enforce the affirmative covenant. 6. If the affirmative act is to be performed on the servient estate, Real Property Outline II Allyson Rinella Tiffany Schatz there is a stronger case that it touches and concerns the land. 7. Restatement says that it touches and concerns if it is reasonable. 8. Under the modern trend, where there is a clear property benefit running back to the servient estate, then the covenant probably touches and concerns the land. 9. Under the modern trend, the general rule is that if the burden is appurtenant then the benefit has to be appurtenant. However, even if the benefit were appurtenant and the benefit were in gross, that would still touch and concern since there is a benefit running to the land. 5. Scope of Covenants a. Covenants are subject to the Constitution and the air Housing Act. b. If enforcing a covenant would violate the 14th Amendment, then that covenant will no be enforced. Thus, restraints on alienation that are unreasonable are not enforceable. c. When determining what falls within the scope of the covenant, we can construe the terms in light of public policy. 6. Termination of Covenants a. Covenants can be terminated if all those subject to them expressly release the covenant. This can be very expensive because some parties will hold-out until the end, then charge an exorbitant rate. b. Change-In-Neighborhood Doctrine i. Somebody trying to terminate a covenant can seek to invoke the change in neighborhood doctrine which says that if there have been changes within the restricted neighborhood such that the covenant no longer serves its purpose, then the court can release the covenants. The changes cannot be external, Real Property Outline II Allyson Rinella Tiffany Schatz II. peripheral, or outside the neighborhood since keeping those changes outside of the neighborhood was precisely the purpose of the restrictive covenants. ii. A change in zoning is not a sufficient change in a neighborhood to invoke the change in neighborhood doctrine unless the change is such that the prior use would be illegal. iii. Even if the covenants restrict the land from being put to its highest economic use, that is not enough to release the covenants. iv. One person has the right to refuse to release her covenant. v. Record owners cannot abandon their property ever, including to terminate obligations under a covenant. 7. Common Interest Communities a. A violation of a CC & R that takes place entirely within one’s condo can be restricted. b. CC & Rs should be enforced unless they are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit. The presumption is that the restriction is reasonable. c. The reasonableness of a CC&R must be determined uniformly for all those who have entered into them, not on a case-by-case basis. The Land Transaction a. Introduction i. Timeline: Offer on land  Acceptance  Contract to Purchase  Check out Property and Arrange Financing  Enter into Escrow  Buyer Pays Consideration  Buyer Records Deed ii. The buyer of land acquires title to that land. Title is a bundle of rights. b. Real Estate Agent i. At common law, the real estate agent had completed her job when she found a ready, willing, and able buyer that has entered into a contract with the seller. This is when the agent is entitled to her commission. Real Property Outline II Allyson Rinella Tiffany Schatz ii. Under the modern trend, the real estate agent does not get paid until the contract closes. If it is the seller’s fault that the contract does not close, then the agent may still be entitled to her commission. c. The Contract of Sale i. The Statutes of Fraud – To satisfy the SOF a memorandum of sale must, at a minimum, be signed (anything that the party intends to be his signature) by the party (to a reasonable certainty) to be bound, describe the real estate (to a reasonable certainty), and state the price (split among jurisdictions). We have the SOF for its evidentiary value, protective function, ritualistic function, and to channel contracts to lawyers to keep real estate litigation down. 1. Issues: Is there a contract? If so, does it comply with the SOF? If there is no contract or if it does not comply with the SOF, does an exception apply? 2. There is a split among jurisdictions as to price – all say that you need it, but how specific must it be to comply with the SOF. a. If the parties have agreed on a price, it should be in the contract. b. If there is some indication that the parties agreed on a method for determining price, then the courts will apply it. c. Courts can imply a fair-market value. 3. Exceptions to the SOF a. Part Performance i. If the acts of the parties substantially satisfy the evidentiary requirements of the SOF, then the SOF requirements will be waived. This usually requires taking possession and either payment or substantial improvements. b. Estoppel i. Estoppel applies as an exception to the SOF if unconscionable injury would result from denying enforcement of an oral contract after one party has been induced to seriously change his position in reliance on the contract. ii. Quality of Title – Parties will contract for one of the following 1. Issue: What is the quality of title contracted for? Real Property Outline II Allyson Rinella Tiffany Schatz 2. Perfect Title a. Perfect title is free of any public or private restrictions. It is very rare. b. An encumbrance is anything that makes it more difficult fore a buyer to do what he wants with the land. 3. Marketable Title a. Marketable title is title that is not subject to doubt that would create apprehension of its validity in the mind of a reasonable person so that a reasonable person would be willing to pay its fair value. b. Marketable title should be free from unreasonable defects and unreasonable risk of litigation. c. At times the