Property II Outline Saxer

Property II – Saxer – Spring 2007 Selling/Donating a Home  List with Real Estate Broker  Offer/Acceptance – sales contract  Buyer‘s loan app and deposit (earnest money down payment deposit)  Investigation of title o Direct Title search – by an attorney o Abstract examination – already pulled pieces of the record and eventually certifying it o Title insurance – companies and gov – make sure that your title is actually course and there are no breaks in the line  Do insurer companies have to search, or do they just have to exam  What happens if they don‘t?  Inspection  Closing o Settle taxes o People get paid o Escrow Co calls seller in at a diff time than the buyer  Recording of deed and mortgage o Transfer of title o Sales K does not do this. Seller agrees to sell for money o Seller then fills out document that says I grant you my property o Recorded along with the ownership is the mortgage company‘s stuff saying that they can foreclose if you don‘t pay mortgage Who handles a Transfer  Real Estate Agent/Broker or Attorney? o If it is legal issues, then attorney should handle it, but broker‘s are consistently being allowed to do it more and more o State v. Buyers Service. 1987 SC  Said that attorneys have to handle it o New Jersey  Says that it is generally good for people not to involve att‘ys, so it is law but we will allow brokers to do it o CA  Excrow Co – will ask how do you want title reflected on the document – if they start advising you, then they are now practicing law  Commercial v. Residential  Role of Broker Agent o Match seller and buyer o Conduct negotiations o Prepare the sales K o Assist in obtaining loan 1   o Follow through with escrow – want to get paid. Won‘t get commission until deal is closed o When is commission earned  When sales K signed? (how it used to be)  When deal closes? Trend (6% commission – separate agent that list property and agent that brings buyer in) Issues o Is seller liable for commission if deal falls through because of unknown title defect?  Does real estate agent get paid anything?  Seller pays – they should have known  What if the lawyer acts as a finer of property  They are subject to broker licensing laws o The buyer is not paying the broker directly, so it seems like the broker is trying to get the seller to sell. They both want the property to sell. They don‘t want the price to go lower o SOF – SOF areas of property that we need to be concerned with  A lease that is longer than a year o K of sale  Don‘t need it if it is a gift o Deed needs to be in writing  Even if it is a gift The Sales K o Book example/CA example o Why is it important to know seller‘s marital status  They can‘t necessarily sign it over without the other spouse‘s signature o Should seller be required to convey ―good title‖ or marketable title‖ or ―marketable record title‖  Want marketable record title as buyer o What about the K provision regarding buying a house in the course of construction  P 573 – we have good faith and fair dealing. How do you have a K that specifies everything that can go wrong, especially if you‘re dealing with contractors Statute of Frauds  Deed/Instrument of Transfer o Except for leases for less than three (one) years, no interest in land could be created or transferred except by an instrument in writing signed by the party to be bound (this is not about a sales K)  Could by duration divide up diff interest in land  Home owner ass have to be in writing  An easement where someone is using your driveway or crossover 2      o It has to be signed by the seller, because they are the one who is granting the interest. A deed is only signed by the grantor. The person receiving just needs the grantor to put their name on it Statute of Frauds Land Sale K o No action shall be brought ―upon any K or sale of lands…or any interest in or concerning them…unless the agreement upon which such action shall be brought or some memo or not thereof shall be in writing, and signed by the party to be charged therewith‖ o If we are suing the buyer then we need to find their signature o If we are looking for conflicting claims, then need to find both signatures 4 Required Elements o Signed by party to be bound o Describe the Real estate – not specific o State the price  Agreed upon price = essential term  Or court may imply agreement to pay a rx price  OR ULTA: parties must refer to price/method o May require material terms  How are we going to pay for it Exceptions to the SOF o Part performance – two theories  Evidentiary – taking possession and  Paying for all or part of purchase  Or making valuable improvements  Oral admissions that there was a K  Prevent injurious reliance on the K (aka, Detrimental reliance)  If irreparable harm, taking possession is sufficient o Equitable Estoppel  Unconscionable injury would result from denying enforcement of the oral K after one party has been induced by the other seriously to change his position in reliance on the K  Unjust enrichment if not enforce  Restatement combines both these theories Case: Hickey – buyer goes to buy house. Sends 500 dep, but does not put name on it. Seller doesn‘t cash or sign it. The woman admits that the entered the oral K o The court says that if the buyers sell their other home they will enforce the oral K because of reliance, if not, then they won‘t K of sale o Marketable Title of Equitable Conversion  A title not subject to such reasonable doubt as would create a just apprehension of its validity in the mind of a reasonable, prudent and intelligent person, known which such persons guided by a competent legal advice would be willing to take and for which they would be willing to pay fair value  Reasonable doubt subject to litigation 3  o When seller does not have title asserted or where there is an encumbrance – something that encumbers the property o I.e., Lien on the property, mortgage, easement, private covenant (make you not do something on your property), anytime someone else holds an interest in your property – that is an encumbrance on your property  Mere existence makes the title unmarketable. So a Homeowner‘s association says everyone has to have a blue house. You have a blue house. That is an encumbrance (because someone else has an interest in your property) all encumbrances make title unmarketable o Restrictive Covenant – homeowner association  The existence of this problem is not an encumbrance  Someone has the right to tell you that you have to have a two story house  To get across your lot, they have an easement  These are encumbrances  These make the title unmarketable o Gov – Zoning Restrictions are not encumbrances  The violation of zoning restrictions make title unmarketable Case: Lohmeyer – the home is in violation of the homeowners‘ ass agmt. The buyer finds this out and wants to back out. Also violating city rules. He is also thinking about the resale value. You may be willing to let those things go, but other people might not. You have to convince the next party that it‘s okay despite the fact that the title has some problems. That‘s not fair to him Marketable Title/Marketable Record Title/Good Merchantable title – free from reasonable doubt:  For it to be unmarketable there has to be a rx doubt about the validity of the title being transferred and the buyer must not have to worry about risk of litigation o The marketability is doubtful if it exposes buyer to the risk of litigation. Defect must be substantial, though, and not minor o Seller has time to fix it: if the ―time is of the essence‖ is in the K then they have til closing to fix it  If that is not there, then they have til the end of litigation, or to whatever is reasonable o You want a ―Marketable record Title‖ (sometimes it can say ―marketable title‖, but not as good)  If you have title that you are trying to establish based on AP possessions, in some JD then you will be allowed to established Marketable title even though it hasn‘t gone through a court proceeding. You won‘t have record title yet because you haven‘t been through a court proceeding (Conklin Case)  Marketable title is implied, but it does not give your ―marketable record title‖ It will only give you marketable title  Purpose of marketable title 4 o Why do we transfer property if the record does not show that someone owns it o Why not just require in all cases that you have marketable record title?  