1/7/04 When you buy land you are buying title. A bundle of rights. You need to check out the title before you buy it. Check for easements, mortgages, covenants or other encumbrances (anything that limits or burdens the use of the land). First step is make an offer to get it under contract. This will start the escrow period. Escrow end with closing. 1. Financing 2. Search title It is the buyer’s duty to find the encumbrances, not the sellers duty to disclose. Classic common law said that you only buy title, an improvement is only something that comes along with the title. Buyer’s duty to check out improvement. Modern trend is the opposite, the seller’s duty to disclose. Common law says it is all about title. Modern trend says it is about the improvement too, intention is usually to buy a home. If you find the defect pre-closing, can the buyer get out of the contract? What quality of title did you contract for? What quality of title is the seller obligated to give at closing and how do the different defects effect the quality of title? Once the escrow is closed the contract merges into the deed. If the defects do not show up until after closing then the issue becomes who’s interest trumps? The easement usually wins because of first in time first in right, unless the buyer is protected by the Protection under the Recording Act. If the easement is not recorded then the buyer has substantially changed his position in reliance of his thoughts that there was no easement. Subsequent bonafied purchaser without notice. Buyer is charged with knowledge of everything in the recording system. If defect arises pre-closing? Can buyer back out? What type of title did we contract for and how did the defect effect the title? If defect arises post-closing? 1. Does buyer qualify for protection under the recording act and thus extinguish the defect? 2. Can the buyer sue seller based on warranty in the deed. Easement – allows someone to use someone else’s land in a way that would typically be a trespass. Easement is a non-possessory property interest. You do not have the right to possess it as a tenant would possess it. Just a right to use it. The land you can go on to is the servient estate or servient tenement. If you have an easement you have the right to do an affirmative act, you have the right to go on the servient estate. Negative easement is different, you do not have the right to go on, but you can tell the owner of the land that he can not do something on his own land. Common law did not like negative easements but there was a need for them so we came up with real covenants and equitable servitudes. The only different between a real covenant and equitable servitude is the remedy you want. Classic example is land can be used for residential only. If I want money damages then it is a real covenant, if I want to stop the building of a club then it is an equitable servitude. What is the difference between an easement, a license or a profit? All give someone a right to go on someone’s land and use it. Profit is the right to take something off of the servient estate Easement is the right to enter the servient estate. Profit is in the classic sense a subset of easement, go on the land plus the right to take something off. Difference between an easement and a license. A license is basically the same thing as an easement but it is revocable. Anything that is inconsistent with the continuation of it will automatically terminate the license. It is very tenuous. If I invite you over to watch the game, that is license. An easement is much more substantial so it is subject to the statute of fraud, must be a written instrument signed by the party to be charged and delivered. If the agreement is oral, then it is by default a license. If there is a written instrument, then you go to intent. That is when you determine if the parties intended it to be an easement or did the parties intend it to be revocable. If it is a personal and tenuous, then it is more likely a license. If it seems like more like a substantial interest then it is more likely to be an easement. An express easement by default is in fee simple absolute. The scope of the easement is defined by the intent of the parties as expressed in the original written instrument. There are two main types of easements: 1. Easement en gross – Benefits the owner of the easement without regard to ownership of land. The benefit is owned and held by a person or entity, and where ever that person goes, the easement goes with them. 2. Easement appurtenant – Benefits the owner of the easement in the use of land belonging to the owner. In this type of easement, there is a dominant estate and the benefit of the easement goes with the dominant estate. The benefit is held by the dominant estate, the party that gets the benefit is any party who owns the dominant estate. For the easement appurtenant, the every inch of the dominant estate has an interest in the servient estate, if a reasonable division and development occurs then both lots now have the easement. When the language is ambiguous, we favor the easement appurtenant. In the Willard case we have an easement appurtenant that is in fee simple defeaseable (as long as the land is used for church purposes). Buyer of land qualifies for protection under the recording act if he is a subsequent bonafide purchaser witout notice. This usually comes down to notice. When the easement was recorded previously, that puts the whole world on notice. Also there is something called inquiry notice which is where the buyer must walk the land and see if there is the possibility of anyone using the land. Since Willard does not qualify for protection under the recording act, he then tries to attack the easement and say that it was not properly created. Common law says you could only reserve an interest in either the original grantor or grantee, you could not reserve an easement for a third party, you had to except it out. The proper way was to first create an easement for the church, and then when selling the land make an acknowledgement (except out) the existing easement so you could not be sued based on your warranty. If you are reserving an interest in the grantor then that is creating an easement, because one can not have an easement in his own land (an easement is the right to go on someone else’s land). If you have an easement in gullsway, and then you buy gullsway, that will extinguish your easement. 1/12/03 If there is a license, any act inconsistent with the agreement will revoke it, death, sale, putting up a barrier. Estoppel is a non-property doctrine. Estoppel – We first have to have a license. The license can be expressed or implied. For estoppel there must be a substantial change in position in reasonable reliance of the license by making substantial expenditure. The owner of the dominant estate knows or should know of this change in position and expenditure. The license with estoppel lasts as long as necessary to recoup the investment. Typically if the road is the only way in to a piece of land and a house is built on it then no one will buy the house if the road can’t be used so the license with estoppel continues to roll on. But if the house burns down and insurance pays the full value to the owner, then the license can be revoked because they are back to square one. It is unfair to the person who has reasonably relied on the permission and spent a substantial sum of money. It is unfair to revoke that permission and have them eat the loss. An easement is for a limited purpose, if you exceed the limited purpose then that constitutes a trespass. 5 ways to create an easement (1) License with estoppel – General rule this is allowed, but not all jurisdictions allow it (2) Prescription (3) Express written grant which complies with the statute of frauds (4) Implied based on prior existing use (5) Implied based on necessity Only #3 complies with the statute of frauds, the other 4 arise out of operation of law. You would have to go to court and get a court to recognize it. You can not record the easement if it is not by written instrument, so therefore, property interests that arise out of operation of law are not subject to analysis of protection under the recording act. Some courts take the statute of frauds very literally and don’t recognize any of the other ways to make an easement, only recognize it if it is put in writing. The great majority recognize license coupled with estoppel, but there are a few jurisdictions that follow the statute of frauds literally. 1/14/04 Implied easement based on prior existing use, the Van Sandt case. In this case, there is no written instrument that grants the easement. Why recognize this implied easement based on existing use? 1. We have to have existing use prior to severance. By severance we mean a transfer of part of the land to someone else. Because you can’t have an easement against yourself, they call it a quasi-easement (use part of your land, to benefit a different part of your land). 1. We have to have a single parcel of land. 2. We have to have a quasi-easement. 3. We need severance. At the time of severance, the quasi-easement has to be 4. Apparent 5. Necessary 6. Continuous (So each party has a reasonable expectation that the use will continue). When you buy land you have a duty to walk the property and you are charged with notice of certain things. The underlying reason for implied easement based on pre-existing use is the intention of the parties. They should have put it in the written instrument, because they both intended that the use continue, but they forgot to put it in the deed, oops doctrine. Implied duration of such easement is fee simple absolute. This is the default duration, can only be overcome with contrary evidence of intent. At common law the courts distinguished between two types of implied easements based on prior existing use. If it is for the benefit of the grantor the technical term we use is an implied reservation. If it is for the benefit of the grantee the technical term we use is an implied grant. Why? What difference does it make? If it is an implied grant we require reasonable necessity. If it is an implied reservation we require a higher degree of necessity /strict necessity. This is because the grantor is the person responsible for the deed, they are the one who make up the deed so the courts are more suspicious of the grantor. Modern trend is not to draw a distinction between implied reservation or implied grant, just one of the circumstances we look at in the totality of circumstances to determine if there is an implied easement. All we really need to show now is reasonable necessity. In these cases the easement is created on the initial severance, and we judge the elements at that point in time. Once it is created then it runs with each of the parcels forever, unless otherwise terminated properly. These are typically easement appurtenant. 1/16/04 Easement by necessity. This arises basically when the parcel is landlocked. Can’t get in or out, can’t use the land. The other 3 methods of easements we have talked about are based on the intent of the parties, this one is based on public policy. With implied based on prior existing use it is intent based, if you don’t want the easement to continue, then you must put an expressed clause in the deed that the use will not continue. With easement by necessity, there is no stopping the easement, intent of parties is not relevant, all based on public policy. If it is really necessary that is all that matters. No requirement for prior existing use, all we care about is if the land is landlocked. Default duration is fee simple defeasable, as soon as the parcel is no longer landlocked then the easement is extinguished. Easement exists as long as you are legally landlocked. What is necessary to create an easement by necessity? 1. Single parcel 2. Severance 3. As a result of the severance the land is legally landlocked How necessary must it be? Common law was legally landlocked, legally no way to get in. If access to the ocean, then can take a boat. Modern trend is that it is impractical or unreasonable not to permit access across the servient estate. Modern trend is more fact sensitive. The easement is implied across the parcel of land, from which the dominant estate was severed and it was that severance that caused the dominant estate to be landlocked. Easement by prescription. This is like adverse possession but you are not claiming title to the land, just claiming an easement in the land. Adverse Use instead of Adverse Possession. Actual Entry that gives rise to a use, That is Exclusive (this needs to be altered, the owner of the servient estate can’t do anything that interferes with the easement or use) Open and Notorious Adverse/Hostile Claim of Right Continuous for the statutory period (this needs to be altered, as continuous as an average user of that type of easement would use it) 1/21/04 Easement by prescription. Two rationales for giving an easement. First of all, basic adverse possession. Next there is the lost grant theory. This theory implies that an express written grant to use was given and you have been using for the past 20 years. You just lost the grant. After the statute of limitations period expires it doesn’t matter which approach the court takes (adverse use theory, or lost grant theory) because either way you get an easement. It only matters during the statutory period. What if Mr. Snow is walking across land for 12 years, and then Mr. Sun owns the land and sees him and tells him to get off the land. Snow goes on for 8 more years. What result? What are we going to require to break the claim? Under the adverse possession approach there is a high threshold so just saying get off the land will probably not be enough. Under the lost grant approach there is a very low threshold, all the owner of the servient estate has to do is act in some way that is inconsistent with acquiescence of use. The jurisdiction will take one approach or the other. Do you have a right to play in the ocean? Yes, under the public trust doctrine. No one can own the ocean, the public owns it. Old doctrine that says that waterways are so important that we can not allow private ownership of them. All navigable waterways were owned by the public (oceans, rivers, lakes). But where does the public rights end and the private rights begin. In early days the doctrine was to protect fishing, and other commercial uses. Now there is a whole debate on whether recreational uses should be included in the public trust doctrine. Under the public trust doctrine the lands subject to the doctrine can never be privately owned, if people own this type of land it can just be taken from them without compensation because they never really truly owned it. Typically the scope of the public trust doctrine extends to the sand up to the mean high tide line. In this case the court wanted to send a message so they expanded the scope of the public trust doctrine and made sure it extended to recreational use and they gave the public rights to the sand above the water. 