ANALYSIS Is there a valid contract of sale? (Statute of Frauds) If not then look at Part Performance or Promissory Estoppel. What is the Quality of title contracted for? Can the seller deliver the quality of title contracted for? Are there any defects in the title? (Check the chain of title and walk the land) How do these defects affect title? Are the defects valid? Can the buyer get out of the contract? This is determined at the end of litigation unless there is a “time is off the essence” clause, then it is determined at the scheduled closing date. Improvement Analysis – Are there defects in improvement that existed prior to contract? Common Law says doesn’t matter unless there is an inspection clause? If so, then look at duty to disclose. (misfeasance v. nonfeasance) Modern Trend says we need to look at the duty to disclose? Is defect material? (Subjective v. Objective) Is the defect latent or patent? Is the defect an emotional defect? (stigma statutes) Are we in NY (NY Rule – Seller only has duty to disclose material latent defects that seller has created). Did seller contract out of the duty to disclose with an “as is” clause? (Jurisdictions are split as to whether this is allowed, and those who do allow it say the defects must be specifically disclosed) Has a defect in improvement occurred during escrow period? Common law says it doesn’t matter, the improvement is not relevant. Modern trend has 3 views: (1) A substantial defect occurs then buyer can get out, nonsubstantial defect occurs no remedy and contract goes through as planned; (2) Any substantial defect occurs then buyer can get out, non-substantial defect occurs then the price is abated; (3) The party in possession (or with right to possession if no in actual possession) during escrow bears the burden of loss. POST CLOSING – Defect is found? Does the defect go to title or a non-title issue? If the defect goes to improvement: Common Law says as a general rule that there is no remedy. Exception (1) there was provision in the contract that was collateral to the deed (Sale Subject to Buyer’s Inspection) therefore the merger doctrine does not apply. Now do a duty to disclose analysis – Generally the seller had no duty to disclose such defect, however if there was misfeasance or a “special” relationship then the buyer may sue for breach of duty and receive damages. Modern Trend says that the merger doctrine does not apply so the buyer is always free to sue if the seller has breached his duty to disclose. The seller has a duty to disclose material latent defects. Is the defect material? (Subjective v. Objective approach) Is the defect latent or patent? Is the defect an emotional defect? (stigma statutes) Are we in NY (NY Rule – Seller only has duty to disclose material latent defects that seller has created).
Did seller contract out of the duty to disclose with an “as is” clause? (Jurisdictions are split as to whether this is allowed, and those who do allow it say the defects must be specifically disclosed) Modern Trend also allows buyer to sue builder on implied warranty of workmanship (see outline). If the defect goes to title: Can the buyer qualify for protection under the recording act? If not then can he sue based on the warranties in the deed? Protection under the recording act: There are 3 approaches to the recording act. 1. Race Statute 2. Notice Statute 3. Race/Notice Statute If you don’t qualify for protection under the recording act, then can you sue the seller based on the warranties in the deed. If you can’t sue the seller, then can you file a claim with the insurance company.
THE REAL ESTATE TRANSACTION I. Duty to check for encumbrance (easement, mortgage, covenant, etc.) a. Common law – Buyers duty to check title, common law you were buying title to the land, anything that came along with it was just what you got. 1. If you find a defect then what? i. Pre-Closing – Can buyer back out? What type of title did you contract for and how does defect effect title? ii. Post-Closing – Does buyer qualify for protection under the recording act and thus extinguish the defect? If not, then can buyer sue seller based on warranty in the deed? b. Modern trend – Sellers duty to disclose, more focused on why you buy land (usually for home). II. Easement – Non-possessory property interest allowing the use of land that would otherwise constitute a trespass. Easement – go on the land Profit – go on and take something off land License – revocable, oral (must be license) or written permission, very tenuous and personal, any inconsistency automatically terminates Easement Appurtenant – Attached to land, create dominant and servient estate, default is appurtenant when language is ambiguous Easement En Gross – Given to a particular person A. Ways to create an easement. 1. Expressed written grant complying with the statute of frauds. a. Preferred way to create an easement. b. Default (if language is ambiguous) is FSA and default is appurtenant c. Common law says you can only reserve an interest in either the grantor or the grantee. For a 3rd party must except it out prior to any other transaction. Not applicable in modern trend.