It‘s the concept of free alienability of land  We want people to transfer our land  Adverse Possession: o Split – Some JD will allow for marketable title if you AP‘d it  Must show that you would get the property  Must show there is no risk of the seller coming back to sue you  Case: Conklin: P contracted to sell and convey to D a residential property in Ridgewood. Purchasers alleged defects in title and misrepresentations on the part of the sellers because part of the land was actually adversely possessed by the seller and this was not conveyed on the deed o When a prospective seller‘s title is grounded upon AP he has a choice of options. He can resort to a quiet title action (an action to cancel an outstanding encumbrance, or whatever other appropriate step may be necessary to accomplish the purpose. OH h, believing his title to be marketable despite the fact that it rests on AP, can choose to enter into a K of sale, hoping to convince the purchaser, or a court that this estimate is justified. That is what the seller followed here. This course is available only where the K of sale does not require the vendor to give a title valid of record, but provides for a less stringent requirement, such as marketability or insurability. A title should be free from rx doubt, but not from every doubt. Title does not need to be perfect. If the title is marketable that is sufficient. Equitable Conversion  Need to start with a specifically enforceable K o Only impacts us when there is a sales K o If something happens to the property before the deed is passed  Something happens and the property burns down  Our K doesn‘t say who bears the risk  Ideally the K should say who is insuring the property during this time frame  The doctrine of equitable conversion says, ―if the K is specifically enforceable, then equity regards done that which ought to be done‖ we look at the deal as if it was already closed o Which means the buyer has equitable title o If the house burns down and apply equitable conversion, the buyer bears the risk of loss. The moment the sales K is signed, if that K is a good K, specifically enforceable then buy bears the risk. You must insure the property once you sign the K o Majority of JD apply equitable conversion  Lets say that Seller has insurance, house burns down, and buyer doesn‘t  Some JD say that equity requires that you hold that money in trust and give it to buyer 5  Some say that it is a personal contract o If one of the parties of the deal dies…who inherits the property or the money?  Doctrine of EC – O has equitable title as the property and Seller only has the right to money. O‘s heirs get the money…not the person that is in K o Minority: Mass – the risk of loss is on the seller if the loss is substantial. If the loss is not substantial, then either party can enforce the K o Minority: Uniform – the risk is on the seller unless the buyer has taken possession Duty to Disclose Material Defects  Caveat Emptor – Caveat Emptor (buyer beware). I don‘t have obligation as a seller to tell you things wrong with the house. As long as I don‘t lie to you, I have no duty. If you ask if the roof leaks, then they have to tell you. If you don‘t ask, then they don‘t have to tell you. Judge says that the guy doesn‘t have a ghost of a chance o Mere nondisclosure does not usually constitute actionable misrepresentation, but will have an application in cases where the fact undisclosed is patent, or the P has equal opportunitites for obtaining info which he may be expected to utilize, or the D has no reason to think that he is acting under any misapprehension  Rule: If the seller creates the situation, then they have a duty to disclose the situation they created.  Case: Stambovsky – Haunted House. He advertises it as such. He creates this ideal that there is a ghost in there. When the buyer finds out, the seller here took advantage of the buyer‘s ignorance and created and perpetuated a condition about which he is unlikely to even inquire, enforcement would be offensive to the K‘s sense of equity  Two tests of materiality o An objective test of whether a reasonable person would attach importance to it in deciding to buy, or o A subjective test of whether the defect ―affects the value or desirability of the property to the buyer  Case: Johnson – Made an affirmative misrepresentation that the roof didn‘t leak, though it actually did. How come we don‘t just go off of fraud. They reach out to change the rule. Even if they didn‘t do anything, then we are going to look for an alternative reason for the buyer to rescind  Trend/Majority – Duty to Disclose o Liability for nonfeasance o Non-disclosure is misrepresentation  CL/Minority – Caveat Emptor o Liability requires affirmative misrepresentation  What is a material defect – Statutory disclosure statement  Minority Review o CA: Broker representing seller has affirmative duty to: 6  Conduct reasonably competent and diligent inspection of residential property  And disclose to buyer all facts materially affecting value or desirability of property Hazardous Materials o You may have to pay for all the clean-up costs if you are potentially responsible and they can‘t get anyone o PRP – Potentially Responsible Parties – current owner or operator, or past owner or operator at time of disposal of these hazardous materials o Innocent landowner defense  If you buy property after contamination  Make ―all appropriate inquiry‖ – this will protect you from being held responsible  Doctrine of Merger  When we close the contract it merges with the deed  Buyer must sue on warranties in the deed, no provisions in the K of sale  Exceptions to merger o Fraud o Promises of collateral to the deed  Modernly disfavored Implied Warranty of Quality  Happens after you‘ve purchased the property and something bad happens  Can‘t sue the seller, but perhaps you can sell the builder  Based on public policy o Allows you to sue someone you were not in privity with. o A lot of time defects don‘t occur until after a while o Even patent defects are hard to see  Limits on Warrant o Latent Defects – 10 years in CA o SOL for patent defects is 4 years in CA  It‘s something you should have seen  Tort tends torts to be when you discover it. If it‘s a latent defect, or something you can‘t see  Begins when you first see it  Duty/Warranty of Quality o Standard – Duty to perform in a workmanlike manner and in accordance with accepted standards of skill and care  Defenses by Builder o Ordinary wear and tear, not my fault o You created the defect by someone doing additional work o Could argue that it is patent defect o Disclaimer or waiver of warranty 7    How can you weigh someone else‘s cause of action? Someone else can‘t claim or waive the right to sue for a subsequent purchaser  Could you waive everything or one specific thing Trend in this area: liability of builder extends to subsequent buyers Merchant of Housing – builder Lempke – Ps predecessors K with the D to build garage. P claimed latent defect. They asked him to fix. He agreed but never completed o They said that you don‘t need privity of K. Says that it won‘t affect caveat emptor. Latent defects don‘t manifest themselves for a period of time…even after original purchaser of property.  Deed  Content o Grantor o Grantee o Words of Grant  Some indication of intent  I bob grant to o Description of land  Want to have the land described (doesn‘t have to be exact)  Lankmarks (trees) o Meets and bounds (how far from that mark) it‘s like finding buried treasure!  Governmental Survey (plats – something that is recorded)  Parcel Numbers  Street Address  The ―Snow Farm‖  As long as we have some general clue  May be a prob with water boundaries o They change  Accretion (gradual changing course of the river)  Evulsion (sudden change) o Signature of the grantor  Don‘t need sig of grantee  Just need the party to be bound (which is the person conveying the property) o Optional – these are when a person notarizes it. This is optional, but if you want to record it then it may be required you get it notarized. However, it is still valid if you don‘t get it notarized. Recording protects you against subsequent bonafide purchasers – which may require you get it notarized  Attestation  Acknowledgement o Consideration 8         o Seal  The seal is generally not required anymore  Even if it is, there is generally an easy way to do so Forged or Fraudulent o Forgery – grantor is not involved at all  Void  Grantor prevails over all o Deed procured by Fraud – grantor is somehow involved  Voidable by grantor  Subsequent bona fide purchaser prevails over grantor  Of two innocent parties, the person that could have prevented the loss will bear the burden of the loss 3 Types of Deeds o General Warranty Deed  Warrants title against all effects before or after grantor took title  Grantor (Baker) warrants that the deed is good against all defects up to the point that she conveys it o Special Warranty Deed  Warrants only against grantor‘s own acts  Only why I owned it o Quitclaim Deed  Warrants nothing  All you get is what that person haves. If that person has nothing, then the quitclaim deed gives you nothing Encumbrances o Visible known encumbrances which affect title will breach o Visible known encumbrances which affect physical condition of land will not breach  Power lines o Visible public easements will generally not breach o Known encumbrances can be excluded from warranty Brown – Original owner contracted to transfer a deed. However, she leased out the sub-surface rights to a company. It was then transferred again and the prior grantor never tried to exercise those rights. When the people tried to exercise these rights they realized they couldn‘t. They couldn‘t sue for breach on the present covenants because of SOL. Tried quiet enjoyment o If we had not segregated those right into subsurface rights we would have been ok If you have a gift, then you don‘t need consideration Would you want to have consideration listed…if you can have consideration listed somehow, then it is better If you have it, then you are a purchaser. As a purchaser, then you get protection under the recording acts. You may be able to prevail over someone else who didn‘t record It‘s not a K, so we don‘t have to worry about sham K as much 9 o But because earlier we get the Bosts who segregated and divided surface rights and subsurface rights o Why don‘t we argue this breaches the covenant of seisin?  