1/23/04 When you see an easement ask what kind is it in terms of how it was created, and what kind was it in terms of appurtenant or en gross. The classic easement is an expressed easement appurtenant for ingress and egress (to get in and out). What is the scope of an easement? The scope is determined by the intent of the parties. Ideally we should look at the expressed words in the easement, that assumes that the parties know the importants of the words in the instrument. If the intent is not clear from the words, the courts fall back to what would be reasonable, what would the parties have reasonably intended at the time the easement was created. What about the other easements? It is the presumed intent based on the circumstances at the time of creation. This is about protecting the owner of the servient estate. If you own the dominant estate, to what extent can you develop the dominant estate? When you sell the dominant estate that has an easement appurtenant the easement follows with the land. What about subdividing the land or development of the land, to what extent can you increase the burden? The rule is that (with respect to the development of the dominant estate) the scope of the easement can change over time to accommodate reasonable and normal development. The factors that constitute normal and reasonable development are considered at the time the development is proposed. Evolutionary change in the scope of the easement is permitted, but not revolutionary change. If you clearly express your intent in the written grant then you limit the range that the courts can use these theories to change the scope. The outer scope of the easement runs to every inch of the dominant estate unless otherwise stated, but not to any other estate. Under traditional property rules when there is a trespass we grant injunctive relief, if the owner of the dominant estate can not show to the court that they can regulate the trespass then the court may actually extinguish the easement altogether. The benefit of the easement stretches to every inch of the dominant estate but to no other land. B says – I hereby give A and all heirs and assigns thee right to cross my land. This is considered an easement because it is in fee simple absolute. But where does A get the right to cross. Common law it was up B to decide where it goes and they should have put it in the writing. Common law says once it is set, either by writing or by use, neither party can change it. If the parties can not agree as to where it will go, the court will decide where it is reasonable. Modern trend will permit the owner of the servient estate to move it, as long as it is reasonable, does not frustrate the use and increase the burden on the owner of the dominant estate. Absent expressed otherwise, the party who benefits from the easement must maintain it. If both parties are benefiting then both parties must maintain it. 1/26/04 If we see a prescriptive easement this semester, give a good rule statement but do not go through a detailed analysis of all the rules. Are easements en gross transferable? In England easements en gross were very much like licenses. If they are more like licenses they are personal and thus they are not transferable. The American courts think that is a bit harsh so they say no transfer unless the parties intended. We can find the intent in the writing. When not in the writing should we imply the intent to transfer? Yes, if it is a commercial easement (intended for commercial purposes). Restatement 3rd approach – (Absent expressed otherwise) all easements en gross are transferable unless intended for personal use. Before the burden for proving it was transferable was on the easement holder, now we assume it is transferable and the burden of proof to prove it is not is on the servient estate. 4 Main Rules – NO, No unless expressed, No unless expressed or implied, Yes unless for personal use. Are easements en gross divisible? The problem with that is then more and more people have the easement. The one stock rule – The owners of the easement must exercise it as an entirety. This rule assumes that easements en gross are divisible. All the owners of the easement have to consent to each individuals own use. In this sense all are acting as one owner. The express intent of the parties always control, but absent that express intent it is assumed that the easement is divisible as long as all users of the easement are using it in conjunction with the one stock rule. Everyone who has a right to use the easement has to consent to a division of the easement. Everyone must agree with how others are using the easement, if there is a disagreement they must get together and work it out. Is an easement extinguished based on abandonment? Does non-use constitute an abandonment of an easement? When the instrument transferring an interest is ambiguous we default to calling it an easement rather than a complete transfer of the property in FSA. Non-use in and as of itself does not constitute abandonment. You don’t lose the easement just because you don’t use it, you have to abandon the easement, there must be additional evidence of the intent to abandon. Are easements appurtenant transferable? Yes as long as you are transferring part or all of the dominant estate. 1/28/04 An easement can end naturally if it is a fee tail or fee simple absolute. An easement can also end prematurely (Expressed or Implied). A release is an instrument expressing the intent, by the holder of the easement, to give it up. Implied would be if you do actions that show the intent to abandon, must be more than just cessation of use. An easement can also end by operation of law. There is a rule that states, “you can not hold an easement in your own property.” If you own the dominant estate and you buy the servient estate, Under the merger doctrine the easement merges into the land and is extinguished. What if you there after then sever the two? Once the easement is terminated it is gone and it will not automatically revive, unless we can go back to one of the 5 ways of establishing an easement and re-establish it. There is a minority approach that says the easement automatically reverts to its old nature and continues, like saying that the easement was never terminated, it was just suspended (this is a small minority rule). Another method of operation of law is where the owner of the servient estate prescriptively takes it back. If the owner of the servient estate uses the land in question in a way that is inconsistent with the easement’s use for the statutory period, the owner of the servient estate can prescriptively take it back. Another method of operation of law is, as a result of misuse an injunctive order is issued by the court, and if the party does not comply with the easement then the easement will be terminated. There is also a scenario where a person gets an easement through a building or structure. If the structure is destroyed then most courts hold that the easement is destroyed. There is also something with mortgages that we will learn later. Basically a mortgage is when you borrow money from a lender, you sign a promissory note, but they want more security so you sign a mortgage which gives the lender the right to sell the property in question and recover any losses. Mr. Salimi takes out a mortgage, he is now the mortgageor. If Salimi defaults then there is a foreclosure sale. The party that purchases at foreclosure gets the quality of title that existed at the time the mortgage was granted. In this scenario easements can be lost. Easements can also be broken down into negative and positive easements. Positive give someone the right to enter and use the land in a way that would otherwise constitute a trespass. A negative easement tells the owner of the servient estate that he can not do something with the land. Courts did not like negative easements because there is really no actual notice. If there is an affirmative easement to walk across the land, then a path will develop. How is there actual notice for a negative easement. Negative easements have been limited to 4 very narrow types of negative easements. (1) Blocking your windows (2) Interfering with the flow of water in an artificial stream (3) Interfering with air flowing to your land in a defined channel (4) Removing the support from your neighbors land We will only focus on the 4th one. You can’t excavate so close to your neighbor’s land that it will undermine the stability of your neighbor’s land. The English courts only allow negative easements for one of the 4 types listed above. Anything else that looks like a negative easement will be called a covenant and they have their own rules. In America there are 3 other types of negative easements that vary by jurisdiction (these are basically very minority). (1) Blocking neighbors view (2) Solar easement – If you put up a solar collector, your neighbor can not do anything that interferes with your solar collector (3) Conservation easement – For owners of really large estates they get a tax break if they agree to give this type of easement People could come up with contract agreements where I would sell you a parcel of my land and you would agree to only use it for residential purposes. That is just a contract issue, but what happens if the land is sold to someone else? When should we allow these “covenants” to run with the land? If you want damages you must show it qualifies as a real covenant. If you want injunctive relief you must show it qualifies as an equitable servitude. To qualify as a real covenant you must show Privity, Intent, Touch and Concern. Privity is horizontal or vertical. 1/30/04 A negative easement has a servient estate, but is does not give the holder of the easement the right to go on to the servient estate, instead it gives the owner the right to tell the owner of the servient estate how and how not to use their land. On the test start with an analysis for a covenant, then if it does not work, try to squeeze it into an easement. Why is someone worried about what their neighbor does? They may produce negative externalities. Negative externality is a cost associated with an activity that is incurred by someone other then the one doing the activity. Covenants are regulation of land use through private means, there is a whole course on land regulations by the public. Covenants are really just contracts, so when should a covenant between 2 people run to 3rd parties. The court decided to let certain running covenants run with the land. Then it is not about binding a party, but more about binding a parcel of land. With an easement appurtenant it does run with the land forever. With respect to the covenants the courts decided to place limits on how long it runs. First question, what remedy do you want? 1. Damages – Real Covenant 2. Injunctive Relief – Equitable Servitude The same covenant can be both or either depending on what requirements you meet. Naturally you would think that injunctive relief would be harsher, but the courts construed it the exact opposite. They say that if you are stopped from doing something then you have not really lost anything out of pocket. If you have to pay damages for as long as the breach goes on, then you could possibly be paying damages every month for ever. For this reason the real covenant has a higher threshold to prove. For a Real Covenant we must show Privity, Intent, Touch and Concern. For an Equitable Servitude we must show Notice, Intent, Touch and Concern. Privity is short for privity of estate, we are going to require a certain property relationship between the parties. There must be horizontal and vertical privity. The Intent must be shown that it was intended to run with the land, not just to end with the parties. The covenant must touch and concern the land, it has to be land oriented. At its core it goes to how you can use the land. Pretty much this is in so that the courts have the right to strike down the ones they don’t like. Privity is the most complicated because there is a variety of types. The degree and type of privity depends on whether you have to show that the burden runs or the benefit runs. If two parties create a covenant then to enforce it, it is just a contract issue, no need to show the covenant runs. Only need to show the covenant runs if parties outside those who made the agreement are involved. Then we need to find out what side he parties are on, are they on the benefit side or the burden side. Just remember that the plaintiff is on the benefit side. The courts are more inclined to let the benefit to run rather than the burden to run. For the burden to run we require horizontal privity between the original two parties to the covenant. We also must show vertical privity between the original party to agreement and subsequent grantee. For the benefit to run we don’t need to show horizontal privity. We do need to show vertical privity, but there is a low threshold. There are two types of horizontal privity – For Burden to run 1. Mutual privity – There has to be a pre-existing shared property interest between the parties, prior to and at the time the covenant is created (Landlord/Tenant, People party to an easement, Mortgageor/Mortgagee). Some people say that Mutual is met when there is a shared property interest at the exact moment the covenant is created. Wendel likes the first definition better. 2. Instantaneous, Successive, Grantor-Grantee privity – Where the covenant is created as part of another conveyance of a property interest between the parties. The other property interest can be conveyance of the land, a mortgage, a tenancy, an easement. Horizontal Privity – For the Benefit to Run No horizontal privity needs to be shown. Vertical Privity – For Burden to Run What property relationship should we require between Ashrafi and Bartos for the covenant to run. Well, it must be an estate of the same duration. If I own in FSA then I must sell to Bartos in FSA for there to be vertical privity. If Bartos then leases to someone and they break covenant, then there is no vertical privity so they can not be sued for damages. (High threshold for showing vertical privity) Vertical Privity – For Benefit to Run Must transfer an estate of any duration. Pretty much always unless adverse possessor. (Low threshold for showing vertical privity) What does it mean when we say we have to show that the burden runs? If the defendant is the original party then we do not need to show that the burden runs, we must only show that the benefit runs. And so on. 2/2/04 We only need to show horizontal privity, if required, between the two original parties to the agreement. When a benefit is created who holds it. If generally flows to all remaining land retained by the grantor. TO SHOW EQUITABLE SERVITUTE – FOR INJUNCTIVE RELIEF We need notice, intent, touch and concern. Notice must be to all subsequent purchasers of the servient estate. 