2. License coupled with estoppel a. First must have a license, either expressed or implied. b. Then have substantial change in position in reasonable reliance of the licence by making a substantial expenditure. c. The owner of the servient estate knows or should know of this change in position and expenditure. d. The license with estoppel lasts as long as necessary to recoup investment. 3. Prescription – Like Adverse Possession, but Adverse Use a. Elements i. Actual entry that gives rise to use ii. Owner of sevient estate must not interfere with use iii. Open and Notorious iv. Adverse/Hostile v. Claim of Right vi. Continuous as an average user of that type of easement would use it, for the statutory period b. Theories i. Adverse Possession Theory – High threshold to break claim during statutory period (self help or file claim in court) ii. Lost Grant Theory – Low threshold to break claim during statutory period 4. Implied based on prior existing use (intent based, the parties intended it but forgot to put it in the deed, oops) a. Elements i. Must have single parcel of land under one owner ii. Must have a quasi-easement (use of one part of land to benefit another) iii. Must have severance; and at the time of severance the quasieasement must be: iv. Apparent – to put owner on notice v. Continuous – intended to continue vi. Necessary 1. Common Law i. If benefit is for the grantor it is called an implied reservation and the degree of necessity is strict necessity, but not quite legal necessity ii. If benefit is for the grantee it is called an implied grant and the degree of necessity is reasonable necessity 2. Modern Trend there is no distinction between who is getting benefit. Necessity is based on totality of circumstances. All you really need is reasonable necessity. You must judge the circumstances at the time of initial severance. 5. Implied based on necessity
a. Elements i. Single parcel of land under one owner ii. Severance iii. As a result of the severance the land is legally landlocked 1. Common law says take legally landlocked literally 2. Modern trend interprets landlocked as impractical or unreasonable b. Where to place the easement – 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. c. Duration is as long as necessary B. Scope of easement 1. Scope is determined by the intent of parties. a. First look to the expressed words in the easement. b. If intent not clear from words, courts go based on reasonableness. What the parties would have reasonably intended at the time the easement was created. Look at totality of circumstances c. The benefit of an easement appurtenant stretches to every inch of the dominant estate unless otherwise stated, but to no other land. 2. To what extent can you develop a. Reasonable development is permitted (evolutionary change but not revolutionary) – factors that constitute reasonable development are considered at the time development is proposed. 3. If you exceed the scope, court will 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 extinguish the easement altogether. 4. Transferable? a. Appurtenant – N/A b. In Gross i. Common Law not transfer at all, because it was view must like a license ii. Then evolved and said no transfer unless there was expressed writing showing intent to allow transfer (to heirs and assigns) iii. If it is a commercial easement, then imply intent to allow transfer absent of express words iv. Yes, they are transferable unless intended for personal use v. Common law says burden was on easement holder to prove transferable; Modern trend we assume transferable and burden is on servient estate to prove it is not 5. Divisible (use evolutionary approach) a. Appurtenant – Divisible as long as reasonable development, see above b. In Gross – Can be devised but all owners of the easement must agree. One Stock Rule – If two or more people have an easement in gross, they must use it as one stock act as one owner. They all must agree to eachothers use 6. Moving where the easement is?