courts seem arbitrary as to what constitutes marketable title. d. Marketable title is the default title. If the contract is silent as to the quality of title, then marketable title is presumed. e. Unless otherwise contracted, marketability of title is tested at the time of judgment when the parties resort to litigation. f. If the contract says “marketable or insurable,” then the seller can force the buyer to take the land if the court says it is unmarketable as long as an insurance company says it is insurable. However, if the contract says “marketable and insurable,” then the seller cannot force the buyer to take the land unless the court says it is marketable and an insurance company says it is insurable. g. Public Encumbrances i. Public zoning encumbrances don’t generally affect marketability of title. If there is a substantial present public violation, then it does affect marketability of title, regardless of whether the government has initiated action or not. ii. If there is a change in zoning during the escrow period, there may be an issue with regard to marketability. Strict Real Property Outline II Allyson Rinella Tiffany Schatz application of the doctrine of equitable conversion would result in the burden being borne by the buyer. Under the modern trend, it is argued that there has been a breakdown in a material component of the contract warranting rescission. This view usually requires an understanding between the buyer and seller as to buyer’s use of the land. iii. Present violations of building codes does not make title per se unmarketable unless the government has initiated action. h. Private Encumbrances (covenants, easements) i. Private encumbrances make property per se unmarketable. ii. There are two types of encumbrances: 1. Recorded (covenants, express easements, liens, mortgages). Recorded easements require a trip to the recorder’s office. 2. Unrecorded (implied easements, prescriptive easements, and present violations). Unrecorded easements require the buyer to inspect the property. i. Land Acquired by Seller by Adverse Possession i. Land acquired by the seller by adverse possession is marketable if it meets two requirements. It requires a case-by-case analysis. 1. Any potential outstanding claimants (record owners) could not succeed were they in fact to assert a claim. 2. There is no real likelihood that any claim will be asserted. 4. Insurable Title a. Insurable title is the quality of title that an insurance company is willing to insure against title defects, such that it is considered an acceptable risk. Insurable title is a lower threshold than marketable title. Real Property Outline II Allyson Rinella Tiffany Schatz b. If the contract says “marketable or insurable,” then the seller can force the buyer to take the land if the court says it is unmarketable as long as an insurance company says it is insurable. However, if the contract says “marketable and insurable,” then the seller cannot force the buyer to take the land unless the court says it is marketable and an insurance company says it is insurable. 5. Record Title a. Record title overlaps with the other forms of title. Most courts will say that record title excludes adverse possessors. d. Equitable Conversion i. Under the doctrine of equitable conversion the buyer is presumed to be the owner of the property from the date on which the parties entered into the contract. This is a relationback type doctrine. The seller is held to possess the property in trust for the buyer. During the escrow period, the property is considered personal, not real property. Thus, during escrow, the seller merely has a legal COA for the sale price. The buyer has equitable title. 1. Death of Seller a. If the seller dies during the escrow period, the buyer is treated as the owner of the land. 2. Destruction of Improvement a. Common Law i. Still the majority, the common law says that the risk of loss is on the buyer. This burden was placed on the buyer since the contract for the sale of land was for the property, not the improvement. ii. Additionally, damage to an improvement did not entitle the buyer to an abatement of the purchase price. iii. At English common law the seller could keep any insurance proceeds he received. iv. At American common law the buyer could keep any insurance proceeds. b. Modern Trend i. The minority of jurisdictions say that the risk of loss is on the seller. Since the house is the really important aspect of Real Property Outline II Allyson Rinella Tiffany Schatz the contract, any significant or substantial damage to the home would permit the buyer to get out of the contract. ii. If the damage is not substantial or significant, the buyer would be entitled to an abatement of the purchase price. iii. Buyer does not qualify for insurance proceeds since this would be like doublerecovery. iv. The risk of loss has shifted to the seller. c. Modern-Modern Trend i. The party in possession during escrow bears the burden of loss. Usually this is the seller. e. Pre-Closing Issues i. Can the buyer get out of the contract? ii. In order for the buyer to get out of the contract for lack of financing, there must be a provision in the contract. This provision will not be implied. iii. If there is a problem with the improvements, there is no basis for the buyer to get out of the contract unless there is a provision in the contract … unless it involves the seller’s duty to disclose. f. Post-Closing Issues i. Who trumps under the recording acts? ii. Can the buyer sue the seller under the warranties in the deed? g. Duty to Disclose i. Common Law 1. At common law there was no duty on the seller to disclose defects. This is knows as caveat emptor or “buyer beware.” 2. There was an exception to caveat emptor for fiduciary relationships. 