3 types of Notice: 1. Actual notice 2. Constructive notice – proper recording puts the entire world on notice 3. Inquiry notice – If there are facts that make you suspicious, then you have a duty to walk the land and inquire and if you don’t then you are charged with the knowledge that you should have found. 2/4/04 When dealing with notice typically we mean that the party that is trying to be enjoined needs to have had notice. 2/6/04 91 lots, some of the lots have expressed covenants “residential only” some of them do not. Lot #86 does not have an expressed covenant in the chain of deed. For the court to enforce a covenant here they need to imply one, or make one up. Under the appropriate circumstances a court will imply a covenant under operation of law. The common scheme doctrine – Must start with a common owner who owns a large piece of land which they then subdivide. That owner must convey a lot with an expressed covenant, and the lots retained have to be so situated as to bear the relation. Then we will imply the expressed covenant back against all the land retained by the grantor to make the covenant mutually reciprocal. The “so situated as to bear the relation” part pretty much means that it looks like the grantor had a common scheme for all the lots. An intent to have a common scheme at the time the developer sold the lot. Can we look at the developers subsequent conduct in determining if the developer had an intent at the time he put the first covenant in? Yes. Ideally we would like to see 100% of the subsequent lots with the covenant. This whole thing started because developers would mis-represent the lots and tell people that the whole development would be residential. Then later on when the end lots would be more valuable if commercial, they would sell those without the restriction. In these cases we typically need at least half, that is the lowest we have seen, but there is no golden percentage. If you are a jurisdiction that is serious about the statute of frauds then you do not recognize the common scheme doctrine. The majority of jurisdictions do recognize the common scheme doctrine, but California does not recognize this doctrine for purposes of creating a covenant. No jurisdiction implies a real covenant, they just imply an equitable servitude. Remember that this whole thing is for creating the covenant. For it to run with the land we still need to show Notice, Intent, Touch and Concern. If you are a buyer of the later lots and you paid more thinking that you could use it for commercial use, then you first try to qualify for protection under the recording act (need to show subsequent bona fide purchaser without notice). If you can not get that then you sue the developer under the warranties of the deed. The benefit of a covenant flows to the land retained by the grantor at the time the covenant is created. But, if you use the common scheme doctrine then the benefit or “standing”, is retained by all the lots in the common scheme. If you are in a minority of jurisdictions you do not recognize the common scheme doctrine for creating a covenant, but we will use it to expand the scope of “standing.” For it to run we still must show notice. Typically the notice is because the covenant is recorded. In this case we can only have inquiry notice, you look around and everything is residential. Because this is an equitable doctrine we sometimes don’t sweat these details. It is a loose doctrine. 2/9/04 To a degree, to have standing you have to have privity, even if all you are seeking is injunctive relief, but it is not the same privity we have been talking about. In essence to show that you are in standing you have to show that you are in vertical privity with the party that was an original party to the contract. X, O and P are neighbors. O sells to Z with a restriction that says residential only, with the benefit to my neighbors X+P and their heirs and assigns. 1. You can not reserve a property interest in a 3rd party. 2. Because the benefit has to flow back to land retained by the grantor, so as a general property rule this is not allowed. In New York they decided that they would enforce this because we now allow 3rd party beneficiary contracts. Under the 3rd party beneficiary theory of contracts it can be allowed. The general rule is that X and P would not have standing to enforce the covenant because they were not in privity with the grantor that retained a benefit. Homeowners association dues? A landowner does not want to pay, the association wants them to, so they want damages, so they must show real covenant. This is an affirmative covenant where most covenants are negative. Historically these negative covenants were put in place to prevent negative externalities, to prevent a person from putting up a night club and burdening the town. We want to restrict those activities that will create negative externalities. If the covenant is negative in nature, then there is a strong presumption that it will touch and concern the land. The touch and concern element is basically a way for courts to regulate the covenants and strike down ones they don’t like. The old English rule did not allow affirmative covenants at all. The American viewpoint is not as strong but still have a strong presumption against affirmative covenants. We say it must touch and concern the land. We don’t like personal covenants, we like property ones. The question becomes, what is negative and what is affirmative? If you can not let anything grow above 4 feet, is the negative or affirmative because now you must trim your trees? The courts say that the wording can make it either way, but the main point is that the negative or affirmative part of the covenant must touch and concern the servient estate. The homeowners dues are just a requirement to pay money, that is an affirmative covenant. Does this touch and concern the land? Well, the money is being used for the common areas and the common areas are areas where the servient estate has a property interest (an easement), so they said it was going to be used on the servient estate. The court upheld the dues. The court also looked at the fact that in this case the dues were not forever, it was a term of years. The court will look at a bunch of variables and determine if they will uphold it. First look at affirmative or negative. Then look at the land it is being performed on. Then look at if there is a flowing property interest back to the servient estate. Does it appear personal or property related. Then look at the length of time the covenant runs for. Then look at the reasonableness. When to look at the touch and concern? At the time of creation or the time of litigation? It is unclear, the more modern, restatement approach looks at the time of litigation. Developer sells land to grantee with a covenant that says developer must be hired to build on it. The court looks at this under a property approach not a contract approach. The court does not enforce it because they say that the covenant is much too vague, no clarity as to how big to build, what the price of building is, etc. The court also says this does not touch and concern the land, they say it is too personal in nature, not property related. The court also says that if the burden is appurtenant, then the benefit must also be appurtenant. If we are going to burden an estate, there should be an offsetting benefited estate, typically nearby. If the burden is appurtenant and the benefit is in gross, that will be a net loss for the land. If the burden is in gross and the benefit is appurtenant, the courts will say that can be ok because there is a net gain to the land. Still must go through all other circumstances to see if covenant runs. 2/11/04 Common Scheme doctrine can only be used to get an equitable servitude which means that it can only lead to an injunction not damages. Covenants that are appurtenant are transferable in that they run with the land. The covenant will also be divisible with respect to subdividing the land. With affirmative covenants the courts were weary of them in the first place so they did not like covenants that were in FSA, they lasted to long. The first way a covenant can end is naturally, if there is a built in termination date then it will end naturally. They can also end prematurely. The clearest way would be a release (an express written instrument that complies with the statute of frauds). To get an effective release, all the benefited estates must release. Western Land Company Change of Conditions doctrine. Basically this doctrine says that because of the change of conditions, the covenant no longer serves it purpose, so you are asking the court not to enforce it. The argument to not enforce the covenant is because it is unfair. This comes from the area of law called equity. Does this mean that the change of conditions doctrine only applies to equitable servitudes and not to real covenants. There is a split, but the more recent arguments say that the doctrine will apply to both. For the change of conditions doctrine to apply the change arguably must effect every parcel in the community. The larger the dominant estate the less likely you will be successful with this doctrine. A change in zoning would not be sufficient, unless the change is such that the prior use would be illegal. If there is 100 lots in a grid. The first 50 are sold with no restrictions. Lot 51 is sold with “res only”. From there on out 30 of the remaining 49 lots are sold with “res only”. How do we analyze this? Is it more like 31 out of 100, or 31 out of 50? Rick v. West In this case the owner of a big piece of land subdivided it and placed a restriction on all the land. This is basically an expressed common scheme and we are not really going to go there for this class. The expressed common scheme is treated like an expressed covenant and can be used as real covenant or equitable servitude. The default duration of a negative covenant is FSA. 2/13/04 Covenants can be terminated if they violate the constitution or directly violate public policy such as the fair housing act. The main operation of law way of terminating covenants is basically the change in condition. Prescription or abandonment is very hard because they are usually covenants in the whole community. Abandonment is more like a waiver type doctrine because how do you abandon a covenant. Courts are more open to enforcing covenants through damages rather than injunctive relief. There some split as to the jurisdictions on what type of remedy to provide. Pocono Springs case Homeowner dues case. Must show real covenant for damages. Privity, Intent, Touch and Concern. There are some cases where the courts will imply intent, if the person should have known that it would run with the land. If you buy a house in California with a common wall, who has to take care of it? You should realize that both of the neighbors have a duty to maintain the wall. Here the modern trend is that the touch and concern will be granted because the dues go to common areas and etc. Here the owners of the land claim to abandon the land because they could not sell it because the soil was bad and they could build a house on it. They did not want to have to pay the dues each month because the land was worthless. Under Pennsylvania law if you have an undisputed title of land then you can not abandon it. Condo complex and the association has a rule that no pets are allowed. This is a covenant. Lady has 3 cats and wants to keep her cats in her unit. Lady wants to come up with other grounds for terminating the covenant. She wants every covenant to be tested as applied to that individual. She claims that her cats don’t create any negative externalities because they never get out. Why is this a bad idea to look at each case? Too much litigation and slippery slope, where does it end. California did adopt a restriction that covenants must be reasonable on a generic level, and there is a strong presumption that covenants are reasonable and valid. Some courts will distinguish between the original set of covenants and covenants that are adopted by a homeowner’s board. The general rule is that the original covenants are given greater weight because that is what people relied upon when buying the property. Skim p. 559; Hicky v. Green 2/16/04 REAL ESTATE TRANSACTION Get an agent, then make an offer. If the seller accepts the offer then we have a contract. Then there is a period between formation of contract and the closing (escrow period). During the escrow period buyer gets financing and checks title. What is title (the right to use the land, a property interest). The title could be encumbered with easements and restrictions. How do you find the restrictions, hopefully they are recorded at the recorder’s office. As a purchaser you have two duties, 1. Duty to walk the land and find what ever can be found by inspecting the land; 2. Duty to check the chain of title. You will be charged with notice of everything that is properly recorded in the title. If you find the encumbrance and you don’t like the encumbrance, then the issue is “Can the buyer back out of the deal?” The issue then is “When is there an enforceable contract?” This issue will take us to the statute of frauds. What is the contract for? TITLE. The ability to get out of the contract will be based on the seller’s ability to deliver the quality of title called for in the contract. You are buying a bundle of rights with respect to the title. Common law says any improvement is not included in title. Modern trend takes more of an expectation of party approach and typically if you are buying a parcel of land with a house on it, you expect the house to be part of the transaction. If it is post closing, as a general rule there is no backing out because the contract merges in with the deed. The title is transferred to the buyer at closing and there is no contract to get out of any more. If it is post closing the first question you have is “who’s problem is it?” First, can you qualify for protection under the recording