a. Grantor decides where the easement is and should include it in the expressed written grant. b. If not in the grant i. Common Law says once it is set, either by expressed or implied neither party can change it. If the parties can not agree where it is, then the court will decide where it is reasonable. ii. Modern Trend says the owner of the servient estate can move it as long as it is reasonable, does not frustrate the use of the easement and does not increase the burden of the owner of the dominant estate. 7. Maintenance – He who is benefiting from land must maintain it, if both dominant and servient people use land, then both maintain it. C. Termination 1. End Naturally – Duration is over (life estate, etc.), recoup investment, necessity is over, etc. 2. Prematurely a. Expressed – Release – an instrument expressing the intent, by the holder of the easement, to give it up b. Implied – Abandonment – actions that show the intent to abandon, must be more than just cessation of use 3. By operation of law a. Merger doctrine – you can not hold an easement in your own property. If you buy the two lands then the easement merges into the land i. What if merged but then re-severed? Does the easement spring back to life? a. General Rule is that once it is extinguished it is gone forever, will not automatically revive. b. Minority rule is that it automatically reverts, as if the easement was suspended b. By Prescription – 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, then the owner of the servient estate can prescriptively take it back. c. By misuse – a court through injunctive relief which can lead to termination if one ignores the order d. By destruction of building – don’t worry about this one, but basically if the easement was through a building and then the building was destroyed then the easement is gone e. Foreclosure of mortgage – Upon foreclosure the party foreclosing can sell the quality of title that existed at the time the mortgage was entered into. D. Negative Easements 1. Typically limited to 4 types of easements a. Blocking your windows b. Interfering with the flow of water in an artificial stream c. Interfering with air flowing to your land in a defined channel
d. Removing the support from your neighbors land i. You can not excavate so close to your neighbor’s land that it will undermine the stability of his land. 2. America sometimes allows 3 other negative easements (minority) a. Blocking neighbors view b. Solar easements – if you put up a solar collector, you neighbor can not do anything that interferes with the collector. c. Conservation easement – For owners of really large estates they get a tax break if they agree to give this type of easement 3. Any other thing that looks like a negative easement will be called a covenant. III. Covenants – Benefit of a covenant flows to the land retained by the grantor at the time the covenant is created. A. Damages – Real Covenant 1. Privity a. Burden to run i. Horizontal I. Mutual – 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, mortgagor/mortgagee, people party to an easement) II. Instantaneous, Successive – Where the covenant is created as part of another conveyance of a property interest between the parties ii. Vertical – An estate of the same duration b. Benefit to run i. Horizontal – None required ii. Vertical – Estate of any duration (everything except AP) 2. Intent – Generally as long as the covenant touches and concerns the land then the courts will imply intent. The courts will also look to the words, “to heirs and assigns,” or “covenants will run with the land” 3. Touch and Concern – Modern trend is to analyze at time of litigation. This is a way for courts to strike down covenants they don’t like. We say the covenant must touch and concern the land. a. Affirmative v. Negative – The courts don’t like affirmative covenants. They force the owner of the servient estate to take action. b. Land affected – The covenant must touch and concern the servient estate. Is there a flowing property interest back to the servient estate? c. Personal v Property related – Courts do not like covenants that seem personal in nature. Must be related to the property. d. Length of time – The courts don’t like covenants to be forever. Historically courts would strike down a covenant in FSA, but not any more, just a factor. e. Reasonableness – This is the final test. f. If the burden is appurtenant then the benefit must also be appurtenant, look to see if there is a net loss for land. B. Injunctive Relief – Equitable Servitude
1. Notice – The party to be enjoined needs to be on notice; notice to all subsequent purchasers of the servient estate. a. Actual Notice b. Constructive Notice c. Inquiry Notice 2. Intent – Same as above 3. Touch and Concern – Same as above C. Common Scheme Doctrine – Covenant arising by operation of law 1. Large parcel of land with one owner. 2. Conveyance of a lot with an expressed covenant 3. Remaining lots must be so situated as to bear the relation – Intent of a common scheme 4. Can only be used to imply an equitable servitude 5. Benefit of covenant (“standing”) flows to all the common scheme 6. Minority of jurisdictions (like CA) do not recognize it to create a covenant, but those jurisdictions do use it to expand standing D. Standing 1. Must be in vertical privity with an original party to the agreement. Exception is the New York rule where they allow 3 rd party beneficiaries and those in privity with them to be in standing. E. Divisibility and Transferability 1. Covenants that are appurtenant are divisible and transferable in that they run with the land. F. Termination 1. Naturally – with a built in termination date 2. Prematurely a. Release – all the benefited estates must release b. Change of Conditions Doctrine – Because of a change of conditions the covenant no longer serves its purpose. i. Split in jurisdictions, some only apply doctrine to equitable servitude. Others apply to ES and Real Cov ii. The change must effect every parcel in the community iii. The larger the dominant estate, the less likely you will be successful with this doctrine iv. Change in zoning is not sufficient unless the change is such that the prior use would be illegal. 