3. At common law the seller could not make affirmative misrepresentations (misfeasance), but he could keep quiet (nonfeasance). ii. Modern Trend 1. Under the modern trend the seller must disclose latent material defects of which he is aware. Materiality is defined as anything that substantially affects the value of the property. Issues that arise under the modern trend are: What is patent and what is latent? What is Real Property Outline II Allyson Rinella Tiffany Schatz 2. 3. 4. 5. 6. 7. 8. 9. material and what is immaterial? Whether the seller actually knew or only should have known? There is no duty to disclose patent defects. In California the duty to disclose extends to the real estate agent. The duty to disclose is not limited to the improvement, or even the boundaries of the land. If there is an exterior defect (such as rowdy neighbors), then the seller should disclose. Most states have statutes which list all the things that the seller must disclose and things which he need not disclose. The rationale for placing this duty on the seller is that the transaction is contractual, so there is a duty to act in good faith. Good faith would require disclosure. Parties cannot contract around the duty to disclose. The duty to disclose does not run to title problems. An “as is” clause will be upheld if the defects are reasonably discoverable or specifically mentioned, and there is no fraud by the seller. h. Deed i. There are Three Types of Warranty Deeds 1. Quitclaim Deed a. A quitclaim deed contains no warranties of any kind. The buyer gets whatever the seller had. b. This type of deed gives the seller the most protection, but gives him a low sale price. c. Most gifts are quitclaim. d. Any representation made by O with regard to quality of title made in the K can be erased by granting a quitclaim deed. 2. Special Warranty Deed a. A special warranty deed contains warranties only against the grantor’s own acts but not the acts of others. 3. General Warranty Deed a. A general warranty deed warrants title against all defects, whether they arose before or after the grantor took title. b. Grantor is liable only to the amount of consideration stated in the deed for breaches of his covenants. For buyer, he will recover the most, then, if he can go over the most recent Real Property Outline II Allyson Rinella Tiffany Schatz grantor first. He can keep going back until he’s fully recovered his expenditures. (“$10,000 and other consideration – O only liable up to $10,000). Parole evidence can be brought in as between the original parties to show how much consideration was actually paid, but not to subsequent parties. c. This type of deed allows the seller to get the highest value for the land, but affords the seller the least protection. d. A seller issuing a general warranty deed is going to except out all encumbrances expressly in the deed. e. Post-Closing Warranties in a General Warranty Deed – Buyer only sues on these if he does not qualify for protection under the recording acts. i. There are Three Present -- If a present covenant is ever going to be breached, it will be breached at the moment of delivery of the deed – existence of a superior property interest. The SOL for a present covenants starts running on the day the property is conveyed. (Mortgage, lien, AP) 1. Seisen – O warrants that he owns the estate that he purports to convey. 2. Right to Convey – O warrants that he has the right to convey the property. 3. Against Encumbrances – O warrants that there are no additional encumbrances (above and beyond those excepted out in the deed) on the property. This covers both recorded and unrecorded encumbrances. a. Present violations of building ordinances and zoning ordinances does not constitute a breach of the covenant against encumbrances. This rule Real Property Outline II Allyson Rinella Tiffany Schatz regarding zoning is not hard-and-fast and has only been addressed by a few courts. b. If the buyer tries to get a variance from the town, and he fails, there may be an argument for breach of the covenant against encumbrances. ii. There Are Three Future Covenants-Future covenants are not breached until there is an assertion of a future property interest. Future covenants are not asserted until the superior right is asserted (focus on the AP, the mortgagee, lessor, etc.) As long as buyer can still use the land as he wishes, his quiet enjoyment has not been breached. 1. General Warranty -- O warrants that he will defend against lawful claims and will compensate the grantee for any loss that the grantee may sustain by assertion of superior title. 2. Quiet Enjoyment -- O warrants that the grantee will not be disturbed in possession and enjoyment of the property by assertion of superior title. 3. Further Assurances – O promises that he will execute (and deliver) any other documents required to perfect the title conveyed. O says that if it is discovered that he made a mistake, he’ll correct it. iii. Seisen and right to convey are basically the same thing since 99% of the time, the person who owns the property has the right to convey it. There are remote possibilities that an owner couldn’t sell – AP before he acquires title. AP has right to possession as against the rest of the Real Property Outline II Allyson Rinella Tiffany Schatz world. AP can transfer his interest, but AP doesn’t actually own the property. If AP gives buyer a special warranty deed, she’d be breaching the covenant of seisen. 