This was probably barred by SOL – It started running when the deed was conveyed  Sue under covenant of quiet enjoyment – Need an eviction  You need to be sued or damaged to sue under covenant of quiet enjoyment Present of Covenants  Deed title covenants – once the K of sale is closed, can‘t sue on promises in it – must sue on deed promises. The first three are present covenants/last three are future covenants o Covenant of Seisin  Promise that says I own what I‘m conveying to you  Heather Baker conveys to Duggan ―the snow farm‖…if she doesn‘t own it, then she‘s broken the covenant o Covenant of Right to Convey  I not only own the snow farm, but I also have the right to convey it  A person can have legal title but does not have the right to convey  Bakers owns the snow farm as a trustee for Justin when he gets old enough to handle the property  It says that she can only use it for the benefit of Justin  If she tries to convey under other circumstances, then you are violating the covenant of the right to convey  In most cases it is going to be the same  Tenancy by the entirety o Covenant Against Encumbrances  Here the deeds will break immediately  I Baker convey the snow farm and no one besides me has an interest in it. There are no encumbrances, there are no easements. No liens or mortgages…These can arise some years later o Covenant of General Warranty (deal only with a grantor‘s acts why they owned it) – Future covenants run with the land  I Baker promise to defend you against any lawsuits that may arise against someone with superior title. If 10 years later O says ―I own it‖, then Ms. Baker will pay your attorney‘s fees, but only if you lose. It‘s only for lawful claims. Baker doesn‘t have to pay you if he is a scam artist o Covenant of Quiet Enjoyment  Same thing as covenant of general warranty, in all practicality it is the same thing…I promise you will be undisturbed in possession with someone of superior possession. Can‘t sue unless someone is trying to evict you o Covenant of Further Assurances 10          If something is wrong in the deed and Baker needs to sign some additional documents, then she agrees she will do that Future Covenants Run with land o A  B General Warranty Deed o B  C Any type of Deed  A is liable to C, based upon covenants of general warranty & quiet enjoyment, if paramount (has superior title) owner evicts C Special Warranty Deed runs with the land as well The concept of encumbrances cannot be expanded to include latent conditions on property that are in violation of statutes or government regulation Warranty Against Encumbrances o Any right to, or interest in, land which may subsist in another to diminution of its value  Eg: Mortgage, lien, lease, easement, life estate, dower rights, tax lien, servitude (private restrictive covenant) Warranty Against encumbrances – Deed o Majority: Violation of state or municipal land use ordinance is not an encumbrance Marketability of Title – K rescission o Majority: violation of state or municipal land use ordinance is an encumbrance – unmarketable Doctrine of Merger – If doctrine of merger does not apply, then you could sue under implied warranty under the K o If it does apply, you‘re boned Measuring Damages o Breach of Covenant of Seisin  Return of all or portion of purchase price (not market value)  Always limit to amount received by warrantor o Breach of Covenant Against Encumbrances  Cost of removal if easily removable  Difference in value between land with encumbrance and land without encumbrance if not easily removable o Limited by price warrantor received  How do you protect yourself if you‘re this buyer?  Check title before you buy it  Title insurance – title insurance will allow you to have a clause that will increase the insurance Frimberger – A man builds up against wetlands. He doesn‘t fill out necessary environmental forms. He sells it to someone else by quitclaim. Sells to D by warranty. The environmental agency never said that he would have to remove the building, they just said he would have to prove necessity. Instead he sued. Tries to sue on Encumbrance o This does not violate the encumbrances warranty. It is not anywhere on title. If the DEP had filed a lien and said, ―you‘re in violation‖ or filed a lis pendus, which says there is a problem with this property and you need to tell people about it, then that would be an encumbrance 11    Chose in Action may be impliedly assigned to subsequent grantees (it does not run with the land, but it has the same practical effect, but has a whole different theory) o Chose in Action is like a cause of action o That cause of action – you have a right to sue if you are the grantee and a present covenant is breached o A gives by general warranty to B. B gives by quitclaim to C. C finds an encumbrance. Because encumbrance is a present warranty it does not run with the land o However, B may be able to give C the right to sue A by selling it…(depending on the jx) o At CL/Majority: Chose in Action NOT impliedly assigned to subsequent grantees by virtue of transfer of property o English Rule/Trend/minority view in states: Chose in Action is impliedly assigned to subsequent grantee when land transferred Rockafellor: After the sheriff took a house, a deed was transferred about 7 times. The guy then gets the judgment reversed about 18 years later. They say the house is his again. The fight is between two people at the end. The people sue on covenant of seisen even though it doesn‘t run with the land because of chose in action. There was a person between them, but they couldn‘t sue him because it was conveyed by special warranty deed. o Can sue on the covenant of seisin because the chose in action arising from its breach was assigned to them, not because the covenant runs with title or possession o You can‘t sue for quiet enjoyment unless Connelly tried to take it from you. They are arguing that if they have to sue on a future covenant like QE that someone with superior title will try to take the land from them. We don‘t even know if Rockafellor is going to. Nothing has happened, so they can‘t sue under QE. They are bringing suit before there has ever been a breach. Delivery of the Deed: 1) Test: a. Delivery must be immediate b. Delivery must be irrevocable. 2) Majority: Can‘t have an oral condition on a deed 3) Split in The Courts: May be able to put on a deed for delivery ―I retain a life estate and give remainder to John,‖ then he could do that. If he said, ―expressly to take effect upon my death‖, the court could or could not take that as a LE with remainder. They may take it as a makeshift will which they wouldn‘t enforce it. 4) Minority/Trend: delivery is valid and condition is enforceable if there is a third person or proof that could verify it. Another way they could have gotten this done was to have a deed that expressly said, ―I have the power to revoke‖… 5) Trusts are used in these situations. (but we won‘t worry about it now) 6) At common law, these words would not be enough for delivery. 12 7) Modernly, we go back to future interests. Jay, I would really like you have this farm, unless you‘re not nice to me anymore, I‘m going to retain the power to revoke that I may exercise. Courts have said this was Fee simple defeasible—it‘s your as long as you don‘t piss me off. a. THIS IS KNOWN AS A REVOCABLE DEED 8) Revocable escrow is invalid! 9) Commercial Escrow-requires underlying K 10) Donative escrow-conditional delivery allowed unless power to revoke escrow is retained. 