3. Violation of constitution or Public Policy G. Expressed Common Scheme – If there is an expressed common scheme it can be used as real covenant or equitable servitude. H. Misc – Some courts will distinguish between the original set of covenants and those adopted by a homeowner’s board. The general rule is that the original covenants are given great weight because that is what people relied on. IV. Pre-Closing Issues – Can the buyer get out of the contract? The seller must deliver the title that was contracted for. A. Statute of Frauds – Contract for sale must comply with SOF
1. Written Instrument – May be a bunch of writings combined with these essential terms. i. Price – If the parties have agreed on the price then it must be in the contract. If price has not been agreed on then typically need a methond for determining price. Few jurisdictions that say price not needed, they imply a reasonable price. ii. Property – Must be able to identify the property with reasonable certainty. If selling a portion of grantor’s land then must be more precise. iii. Promises – iv. Parties – Must be able to identify the parties with reasonable certainty. 2. Signed by the party to be charged (defendant) 3. Exceptions i. Part Performance 1. Change in Possession; and 2. Partial payment; or 3. Improvements ii. Promissory Estoppel 1. Reasonable reliance 2. Change in position 3. Other knows or should know about change in position 4. Injustice can only be averted by estopping the other party from changing mind B. Qualities of title 1. Insurable title – Quality of title that a reputable insurance company will insure. Insurance company has primary control with regard to defects. 2. Marketable title – No unreasonable risk of litigation. Buyer has primary control over contract with regard to defects. 3. Record title – Title of valid record, there is no defect in the chain of title, proper paper trail in the chain of title. Proper recording off all positive property interests that are being passed. Also includes the concepts of marketable title, higher degree of title than marketable. 4. Perfect title – No defects at all. C. General Rules 1. If a defect arises, you must give the seller notice. The seller has reasonable amount of time to cure the defect (this usually is till the end of litigation). If there is a “time is of the essence” clause then the seller has until closing to cure. D. Effect on Marketable Title (Default title) 1. Recorded Encumbrances (covenant, easement, mortgages, etc.) – These encumbrances make the title per se unmarketable. 2. Unrecorded encumbrances i. Zoning restrictions – General rule is that they do not affect marketability. ii. Present violation of an encumbrance – Fact sensitive, see if it will expose the buyer to an unreasonable risk of litigation.
iii. Easements and Covenants that arise by operation of law – Court will treat these like the recorded encumbrance of the same nature and say that it makes title per se unmarketable. 3. Chain of title Defect – Fact sensitive as well. i. Taking from one who claims title by adverse possession 1. No real likelihood that a claim will be brought; and 2. No real likelihood of losing that suit if brought. E. Risk of Loss during escrow 1. Traditional Common Law says that contract was for title only, typically title of farmland. 2. Equitable Conversion – Equity regards as done, that which ought to be done. Basically says that the buyer is the owner from the start of escrow. Majority of jurisdictions use this rule, minority do not. i. Risk of loss (change to property that is beyond the parties’ control) is assumed by the buyer. You can contract out of this or insure against it. If the seller has insurance the general rule is that the seller holds the insurance as trustee for the buyer. A minority of jurisdictions (English Common Law) say that the seller has his own insurance and will get the money for himself. ii. Some jurisdictions do not use equitable conversion, the risk of loss is on the seller. iii. Other jurisdictions use a hybrid. They say the seller takes the risk of loss if the loss is substantial and the terms of the contract show that the improvement constituted an important part. If the loss is less than substantial then the price may be adjusted but the contract is still enforceable. iv. Final view is that the risk is placed on the party in possession. Generally the seller is in possession, if no one is in actual possession it goes to the party with the right to possession. F. Duty to Disclose 1. Common Law – No duty to disclose except when there is confidential or fiduciary relationship or if there is active concealment or misrepresentation. Misfeasance v. Nonfeasance. If the contract said sale was subject to buyer’s inspection, then buyer could inspect and get out of contract if he found something. 2. Modern Trend – Duty to disclose material latent defects. In most jurisdictions only applies to non-title factors (improvements, bad soil, bad neighbors) i. The seller must have knowledge A. Majority says actual knowledge B. Minority says should have known enough ii. Defect must be materially affecting value or desireability A. Majority says objective B. Minority says subjective enough iii. Facts must have been known or accessible only to the seller 3. General Ideas i. Most states have statutes that say what things must be disclosed.