1. If part of the property itself is severed and conveyed, that’s seisen and right to convey; oil and gas is usually a violation of seisen and right to convey. iv. General warranty and quiet enjoyment are basically the same thing. Real Property Outline II Allyson Rinella Tiffany Schatz WHETHER GENERAL WARRANTY RUNS WITH THE LAND Present Covenant (one day covenants) Future Covenant Common Law Modern Trend Minority Majority No. Breach of present No. Covenant does not covenant becomes a COA run, but COA does. that is NOT assignable. Breach of present covenant becomes a COA that is assignable. Statute of limitations is not restarted by any conveyances. In essence, it’s like the covenant runs, but we call it a COA. No express clause is required to assign. COA passes by operation of law. Yes if some good title Yes if some legal was passed or their was documents passed from actual possession. the grantor. Covenants Covenants runs if there is run if there is a deed, privity of estate. If the even if it is a quitclaim deed transfers some good deed. Covenant attaches title, then the covenants to the paper. Privity of K. attach to the deed. If no deeds were transferred, but there was possession transferred, then the covenants ran. Privity of estate. ii. Merger Doctrine -- Under the merger doctrine it is recognized that the contract merges into the deed. Once there is a deed there is no longer any COA on the contract. 1. At common law the title and boundaries were the essence of the deed. Only fraud, misfeasance, and promises deemed collateral to the deed were exceptions to the merger doctrine. This is still the majority rule. Thus, SBP who does not qualify for Real Property Outline II Allyson Rinella Tiffany Schatz protection under the recording acts will probably not have a COA against his grantor. 2. Under the modern trend, the merger doctrine is rarely applied. This means that there is a greater likelihood that an SBP can sue his grantor. Modern courts consider anything in the contract to be a promise collateral to the deed, so that the common law exception often applies. Even under the modern trend, it the problem is with quality of title, the buyer will not be able to sue the grantor. His only recourse is to go after the warranties in the deed. 3. The modern-modern trend is to do away with the merger doctrine altogether. iii. Delivery 1. Delivery issues arise almost exclusively in the gift setting since intent to transfer can be inferred from the signing of the contract (relation-back doctrine). The issues that will arise are conditions, time of death, and the number of parties. 2. At closing the seller gives the buyer the deed, which transfers title, a bundle of rights, to the buyer. 3. Technically delivery occurs when the seller intends to relinquish his rights. This does not require a piece of paper. The conveyance of the deed at closing is evidence of the seller’s intent, but it is not dispositive. 4. Common law required a clear evidence of intent to relinquish rights for there to be a delivery. 5. The modern trend favors a more liberal, intent-based approach. 6. A valid deed in the possession of the grantor has not been delivered. However, a valid deed conveyed to the grantee, an independent 3rd party, or to the recording office has been delivered since the grantor’s intent can be inferred. 7. Relation-Back Doctrine: Delivery will date back to the signing of the contract so that there is no problem if the grantor dies during escrow. 8. Conditions a. Oral conditions cause trouble because of the SOF. b. An oral condition accompanying the delivery of a deed cannot be enforced. Conditional Real Property Outline II Allyson Rinella Tiffany Schatz delivery to a grantee vests absolute title in the latter. c. If there is no delivery, then the condition need not be enforced. d. An oral condition to an escrow agent, or other independent party, may be enforceable. 9. Number of Parties a. If the deed is in the possession of a 3rd party that is truly independent, particularly of the grantor, then the grantor has lost control over the deed, so there is delivery. b. An oral condition to an independent 3rd party is fine as long s the condition is not under the control of the grantor. A conditional delivery is and can only be made by placing the deed in the hands of an independent third person to be kept by him until the happening of the event upon the happening of which the deed is to be delivered over by the third person to the grantee. c. If the 3rd party is an agent of the grantor or is otherwise under his control, then there has not been delivery. 10. Time of Death / Inter Vivos a. To transfer a property interest at the time of death, the conveyance must comply with the SOF and the SOW. The requirements of the SOW are not satisfied by the mere requirements of a deed. A will requires a writing, signature, witnesses, and testamentary intent. b. An inter vivos transfer of the deed that says that upon the grantor’s death the deed will become effective is not a valid transfer since it does not comply with the SOW. c. An inter vivos transfer of the deed with the understanding that the grantor can remain on the land until his death will be recognized only under the modern trend minority that allows for the grantor to retain a life estate while granting the reversion to the grantee. iv. Implied Warranty of Workmanlike Quality 1. The implied warranty of workmanlike quality applies only to professional builders, not to amateur builders. Real Property Outline II Allyson Rinella Tiffany Schatz 2. Most courts say that privity of contract is not necessary for a subsequent purchaser of land to sue the builder / contractor under an implied warranty theory for latent defects which manifest themselves within a reasonable time (5-10 years) after the purchase and which cause economic harm. Other jurisdictions limit a recovery under the implied warranty to only the first purchaser. 3. The builder / contractor has three defenses: a. The defect is not attributable to him. b. The defect is a result of age or ordinary wear and tear. c. The previous owners made substantial changes. 