act. What about easements that arose by operation of law. Does the recording act apply to property interests that arise by operation of law? NO. If you are using the common scheme doctrine to create a covenant, then that covenant is being created by operation of law and the recording act does not apply. Last resort for buyer is, “Can you sue the grantor based on the warranties in the deed?” STATUTE OF FRAUDS 1) Written instrument 2) Signed by the party to be charged (defendant) What qualifies as a written instrument? Many people argue that the written instrument has to include the material terms. (Price, Property, Promises, Parties) If you do not meet the requirements of the statute of fraud you may invoke the part performance doctrine or promissory estoppel. What purposes does the statute of frauds serve? Evidentiary, Protection, Ritualistic, Channeling Function (channel people to lawyers) 2/18/04 Statutes of Frauds. Some courts believe it is a rule of law that should be strictly enforced, some believe it is a principle that is not so bright line. When it comes to property the courts tend to be more strict about the statute of frauds. There are still some exceptions, like license coupled with estoppel, but a few jurisdictions don’t recognize license coupled with estoppel. Does the deed have to comply with the statute of frauds? Kind of, it is not a contract so there are different material terms. But delivery is a key requirement with respect to a deed, but delivery of the contract is not a requirement for the formation of the contract. The deed typically has a legal description of the property, but the description in the contract does not need a legal description. For the contract you have to be able to identify the property with reasonable certainty. Same with respect to the parties, you must be able to identify the parties with reasonable certainty. How precise you have to be on the price, depends on whether or not the parties have agreed on the price. If the parties have agreed on the price then it must be in the contract. If the parties have not agreed on the contract then the courts require a method for determining the price. There are a few small jurisdictions that will say that even if you don’t agree on the price or the method, we will imply a reasonable price. If a buyer writes a check for a deposit and puts on the memo portion the description of the property, then is there an enforceable contract? First it depends on who is trying to enforce the contract because only one party has signed. If the other party signs the back and deposits then we have reasonable party, description but there is no price. There is a split in the jurisdictions on the price issue. You can also have a bunch of writings that have been put together to form the writing. When you have someone that is selling part of their land, part of a larger parcel, the courts become much stricter. Exceptions to the statute of frauds. 1. Part Performance; 2. Promissory Estoppel 1. Part Performance: • Change in possession (Buyer takes possession); and • Partial payment of price or • Improvements 2. Promissory Estoppel • Reasonable reliance • Change in position • The other knows or should know about your change in position • Injustice can only be averted by estopping the other party from changing mind Do you have to record a deed for a deed to be effective? NO, a deed is effective upon delivery not upon recording. Remember the deed must be signed by the party to be charged in order to transfer title. 2/20/04 What encumbrances will let you out of the contract. You are buying title, which is a bundle of rights, the right to use the land. If it has too many encumbrances then are you really getting what you thought you were getting. Typically when buying land we are buying used not new title. So it will have some defects, some nicks and dings, but to what extent will we say the defects are things you should know about. If the party does not express otherwise then the party must provide marketable title at the time of closing. If a defect arises you must give the seller notice and an opportunity to cure the defect if possible. The seller has until closing to cure the defect. Generally the timing of the escrow and closing are not condition precedents to the enforcement of the contract unless there is a “time is of the essence clause” in the contract. If there is no such clause then typically the courts will allow the seller reasonable time to cure the defect and that usually will include time for any litigation. What is marketable title? This is a fact sensitive doctrine. One of the ways to define it is that you are free from an unreasonable risk of litigation. Basically saying that in this situation it is unfair to force the buyer to take this property. There are 3 main types of defects. Recorded encumbrance (covenant, easement, mortgages) Unrecorded encumbrances (municipal restriction) Defect in the chain of title The general rule is that recorded encumbrances effect marketable title in making it per se unmarketable. Unless it says marketable title subject to all recorded encumbrances. Then the buyer has waived the right to back out of the contract with regard to the recorded encumbrances. As a general rule the existence of a zoning restriction does not effect marketability. Reason being is that zoning is more of public info, everyone should know they are in the middle of a residential neighborhood. A present violation of a private encumbrance becomes an unrecorded encumbrance. A present violation of a zoning restriction becomes another unrecorded encumbrance. The unrecorded defects are where it gets fact sensitive, this is where you look to see if the defect will expose the buyer to an unreasonable risk of litigation. Chain of title started with the gubment and was then given to owner A then he gave it to owner B. Each transfer would require the transfer of the deed with description and details. Each time that deed is re-typed there could be human error. Chain of title defects are very fact sensitive as well. 2/23/04 For other unrecorded titles like easements and covenants that arise by the operation of law, then as a general rule the courts will treat it like the recorded defect of the same nature, and generally say they that it makes the title per se unmarketable. Many jurisdictions will use the common scheme doctrine to imply a covenant, and those jurisdictions will say that the covenant that will arise is an equitable servitude. The courts say this is enough to make the title per se unmarketable. Default title is marketable title. Survey the land (look at description in the deed and match it up with the land in the contract). If the seller is trying to sell more land than the chain of title says he owns then that can be a chain of title defect or a unrecorded defect, either way it is fact sensitive as to whether it effects title in rendering it unmarketable. Just cause a claim is based on adverse possession, that does not make it per se unmarketable, but you would have to have a very strong adverse possession claim. If the buyer wants to protect against this he can put in the contract, title of valid record. Perfect title – no defects at all. Record title – Title of valid record, there is no defect in the chain of title, proper paper trail in the chain of title. Also includes the concepts of marketable title, higher degree of title than marketable. Default is marketable title. Buyer has primary control over contract with regard to defects. Insurable title – Quality of title that a reputable title insurance company will insure. Insurance company has primary control over contract with regard to defects. Adverse possession factors – no real likelihood that a claim will be brought, and if brought, original owners will likely lose. Must meet both elements to have marketable title with regard to adverse possession. You assess marketable title at the end of litigation, not at the end of closing or the beginning of the contract period. So if you don’t like that risk of having your money tied up you put in a time is of the essence clause. Then title will be assessed at closing. Quitclaim deed – I give you whatever quality of title I have, if any. Merger Doctrine says that after closing you can no longer look at the contract, you can only look at the deed. If you really know what you are doing you should have the contract state the quality of deed that you are getting as well. What if you enter into a contract to purchase the phat pad for $400,000. A week later a big earthquake hits and the house is crumbled. The problem arose during the escrow period. This problem is different that what we have been talking about. The traditional contract was for title, the traditional contract was typically for farmland. If the contract says I hereby promise to deliver title to 327 Bordero lane, can I still deliver what I have contracted for? Traditionally title can be delivered. Equitable conversion – Equity regards as done, that which ought to be done. Once you have a contract that is an enforceable contract, meets the statute of frauds and meets the quality of title called for, equity regards as done that which ought to be done. Basically it says that during escrow the buyer is the owner from the start of escrow. Not all jurisdictions recognize equitable conversion, but it is the general rule. The risk of loss, the risk of change to the property for reasons beyond the parties control, is assumed by the buyer. You can put language in the contract to default out of this. You can insure against it. If the seller has insurance, the general rule is that the seller holds the insurance as trustee for the buyer. There are a minority of jurisdictions that say, too bad, if something happens to the house, and the seller has coverage, then the seller gets the money. In the modern trend there is a jurisdictional split. One view is that the seller takes the risk of loss all the way up until closing. In other words, do not recognize equitable conversion. Another view says that the risk of loss is on the seller if the loss is substantial, and the terms of the contract show that the improvement constituted an important part. If the loss is substantial then the seller can walk away, if the loss is less than substantial then the price may be adjusted but the contract is still enforceable. The final view is the risk is placed on the party in possession. Put the burden on the party who is in the best position to minimize the risk of loss. Generally the seller is in possession, if no one is in actual possession it goes to the party with the right to possession. Merger Doctrine – When a buyer accepts a deed, the buyer is deemed to be satisfied that all the contractual obligations have been met. The contract merges into the deed, once you close the contract becomes null and void and you can no longer sue the seller on the promises in the contract, you can only sue the seller on the warranties in the deed. There are 2 exceptions to the merger doctrine under the modern trend. 1) Fruad, if your claim after closing if fraud then that will not be barred by the merger doctrine. 2) Contractual provision that are deemed by the court to be independent or collateral of the deed. 2/27/04 In doing due diligence a buyer should do 2 things. First they should walk the land. Second they should get a title report. Common law as a general rule the improvements were not relevant at all in terms of the quality of title. Wendel enters a contract with Bartos to sell the phat pad for $400,000. He also executes a will saying he leaves all his real property to Gerri and Personal property to Lulu. Wendel dies in the middle of escrow. Under equitable conversion, Bartos is considered the owner from the time the contract is begun. Therefore Wendel is only the owner of a personal interest in the property, that is the right to receive the funds. In this case, if the jurisdiction recognized equitable conversion, then Lulu will get the funds from the sale and Bartos will get the house at closing. Merger doctrine, remember that is different with respect to the merger doctrine for easements. Under this merger doctrine the contract merges into the deed and is extinguished at closing. There are 2 exceptions under the modern trend, Fraud and Provisions that are collateral to the deed. What constitutes collateral to the deed? A deed basically tells you who owns what. Lists the grantor and the grantee. The first thing the deed will tell us is the quality of title and the second is quantity of land. If provisions don’t go to quantity of land or quality of title, then in a modern trend jurisdiction we can argue that the provisions are not governed by the merger doctrine because the provisions were collateral to the deed. Haunted house case. The buyer finds out that the house was haunted. They want out but the haunted house does not affect the title in the traditional sense. So the buyer evokes the doctrine of “duty to disclose.” Does the buyer have a general duty to disclose? Do we treat defects in title different from defects in the improvement. Generally there is no duty to disclose a defect in the title. The burden is basically on the buyer. For a improvement you need to put a clause in the contract that the sale is contingent upon an inspection of the home. If there is a clause in the contract giving the buyer the right to inspect the property, then is there a duty to disclose? And if there is a duty to disclose, what remedy does the buyer have for a breach of this duty? Pre-closing they can rescind, and post closing it is damages. Common law says there is no duty to disclose, because disclosing is like being a good Samaritan. Exceptions are if there is a confidential or fiduciary relationship. Or if there is active concealment or an affirmative misrepresentation or partial disclosure. Basically there is a distinction between misfeasance and nonfeasance. Modern trend says put the burden on the person who is in the best place to minimize problems. Modern trend says that where the seller knows of facts materially affecting the value or desirability of the property which are known or accessible only to the seller. What degree of knowledge is required? The courts are split but most courts say actual knowledge. What is material? Most jurisdictions say objective approach to materiality. Some jurisdictions say subjective approach. 