ii. Stigma Statutes – Some states restrict the duty to disclose emotional defects to a certain time frame. (murder, rape) iii. NY Rule – Where a condition has been created by the seller and it materially affects the value of the property then there is a duty to disclose. iv. Jurisdictions are split as to whether this can be contracted out of with an “as is” clause. 4. Remedies i. Pre-closing – get out of the contract ii. Post-closing – Since we are in a modern trend jurisdiction, the merger clause does not apply and based on the contract damages are awarded. G. Merger Doctrine 1. At closing the contract merges into the deed and the contract is extinguished. 2. Exceptions i. Fraud ii. Provisions that are collateral to the deed, basically anything other than the quality of title and the quantity of land 3. Modern trend abolishes this doctrine and provides more remedy for buyer H. Implied Warranty of Workmanship (applies to modern trend new construction only) 1. Warranty runs with the land for a number of years (5-10 yrs) 2. The defect must be material (this is where litigation occurs) 3. Some jurisdiction limit it to residential only 4. Some jurisdictions call it implied warranty of suitability for commercial properties 5. Applies only against professional builder/developer, not mom and pop V. The Deed 1. Material Provisions i. Property ii. Parties iii. Good idea to put “for valuable consideration” to show buyer 2. Bad Deeds i. Forged Deed – Not signed by the grantor A. Void – Never valid, will never transfer good title ii. Fraudulent Deed – Grantor tricked into signing A. Voidable as to the first grantee, watch out for subsequent bonafide purchase without notice. 3. Delivery 1. Legal definition of delivery hinges on grantor’s intent to relinquish dominion and control over title to the property. 2. Inter Vivos v. Testamentary – Common law says if Grantor intends to transfer title upon his death, it is only valid in a will. Must be an intent to transfer a present property interest. 3. Delivery is only an issue in a donative setting because if a purchase then the buyer can sue for specific performance. 4. Defaults i. If deed is in possession of grantee, there is a rebuttable presumption of delivery.