11) Delivery to Grantee with Oral condition a. Majority: delivery valid, but condition ignored b. Minority/trend: condition enforced c. No delivery if condition is Grantor‘s death 12) Delivery to Grantee with Written condition is valid-modifies estate given similar to a ―revocable‖ deed. 13) Revocable deeds a. Modern trend/majority: Power to revoke is valid and deed is delivered as an interest subject to divestment (defeasable). b. Minority: Power to revoke prevents delivery. Equity of Redemption:  Judicial right to redeem property from mortgagee by paying sums due o Equity is whatever is the value of the home minus whatever is left on the house  Problem: when does lender have good title? o The security is that the mortgage company holds title until you agree to pay o If she misses some payments and you go to the law courts the co still has title  However, she can go to the court of equity  The court of equity would say, ok, but let‘s give her a bit more time. Saxer you can‘t kick her off the land, we are going to give her some time  Equity of redemption  Foreclose on that period if you can‘t redeem yourself  The court had strict foreclosure o Judicial Foreclosure – We cut off the time to redeem yourself by selling the property and repaying the loan, and whatever is left is your equity  The lender ends up paying themselves o Strict Foreclosure – We give you a set due date for ―cut-off‖ If you can‘t, then you‘re done and there is nothing left o Statutory Right to Redeem – (won‘t come across this in CA, because we avoid it through a deed of trust)  Right to redeem from purchaser after judicial foreclosure sale 13    Means you didn‘t redeem yourself in time, and Mr. Sneed bought the property at the foreclosure sale. Ms Duggan says I want to redeem myself Only in some JD will you find this And only in some JD will it be after a judicial foreclosure sale MORTGAGE  Avoids judicial foreclosure & statutory right of redemption  Title conveyed to trustee who has power of sale upon default (you are the purchaser don‘t have title – the title is held by a trustee who is going to act to your advantage unless you default) their power to sell kicks in upon default – do this through a private foreclosure sale (still have to be fair to the homeowner, but don‘t have to go through a court in a judicial foreclosure so they can avoid that statutory right to redeem  Second Mortgage o Note secured by second mortgage o Higher risk and interest rate o Foreclosure of second is on mortgagor‘s equity and is subject to first mortgage  Foreclosure example o Sale price at the present time (50,000) o 1st mortgage (75,000) o 2nd Mortgage (15,000)  The second mortgage won‘t foreclose, because the first foreclosure has to pay off their money  Anti-deficiency statute – allows you to skip out after foreclosure sale o You are foreclosing on no equity o If there is this statute that works in his favor he walks away  How are funds distributed o 1st Mortgage 50000 o Deficiency on 1st 25000 o Deficiency on 2nd 15000 o Unless there is an anti-deficiency legislation  Foreclosure of 2nd Mortgage o 1st Mort. 50000 o 2nd Mort. 15000 o Sale Price 85000  Purchaser at sale takes title from mortgagor subject to 75000 1st mort. o 2nd Mortgagee gets 10000 on the note  Foreclosure must be made in good faith by the mortgagee  Fiduciary duties of mortgagee o Duty of Good Faith: No intent to injure mortgagor o Due Diligence: Must exert every reasonable effort to obtain a fair and reasonable price under circumstances 14   Need to show some kind of facts that show there is an intent that is not commercially reasonable for doing it  Not telling anyone about the sale  Weather? Time of year…is that reasonable  Advertise like a reasonable seller  Real estate  Give third party incentive?  Give commission of the sale that corresponds to the selling price of the sale o Put in an ―upset price‖ – minimum price. They knew what was reasonable…they turned the property over really quickly for almost 40,000 o There was not intent to injure, but they did not meet their duty for due diligence o Sends it back because damages were too high o Sent it back for att‘y‘s fees o You don’t use the FMV, but you use the fair price Remedy o Fair price is what you can expect to get under the circumstances…the circumstances are foreclosure o FMV is what the average price for a home similar to that o If you intentionally try to injure the mortgagor then we are going to use the FMV o Setting aside the mortgage  Can go in for an injunction to stop the sale (before)  After you can go to set aside  Or like here you can at least get damages o Why is the mortgagee frequently the only bidder at a foreclosure sale?  They already have the money in the property do they don‘t have to come up with cash. The 1st mortgagee is going to require that they be paid o Amortization – when you make a payment it has interest on the loan and has some part on the principal.  You owe whatever is left on the principle of the loan. It isn‘t until the end of the loan period that you end up paying the principle. However, you can pay more each month o Purchaser at sale takes title from mortgagor subject to 75000 1st mort., or they won‘t let it happen. If the first mortgagee closes, however, then they have to take what they get. They really don‘t care about getting more than their 75000 dollars. We want to make them care Murphy: Mortgagee goes to foreclose. They tried to work it out with him. However, they made sure that they sold it at a bad time. They didn‘t use a real estate agent and only had one bidder. The court said that they didn‘t act in good faith to try and sell it for more so the guy could get equity.  Transfer by Mortgagor 15 Transfer of equity interest o B/C the mortgagee has a lien on the property  Transfer subject to mortgage o Purchaser does not assume personal liability  Buy the product 100000  First 75000  Second 15000  There was an original 10000 nest egg in it  Property goes down and it‘s only 60000  First Mortgagee comes in a forecloses  There is a deficiency  If you take it subject to the mortgage, you don‘t have any liability to pay that money up to 75000 (even without antideficiency statutes) o Debt to be satisfied out of land  Transfer assuming mortgage o Purchaser promises to pay mortgage o Mortgagor no relieve of duty to pay unless mortgagee consents – novation  Still on hook to first mortgagee and second mortgagee  Personally liable (unless anti-deficiency) o Amortization: Payment includes interest and principal to pay debt over time o Acceleration clause: Allows lender to make all payments immediately due and payable upon certain occurrences  Without this, if someone misses one payment, then you only have the legal right to sue for that one breach o Due on Sale Clause: as soon as you sell the property you have to pay off the mortgagee  Lender is going to want to renegotiate on higher interest  Installment Land Sale K o Seller contracts to convey title to purchaser when entire purchase price is paid o Seller keeps title for security in lieu of mortgage o Purchaser takes possession and makes payments to seller o Forfeiture if purchaser fails to make payment o Equity abhors forfeiture  Avoiding Forfeiture on Buyer‘s Default o Forfeiture clause may be held void – seller‘s interest treated as lien which must be foreclosed by judicial sale o Restitution may be required from seller o Strict Performance waived by acceptance of late payment o Grace period for redemption Equitable Conversion  Equitable Conversion – Seller retains legal title with an equitable lien on property for purchase price  Buyer has equitable title from date of K  16 Equitable lien must be foreclosed by judicial sale Is such a K ever enforced? o If buyer abandons the property – it doesn‘t make much sense o If the buyer didn‘t pay that much money  If it doesn‘t make sense under the facts then we don‘t apply  Bean: P bought a single family home for 15000 (now worth 44000). The K provided that it would be paid over a 15 year period at 5% interest with monthly installments of 118.62. Sellers retained a legal title to the property which they agreed to convey when they received all payment. The buyer defaulted after paying most of it. The court said, no. o Seller gets legal title. The seller has an equitable lien on the property. The equitable lien is considered personal property. Apply the concept of equitable conversion, and even though the seller has the right to keep the money, the buyer has legal title Title Theory v. Lien Theory of Mortgages If you take a mortgage, then what unity are you destroying  You destroy the unity of title. Mortgagee takes legal title when property mortgage to secure note o When you mortgage the property, the mortgage gets title  Title Theory states that when you mortgage the property you give up your title  Lien Theory