3/1/04 The core concept of the real estate transaction is still the transfer of title. Now in the modern trend we see that the improvement has been added to the transaction with the modern trends in equitable conversion, duty to disclose, and the merger doctrine. In its core form we said that there is no duty to disclose when it comes to defects in the title. The buyer is supposed to walk the land and check the recorders office to discover stuff on his own. Modern trend has been to expand the concept of the real estate transaction to include the improvement. This first doctrine to do this is the duty to disclose. In most jurisdictions, the duty to disclose only applies to non-title factors (improvements, bad soil, bad neighbors). Common law says there is no duty to disclose anything, there was a distinction between misfeasance and nonfeasance. If you found out that there was a bad neighbor common law would not let you out of the contract unless you had a clause in the contract that says it is subject to your inspection. Modern trend says that there is a duty to disclose. 1) the seller must have knowledge, 2) the defect must be material in that it effects the desirability, 3) the facts must have been know or accessible only to the seller. To sum it up more quickly the modern trend is that the seller has a duty to disclose material latent defects. Patent means that the defect is discoverable under a reasonable inspection. Latent defects can not be discovered with a reasonable inspection. Where does this duty stop? What about a sex offender living on your block? What if someone has been murdered in the house? What if someone just died there? Most states have statutes that list the things the seller must disclose. Stigma Statutes – some states restrict the duty to disclose emotional defects within a certain amount of time. NY Rule – Where a condition has been created by the seller and it materially effects the value of the property then there is a duty to disclose. Type of deeds General warranty deed is the best you can get. Typically protects you against any defect. 3/3/04 4 doctrines that are moving towards improvements. 1) Modern trend duty to disclose (majority) – seller knows of a material latent defect. With the actual property or offsite problems as well. If the seller breaches it pre-closing then the contract can be rescinded. Post-closing the problem is usually resolved by awarding damages. Since it is a modern trend jurisdiction then assume the merger doctrine does not apply so damages can be awarded. Is this just a default that can be contracted out of? The jurisdictions are split as to the effect of an as is clause. The duty to disclose only applies to non-title issues. Buy a house and there are defects? Can you sue the developer for the implied warranty of workmanship even if you did not buy from the developer? The courts look to torts and contracts and sees no remedy so the courts make up their own doctrine. 2) Implied warranty of workmanship – Modern trend jurisdictions have this (applies to new construction only) basically says that the builder should use quality workmanship, and that the improvement should last a number of years before it has problems. This warranty runs with the land to remote grantees. The duration will vary from jurisdiction to jurisdiction and is usually based on a reasonable time, usually runs from 5 to 10 years. The defect must be material, this is where the litigation usually occurs in determining the scope. Can not contract out of this doctrine because the first buyer would be contracting out of it but the whole point is to protect subsequent purchasers. The first purchaser could just sue under contracts because there is privity. Some jurisdictions limit this doctrine to residential property only. Other jurisdictions change the name for commercial property, warranty of suitability. Does it matter who built the property? A professional or a mom and pop? In general this doctrine does not apply unless the seller is a builder, or a commercial developer or a professional builder of some kind. 3) Modern trend approach to equitable conversion 4) Modern trend approach to the merger doctrine which basically says to abolish the merger doctrine. Give you more grounds to sue on the improvement to the extent that the improvement is mentioned in the contract. THE DEED The purpose of the deed is to transfer title. The Grantor is the one transferring title. The material provisions of a deed are parties and property, not price. It is a good idea to put the term “for valuable consideration” in the deed just to show that you are a purchaser for the sake of the recording act. A deed is not valid until it is properly executed and delivered. A forged deed is never valid, it will never pass good title to anybody. A fraudulent deed is voidable, the grantor can void the deed as to the first grantee. But if the deed is then transferred to a subsequent bonafide purchaser without notice then the grantor is out of luck. A forged deed is when the name of the grantor is on the deed, but the grantor did not sign it. A fraudulent deed is where the grantors name is on the deed, and the grantor signed it but he has been tricked into signing the deed. p.614 talks about how the property must be described. What to do when the description is mistaken. Maybe know this for the Bar but not for class. 3/15/04 At closing there is delivery of the deed. This delivery of the deed transfers title. Physical delivery is what we are looking for, but the legal definition of delivery focuses on the grantor’s intent to relinquish dominion and control over title to the property. The deed will be the best evidence of intent, but ultimately it hinges on what the actual intent of the grantor was. Wills and trusts says that if you are going to transfer a property interest at death, you have to comply with the statute of wills you must have a document that qualifies as a will. Take it as a given that a properly executed deed does not qualify as a will because a will requires 2 witnesses and testamentary intent. If the grantor intends to transfer title inter vivos, the grantor should execute a deed and deliver it. If the grantor wants to give title when you die then you put it in a will. If you didn’t put it in a will, no matter how clear the intent is in the document, it is invalid. It gets messy when a person tries to give an inter vivos deed that will only transfer the title at death. Common law says enforce the rules strictly. Modern trend says to look for intent and accommodate unless the intent was deviant. Wendel calls Lulu and says he will give her the phat pad tomorrow night at dinner. He properly executes a deed but dies before he sees her and can not give it to her. Common law says not proper delivery and no transfer. If the deed is in possession of the grantor there is a rebuttable presumption that there was no delivery. If the grantee is in possession of the deed then there is a rebuttable presumption that there has been delivery. Ultimately delivery turns on the grantors intent to relinquish delivery and control of the title. 3rd scenario is where the deed is properly executed and recorded, there is a rebuttable presumption of delivery. An inter vivos transfer hinges on grantors intent, a testamentary transfer hinges on the law of the statute of wills. Different if Wendel says I will give you the deed tomorrow, or here I have given you the pad and I am done, but not yet delivered it. If says give deed tomorrow, then intent not clear to give a present property interest so no transfer. If says you got it, then enough to rebut presumption and it would be a proper transfer. What is the difference if it is a sale? If it is a sale then equity regards as done what ought to be done. If there is an underlying contract then delivery is not really an issue because you can always sue for specific performance. Delivery only arises as an issue in the donative setting. You can use an escrow in the donative setting. If Wendel executes a deed and says that he will give the pad to Mr. Snow if he shows up to the bar-b-q. If Wendel dies then the deed is extinguished and Mr. Snow has no right to enforce. If Wendel gives Mr. Look the deed and tells Mr. Look to give Mr. Snow the deed if he shows up at the bar-b-q, Wendel dies, what then? If Mr. Look is Wendel’s agent, an extension of Wendel and is under the control of Wendel, then he has not relinquished control of the deed and no transfer is made. If Look is a true escrow and independent, not subject to the control of Wendel, then the transfer will be made. If there are conditions and the transfer is 2 party, then the conditions should be in the deed complying with the statute of frauds. Like saying here you have this deed but it will become effective only if you come to the bar-b-q. If the conditions are given to an independent agent then the conditions do not need to be in the deed. 3/17/04 In most of these cases the grantor is dead, so we must use circumstantial evidence to determine the grantor’s intent. 4 variables to keep in mind. 1) Is there a contract of sale? – If there is one then delivery is not really an issue in these cases because the seller can be forced to deliver, even if he doesn’t want to. 2) Is the alleged delivery inter-vivos or testamentary? – To transfer a property interest at death it needs to be done through a will. If testamentary it needs to be given in a will. A will has higher requirements. You can create a deed where you reserve a life estate and give a remainder. This is a present transfer of a property interest, it is irrevocable. A will is an expected transfer, can be changed. Some people now create a revocable deed transferring a remainder, common law says that is not enough to count as an inter-vivos gift but modern trend says ok because they focus on the intent. 3) Are there 2 or 3 parties? – The 3rd party may either be an agent or an escrow. The key is that the grantor has to intend to relinquish dominion or control over the title. 4) Is the transfer conditional? If there are 2 parties the condition must be written in the deed. The oral condition to an agent must be instructions to the agent to give it to the grantee if the condition is met. 3/19/04 The mortgage is typically 2 things, it is a promissory note and a mortgage. The mortgage basically says, if you default on the payments on the promissory note, then we have a right to come in and force a sale of the property in question, and out of the proceeds from that sale, we the lender, get our share first. Common Law was the title theory. The borrower would give property to the lender, the bank held the tile for the term of the mortgage in a fee simple defeasible. The loans were also interest only and the balloon payment was due at the end. If the borrower missed that balloon payment then the lender got to keep all the interest payments and got to keep the property because the defeasible condition could never be met. This was seen as unfair and the borrowers were running to the courts of equity. The courts then typically were granting an Equitable Right of Redemption – which is a right of the buyer to come up with the money and make that last payment and then get title. The banks did not like this because now they were forced to hold the property and were not able to sell it. The banks wanted the courts to set a date as to when the buyers had to exercise their equitable right of redemption, so basically they were foreclosing on the borrower’s equitable right of redemption. During the depression a lot of people defaulted and then afterward wanted to get it back, so the courts said we will give a second bite at the apple, a Statutory Right of Redemption – even after the foreclosure sale if you can come up with the money you can still get it back. All of the jurisdictions recognize the equitable right of redemption, about half recognize the statutory right of redemption (usually between 1-3 years). In some of those jurisdictions the borrower gets to stay in possession until the statutory right of redemption is over. If are a lender, can you contract into the common law approach. General rule is no. What if we change the name of it and call it a land installment contract. They would say that because this is a land installment contract, we are not subject to the equitable right of redemption or subject to any of this stuff. The courts will not allow this, they will look at substance over form and say that this is basically a mortgage. If there is a deficiency at the foreclosure sale, the bank can generally still come after the borrower to make up the difference. A minority of jurisdictions have an anti-deficiency statute, California has an anti-deficiency statute but not all properties are covered, also in California the anti-deficiency statute only covers a mortgage that is used to purchase the house not any refinances. At the foreclosure sale, you sell the state of the title that existed at the time they entered into the mortgage. At the time a second lender entered into the picture, the property was already subject to a first mortgage. What if a buyer wanted to purchase the property from Bartos but he just wanted to take over existing mortgage because the rate was low on Bartos’ loan. The new buyer can buy the property subject to the mortgage or you can assume the mortgage. If you assume the mortgage you are personally liable on the note, but if you take it subject to the note, you are not personally liable, but still if you don’t then BofA can still foreclose on the property. 