ii. If deed is in possession of grantor, there is a rebuttable presumption that no delivery occurred. If Wendel says, “here I have just executed a deed and you have title to the phat pad.” If he dies, he has not technically delivered the deed by presumption, but his intent was clear to make a present transfer, so it can be rebutted and the transfer is proper. iii. If the deed is executed and recorded, there is a rebutable presumption of delivery. 5. 3rd Party i. If the 3rd party is under the control of the grantor then he is considered an agent and delivery has not taken place. ii. If the 3rd party is independent then is a true escrow and delivery has taken place. 6. Conditions i. If there are 3 parties, then conditions need not be in the deed ii. If there are 2 parties, then conditions must be written in the deed 7. Special circumstances i. Granting remainder is ok, because it is an irrevocable present property interest ii. Some people grant a revocable remainder. Common law says this is nothing more than a testamentary transfer and is not ok, modern trend allows it. iii. Modern trend allows a testamentary transfer through a true escrow because they will use relation back doctrine and relate back the second transfer to the first transfer, common law does not. 8. Overview 1. Is there a contract for sale? 2. Is the alleged delivery inter-vivos or testamentary? 3. Are there 2 or 3 parties? 4. Is the transfer conditional? VI. The Mortgage A. 2 documents 1. Promissory note – Contract to pay back 2. Mortgage – Grants the lender the right to sell property in case of default B. Common Law – Title Theory 1. Banks took title in fee simple defeasible (loans were interest only) 2. If borrower missed the balloon payment then could never get prop back C. Equitable Right of Redemption 1. Allowed the buyer opportunity to come up with balloon payment. 2. Banks basically had to foreclose on the buyer’s Equitable Right of Redemption. 3. All jurisdictions recognize the Equitable Right of Redemption D. Statutory Right of Redemption 1. Allowed the buyer to come up with money even after foreclosure sale 2. About half jurisdictions recognize this. (1-3 yrs) 3. Some of those jurisdictions allow the buyer to remain in possession until statutory right of redemption is over E. General Rules
1. General rule, banks can not contract into the modern trend approach 2. As a general rule banks can not avoid rights of redemption by calling it a land sale contract. Look at substance over style. F. Modern Trend – Lien Theory 1. Bank does not take title, instead takes an interest in the property G. Foreclosure 1. Lender (mortgagee) sells the quality of title that existed at the time the mortgage was entered into. All subsequent interests are extinguished. 2. Any extra money at the foreclosure sale goes to the owner (equity) 3. Deficiency i. Majority says that banks can come after borrower for deficiency ii. Minority (CA) have anti-deficiency statutes – says that banks can not come after borrower. Not all types of property is covered, and in CA only applies to purchase money (not refinance) 4. Types of sales i. Typically sales go through the courts ii. Some jurisdictions allow for private sales conducted by banks. A. Duty to meet all statutory requirements B. Duty of good faith (subjective mindset) – If lender breaches this duty the borrower gets full Fair Market Value C. Duty of due diligence (objective) – If lender breaches this the borrower gets Fair Foreclosure Price iii. Usually banks ok unless price “shocks the conscience” 5. Types of purchases i. Buyer assumes the mortgage – Buyer takes personal responsibility to pay loan. Still does not release liability from previous owner ii. Buyer takes “subject to” the mortgage – Buyer does not take personal liability but mortgage is still on home. Current buyer must make payments or will lose house. iii. Normally the buyer will just pay a price for the house and the money goes to paying off the mortgages and the buyer gets the house with his own financing. Recording Acts A. Notice 1. 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. 2. 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. 3. 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 follow up and you do not find anything then you are without notice again. a. When reading a deed, if the deed says the original deed has been lost you are on notice to inquire about the original deed. If you do not, then you are charged with the “true set of affairs.” Again, if you do follow up and find nothing, then you are ok and have no notice. b. Possession – If the party in possession in inconsistent with the state of the title then you have an absolute duty to check. This duty extends beyond asking the seller because he has a vested interest. If the party in possession is consistent with the state of the title then the courts are split on how far you need to go. Ask Mom? Ask every apartment tenant if they have option to buy? B. Types of Indexes 1. 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. 2. Grantor/Grantee Index – Not all lots have always had tracts. Go back in the grantee index all the way to the gubment. Come forward in the grantor index. This is an index search that will tell you where the deed can be found. a. Grantor b. Grantee c. Date d. Property affected C. Mother Hubbard Clause – Clause that purports to give all of ones land in a given area. The general rule is that the clause is valid between the grantor and grantee but is not enough to put others on constructive notice. D. Recording Statutes 1. Race – In order to trump you must record your complete chain of title first (Zimmer Rule). Notice is irrelevant. 2. Notice – To trump must be subsequent bonafide purchaser without notice 3. Race Notice – To trump you must be a subsequent bonafide purchaser without notice and you must also record you entire chain of title first. Test the notice prong at closing. a. Zimmer Rule – Says that you must connect up your whole chain of title in Race and Race/Notice jurisdictions E. Shelter Rule – Applies in Notice jurisdictions only, not even Race/Notice Applies only if a chain has gotten title by trumping and is then passing on actual title to the land. All subsequent purchasers of good title are sheltered under the party that trumped. They can be trumped by subsequent purchasers to them though. The original grantor will not be protected. O to A O to B A records B to C Here B trumped so C is sheltered under B’s protection under the recording act. A can not try to take from C saying they were first and C had notice. F. Proper Recording