4. The warranty runs between owners, but does not make them liable, unless the owner becomes aware of the defect, then he is under a duty to disclose. 5. The builder / contractor can only contract out of the warranty as to the first purchaser. The first purchaser can’t waive s to subsequent purchasers. i. The Mortgage i. A mortgage is a document that gives the lender (mortgagee) the right to go after the property should the borrower (mortgagor) default on the promissory note. ii. A mortgage is analogous to an easement or a covenant in that it is an encumbrance over the property right. iii. Common Law 1. At common law the mortgagee had title in FSD. If the mortgagor paid off the promissory note in full then he would acquire title to the property in FSA from the mortgagee. If the mortgagor defaulted on even one payment then he would lose his opportunity to acquire title and it would revert back to the bank in FSA. This was a very harsh doctrine, so the courts developed exceptions. 2. Equitable Right of Redemption – Mortgagor’s Remedy a. Under the equitable right of redemption the mortgagor could go to the court of equity to ask that the mortgagee be ordered to accept a late payment. 3. Right of Foreclosure – Mortgagee’s Remedy a. While the lender acknowledges the right of redemption, it could not be indefinite. Under the right of foreclosure, the mortgagee could go to a court of equity to ask that a final date for Real Property Outline II Allyson Rinella Tiffany Schatz payment be set. On that date, the right of redemption would expire. 4. Statutory Right of Redemption – Mortgagor’s Remedy a. Even after the foreclosure the mortgagor could reclaim his property if he came up with the money by going back to the mortgagee (or whoever had purchased the property from the mortgagee) and get back the property. This was not indefinite, but the mortgagor usually had the right for 6 months to 2 years. If the mortgagee had sold to a new party, that party loses out. iv. Modern Trend 1. Under the modern trend, the borrower title and if he defaults in payments, the bank has the right to sell the property. The mortgage represents a lien, a right to come after the property. The bank’s taking of the property is called a foreclosure. 2. Foreclosure a. A foreclosure sale is the forced sale of a property the revenue from which are applied to the mortgagor’s debt. If the mortgagee has to sell the property, then they can sell the quality of title that existed at the time they acquired their interest. b. At a foreclosure sale there are minimal warranties, minimal advertising, and typically the property sells for less than market value. c. The revenue generated from a foreclosure is applied first to the principle amount and to the interest second. If there is any balance after the mortgage has been paid off, then it is returned to the mortgagor. This is called the seller’s equity. Equity is the difference between the outstanding mortgage and the property’s value. d. The mortgage can continue to run with the land. In all probability the new owner will pay only the value of the equity (the difference between the mortgage and the fair market value) and assume responsibility for the mortgage. e. The new owner is not personally liable, as she did not sign the original promissory note. She can become liable if she enters into privity with the mortgagee. The mortgagor will only be Real Property Outline II Allyson Rinella Tiffany Schatz f. g. h. i. j. absolved of his personal liability if the mortgagee releases him. Where there is no privity the mortgagee cannot sue, but it can foreclose. In some states, if the foreclosure sale does not resolve the debt the mortgagor is no longer liable due to anti-deficiency statutes. Historically foreclosure sales were conducted by the court – judicial foreclosure. Deed of Trust allows the lender to conduct the foreclosure sale – private foreclosure. Today, there can be either judicial or private foreclosure. Regulation of Foreclosures i. Foreclosure sales are highly regulated to protect the mortgagor since there is an incentive for the mortgagee to sell the property for only its own loss, but the mortgagor wants the property to sell for as close to fair-market value as possible. ii. There is a duty on the mortgagee to act in good faith (subjective) and due diligence (objective) in a foreclosure sale. iii. A breach of the duty of due diligence entitles P to the difference between the actual foreclosure price and the fair foreclosure price. Since a breach of good faith is worse, the P is entitled to the difference between the actual foreclosure price and the fair-market value. Second Mortgages i. When there is a second mortgage that means that that party has the right to sell the property also. ii. If there is a second mortgage, but the first mortgagee forecloses, the first mortgagee gets paid first, then the second. If there is a remainder, it goes to the mortgagor. If not, the second mortgagee may be able to get a deficiency against the mortgagor. Anti- Real Property Outline II Allyson Rinella Tiffany Schatz deficiency statues may not apply to second mortgages. iii. If the second mortgage forecloses, the second mortgagee has only the title available at the time they received the mortgage. Therefore, the second mortgagee sells the property subject to the first mortgagee. Since the buyer is taking subject to the first mortgage, the buyer will probably only pay the equity in the property. The buyer takes over primary responsibility of paying off the first mortgage. The buyer has the opportunity to gain the appreciation in the property, so she has an incentive to pay off the first mortgage, even if she is not personally liable. The buyer owns whatever equity comes about by appreciation of the property. If the buyer takes subject to a mortgage, the buyer is not