3/22/04 Lessor is the owner of the property, and mortgagor is also the owner of the property. The mortgagee is the lender. As a general rule the borrower is still liable on the note if the foreclosure sale does not generate enough money to pay off total loan. What if there is a purchase for $400,000. Takes out a loan for $350,000. Then enters into a 5 year lease with Ms. Loesby. Then defaults on the loan and the bank forecloses. When they foreclose they take the type of title that existed at the time of the mortgage. So here they would not take subject to the lease, the lease would be extinguished. If the lease occurred first, then the least would be senior, the party taking new ownership would be the new landlord. What happens if there is a first and a second and then the borrower defaults on the second. The second lender will foreclose and the buyer will take subject to the first mortgage. If you take subject to the mortgage, the land remains as a security interest but the buyer is not personally liable. If you assume the mortgage then you are personally liable. If new buyer assumes the note it still does not release liability from the previous owner on the promissory note. If the mortgage is paid off at closing then it is not a defect in the title. If it will not be paid off then it is a defect and is per-say grounds to get out of the contract, just like a recorded encumbrance. Typically the foreclosure sale goes through the courts but that has a high cost of administration. Some jurisdictions allow for a private foreclosure sale that is usually conducted by the lender. In these private sales, there are two duties, 1) all the statutory requirements 2) good faith and due diligence. Good faith looks at the partie’s subjective mind set. Due diligence is more of an objective standard. The lender has a fiduciary duty to obtain a fair and reasonable price. This is very fact sensitive. Often there is only one bidder at the sale, and that bidder is the lender who only bids what they are owed. If extraordinary circumstances arise like a big storm that does not allow other buyers to show up, then what? Here the court said that the lender should have rescheduled and that was a breach of the duty of due diligence. Sometimes the courts will say the lender is in the clear unless the price they pay “shocks the conscience” of the court. The ideal condition will give FMV, reasonably you will get FFP (fair foreclosure price), sometimes you get an improper foreclosure price. In this case the damages is the difference between the improper price and the FFP if it was due to a breach of due diligence. If breach of good faith then the damages is all the way up to FMV. 3/24/04 How do you know that the seller had title, and the type of title that you thought you got. The primary method for protecting a purchaser is through the recording system. It is supposed to be a paper trail, showing all the things that have happened to a parcel of land. Ideally you should check the recording system during escrow. If you find a problem then the issue is, can I get out of the contract. But what if the defect is not discovered until after closing. One of the key’s during the exam is to look at when we found the problem. What if Mr. Snow has an easement and then Supance buys the property. She does not know about the easement until after she buys the property. The starting point is always “first in time, first in right.” The starting assumption is that Snow wins because he was first. Supance must trump the property interest with something. First she tries protection under the recording act. She must be a subsequent bonafide purchaser without notice. Must be subsequent to the easement, bonafide means good faith, and without notice of the easement. The logic is that if Supnace buys the pad for 400K then she has changed her position in reliance of the recording system. Mr. Snow shows up later and she says that he is estopped from asserting his easement because he failed to record his easement. Mr. Snow was in the best position to avoid the problem because he could have just recorded it. When something is recorded, it puts the whole world on notice. 3 types of notice and there is no hierarchy, notice is notice. Actual notice – Actually knew that there was an easement. Someone either told you about it or you saw it. The best form is that you physically see the deed. Constructive notice – You are charged with it as a matter of law, whether you knew about it or not. The classic example is the recording act. You are charged with knowledge of everything that is properly recorded. The general rule is that if the county recorder messes up and does not record it properly then legally we consider it recorded. There are a handful of jurisdictions that go modern trend and say that in this case, the burden is on the easement holder to follow up so it is not considered legally recorded. Inquiry notice – Sometimes if someone tells you about it, it may only be enough to put you on inquiry notice. If you see a path on the property, that is usually inquiry. If you have inquiry notice then you have a duty to inquire, you must reasonably and diligently follow up. If you do and you do not find anything then you are without notice again. Recording systems: Tract – Under this system, every parcel of land was given a tract number. All the recordings were listed under the proper tract number. You would just go to the recorders office and say I would like to see the index for tract #123. Grantor/Grantee index – Not all parcels had tract numbers. They went by the owners of the land. There are two indexes, one for all grantors, and one for all grantees. Look in the grantee index and find the current owner, you will see the deed that gave title from someone to the current owner. Then look for that someone in the grantee index and find out who gave the parcel to them. Go all the way back to the gubment. Then you will have a list of all the people who owned it. Then you have to go under each party and look them up in the grantor index and see what interests they have granted while they owned it. Remember that the deed is effective as between the grantor and grantee upon delivery, not when it is recorded. 3/29/04 When coming forward in the Grantor index, be on the lookout for liens as well. We look at each owner in the grantor index for a period of time. Start at the date of execution of the deed purporting to give that party title. End when we find the first deed recorded, purporting to give the title out. That scope is called the standard scope of the search. Constructive notice means you are charged with notice whether you look and find it or not. Actual notice is when you actually know it. Inquiry notice is when you have actual notice or constructive notice of certain facts that makes you (reasonable person) suspicious to think you better check on this. Luthi v. Evans Owens owns rights to Oil and Gas interests. Owens transfers these interests to Tours in 1971. In the deed they specifically describe 7 oil and gas leases to be transferred. They also include a Mother Hubbard Clause. This clause basically says all of the owners property within a given county is transferred, this is typically used in a deathbed situation where there is no time to actually find all the property and describe it. The Mother Hubbard Clause would have included one additional lease called the Kufahl lease. Is the Mother Hubbard Clause valid to transfer title? Yes, but only as between the grantor and the grantee. In the grantor/grantee indexes we have listed the: 1) Grantor, 2) Grantee, 3) Date, 4) Property affected. As a general rule you are only required to check on the transfers that affect the property you are buying. The Mother Hubbard Clause is not recorded. In 1975 Owens transfers the interest of the Kufahl lease to Burris. A fight breaks out between Tours and Burris as to who now owns the Kufahl lease. Here Tours is the actual owner of the Kufahl lease, but if you go to the recorders office is seems like Owens owns it so we call Owens the apparent owner. Here Buris bought it form the apparent owner and he qualifies for protection under the recording act and he gets title. Tours can now sue the alleged grantor (Owens) and we make Owens an agent for the actual owner, and we make Owens give any money received to Tours. 3/31/04 Record title means that there is a good paper trial with respect to all of the property interests that the grantor purports to convey, including easements or other property interests. Look at Actual owner and Apparent owner. Tours is going to claim the land based on first in time first in right. Burris is going to claim based on protection under the recording act. As between the two the starting assumption is that first in time, first in right wins unless they are trumped. Now, does Burris qualify, are they a subsequent bonafide purchaser without notice. As a general rule, to prove that you qualify for protection under the recording act, you better be taking title from someone who has apparent title. Now if the index said 7 leases + Mother Hubbard clause. This should put him on inquiry notice, but this would be too burdensome because all subsequent grantees would have to look for any land that Owens owned and find out if it was transferred. The alternative is to say that the Mother Hubbard clause does not put others on notice, so the burden is on Tours to do the research and find the property that is affected by it and expressly add those properties to the recording system. The general rule is that the mother hubbard clause is not sufficient to give inquiry notice. Orr v. Byers Orr gets a judgment lien against Elliott. The lien is recorded under Elliott. They spell the name Eilot rather than the correct name Elliott. Byers then buys the property from Elliott and then Orr shows up and wants his money from Byers. The issue is, should you be required to look in the recording system under all possible spellings of a name. This just becomes a public policy issue. The burden should be on Orr to get the correct spelling, this is the majority rule and the modern trend. 4/2/04 Standard scope of search. Start at date of execution of deed purporting to give them title. End at first recorded deed giving title out. 3 recording acts: Notice Statute – Subsequent bonafide purchaser without notice. Test notice at the time they change their position in reasonable reliance on the recording act, at the time of closing. Race Statute – Party who records first trumps other interests. First in time, first in right wins, unless the subsequent party records first. Notice is not relevant at all. Race Notice Statute – Test notice at closing, and then check the race. First in time, first in right wins unless trumped by subsequent party that qualifies by meeting notice standard and race standard. The notice approach is based on fairness. The prior party was in the best position to avoid the problem and the subsequent party changed his position in reasonable reliance. The pure race approach is not based on fairness at all, just based on pure easiness. The race notice approach combines the two, supposedly balances fairness and efficiency. Two jurisdictions follow pure race, the rest are evenly split between notice and race/notice. Be able to read the statutes in the book and determine what type of jurisdiction it is based on the statute. A recording that is outside the standard scope of the search is considered a wild deed and is useless in most jurisdictions. 4/5/04 Under the race statute, what do you have to record? Remember that multiple people can have apparent title. If you can show that you were connected to the record system then you can have apparent title. We start with apparent title under the record system but then we expand to anyone who can show they are connected. Action Actual Apparent O to A A O/A O to B A O/A/B B to C A O/A/B/C C Records A Records The Zimmer Rule – Applies in all Race or Race/Notice Jurisdictions The reason we add the race requirement is because we want to have a nice clean recording system. Whoever records first gets it. But if the recording does not connect up to the chain of title in the recording system then the recording is no good. Must properly record all of the deeds in your chain of title to that it properly connects up. Shelter Rule – Applies to Notice only, not even race/notice Action Actual Apparent O to A A O O to B B O A Records B A B to C C After having lost to B, A wanted to go back in and try to trump C saying that C was not a subsequent bonafide purchaser without notice. The courts said no, once B trumped A then A is out and his recording did nothing. The shelter rule only applies to people who take from a party that was protected under the recording act. Also it applies only if you are taking from a party who has actual at the time of the conveyance. Once a party trumps another party, everyone taking from the trumping party is sheltered and protected. There is, however, one party who is not protected under the shelter rule, that is the original owner. If B conveys back to O then he is not protected. Race Notice O to A A O O to B A O A Records A A Random Hypo – Try under Notice Statute O to A A O O to B B O A Records B A B Records A to C B to D A deed is to be recorded only if it is properly notarized. There has to be an acknowledgement clause that is notarized before it is recorded. But, sometimes the people at the recorders office record a deed when it has not been properly notarized. What is that affect? We have a deed that is improperly recorded because there is a defect in the acknowledgement clause. The deed is still effective without it being notarized, the notarized part of the deed is only for the recording. Patent Defect – There is no signature or stamp, very easy to see by looking at it. If there is a patent defect in the deed, the general rule is that the deed gives no constructive notice. But if you actually went down and did the title search and found the deed, then you are on actual or inquiry notice. Latent Defect – If the defect in the acknowledgement is a latent defect, then it does give constructive notice. In Wendel’s office: Go through the whole analysis for divisibility or transferable of easements. There is a duty to record court judgment for easement that arises by operation of law. For equitable conversion – Look for risk of loss (change with respect to the property) and how to treat upon the death of either party. Historically a court would strike down a covenant if it was in FSA. Modernly that is no problem. 