2005 PROPERTY OUTLINE[1] 
2005 PROPERTY OUTLINE PURCHASING A HOUSE Step 1: Retain a Broker Conflict of Interest Disclosure if reps buyer and seller Commissions Originally: Earned when sales K was signed – because their job was just to match seller and buyer Modern Trend: When the deal is closed/thru escrow Step 2: The Sales Contract Material Terms: “Marketable title” given by seller. Remedy is contract rescission Violation of a land use ordinance is an encumbrance during contract period and makes land unmarketable. Price 1) Essential 2) Courts may infer reasonable price 3) ULTA – Parties must refer to pricing method Statute of Frauds: Requires the K for the sale of land be in writing and signed by the party to be bound (specifically the seller). Oral Contracts Violating SOF: Result in a voidable K Exceptions to SOF: Part Performance – Two theories of when land sales are enforceable without a written K. 1) Evidentiary Theory – Taking possession and paying total purchase price English – Possession Others – Possession + Payment Others – Both + irreparable detrimental reliance 2) Injurious Reliance When K proved and so relied on as to make specific performance only equitable remedy. Doctrine of Equitable Estoppel When there has been irrevocable detrimental reliance one party may be estopped from changing position. Additional Contract Provisions: Implied Warranty of Marketable Title 1) Title rx free from doubt, which a prudent purchaser would accept. Perfect title is not required. 2) Good Record Title – No recorded encumbrances. Encumbrances can be liens /mortgages /easements and covenants (if against the use for which the property was purchased). Not zoning however. Waiver Waiver of encumbrances only valid if disclosed. Remedies for breach of a Sales Contract: Legal Remedies First Equitable Remedies if Legal not enough Step 3: Investigation Title Seller’s Duty to Disclose Generally – Duty to disclose all defects that would be material to a reasonable person. (Maj): Duty to Disclose → Seller must disclose facts affecting value not known to buyer. (Min): Liability requires affirmative misrepresentation Exception: Where a seller creates a value impairing condition and the purchaser is not likely to discover it. Duty to Disclose: Psychological taint or Stigma Hazardous Waste Broker’s Duty to Disclose CA: Affirmative duty to: Conduct rx competent & diligent inspection of residential props and Disclose to buyer all facts materially affecting value or desirability of the props. Broker negligence if breach of duty (tort) Misrepresentation (liability even if innocent) Representation of Fact Made to induce the purchase Fact untrue Reliance by purchaser Damages Step 4: Closing RISK Doctrine of Equitable Conversion (majority): Buyer is regarded as having equitable title while seller has legal title (until paid). Who bears the risk of loss between sales K and closing? (Maj): Buyer has the risk of loss (Min): Risk of loss stays with seller but only if the loss is substantial (no definition for substantial is given … rx under the circumstances). If the loss is less than substantial, the parties still go thru with the deal but there will be an adjustment in price. (Sm Min) (CA): Whoever is in possession assumes the risk of loss (so if buyer moves in before obtaining legal title, they are responsible) Insurance Proceeds (Maj): Even if the seller has the policy, buyer has risk of loss → seller must hold the proceeds and turn them over to the buyer (Min): This is a K with the seller and seller does not have to hand over the money Inheritance: What if one of the parties to the Sales K dies during the Sales K period? Equitable Conversion … Seller’s interest → personal property w/lien Buyer’s interest → real property THE HOUSE IMPLIED WARRANTY OF QUALITY Warrants that building designed and constructed in a reasonable workman like manner suitable for human habitation. Applies to: merchants of housing only Tend: Liability of builder extends to subsequent purchasers Residential Developments Only Liability: latent defects only Time: a reasonable time – i.e. 10 years In CA – Patent Defects as well for 4 years. UTLA 6 years from construction CA & Majority – from discovery Defenses: 1. Ordinary Wear and Tear 2. Upheld Duty of Care 3. Intervening Cause 4. Patent Defect 5. Assumption of the Risk – Some 6. Waiver – Some courts disallow THE DEED MERGER Sales contract merges into Deed. When buyer accepts deed is saying all conditions of K are fulfilled. Exception: When there is a clear collateral obligation on the part of the seller. Fraud DEED CONTENT – CA Civ. Code Sec. 1092 1) Name of Grantor 2) Name of Grantee 3) Words of Grant 4) Description of Land 5) Optional – Consideration – but we want it because recording act only protects purchasers – Also amount generally grantor is liable for under deed warranties. 