personally liable. If the buyer assumes the mortgage, the buyer is personally liable. The mortgagor is still personally liable on his promissory note. In a sense the mortgagor is a guarantor. The bank may give the mortgagor a release on his liability if the buyer assumes the mortgage. j. Installment Sale Contract i. An installment land sale contact is an arrangement whereby the seller contracts to convey title to the purchaser when the purchaser has paid the purchase price in regular installments over a fixed period of time. Deed is transferred to buyer after final payment. Closing is deferred until after the last payment. ii. If there was default, buyer tried to keep land, payments, interest, and equity. They argued that since there was no loan and no mortgage, there was not equity. There is a split among jurisdictions. Some jurisdictions permit installment sale contracts as an option to a mortgage. Others treat the installment contract as a de facto mortgage, to prevent this windfall for the seller, and a sale is forced. Real Property Outline II Allyson Rinella Tiffany Schatz III. The Recording Acts a. There are two books at the County Recorder’s office, the Grantor Index and the Grantee Index. To ensure that the seller actually owns the property, the buyer must look in the Grantee Index to find the deed that conveyed it to him. If he traces the line of deeds all the way back to when the land was first conveyed out by the state, the buyer can make sure that there is a legitimate line of conveyance. This gives him a list of all the possible grantors, but it does not tell him what each possible grantor did with his property interest. Then the buyer must go through the Grantor Index with all the grantees names to discover if any interests have been conveyed out. Problems are discovered when coming forward in the grantor index. When coming forward in the grantor index, the standard scope of the search requires the buyer to begin looking in the index from the date of the deed purporting to give title and must continue looking under the grantor’s name until there is a deed properly recorded under that grantor’s name. b. The deeds are not kept in the indexes. The indexes tell the researcher where he can find the deeds. c. Every property interest has its own chain, so do the records search for easements, covenants, and sale of property. d. A deed is effective to transfer title upon delivery. A deed need not be recorded to be effective, but if the parties don’t record, the title is vulnerable because a subsequent grantee could trump under the recording acts. The first-in-time grantee prevails even without recording unless he is trumped by a subsequent grantee under the recording acts. As between the first and subsequent grantees, we put the duty on the party that was in the best position to avoid the problem. The first grantee was in the best position to avoid the problem by properly recording their deed. To give proper notice, the first grantee must tie up the chain of title, not record a wild deed. e. Relation-Back Doctrine: Although the deed is not effective until the grantee’s line is filled in, for recording act analysis, once that line is filled in, that relates back to the date that there was authorization to fill it in. f. Buyer cannot claim protection under the recording acts for any property interest that arises as a matter of law, such as a prescriptive easement. Title insurance expressly excludes property interests that are not recordable. Title insurance protects only property interests involved in the recording system. g. Duty to Check Indexes i. Pre-closing, buyer should go down and check the record. If the buyer finds that what he thinks he’s getting is not what Real Property Outline II Allyson Rinella Tiffany Schatz he’s actually getting, he can try to get out of the contract by saying that the property lacks marketable title. ii. If encumbrances are found pre-closing, the buyer goes to the seller and points out that these encumbrances were not mentioned in the in K of sale. The buyer may be able to get out of the K based on the quality of title ensured in the K (insurable, marketable, perfect). iii. If encumbrances are not discovered until post-closing, the only way a subsequent party can trump a first-in-time party is if he qualifies for protection under the Recording Acts. If the first-in-time party properly records, then she trumps. If the first-in-time party did not properly record, then the new owner trumps. If new owner loses, then his only recourse is to go after the grantor under the warranties in the deed. If it is a general warranty deed, then buyer will prevail. If it was a quitclaim deed, then the buyer will not recover. If it was a previous owner other than the seller that conveyed out the properties, then seller will prevail under a special warranty deed. If it was the seller that conveyed out the properties, then the buyer will prevail under a special warranty deed. iv. The court says that there is a duty to check the chain of title. If the buyer does not check the title, the buyer is charged with the knowledge of everything in the chain of title that is properly recorded – constructive notice. v. Buyer must check title beyond his grantor – in theory, buyer has to go all the way back to the transfer of the property from the state. h. Scope of the Search i. Does the buyer have the duty to search all deeds out by the common grantor, or only those that the index describes as about the parcel in question? This would help find a Mother Hubbard Clause. There is a split of jurisdictions. 1. The general rule is that the buyer only has to read those instruments that the index indicates arguably affect buyer’s interest. Only if the index entry describes that parcel is there a duty to search. 