4/7/04 Idem Sonans – Do you have a duty to look only under the proper spelling of the grantor’s last name, or do you have to look at other spellings? The doctrine of Idem Sonans said you have to look under all possible spellings but most jurisdictions wou used this limited it to spellings with the same first letter. That was the old common law approach, the modern trend is that you only have to look under the correct spelling. What about the first name, what is the relevance of the first name? The general rule is you have a duty to look under any possible spellings or diminutives of the name. Hyphenated names? Only one case, and the court said that hyphenated names do not give notice under either name. For the standard scope of the search you are charged with knowledge of everything that is properly recorded. Action Actual Apparent Notice Jurisdiction O to Taylor rec Fisher to Burnett rec (mortgage) Taylor to Sandler In the above situation Taylor got married and changed her name to Fisher, then got divorced and changed it back. In the deed to Sandler Taylor should have said, I give you FSA except for the pre-existing mortgage to Burnett. Treat a mortgage or a lien as if it was an easement. It is just a lesser included property interest. Sandler will not find the recording under the name Fisher so Sandler will qualify as a subsequent bonafide purchaser without notice. O to A A O to Heir Heir to B Heir is not a purchaser so he would not trump. But B is a purchaser, so they can get title if they qualify as a SBP without notice. If you get from the person who has actual then you get actual, if you do not take from the person who has actual then you need to qualify as a SBP w/o notice. Notice O to A A O O to B B O A rec B A A to C C A B rec C A C rec C C Race Notice O to A A O O to B A O A rec A A A to C C A B rec C A C rec C C Notice O to A A O O to B B O A rec B A B to C C A Shelter Rule – C steps into B’s shoes and gets the same protection that B would get. Race Notice O to A A O O to B A O B to C A O C rec Zimmer Rule – under the race requirement you have to record the whole chain of title, so C would not get it by recording here. Notice O to A A O A rec but a defect in ack This depends on if the defect is a Latent or Patent, if it is Latent then it gives notice and counts as a recording. If it is a patent defect then it does not count for constructive notice. Only relevant if B did an actual search and got actual or inquiry notice. O to B 4/9/04 A forged deed is never valid. A fraudulent deed is voidable. Notice Jurisdiction O is the owner A forges deed O to A A rec A to B A does not get title. And even B can not get title ever. A forged deed is void and can never pass good title, even to subsequent grantees. O is the owner A fraudulently induces O to A A rec A to B Here as between O and A, O has the right to void it. Once B takes it, he can qualify for protection under the recording act. Voidable title is not good title, but it can become good title if the subsequent party qualifies for protection under the recording act. O O to A defect in acknowledgement A rec O to B The deed between O and A is valid so O no longer has good title to pass. But a subsequent purchaser may be able to take good title if he qualifies for protection under the recording act. Race/Notice 1946 C + F as CO-T’s May 46 C to F Apr 51 C to S a lease May 51 C to S a ½ interest in mineral rights This last deed has a typo in it. And C claims that it was fraudulently obtainted May 51 C to S a ½ interest in minerals This one does not have the typo error but the problem with this one is that C never appeared at the notary to sign it. This notarizing occurs before recording. The grantor must sign and be notarized to avoid forged deeds from getting in the chain of title. Here C did sign the deed, but did not do it in front of the notary. Here the notary called C and asked her if she was the one who signed it, and then she stamped it. The court says this is not proper and is thus a defect in the acknowledgement. But this is a latent defect because there is nothing on the face of the deed to show anyone that it is improper. May 51 S to SE a ½ interest in minerals S records lease May 51 S and SE records ½ interest July 51 F records F and SE both claim. F claims under first in time first in right. SE tries to claim for protection under the recording act (needs to have all title connect up). SE purchases from S and it seems like there is no evidence that he had any notice anything was wrong. The court says that the S deed of the ½ mineral interest was not counted as recorded because of the defect in the acknowledgement. They say that SE’s title does not connect up. This is a ballsy interpretation. Don’t sweat this. There are two ways to look at things here. The general rule is treat a latent defect as a proper recording for the race prong, and a patent defect as not a recording for the race prong. The minority separates the race and the notice prong and says that for the race prong, if there is any type of defect then it is not counted as recorded. Race/Notice May ‘06 HG to H The grantee line was left bland so this is not a proper deed and conveys nothing. Apr ‘09 HG to D&W Nov ‘09 D&W to BD Jan ‘10 BD rec Dec ‘10 H fills in deed and rec Dec ‘10 D&W rec Here the May 06 deed that has the grantee line blank is not a valid deed so HG is still the owner. Then HG conveys to D&W so DW gets actual title. DW then gives it to BD so they have actual, their recording is wild though so HG still has apparent title. When H completes the deed in Dec 10, that is when the deed becomes effective. To the extent H was given a deed in 06 and had the ability to fill it in at that time, some say we should use the relation back doctrine when the deed does actually get completed. The reasoning is that H had the authority and the ability to complete the deed in 06. This court did not use the relation back doctrine, so H did qualify as a subsequent b/f purchaser w/o notice who recorded properly first. On an exam use the relation back doctrine. 4/12/04 A wild deed is one that is outside the scope of the search. Lot 1 O to A expressed covenant restricting A’s land & land retained by O. A records Lot 2 O to B Here if B does a standard scope search, they will not find anything with relation to Lot 2. But the court here said that B should have searched all deeds out from all grantors in the chain of title. That will increase the burden on all subsequent grantees. The jurisdictions are split. 4/14/04 Zimmer rule applies to parties who are trying to get title, not parties who are trying to protect themselves after having title. If those people record a wild deed, it is not really the Zimmer rule that applies, instead we can say that they have not adequately recorded. Lot 1 Gil to Walcots SF only Lot 2 Gil to Guilette SF only and all lots retained by grantor Lot 3 Gil to P SF only Lot 4 Gil to Daly no express restriction Daly tries to build a hotel. Guilette wants to stop him and claims there he has the right to do so based on first in time first in right. Daly tries to qualify for protection under the recording act. Notice Jurisdiction Under a standard scope of the search Daly would not find the restriction placed on lot 4 in the deed to lot 2, because Daly does not have a duty to check the deed to lot 2. This court said you have a duty to search all the deeds giving title out to any lot from all grantors. That was one expanded scope of the search. All of these are very minority. O is the owner: A to B O to A A gives it to B before he actually gets title. Here when A gets actual title he is estopped from denied the deed to B. The moment A gets title, The A to B deed becomes effective and we apply a relation back doctrine saying that B had owned the lot from the time he got his deed in the first place. That rule is embraced by almost all jurisdictions, it is called estoppel by deed. 1950 O is the owner 1960 A to B 1965 B rec 1970 O to A 1975 A rec 1980 A to C O does not have good title to give so A and C need to claim protection under the recording act. Here A and C do qualify as subsequent bonafide purchaser without notice. A handful of jurisdictions don’t like that B does not have much protection. They say we need to expand the scope of the search at the front end. Basically says you have to go back 50 years at the front end and look under that party’s name because they might have conveyed it to somebody else before they got it. 1960 O to A 1970 O to B – B has actual knowledge of the O to A 1980 B rec 1990 A rec 2000 B to C A gets actual. B does not qualify for protection. But C tries to qualify as a subsequent bonafide purchaser without notice. Here A records before anyone trumps him so his argument is that he should be protected. The only way to do this is to expand the scope of the search past the back end. 4/16/04 O to A O to B B trumps A. A then sues O and gets the money B paid to O, O acted as an agent for A. If A trumped B for some reason then B would sue O and get then money B paid back. What if B buys based on a seller finance. A paid 60K for the property, then B comes along and buys it based on a seller carryback loan. B has paid 40 K by the time A finds out. How much consideration is necessary to qualify as a subsequent bonafide purchaser. There are 3 options: The remaining money is basically the difference between what B has paid and what B has contracted for. But remember, if B contracts for a price that is much lower than market value then he should be on inquiry notice. 1. Common Law Majority Approach – In this case the court said A wins, but A has to pay B the 40K and then A has to sue O to get it back. 2. Modern Trend Minority Approach – The court could have said that B wins (because he has made substantial payments) and B has to pay the remaining 20K to A. A still has to sue O to get the 40K paid. 3. Common Law is the standard rule – you have to pay all of it before you get notice to get protection. What if B has paid 40K out of the 60K and then A goes down and records his deed. Do we say that B is charged notice at this point? The common law standard rule is yes. The recording provides constructive notice to the whole world at the time of recording. The modern trend rule is that constructive notice is not good here because B would have checked the recording system earlier. These jurisdictions say that only actual or inquiry notice is good to provide notice while the other party is in the middle of paying. 1922 SH to M Life estate to M remainder to M’s kids Deed is lost until 1957 1925 SH dies 1928 SH’s heirs admit that the original deed is lost and they execute a replacement deed to M 1933 M executes a mortgage to ET 1936 ET foreclosed on property 1935 to 1955 ET to X to Y to Z to P 1957 the lost deed is found and recorded 1972 Maude dies, M’s kids claims first in time P first can say they are an adverse possessor. Problem is they are not really there adversely, and even if they were, they would only be able to adversely possess the quality of title that the current possessor had, and that was really only a life estate. P can also say they are subsequent bonafide purchasers without notice. When you see an entry in the index are you charged with reading the deed? Yes, you have a duty to read every deed in their chain of title. When they read the replacement deed the should have been on inquiry notice that there was a lost deed and they should have done due diligence to see if that deed was found. They did not due diligence at all, and the court says that if you have inquiry notice and do not do reasonable diligence then you are charged with contructive notice of the true set of affairs. A lot of contemporary commentators are critical of this decision. Ms. Lopez rents from Woodcliffe apartments. Wendel owns the building which has 400 units. Wendel give Ms. Lopez an option to purchase her unit. Bartos wants to buy the whole building and checks the title. He sees that Wendel owns the whole building. Is he safe buying? Some courts say yes, and other courts say no. The “no” courts say if you find anybody in possession you have a duty to ask that party the extent of their interest. Some courts even go so far as saying that if the seller says there is no one living there and you see furniture, you have a duty to come back and see if someone is actually living there. And the due diligence can not only consist of asking the seller because they have a vested interest. The modern trend has been trying to limit inquiry notice because it puts a large burden on the buyer. If you are first in time party you better record your interest or take possession. Let’s say mom moves in with Wendel. Wendel wants to sell the pad to Bailey. Baliey comes out to inspect the property and sees mom by the pool. Does Bailey have a duty to ask family members the extent of their interest. Some would say it was reasonable to assume mom was a guest, other courts say the burden is minimal so you should ask. If the party in possession is inconsistent with the state of the title then you have an absolute duty to check. If the party in possession is consistent with the state of the title that is where the grey area is and the courts are split. 4/19/04 Post closing the first recourse is Protection under the recording act. If you lose this battle, then you end up not getting what you thought you were getting. You thought you were getting marketable title but you did not. Second recourse is suing the seller based on the warranties in the deed. Finally you can file a claim against your title insurance company. There are 3 kinds of defects in the title. Rec Unrec Chain of title Post closing, what defects do your title insurance company insure against? They are basically the people that check the recording system and are insuring their own search. The title insurance company does their own independent search or the recording system. As a buyer you have a duty to check the recording system and walk the land. Almost every title insur policy has an exclusion that says “any defect that could be discovered upon inspection of the property is not covered.” As a general rule then, title insurance only covers things that could be found in the recording system thus they only cover 1. Rec defects and defects in the 2. chain of title. A to K deed for 12 acres recorded K to R deed for 18 acres After R buys he does a survey and finds out it is only 12 acres. R has title insurance. It was a defect in the chain of title so it should have been discovered by the insurance company, but it should have been discovered by the buyer as well. Here the exclusion trumps the coverage. Because it is excluded because it would have been discoverable by walking the land and doing a survey. The buyer then sued the title insurance company and said you have an independent duty to tell me about all the defects in the title so that I can decide if I want to buy the property. This is a tort theory. Therefore as a general rule the insurance company has no duty to the buyer because the company does an independent search for their own interest. They are deciding if they want to insure it for themselves. The modern trend is to change this and impose the duty to disclose any defects that they find should have found to the buyer. Lot to the left of the McDonalds is empty. If you want to buy it you may find that there is environmentally dangerous material in the land (used to be a gas station on it). Now you gotta clean it up. You have a mandatory legal duty to clean it up. The govt. can clean it up themselves and charge you. If you don’t pay they will slap a lien on the property. Pre-closing if the lien is recorded it would qualify as a rec encumbrance and let you out of the contract. But what if you don’t find out it was contaminated until after they buy it. The value has gone down, but title insurance does not insure you against a mere loss of value. The defect does not fit in any category. The buyer has no claim. If the govt has filed a lien and recorded it against the property, pre-closing it would let you out of the contract. If you missed it and you want to file a claim afterwards then it is questionable. What is the scope of the inspection that you have to do based upon the exclusion of the title company, does that include an environmental inspection? Arguably yes. May be too much for this class. Last thing is suing based on the warranties in the deed. What type of deed, and what type of defects? 