o Majority of states say that Mortgagor keeps legal title and mortgagee has only a lien on property. Lien must be foreclosed on purchaser‘s default This is the legal theory, but in all practicality you will have the same foreclosure. Only makes a diff for things like “does it sever JT?” Recording Title:  Protect yourself against subsequent purchasers. Make sure that the person you are buying from actually owns it. If the property has been recorded, then you are buying that property without getting title insurance  General Rules: o Rule = First in Time, first in right o Exception: Protection on Bona Fide Purchaser  Recording system changes the rule to ―first in time, first in right‖  Only if you receive protection under the recording act  First in time applies if grantee not within protection of recording system o Donee is not protected o Only a purchaser  This is why you want to have some consideration listed on the deed  Indexes – You look up on the index – find out where the document is located  Grantee – people who receive property interest o Look backward o Where did the grantee get it from?   17        o Start it from the current person that is granting it. This gives us the name and dates  Then we look at the grantor from back in time forward to make sure that they didn‘t transfer it doubly during that time  Grantor – people who given property interest  Track Index o Look under the land itself o Two types of volumes  Index and actual copies  Grantor/Grantee Index Search o Search backward in grantee index and determine grantors o Search forward in grantor index to check for interests conveyed out by grantors o Examine each instrument referenced in index  Mortgage, liens, etc o Then check other public references o If we don‘t find them even though the year recorded we are said to have notice How far do we check back? Root of Title 60 yrs or less Back to the sovereign CERCLA liability o Who owned this property to do all appropriate inquiry to whether the property was contaminated Luthy: Oil case where she has a mother hubbard clause. The court says that the clause does not give constructive notice to a bona fide purchaser o Property indexed, but not properly indexed, does not give constructive notice  Need to have Tours specifically identify each lease  Just like the other 7 What if we have leins, mortgages, or other interest and you record the property interest and they stamp it and then file it, but someone messes up the indexing entry. o Majority say that a mere copying fo the document is sufficient to give notice  May never find a library book unless you see that it‘s in the index  May be able to look at the general area w/o a index o Trend: mis-indexed – unrecorded  No constructive notice  Makes party double check to see that it got recorded properly o Uniform Land Transactions Act  The first Grantee ahs the burden of making sure it‘s indexed properly 18  10 years later it is consolidated into one book  Do you have to double check?  If on the re-indexing there is a mistake made, then we have the document out there, but the re-indexed book no longer points to that document, then we say that the burden shifts from oB. They‘ll never find it, but we still say they have constructive notice  Computerized indexes will probably not cause this problem Land Description:  Metes and Bounds  Reference to government survey, recorded plat or other record o Gov survey system o Plat system, official maps, etc  Street name and number or property name Zoom in on townships Township is 6 miles square. Those 36 miles are divided into 36 sections 19 Section 14 within the township, and then we go even closer into it. Each of the 36 sections are about 1 square mile Can divide section into ¼ and into ½. That‘s why you get the term back 40. It‘s talking about the dividing of the section NE ¼ section 14 is 160 acres NE ¼ of SE ¼ = 40 acres Name on the deed:  Does improper recordation give record notice to a subsequent purchaser? o Only if we use doctrine of Idem Sonans  If sounds the same, then you are responsible  We get out of this doctrine legally because this doctrine is used in court proceedings, but when it‘s materially to the issue, then it doesn‘t apply  Idem Sonans 20  o Though a person‘s name has been inaccurately written, the identity of such person will be presumed from the similarity of sounds between correct name and incorrect writing o Purpose – Normally just to resolve technical difficulties  It‘s not for material facts o When is the use of this doctrine inappropriate? o Apply Idem Sonans to recordation  Majority: Idem Sonans applied to recording system  Minority: Orr Position – Idem Sonan not applied to recording problems (name is material)  OWilliam Elliot  William ElliotA recorded  C wants to buy from A o If we are in a minority JD, you can‘t get out of this deal knowing there is a misspelling in the name  Green Case: Under same capital letter  Limits principle to names that start with the same capital letter  Would not apply Idem Sonans o Would not apply to: Cain and Kane  Elizabeth Taylor? Mortgage as Fisher?  If we have inquiry notice that they had different names  Form will ask what other names you have been known as  What about nickname – Elizabeth Taylor – Betty Taylor – Beth Taylor  Split in the system  Hyphenated Names  Doesn‘t give notice  Idem Sonans was applied:  Bill Barton/William Franklin Barton  Francis/Frank  William T Barton, Jr./William F Barton, Jr.  E.G. Seibert/Eleanor G. Sibert  Reed, Reid, and Read  Computerization  Once you computerize a lot of these records it is going to be a lot easier to find these things Orr v. Byers: Orr gets a judgment against Elliot, but lawyer misspells Elliot‘s name. Elliot buys property which becomes subject to Elliot‘s lien. He sells it to Byers, who can‘t find out about the lien because it‘s under the wrong name o Abstract of judgment: It sits there ready to grab onto property. Elliot buys some property and immediately that abstract of judgment becomes an encumbrance upon that property. When he goes to sell the property, and Orr hasn‘t tried to foreclose upon it, the person Elliot sold it to can‘t see the encumbrance 21 Recording Priorities:  First in Time: o If A is first in time, he doesn‘t need to be a purchaser. A could have received that property as a gift. A is being protected as first in time and not as a subsequent purchaser  Race Statutes o OA who does not record o OB for valuable (we are only protecting purchasers not donee) consideration  B records o B wins  Even if B knew, it would not matter  Notice Statute o If B knew about A, then how can we let B prevail  Same as above, but because B knows, then A wins o Ways for notice  A is already on the property  B may have some notice  Inquiry notice o Rule: Every conveyance not recorded is void as against any subsequent purchaser in good faith and for valuable consideration o It doesn‘t matter or not if B doesn‘t record  Race Notice o OA o OB for valuable consideration  A records  B records o It doesn‘t matter if A recorded or not o We don’t care about notice at time B records. We look for notice at time B is getting the property. Here B has already gotten the property  Shelter Rule o A person who takes from a bonafide purchaser, protected by the recording act, has the same rights as her grantor  Even though C had notice, we are going to shelter C  Why? o OA o OB for valuable consideration o A records o B records o BC (C would find A‘s deed on record and ask did B have notice of A outside record?)  Who wins as between B&A; C&A?  It doesn‘t make sense for B to prevail over A and then never be able to sell it because C finds A‘s name on record and won‘t buy it. We look at B and A to see if we can apply the shelter rule.  OA 22   OB for valuable consideration o A records o B records o BO  Are we going to shelter O?  