2. The minority approach requires the buyer to search all deeds out from the common grantor. When the duty is on the buyer, it expands the search and raises the cost of the search. This means the buyer pays more. Most jurisdictions don’t want that; that’s why this is the minority. Real Property Outline II Allyson Rinella Tiffany Schatz ii. Does the buyer have to read the deed? Buyer must read the deed for conveyance he finds when coming forward in the grantor index about the property for which he is searching. iii. Does the buyer have to check all spellings of the grantor’s name? There is a split of jurisdictions. 1. Common Law: The doctrine of idem sonans is that though a person’s name has been inaccurately written, the identity of such person will be presumed from the similarity of sounds between the correct pronunciation and the pronunciation as written. Therefore, absolute accuracy in spelling names is not required in legal proceedings, and if the pronunciations are practically alike, the rule of idem sonans is applicable. The rule is inapplicable where the written name is material. 2. Modern Trend: Too much of a burden to put on buyer search every phonetic spelling of every grantor – requires a properly recorded instrument. A properly recorded instrument requires a proper spelling. i. Three Types of Recording Acts – Under all acts, unless actual owner also has apparent title (who recording system indicates has title plus people with deeds to show), then his title is vulnerable. If somebody is going through the books, what will they find? i. Notice -- About half of the jurisdictions. 1. Under a notice statute, B must show that he is a subsequent bona fide (good faith) purchaser (cannot be donee, must provide valuable consideration) w/o notice (actual, constructive, inquiry, record) at the time of closing. If subsequent party has any kind of notice, or is charged with notice, then he does not qualify for protection. 2. Three Types of Notice a. Actual Notice – buyer has actual knowledge of encumbrances b. Record Constructive Notice – charged with whatever a proper search of the recording system would have disclosed c. Inquiry Constructive Notice – if buyer learned just enough to be suspicious, then there is a duty to walk the property and check it (wellworn path, person, etc.); buyer is charged with whatever would have been discovered by a walk of the land. Real Property Outline II Allyson Rinella Tiffany Schatz 3. If a party acquires notice before closing he can get out of the K, but he cannot qualify for protection under the recording acts. 4. The general rule is that a “wild deed” (Zimmer rule) will not constitute a proper recording. Does Zimmer apply? 5. The shelter rule says that since recording is not required in a notice jurisdiction, once a subsequent grantee trumps a prior grantee, anybody claiming through a party who’s protected by the recording act is likewise protected under the recording act. Every subsequent party can’t have the duty to show that he trumps the losing party. The shelter rule does not apply to B’s grantor, O, however. There’s too much room for grantors to take advantage of grantees they know haven’t recorded. Another way to think of it is that C is taking from B, who is first-in-time, first-inright. ii. Race – Just a few jurisdictions. 1. Whichever party records first trumps. Does the recording party have to record just his deed or the entire chain of title? Unresolved issue. We’ll go with duty to record entire chain of title. 2. Notice is irrelevant. 3. Does Zimmer apply? iii. Race-Notice – About half the jurisdictions. 1. Under a race-notice statute, B is protected against prior unrecorded instruments only if the SBP is (1) without notice of the prior instrument at the time of closing and (2) records before the prior instrument is recorded. 2. Do notice analysis first – does person qualify as SBP w/o actual, constructive, or inquiry notice? If yes, did grantee record entire chain of title before first-in-time party? Must answer both yes to be protected. 3. If a party acquires notice before closing he can get out of the K, but he cannot qualify for protection under the recording acts. 4. Zimmer rule applies to race notice and requires that the party records the entire chain of title. The race requirement is to record all deeds in chain of title to the common grantor. j. Defect in the Acknowledgement Real Property Outline II Allyson Rinella Tiffany Schatz i. Will subsequent grantee be charged with notice of a recorded deed with a defect in the ackowledgement? It depends on whether defect is latent or patent. If defect is latent, buyer will be charged since a latent defect gives record notice. If the defect is patent, buyer will not be charged since a patent defect does not give record notice. However, if B checks, he’ll find the deed with the patent defect, so he’ll have actual knowledge. Ironically, B is better off if he doesn’t check the records office. ii. Forged Deed 1. The signature line contains a signature of somebody other than O, signed without O’s permission. A forged deed can never pass good title. iii. Fraudulent Deed 1. The actual owner sells under fraudulent misrepresentation – tricked into signing. A fraudulent deed is merely voidable. As against the O, O can void it. However, as against another party, B (who qualifies for protection under the recording acts), good title has been created and passed on. k. Heirs Passing Title i. Heirs can pass good title. The rationale is that without this rule, heirs would have too great a difficulty selling property as no buyer would feel safe buying title due to a fear that a first in time party will pop up and sue for the title. l. Estoppel by Deed i. Estoppel by deed applies only to a party who conveyed property he didn’t own but later acquired