3 types of deeds Quitclaim deed – I give you whatever title I have if any. No warranties. If a seller tells you he is going to give you a quitclaim deed at closing, does that put you on inquiry notice. The general rule is no. It looks funny but we want to permit people to use quitclaim deeds without raising red flags so general rule is no. Special warranty deed – Only covers the period of ownership that your grantor owned it for. Basically saying, I did nothing to diminish the quality of title when I owned it. I warrant the time period that I owned it. You can sue me for any defects that arose during my time of ownership. General warranty deed – I am warranting whatever quality of title exists based on all actions by prior owners. I am warranting that the title is what I tell you. If you have parties who know what they are doing then the type of deed should affect purchase price. With a general warranty deed what is the extend of the coverage? You can contract for any type of warranties that you want. The standard are: 1. Covenant of seisen (ownership) 2. Covenant of right to convey – These two basically say, I owned it and I can sell it to you. The only time there is a difference between the two is if the property is in trust, then the owner may have seisen but not the right to convey. The opposite is adverse possessor when you have a right to convey buy not seisen. But you can pretty much assume the these two go together and if one is breached then they are both breached. 3. Covenant against encumbrances – For the most part this covers, rec, unrec, and chain of title defects. Those 3 are known as the present covenants The next 3 are known as future covenants 4. Covenant of general warranty – Basically the same as #5 5. Covenant of quiet of enjoyment – right to quiet enjoyment, and if someone comes by and disrupts that quiet enjoyment, then the warranty is breached. 6. Covenant of further assurances – If there is a problem that needs to be cleaned up after closing, they will help in cleaning it up. (filing papers, etc.) A present covenant is breached and only breached at the moment at delivery. The mere existence of a superior property interest breaches the present covenants. There is only one day when these can be breached, if they are breached, they have to be breached on that day. The key of the futures is the quiet enjoyment. Here the superior interest must be asserted in order breach the covenant. Wendel sells the phat pad to Sun. Wendel gave Mr. Snow an easement prior that was not recorded and there is no path on the land. Snow is out of the country and comes back and starts to walk on the land. Here Mr. Sun can claim protection under the recording act, so there is no superior property interest, so there is no breach of warranties. In order for there to be a breach you must show that there is a SUPERIOR property interest. Always do the protection under the recording act first to find out if the property interest is superior. 4/21/04 There is also a statute of limitation on the warranties, typically 5 or 10 years. The SOL on the present starts to run on the day of delivery, the SOL on the future starts to run the on the day they are breached. 1947 O to Bost 80 Acres O reserved 2/3 min interest 1957 Bost to Brown 80 Acres, does not mention anything about the 2/3 of O 1974 Brown to Coal Co. Coal Co. buy it for 6000. During escrow they find out about O’s 2/3 interest so they reduce the price to 2000 and only bought the 1/3. There is no qualifying for protection because O had recorded interest. Now Brown wants to sue Bost to recover the money that they lost. In 1957 there was a breach of the present warranties, but by 1974 the SOL has run. O can not sue yet for the 2/3 interest based on future covenants because O has not asserted his rights yet. Do the same analysis pre and post closing. If there is a recorded encumbrance precloosin it makes it per se unmarketable, post closing it will be a violation of the warranty against encumbrances. If there is a chain of title defect that was large enough to let him out of the contract pre-closing then it would probably breach warranties 1, 2 and 4,5. The one place you can not do a similar analysis is with unrecorded encumbrances. Mr. Snow acquires a prescriptive easement across Wendel’s land. Wendel sells to Paul with no exceptions in the deed. There after, Mr. Snow shows up and walks across the land, Paul can not trump because it arose by operation of law. Paul can sue for breach of warranties 3, 4, 5 as long as it is not a quitclaim deed. There are also present violations of government regulations. This is one area where we change the analysis. Almost all jurisdictions say a present violation of a government regulation does not constitute a breach of any of the warranties, assuming the govt has not placed a lien on the property because then it is clearly a rec encumbrance. Courts want to create a situation to find the violation pre-closing. If there is public easement that is visible and adds value to the land, there is a modern trend that says those encumbrances should not constitute a breach of warranties. But that is not the general rule, most courts say no, you should have accepted it out. The running of the warranties. Wendel gives an easement to Snow Wendel to Paul SW deed no exceptions Paul to Ali Q deed Ali can not sue Paul, should he be able to sue Wendel. Common Law the present covenants (warranties) do not run. Only Paul can sue but he has no damages, he sold to Ali and is shielded from suit from Ali so Paul can not have damages. However, the common law says that future covenants do run as long as there is privity of estate (some good title passed as to some of the land, or the parties involved went into possession). So Ali can sue Wendel based on the future covenants. Then modern trend has been trying to facilitate remote grantees to sue. Under the modern trend the present covenant does not run with the land, but you can assume it to a grantee, the cause of action, not the warranty, is assumed to have been assigned. In the modern trend Ali can sue as long as the SOL has not run. Under the modern trend the future covenants always run under the modern trend, all you have to show is privity of contract, some sort of paper work passing. Because tomorrow is our last class, and thus our time for the material is limited, I thought I would lay out the basics of tomorrow's class to make sure that we cover all that we need to cover. First, Monday we were discussing the three different deeds and the 6 different warranties in the deed (or covenants -if using that word yet again does not cause confusion). The three different deeds are the general warranty deed, the special warranty deed, and the quitclaim deed. The six standard warranties/covenants in the deed are the covenant of seisen, the covenant of right to convey, the covenant against encumbrances, the covenant of general warranty, the covenant of quiet enjoyment, and the covenant of further assurances (you should have a brief sentence elaborating on what each covenant is -though you can have one elaboration for those covenants that we coupled). Assume that the standard general warranty deed and the standard special warranty deed each includes all 6 of the covenants. The standard quitclaim deed includes none of the covenants. The general warranty deed includes all 6 covenants and warrants the time of all prior owners. The special warranty deed includes all 6 covenants but covers only the time that the warranting party (the grantor in question) owned the property. [A special warranty deed typically provides that the grantor has not done or permitted to be done anything whereby the said premises have been encumbered in any way, except as follows -and then the grantor is to except out all encumbrances that arose during his or her time of ownership. If it is a general warranty deed, the 'except out' clause would except out all encumbrances that arose at any point in time.] Remember that a present covenant is breached, if at all, when the grantor delivers the deed to the grantee. The present covenant is breached if a superior property interest exists in a third party at time of delivery and if that superior property interest is not excepted out in the deed. The future covenants are not breached until there is an assertion of a superior property interest that is not excepted out in the deed. (To qualify as a superior property interest, it must be an interest that the grantee could not extinguish if the grantee were to claim protection under the recording act in the jurisdiction.) I think all of that (or almost all) was review. The new material for tomorrow will be whether the covenants in the deed run to remote grantees. First, terminology. Who is a remote grantee -anyone other than the immediate grantee in the deed in question. For example, while O owns Malibuacres, O's neighbor, N, acquires a prescriptive easement across Malibuacres. Thereafter O conveys Malibuacres to A by special warranty deed, and O does not except out the easement. Has O breached any of the covenants? At delivery, O will have breached the present covenant against encumbrances. But let's assume that N is out of the country and doesn't use the easement for months, so A doesn't realize that O has breached the present covenant and A never sues O. Thereafter A conveys to B by quitclaim deed. Two months later, N shows up and starts walking across Malibuacres. Can B sue on the covenants in the deed? Because B took a quitclaim deed from A, B cannot sue A. But can B sue O on the covenants in O's deed to A? Notice the answer is only if the covenants "run with the land to remote grantees" (A was O's immediate grantee, B and all subsequent grantees will be 'remote' grantees relative to O). When do the covenants run with the land? It DEPENDS! At common law, the present covenants did not run with the land at all. Only the immediate grantee could sue on the breach of the present covenant (and the cause of action that arose upon delivery was not assignable to anyone else). At common law, the future covenants ran with the land as long as there was privity of estate. For this purpose, privity of estate meant as long as the deeds in questions passed some good title, or if no good title was passed to any of the land, as long as the party went into possession and passed actual possession (i.e,. there usually is privity of estate, unless the deeds in question passed absolutely no good title to any of the land and the immediate grantee did not go into actual possession). Under the modern trend, present covenants still don't 'run with land to remote grantees' -BUT, the original cause of action that arose upon delivery by the grantor to the immediate grantee is deemed automatically assigned to the immediate grantee's grantees -as long as the statute of limitations has not run (it does not re-start upon assignment). Under the modern trend, the future covenants run as long as there is privity of contract -which means as long as deeds have passed between the parties the future covenants run to remote grantees. As applied to the hypo above, could B sue O? At common law, no on the present covenants, but yes on the future covenants. Under the modern trend, yes on the present covenants from O to A as long as the statute of limitations had not run, and yes on the future covenants. OK, now the cases. The Brown case is a simple example of the difference between the present covenants and the future covenants. The Frimberger case is a tough case. As a general rule, is there is a defect which would have made title unmarketable pre-closing, it will constitute a breach of at least one of the covenants post-closing -WITH ONE GENERAL EXCEPTION (which is discussed in the Frimberger case): present violations of governmental regulations. While the present violations probably will make title unmarketable pre-closing, the general rule is that they do not constitute a breach of the covenants post-closing. And the Rockefeller case is a very tough case where a court first adopted the modern trend as to whether the covenants ran to remote grantees -don't sweat the details of the case, go with the material above. I hope that helps. We'll talk about this in class, and we'll see if you understand it by doing problems 2 and 3 on pages 631 and 632. If you see you classmates around tonight, please make sure that they check their e-mails and read this before class. Thanks. See you tomorrow for our last class! Peter Wendel Question: My property to Wendel, if he shows up to my funeral. Written, signed, and delivered to Wendel. Wendel says that common law this still will be allowed and would probably go through because there were words of condition in the deed but the deed was properly delivered intervivos. That created a fee simple determinable with a springing executory interest. Pre closing, during escrow period, I walk the land and find a material defect in the improvement? What analysis. Seller dies during escrow? Analysis for contract of sale and analysis for devisees if different for real and personal property. General rule is once the contract for sale is entered the seller has a personal interest and the buyer has a real interest. Modern trend, you have a duty to walk the land and check the improvement even before you enter into a contract. You should know what you are buying with respect to the improvement before you enter into the contract to purchase. Once you have entered into a contract to purchase then any material defects in the improvement that you find will not let you out of the contract unless you have an inspection clause. Some very modern trend jurisdictions will go so far as to imply an inspection clause. Otherwise there is simply a duty to disclose the material latent defect prior to the formation of the contract. The defect should be discoverable prior to enter into the contract. Record title should be a proper paper trail with respect to the positive property interests that run with the land. Public trust doctrine traditionally applies to being in the water, does not allow you to get to the water. That was a modern trend stretch. Straight equitable conversion is the majority jurisdiction view. This means the buyer bears the risk. B buys property but gets nothing, then sells property to C with special warranty deed. Can C sue B for breach of warranty? Special warranty deed is warranting the grantors actions.