6) Optional – notary acknowledgement Forgery -Void – Grantor prevails over all Fraud – Voidable by grantor but BFP’s prevail over grantor. DEED EXECUTION Signed Sealed Delivered – Only need INTENT to presently and irrevocably transfer. Recordation creates presumption of Delivery. Oral Conditions on Delivery (when no escrow): (Maj.) Delivery valid and conditions void Exception – irrevocable escrow Exception – No delivery if intended to take affect at death. (Min.) Delivery valid and conditions enforceable. TYPES OF DEEDS 1) General Warranty Deed Warrants title against all defects before or after grantor took title. All Covenants incorporated. 2) Special Warranty Deed Warrants only against grantor’s own acts. 3) Quitclaim Deeds Warrants Nothing DEED COVENANTS Deed Title Covenants 1) Seisin – I own it 2) Convey (Right to) 3) General Warranty – No eviction /No Disturb. 4) Quiet Enjoyment 5) Encumbrances (None) – No Liens /Easements /Mortgages (Maj) Violation of an ordinance is not an encumbrance. (Min) It is an encumbrance Visible encumbrances that affect title will breach 6) Assurances (Further) – Promise to execute subsequent docs needed to assert title. Acronym: GAS CEQ Present Covenants: Seisin, Conveyance, Encumbrances. End when deed delivered – i.e. broken at closing Views on suing on past violations of present covenants: (Maj.) Chose In Action (ability to sue) NOT impliedly assigned to subsequent grantees by property xfer. (Trent) Chose In Action IS impliedly assigned to subsequent grantees by property xfer. Future Covenants: General Warranty, Quiet Enjoyment, Further Assurances. Runs with the land. Can always sue on. Ex. A->B Gen Warr. Deed, B->C quitclaim deed, C can sue A on Future Covenants if evicted by paramount owner. Damages for breach of covenants: General Rule: A) Damages limited to amount warrantor received. (Could be very little if suing on “past present” covenants). B) Quitclaim Deed does not interrupt suing on covenants that run with the land or suing on past present covenants. If grantee 3 sues grantee 2, grantee 2 may sue grantee 1. Recovery may be: (Maj) – actual damages up to warranted amount (Min) – total warranted amount Particular Causes of Action: 1) Seisin: Return of purchase price 2) Encumbrances: Cost of removal or the amount of the value decrease. Estoppel By Deed If A conveys to B title – But A does not actually have title, then when A subsequently gets title it automatically forwards to B. ESCROW Irrevocable There can be no indication that deed is revocable. Written Conditions on Delivery: Modifies the language and effect of the Deed. What makes irrevocable? – A) Commercial Contract B) Conditional Delivery in donative Escrow but opportunity for reversion. Revocable (CL) – Power to revoke is ignored and deed is delivered. (Mod) – Power to revoke is valid and deed is delivered as a future interest or present interest subject to future divestment (Min) – Power to revoke prevents delivery. FINANCING Obtaining a Loan: Loan App Credit Check Loan Approval Lender Commitment Note (Personal Liability) Mortgage (Security Interest) Mortgages: Purchase Money Mortgage Price $100K Down payment $10K 1st Mortgage $75K 2nd Mortgage carried by seller $15K Deed of Trust Avoids judicial foreclosure and right of redemption by title being vested in a trustee who has power of sale. Installment Land Sale K requiring purchaser to make installment payments, title held by seller until last payment made. Equitable Conversion applies however so purchaser would not lose everything if did not make all payments. Second Mortgage Note secured by second mortgage Mortgage on owner’s excess equity Doctrine of “Equity of Redemption” Redeem Property from Mortgagee by paying sums due anytime before foreclosure sale. Foreclosure on Equity of Redemption 1) (Trad.) Strict Foreclosure Set due date for “cut off” when all equity goes to mortgage holder. 2) (Mod.) Judicial Foreclosure Sale of Property and division of the proceeds according to the place in line. Statutory right to redeem Mortgagor can re-buy property from 3rd party buyer for price. What happens when there is a deficiency? 