title to. Suppose that a grantor conveys land to a grantee that the grantor does not own, and the grantor warrants the title to the land. If the grantor subsequently acquires title to the land, the grantor is estopped to deny that he had title at the time of the deed and that title passed to the grantee. Since the grantee could sue the grantor on the warranty, when the grantor later acquires title, and compel the delivery of a new conveyance, the law eliminates the necessity of a lawsuit and automatically passes the subsequently acquired title to the grantee. ii. Estoppel by deed often comes up in the donee setting. iii. Estoppel by deed is a relation-back doctrine. iv. Expanded Scope of the Search 1. A minority of jurisdictions expand the scope of the search at the front end and require the buyer to look under the grantor’s name for about 100 years before Real Property Outline II Allyson Rinella Tiffany Schatz m. n. o. p. q. the grantor actually got title. This protects the party who trumps by estoppel by deed. If somebody who doesn’t qualify for protection under the recording acts, but records first, then purports to transfer the property, the only way to protect the subsequent grantee is by expanding the scope of the search at the back end so that a buyer must look beyond the first conveyance out to make sure that the grantor didn’t convey out twice. Misrecorded Deed i. The majority of jurisdictions say that if the grantee did everything right, but the recorded mis-recorded, then the grantee prevails since there was nothing else he could do. A subsequent grantee merely has a COA against the recorder’s office. ii. The minority approach protects the subsequent grantee. What is a purchaser? i. There is no uniform rule with what makes a purchaser a purchaser. Some say the payment must be more than nominal. Is it more than ¼, more than ½, more than ¾? Less that 1/3 is probably not a purchaser; more than 2/3 probably is. In-between is gray. ii. Once someone has begun payments, constructive notice is not sufficient, there must be actual notice. To rule any other way would require the party to check the record before each payment. If a subsequent grantee trumps, then the prior grantee has a COA against O, but maybe O can’t be found. Thus, the subsequent party should make any remaining payments to the prior grantee. Inquiry Notice i. Inquiry notice is a duty to inquire the real world facts, not just the chain of title. ii. Inquiry notice derives from the rule that says there is a duty to inspect the property before you acquire it and check the chain of title. Inquiry notice builds on that duty. Anytime you learn something which makes you (TARP) think that maybe someone else has a property interest, you must inquire about it. Don’t turn a blind eye to; that puts you in bad faith and thus no longer a SBP. iii. If you do a reasonable follow up and you don’t find anything then you don’t have notice…If you don’t follow up you are charged with notice even if a reasonable follow up would not have found it. Real Property Outline II Allyson Rinella Tiffany Schatz iv. Anything at all, even mere furniture, puts the buyer on inquiry notice as to the interests of potential parties. v. If there is a defect in the chain of title, and TARP would not find it under a reasonable inspection, but the grantee doesn’t act on the inquiry notice, he’s charged with constructive notice, as a penalty for not inquiring. If the grantee had acted on the inquiry notice and not found the defect, he would qualify for protection, but since he did not act at all, he gets none. r. Marketable Title Acts i. Marketable title acts seek to extinguish old title defects automatically with the passage of time. Only those property interests which are recorded within the marketable title period are protected. Only those interests which are reflected in the chain of title. 1. Thus, if a party has a property interest, and the marketable title period is 40 years, that party should re-record every 39 years to preserve his interest. The only exception is actual possession. ii. Root of Title 1. The root is the most recent transaction in his chain of title that has been recorded at least forty years. 2. Once you find your root you can stop and come forward…only those property interests which are recorded from the root on are still valid. Anything not reflected in that time period is extinguished by operation of law. 3. Each property interest has its own root of title. Thus, an easement may have a different root of title than the ownership of the servient estate. iii. Notice is immaterial under the Marketable Title Acts. iv. The fact that the grantee is getting a quitclaim deed does not, in itself, put the grantee on notice of any defects in the title. s. Title Insurance i. Title insurance is normally limited to purchase price; it will not cover appreciation. ii. Title insurance basically guarantees that public records were searched. The policy covers only chain of title defects. Excluded in most policies are losses arising from government regulations affecting the use, occupancy, or enjoyment of land, unless a notice of enforcement or violation is recorded in the public records. Title insurance excludes defects that would be revealed by a survey or inspection. Real Property Outline II Allyson Rinella Tiffany Schatz iii. In theory insurance company checks chain of title and comes up with potential problems and decides whether they want to take the risk. iv. Must the insurance company disclose problems discovered during title search? 1. Common law says company searches for its own benefit and has no duty to disclose. Majority rule is the common law. 2. Modern trend says there is a duty to search reasonably and to disclose. Real Property Outline II Allyson Rinella Tiffany Schatz