This is fraudulent – we won‘t let this, or O keeps his property and gets money o Race-Notice Statute  Every conveyance not recorded is void as against any subsequent purchase or mortgagee in good faith and for valuable consideration…who‘s conveyance is first duly recorded  Without notice and first to duly record Notice Jurisdiction o OA who does not record o OB who does not know of A o A records o B records  Dispute is between A and B  B did not know of A, but he didn‘t duly record, then he is out of there  B only prevails if B is subsequent in time of delivery to A – delivery date when deed is effective Messersmith/Zimmer Rule o Zimmer Rule: Race-Notice statute protects subsequent purchaser who first records his own conveyance only if all prior conveyances in his chain of title are also recorded  Not all jurisdictions apply this rule o Facts:  Before May 7th, 1946: C and F own  May 7th, 1946: C conveys her ½ to F (quitclaim)  F does not record until July 9, 1951  April 23, 1951: C conveys mineral lease to Smith (recorded May 14th, 1951)  May 7th, 1951: C conveys ½ mineral rights to Smith (two deeds)  May 9th, 1951: Smith conveys to Seale  (First deed – C doesn‘t remember a notary coming to her house)  (second deed – Notary did it over the phone)  Fred sue Smith & Seale to quiet title o How it should look:  OA, who does not record C-F  OB who has no notice of A and gives valuable consideration CSm  B records – but defective acknowledgment (Smith Deed)  BC, who has no notice of A, gives valuable consideration Sm-Se o C records Seale Deed  23 A records (C-F) o A v. C? Fred v. Seale o Seale does not have notice at the time there is consideration o Does C first duly (duly doesn‘t just mean were they first, but includes everything being right in the chain) record? Yes o If we were in a notice JD, then Seale would win because recording didn‘t matter  If this JD didn‘t apply the Zimmer rule, then Seale would win Constructive notice of defective recording  When defect is latent (Messersmith) – doesn‘t appear on face of acknowledgment, deed gives constructive notice o Can‘t tell it‘s a problem on its face and it looks good so you have constructive notice.  When the defect is patent-defect is obvious on its face, deed does not give constructive notice, deed treated as unrecorded o Gives you inquiry notice  Defective Recording Different from Messersmith o OA by deed with defective acknowledgment  A records o OB for valuable consideration o B records o Issue: Does B have constructive notice of A‘s defective recording? (different issue) More Examples:  OA who does not record  OB BFP who does not record  A records  AC BFP  B records  C records o B and C are in dispute o Notice JD o Who is protected – A bonafide purchaser is protected o Who prevails under notice statute? C wins o Race/Notice?  Did C have notice, and did C first duly record  A didn‘t have notice and bumps B, so B never had title  It‘s the shelter rule on the race-notice side o C wins under notice and race notice statute Types of Notice  Actual  Constructive 24    o Inquiry – If someone is in possession, then you should inquire about it to see if there is an easement o Record – If recorded and it‘s properly recorded, then you have notice – even if you can‘t find it! Unauthorized Recording o Constructive Notice? o Some court say that it‘s not constructive notice o However, if you actually see something, then you have actual notice  Or it may just inquiry notice Protection under recording system? CHAIN OF TITLE:  Four types o Wild Deed o Common Grantor o Deed Recorded too Early o Deed Recorded too Late Wild Deed  Example o OA who does not record o AB o B records o OC purchaser for value with no actual knowledge of OA deed o C records o Who prevails, B or C?  Notice JD o Is he a subsequent purchaser? Yes o Does he have notice? No – there is a problem  He goes to the grantee index  Then looks at grantor  Did O convey to anyone else without recording it to me  He won‘t find it because A didn‘t record  There is no way he could find AB  This is what makes it a Wild Deed o So C has no notice of B‘s recording and would win in a notice JD  Race/Notice o Did C have notice – No o However, C did not first duly record – B recorded first  Anytime a recording doesn‘t give constructive notice, then we say it‘s deemed unrecorded  Zimmer rule doesn‘t apply in all JD, and this is why we say C would win  Board of Education o HoergerHughes o HoergerD&W OC (First valid) o D&WBoard of Education 25 o B of Ed records deed o Hughes fills in name and records o D & W record  Here, Hughes is the subsequent purchaser, despite the fact that he bought it first. He put his name on the deed later. So we ask if he had notice. B did not duly record. When Duryea and Wilson deeded the property to the Board (P) in November 1909, there was no record showing they had any title to convey. The Duryea and Wilson deed was not recorded until December 21, 1910. By contrast, Hughes (D) was a subsequent purchaser, and is protected by the fact that his (D) deed was recorded five days before the deed from the Hoergers to Duryea and Wilson. At the time Hughes (D) recorded his deed, Duryea and Wilson were still not a record owner anywhere in the chain of title. Hughes (D) was thus the rightful owner of the lot. Order reversed, and new trial granted. Common Grantor:  Every recorded deed out from a common grantor give constructive notice of its contents to subsequent purchasers of other lots in the subdivision Tract index is not going to help us here. o It‘s the only chain of title problem that wont‘ be sovled by the tract index.  Deed recorded too early (don’t’ get into this unless estopped by deed is applied) o AB by general warranty deed o B records A B deed o OA (Estopped by deed? If yes, B gets) o If estoppel by deed doesn‘t apply, then the first two entries don‘t‘ make any difference. A didn‘t have anything to convey. \.  A records  AC no actual knowledge of B  C records  Who prevails? B or C  Only by estoppel by deed does B have any right to anything at all  So C would need to go all the way back to O, and start forward.  He would never see B because it was recorded to early. A didn‘t record until after B recorded.  Majority of JD will say you‘re not going to find it. Why would you look before A got it.  Some JD may say you have to go back…  80 years  Daly Dry Wall: o GilmoreWalcotts with restriction to single family o Gilmore-Guillette with restriction on retained lots o Gilmore Paraskivas with restriction o GimoreDaly with no Restrictions 26 o Daly tries to build against the covenant to the walcotss. Guillette and Paraskivas sue because they are third party beneficiaries. o Common grantor situation. If someone grants many pieces of property, it is your job to look at the other deeds to see if there are any encumbrances. Deed recorded too early (don’t get into this unless estoppel by deed is applied  Estoppel by deed o O is conveying the land to A. O really does not have a right to do this b/c he does not have title to the land. Then after he conveys the land to A, he gets title to the land. Estoppel by deed simply makes it that once O does get title to the land, his title automatically transfers to A  Example o AB by general warranty deed o B records A B deed o OA (Estopped by deed in this JD? If yes, B gets) (notice how he is conveying to “A” after the fact! o If estoppel by deed doesn‘t apply, then the first two entries don‘t‘ make any difference. A didn‘t have anything to convey. \.  A records  AC no actual knowledge of B  C records  Who prevails? B or C  Only by estoppel by deed does B have any right to anything at all  So C would need to go all the way back to O, and start forward.  He would never see B because it was recorded to early. A didn‘t record until after B recorded.  Majority of JD will say you‘re not going to find it. Why would you look before A got it.  Some JD may say you have to go back…  80 years Deed recorded too late:  Example: O A who does not record OB who knows of OA B records (shelter rule if don‘t have him knowing because two recording back to back where the first is a BSP) o A records** o B C purchaser for value who has no actual knowledge of O-A.  C would purchase it from B and look in the grantee index back, and then look at the grantor index forward. They would see it was conveyed to B and stop.  CA and NY—we say you have the extended search. o C records Curtis View o Not extended---It‘s curt, it‘s short---not extended. For this to work, B must know of the conveyance from OA o If we don‘t have that then he is a bonafide subsequent purchaser he would win under notice/race-notice JD and C is protected under the shelter rule. o This puts us into the corner whether A‘s recording gives constructive notice to C. o o o   27 o o o o If Deed from O to A gives constructive notice to C, what must searcher do? Woods View  Requires you to do an extended search.  Late recorded deed gives constructive notice  Extended search required Morse v. Curtis view – No constructive notice Tract index would solve this problem. Examples: Problems p 705  AB who does not record  OA  BC who records  A D who records (D sees O to A deed)  OE who records Fight is between C, D, and E  Estoppel by deed applies.  Whose subsequent—it‘s the only reason some of these later people are going to be protected.  It looks like E is last  Are they protected.  Does E have notice. o He looks up O. o Then goes O forward. o OA was never recorded so he wins  If a deed does not give constructive notice then it is not considered to be recorded. Who is protected by the recording system?  mortgagee  Creditor? (lien)  Lessee  Donee o If they are not a purchaser then they are not protected.  