1) Owner may be liable 2) Anti-deficiency legislation may stop personal guarantees Foreclosure on 2nd Mortgage 1) 1st Mortgage paid on sale, or 2) 2nd mortgagor buys out owner for price of 2nd mortgage and takes subject to 1st mortgage. Practical Tips: 1) Make Financing a Contingency 2) Keep Due on Sale clause out of 1st mortgage – When interest rates go up you can transfer the mortgage and sell the house for appropriately more. 3) Get 2nd Mortgage – interest only with balloon payment – frees up cash to invest in another property -and you sell when balloon payment due. FINANCING AND FORCLOSURE FLOWCHART Financing Loan application, credit verification, loan approval, lender commitment and the note (secured by a mortgage) ↓ ↓ ↓ Transfer of Mortgage “Subject to” No privity between lender and new owner, original owner still liable. How Much To Sell For? -A fair price is what results from due diligence. Even if the price is very low, the foreclosure will not be set aside if due diligence has been exercised (unless it shocks the conscience of the court…) -Damages are available if the foreclosure is set aside: -If mortgagee had bad faith → fair market value (what the house is worth). -If no bad faith (just lack of due diligence) → fair price After The Sale -Deficiency: If there wasn’t enough money to pay the mortgagors → deficiency judgment against mortgagee -There may be a limitation to only get deficiency up to FMV of property -Anti-Deficiency Statute: Prohibits deficiency judgments -Statutory Right of Redemption: 2 year period (typically) borrowers can redeem from purchaser for purchase price. Foreclosure 1. Strict Foreclosure (still used in some states): -Set cut off date -No equity (mortgagor loses everything) 2. Judicial Foreclosure (Majority): -Sale of props and division of proceeds -Mortgagees get what they are owed (in order of priority), whatever is left is “equity” that the mortgagor keeps (if none left over, too bad) 3. Private Foreclosure (Deed of Trust): Mortgagor agrees to have the props held by a trustee who has the right to sell it if the mortgagor defaults. This avoids requirement of going to the court to have a judicial foreclosure sale. A private foreclosure still must follow the rules of judicial foreclosure (notice etc…) but it does exclude the statutory right to redeem. Default “Equitable redemption”: Up until the foreclosure sale, borrower may redeem by paying off the mortgage and accrued interest. “Assignment” (Actually Delegation) Privity between lender and new owner because lender 3rd party beneficiary. No Liability if a novation is signed. THE RECORDING SYSTEM General Recording Rules Idem Sonans If it sounds like the correct spelling it is considered correct. Exception – When the misspelling is material (i.e. in an indexing system) (Maj.) – Is applied to recording but not indexing system. (Min.) – Is not applied at all. Mother Hubbard Clauses Blanket conveyance without specificity (Maj.) Not Valid for unspecificity Partial Consideration What happens when purchaser in installment land sales gets notice of prior claim? (CL) No Protection (Maj.) Protected to extent payments made before Notice. Remedies 1) Reimbursement 2) Fractional Interest 3) Payments made to prior claimant The Recording Acts General Rule – 1st in time is first in right Saxer Rule – If not recorded for notice, not recorded for race. Marketable Title Act – Root Of Title -Claim is void if not reflected in records in past 40 years. The Shelter Rule A subsequent BFP prevails over any interest their grantor would have prevailed over, regardless of notice. Deed Recorded Too Late (as pertains to Notice) (1) Woods – Subsequent BFP responsible for all recorded deeds – so must find if someone else has a prior recorded dead. (2) Curtis – No notice of other branches of title Deed Recorded Too Early (Maj.) – Title does not automatically vest. (Min.) – Empty title previously conveyed transfers immediately when grantor subsequently acquires it. RACE – 1ST TO RECORD WINS TITLE NOTICE – SUBSEQUENT BFP’S PREVAIL IF NO NOTICE BFP’s by definition have no notice and pay. 4 types of Notice: (Acronym CARI) (1) Actual (2) Constructive (they should have known) Latent defect on title (3) Record (instrument recorded) (4) Inquiry (when party should have inquired) Recorded reference to another doc. When the property has open possessor not consistent with title When inquirer has seen a patent defect Woods View – Go through the woods to find deed, inquiry notice Curtis View – not feasible to get notice so there is none. Notice determined at time the deed is delivered, not recorded. RACE-NOTICE 1ST BFP TO RECORD PREVAILS Zimmer Rule: In some Juris: 1st BFP to record is protected only if each conveyance in his chain of title has been recorded. INHERITANCE Protected in all jurisdictions PRACTICAL HINTS 1) Determine property at issue 2) Determine type of jurisdiction 3) Who is the fight between? 4) Was there a previous fight? Who won? 5) Start from the beginning and identify purchasers /gifts /intestators 6) Apply Juris Rules REAL WORLD TIPS For property not possessed – re-record every 40 years. TITLE INSURANCE Insurance defends all claims for those insured. Limited to policy amount Implied duty by insurer to make a reasonable search and disclose findings. Does not requires constructive eviction Exclusions Adverse Possession Implied Easements Oral Agreements CC&R’s LAND USE CONTROLS NUISANCE – Substantial interference w/use and enjoyment of land. Private – (A) – Intentional B