1. In order for a deed to be recorded it must have an acknowledgement clause that has been notarized. The deed is valid between the parties without this, but it is important for recording purposes only. What if there is a defect? a. Notice prong i. Patent Defect – There is no stamp or no signature at all. Basically if the defect is clear when looking at it. The general rule is this type of defect will render the recording completely invalid and the recording will not provide constructive notice. Be careful for people who have actual notice by actually doing a search and coming across the deed. It is only invalid for constructive notice purposes. ii.. Latent Defect – If you can not tell that the acknowledgement clause or notarization is defective by looking at it, then this improper recording will provide constructive notice. b. Race prong i. Treat just like above, patent defect does not qualify as a proper recording for the race prong, but latent defect does. ii. Small minority says that any defect, latent or patent means that the recording does not qualify as proper for the race prong at all. G. Heirs 1. Heir is not a purchaser so he can not trump. But if heir then sells to SBP then that purchaser can trump. H. Standard Scope of the search 1. Time – Start at the date of execution of the deed purporting to give title and end at the first deed purporting to give title out. 2. Names – General rule and modern trend is that you must look only under the proper spelling of the last name. For the first name you must look under all possible spellings and diminutives. a. Idem Sonans – The doctrine that said you should look at all possible spellings of the last name. If any courts use this they now limit it to the same first letter at least. Idem Sonans was the old common law approach. b. Hyphenated names – The general rule is that a hyphenated name does not give notice to either name. Can make argument for inquiry notice, especially for the first of the two names. 3. Property – Generally you need only to check the deed when the index indicates it relates to the land in question. The minority (expanded scope) says you should check all deeds out from all grantors because they may have restricted your land when selling another piece of land in that deed. I. Forged and Fraudulent deeds 1. Forged deed is never valid and can not pass good title, it is void. 2. Fraudulent deed is voidable as between the original parties, can become good title if a subsequent party qualifies for protection under recording act. J. Deeds which are invalid because the grantee line was left blank. 1. If the grantee line is left blank then the deed is not valid. 2. If the grantee has the authority to fill it in and fills it in later there is a split. a. Majority use relation back doctrine and relate the deed back to original transfer.
b. Minority does not use relation back doctrine and says deed is valid at the date it is filled in. K. Estoppel by deed A to B O to A Here O was the original owner and A gave a bad deed to B. When A gets the land after he has purported to give it out, he is estopped from denying B the land. Upon A getting title it is transferred directly to B. We use relation back and while the deed from A to B becomes effective the moment A gets title, we relate back and say B has owned the land since the first deed. L. Expanded scope of the search 1. Check all deeds giving title to any lot from all previous grantors. 2. Front end – In estoppel by deed situation the “B” party does not have much protection because they are recording a wild deed, so when A gets it, true the title actually reverts to B, but A can sell to C who will qualify as subsequent bonafide purchaser without notice. A few jurisdictions expand the scope of the search to 50 years back of each grantor because they may have conveyed it before they got it. 3. Back End – In situation where Watts is running to record deed first because he has notice but wants actual owner to record wild deed, the actual owner will not be trumped by Watts so he claims he should be fully protected because he recorded before someone trumped him. He actually has recorded a wild deed unless you expand the scope of the search at the back end. K. What remedy when trumped? O to A then O to B 1. If B trumps A then B gets the land and A must sue O. A will get the money B paid to O because we say O acted as an agent for A. 2. If A wins and B is out of luck, then B sues O and gets his money back. 3. What about seller carry back situations? How much needs to be paid before you are a purchaser. i. Common Law Rule – You must pay full price before you qualify as a purchaser. If not fully paid then not protection under recording act, just go sue O and get your money back. ii. Common Law Majority – You must pay full price before you qualify as a purchaser for protection, but, A will give you back any money you have expended and then A will have to go sue O. iii. Common Law Minority – You qualify for protection once you have paid substantially, any remaining payments go to the party you have trumped and then they must go and sue O for the rest. 4. What about constructive notice, does that work in a seller carryback situation? i. Common Law says YES, once deed is properly recorded then the whole world is on notice from that point forward so this is where you asses the situation. ii. Modern Trend says NO, the purchaser has already checked the recording system and does not need to check again. Only actual or inquiry notice provides notice once they have started paying. INSURANCE A. They basically check the recording system and insure their own search.