Devisee o No, they are getting it under a will… so they are nto protected  Purchaser? Bonafide? o To defeat first in time you have to be a bonafide purchaser  Quitclaim deed recipient o It doesn‘t have warranties, and in some JD it may affect the ability of that purchaser to be bonafide. Valuable Consideration?  It‘s not essential  We include it to make the grantee a purchaser.  How much is enough? o This is not the same as contracts. There can be nominal fees paid.  The reason why is because we‘re not talking about the validity of the deed. 28         Most of all, this is not a K. We are not talking about holding parties to a deed. Goods and services o Love and care won‘t be enough Different analysis from what is required to enforce a K. *What happens when a subsequent purchaser has paid part of the purchase price before the purchaser receives notice of the prior claim? o Cl—No protection o Majority Protect to extent payments made before notice *Only protect you to the point that you get notice. Three Remedies under Majority (pro tanto): o Award land to prior claimant upon reimbursement to subsequent purchaser of money paid.  Pay him back money he has spent  Zografo‘s would also get taxes that were paid.  Is this really fair. He was in possession. Should he have paid the rental value. o Award land to subsequent purchaser a fractional interest proportional to amount paid prior to notice  Give you a fractional interest  Put them in Tenants in Common o Award land to subsequent purchaser, but require remaining payments to be made to prior claimant (benefit of bargain)  If you get notice, then you have to pay of seller. When do you beomce a boanfide subsequent purchaser? o MAJORITY: Subsequent purchaser receives protection until actual notice of another interest (Lewis) o MINORITY: Subsequent purchaser receives protection until constructive notice of another interest Alexander. Remedy? o REMEDY: Should buyer, who pays only part of purchase price before notice of prior claim, be entitled to Benefit of the Bargain (―B of B‖) (Lewis) or restitution (Daniels).  Installment land sale contract--- That becomes a problem…  equitable conversion we treat it as if the purchase prince had been paid. Daniels: Daniels had the right to first refusal on an contiguous piece of property. His deed didn‘t mention this, though. Z ends up buying it. Daniels sues to enforce his right. Z was not bonafide because he had actual notice. The court ordered Zografos (D) to convey the Contiguous Parcel to Daniels (P), and ordered Daniels (P) to pay Zografos (D) the full purchase price of $60,000 plus $11,000 in property taxes Zografos (D) had paid on the Contiguous Parcel. o Used the First approach. Make O go after Z for any payments he is missing. Lewis: Pending suit on a property. No notice. They were paying off the note when they found out. We give them their house. We treat them as bonafide purchasers  29 Misc. O borrows 5000 from bank—unsecured Loan O--.A, who does not record O defaults on bank oan O—bank, ortgage to secure 5000 oan A v. Bank *What you have to do in this problem is figure out where the consideration is. The consideration was in the first one. The consideration may be the bank foregoing the right to sue O for not making payments. Maybe B is agreeing for security on the loan. **So A wins and not B because there was no consideration and therefore they were not a purchaser and first in time wins. Inquiry Notice:  Inquiry Notice o Once who has information from any source suggesting the existence of a prior conveyance must make a reasonable investigation of it or be held to knowledge of what it reveals. o Does recorded document in chain of title that refers to another, unrecorded document give notice as to contents of unrecorded document?  Do you have to start asking about it?  Modern Trend: no inquiry notice given inquiry into offrecorded claims not required unless based on possession  Harper v. Paradise o 1922 SHMH life estate o 1927 SH dies o 1928 SH‘s heirs  MH quit-claim replacement deed recorded o 1933 MHET to secure loan (B  C) o 1936-55 ET Pardise (CD) o 1957 MH 1922 deed recorded o 1972 MH dies  S‘s heirs stand in her shoes. The second time around MH is given a quitclaim instead of a life estate. Paradise wants a quitclaim and Heir‘s want a life estate.  The 1922 deed is the one that matters. Maude. Thus, Maude is bound to have taken the 1928 deed with knowledge of the 1922 deed. The recitals in the 1928 deed put any subsequent purchaser on notice of the earlier misplaced or lost deed. Thus, the 1928 deed is not entitled to priority, even though it was recorded years before the 1922 deed. Furthermore, the Paradises (D) cannot rely on the 1922 deed, because any interest they may have obtained under this deed would only be Maude's life estate, which terminated upon her death in 1972  When does possession = Inquiry notice: 30 o Standard Rule = possession gives constructive notice of rights any inquiry of possessor would have disclosed o If possessor is a former record owners  Still possessing at the time.  Half the JD say you‘re held to inquiry notice  Half say you aren‘t o If possessor is seller herself  No, we expect them to be in possession… o If two or more people possess and one is record owner  Majority says No  Minority say, yes you have to ask that person. o Possessor is the tenant… do you have tell all those people.  Yes o Possession required: Open and notorious  References to other unrecorded documents o Common Law/Harper – Inquiry o Trend – No inquiry  Commercial Leases = Inquiry o Will be held off the record to what is off the record in that commercial lease. o Business people may not want to record it so it‘s going to be public record.  Defective Recording o Latent—won‘t know anything is wrong with it  Wouldn‘t ask because wouldn‘t see there was something wrong with it o Patent defect  Then inquiry notice applies.  Possession= no inquiry if consistent with record title, unless tenant Dealing With Title Search Risks  Adverse Possession  Re-recordation of interest (statutes) o Things out there for future interest, possibility of reverter  This is just small interests. (different from root of title below)  marketable title acts  Claim is void if not reflected in records between root of title and a date some 40 years later. o If you have an adverse claim, but you don‘t‘ have a document recorded to show your claim in the last 40 years o You can‘t make that claim anymore, even if you were first in time and you properly recorded. o If an conflicting possessor comes after and there is no record, then those claims are cut off.  Root of Title = most recent o Transaction recorded in an unbroken chain of title at least some 40 years in the past. 31     o Root of title = the most recent document that show there is a lease on that property. Has to be unbroken.  Allows it to be a whole fee simple Types of Rights Extinguished? o Can‘t claim there was a forgery How do you protect interest? o Root of title o Does make things more efficient Exceptions o For government interest o Possessory interests. Can‘t cut off their rights. o Mineral rights o Easements are not cut off/Utility easement Example: o 1889 OX (99 year lease) o X records o 1890 OA (Subjcet to X‘s lease) o A Records o 1920AB (leae not mentioned o B records o 1941 BC lease not mentioned) o C records What is C‘s root of title as of 1960? 1981? o If X is in possession then you can‘t cut of fthat leasehold claim. The root of title for C as of 1960-- Can‘t be 1890 because it shows that it is subject to X‘s lease. 1920—lease was not mentioned. So that works for 1960. 1941, then you need 1981 to come around for the 40 year statue to erase X‘s interest on the property. *We are trying to say that the document that I‘m making my claim under has been there for 40 years and there has been no adverse claims upon that property. Anything before that is void. Problem 1, 724 o o o o o o Example on 723 1889 OX (99 year lease) X records 1890 OA (Subjcet to X‘s lease) A Records 1920AB (leae not mentioned 32       o B records o 1941 BC lease not mentioned) o C records o What is C‘s root of title as of 1960? 1981? o If X is in possession then you can‘t cut of fthat leasehold claim. o The root of title for C as of 1960-- Can‘t be 1890 because it shows that it is subject to X‘s lease. o 1920—lease was not mentioned. So that works for 1960. o 1941, then you need 1981 to come around for the 40 year statue to erase X‘s interest on the property. o *We are trying to say that the document that I‘m making my claim under has been there for 40 years and there has been no adverse claims upon that property. Anything before that is void. Title Insurance o Title insurance does not run with the land. o Difference between mortgage policy and owner‘s policy? o Mortgage policy insures the mortgagee  Covers price of the house  requires title insurance before they give the loan  Purchaser pays for the mortgagee‘s title insurance. o Owner‘s policy insures the owner‘s policy.  