B. Typical exclusion is that “any defect that could have been discovered by walking the land is not covered.” C. As a general rule they cover 1) Recorded Defects that they don’t except out and 2) Defects in the chain of title. D. What if there is a defect that is generally covered but you should have found it by walking the land? a. General rule is that the exclusion trumps, the search the title company did was an independent search to determine if they wanted to insure the land, no duty to the buyer. b. Modern trend minority is a tort theory where the buyer is saying they had a duty let him know about the defects so he doesn’t have to walk the land. E. Title insurance does not insure you against a mere loss in value, must be a defect in the title. What if you could have only found the defect by walking the land and doing an environmental survey? Duty to do a regular survey and arguably an environmental one if you know it was on gas station land. WARRANTIES IN THE DEED A. Types of deeds 1. Quitclaim Deed – I give you whatever title I have if any. No warranties. 2. Special Warranty Deed – I warrant the time period that I owned it. Covers your grantor’s actions. Basically saying I did nothing to diminish the quality of title when I owned it. 3. General Warranty Deed – I am warranting that the title is what I tell you. Covers all actions by prior owners B. Standard warranties (people can contract for any warranties they want) 1. Covenant of seisen (Ownership) 2. Covenant of the right to convey – These two are basically say I owned it and I can sell it to you. Go hand in hand unless property is in trust or adverse possessor 3. Covenant against encumbrances – For the most part this covers rec, unrec, and chain of title defects. 4. Covenant of general warranty – Same as #5 5. Covenant of quiet 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.) C. Application of the warranties: 1. A present covenant (1, 2, 3) is breached and only breached at the moment of delivery. There mere existence of a superior property interest breaches the present covenants. 2. Key to future covenants (4, 5, 6) is covenant of quiet enjoyment. For this the superior interest must be asserted before the covenant is breached. D. SOL (Generally 5 or 10 years) 1. The SOL on the present starts to run on the day of delivery. 2. The SOL on the future starts to run on the day of the breach. E. Special Analysis 1. If there is a recorded encumbrance that is found pre-closing it will make the title unmarketable, if found post closing it will be a violation of the covenant against encumbrances.
2. If there is a chain of title defect that is large and found pre-closing then it will make title unmarketable, if found post closing then probably breach warranties 1, 2, 4, 5. 3. If there is an unrecorded encumbrance that arises out of operation of law so it is not trumped, then pre-closing makes title unmarketable, post closing it will be a breach of warranties 3, 4, 5. 4. DIFFERENT ANALYISIS HERE – For a present violation of a government regulation, pre-closing fact sensitive, post-closing almost all jurisdictions say no breach of warranty, assuming the govt. has not placed a lien on the property because then it is a recorded encumbrance. 5. If there is a public easement that is visible and adds value to the land, the modern trend says no breach of warranties. Majority and general rule is treat it like the rest (should have excepted it out, otherwise breach). F. Running of the covenants 1. Common Law a. The present warranties do not run with the land. b. The future warranties do run as long as there is privity of estate (some good title passed as to some of the land or the parties involved took possession) 2. Modern Trend a. The present warranties do not run but it is assumed that the right to sue has been assigned to the grantee. Watch out for SOL b. The future warranties always run as long as there is privity of contract