Cover‘s loan amount  which could be less than the house  A lot of people don‘t get the owner‘s policy  We hope that property is going to appreciate in value  The property is going up in value o Title defect 10 years later, but the insurance policy may only have the amount of the purchase price. o Recently, insurance policies will have inflation. You want to be covered for the appreciated value o Exclusions and Exceptions  Won‘t insure you against adverse possession claims  Only insure you against what we can see on the record.  Implied easements won‘t be protected o Deed Warranties v. Title Insurance o Which offers more protection o Debatable---do you need both?  Do it to just be on the safe side? o Why do we even bother with title insurance when there are so many exceptions 33 o o o o  Less protection under title insurance as opposed to deed warranty o What are advantages  You don‘t need an eviction in order to claim warranty under future claimaints  The general warranty is limited to the original price to the grantor  Title insurance may have an inflation clause.  The title insurance company will defend you for all suits (they typically try to get out this)—Happens in hazardous waste areas (90% on CERCLA issues are fighting against insuring)  Warranty will only pay for ―lawful‖ suits. o If you are successful, then the grantor doesn‘t cover you.  Title insurance is a company--- don‘t have to worry about an individual who runs off to Canada.  You are more likely to be able to get money from that company. Duties of Title Insurance Co. o Indemnify the loss by payment of damages o Attempt to cure title defects o Defend insured in judicial attack on title o Inspection of title?  If they insure they should inspect it and tell me about it  The other view is that it‘s just an insurance policy  You pay us for taking the risk. Physical condition of the land and title insurance co. What types of things do you want to start thinking about: o Marketability of Title—This is helpful in the Sales K period. You can say physical defect in the property may effect marketability of title. We are looking to see if there is a violation of government regulation.  Frimberger—that was a violation of government regulation  Affects marketability of title… It was being based upon the deed warranty. We are using the deed warranty tos ay you‘ve breached the deed in transferring property in violation of government regulations.  The court said no, the deed warranties only affect the title.  Once the deed has passed and we are suing on the deed warranties, the courts generally say no, we won‘t let you do that. It‘s not an encumbrance on the property.  Set back case where they needed three more inches. Marketability of title and title insurance o If the defect is not showing on your title, then insurance is not going to cover it. o If it is on the title then it will show…  So if the governmental agency has taken it all the way to getting a judgment against you and putting a lien on you (encumbrance) then that would be a problem 34 o o o o o o o  Then the insurance company should be responsible. Reg. Violation – K rescind Reg violation—deed passed- not a breach of warranties Title insurance—only if it is on the title Then you get to tort duty—duty to disclose; fraud CERCLA super fund o What kind of liability do you have as a landowner. o Strict Liability—it doesn‘t matter if it was your fault or used all proper means of control  Jont and several—you are liable, not based upon your contribution, equal to all those who are ont eh lawsuit with you.  Under Cercla, you can get out of that liability you are an innocent purchaser  Must have made all appropriate inquiry. o PRP—Potentially responsible party  Can ask for contribution from other PRP‘s, but it is a scary statute. The first thing you do when you have discovery of hazardous waste… what do you do…  Look for insurance--- what are the insurance policies the company has.  What do they say about insurance companies. Rogge: Chelsea did survey for land. Knew acreage on guys deed was wrong but did not tell him. Is it Chelsea‘s duty to inspect and inform? o Do remand on this case based upon a duty, but specifically the duty to inspect. o This JD will not imply the duty to inspect.  Some will imply the duty, even if they don‘t.  There is half and half. o They remand because they want to see if Chelsea assumed an independent duty.  Provided information that they had previous records of the property… or said they would take care of everything.  Trial court did not look at whether there was an independent duty. o Other was a breach of K… Lickmill: chemicals on property. Title company was there and aw them but did not inform Lickmill. Lickmill could be liable for suti now. Should title insurance company be held liable? Court says that the marketability of title and the marketability of the land are quite different. He can‘t sue. LAND USE CONTROL o An Introduction to substantive law o Nuisance v. Trespass  Nuisance is non physical (noise, odor, vibration)  Trespass requires something physical, requires some object with mass to go onto the land (tort of trespass includes right to exclude) 35 o o o o o Private v. Public  Private:  Easements  Restrictive covenants  Equitable servitudes  Public  Zoning regulations  Environmental  Eminent Domain Rule--Substantial interference with use and enjoyment of land o Either  Intentional and unreasonable (this is a balancing test)  gravity of harm outweighs utility of actor‘s conduct (see factors)  or severe harm which is greater than the other should be required to bear without compensation (threshold/strict liability) o cement factory in town and it was spewing pollutants and causing health difficulties. It was worth millions of dollars. We need cement. A lot of the people in the town were working at the cement factory. You put that into the balancing test and syou see the utility of it is necessary. We are going to call it a nuisance because it is so useful. So we are going to award damages. They will buy the right to pollute. When tech gets to the level they aren‘t causing harm, then they can stop paying.  OR unintentional (built into this is unreasonableness) (negligent, reckless or abnormally dangerous) Defense o Hey I was here first… you came later. o YOU CAME TO THE NUISANCE—this is only a factor.  Sun city—developed retirement areas He did it nearby a cattle feed lot. How could Dell Web bring a public lawsuit as a private individual. He had to have economic loss becaue he couldn‘t sell anymore of his properties. This made him a special injury.  just because your property values go down doesn‘ tmean it‘s considered a nuisance. CASE: Morgan v. High Penn Oil Co. o Land has house, restaurant and trailer area, also oil refinery emitting noxious fumes, injunction shuts it down; important to have oil and already industrial element to area b/c of RR but causing problems for residents, restaurant, prop damage Classifying nuisance : Per Se OR Per Accidens o Nuisance Per Se 36 o o o o o o o o o o o o No matter where activity done, it's a nuisance! (don't need balancing)  Generally done by statute- doesn't matter how reasonable you are o Nuisance Per Accidens  Might be OK in some places and not OK in others  Due to location and individual facts~ Way operated, where located o Coming to Nuisance?  Idea generally not true that if you come to the nuisance, you can't complain about it - not absolute defense Nuisance examples Fear and loathing o Mere fear or apprehensions is not enough. o Light and Air o Spite Fence---builds to block your view o Aesthetic Nuisance  Junk in your yard… may or may not be a nuisance  most likely not. Can only tear it down if done in spite. Lateral and Subjacent (Under) support Rights incident to land ownership o Water rights o Toilet pipes You have a right to support of your surface rights o Someone tries to dig into your land. o Person owning the rights underneath you have to be negligent if there is artificial conditions. o However if your neighbor moves the support to a property in it‘s natural condition--- they are strictly liable. Negative Easements (only a few of these)*** talk about later Subjacent Support? (from underneath) o When have divided up property ownership so that one owns the land underneath yours or has rights to it (such as a mineral interest) o Situation analogous to that of lateral support Why bring Public v. Private If you want an injunction you are likely to get injunctive relief versus damages if you bring it as a public nuisance. Private land use Easements o A given right to enter B‘s land EASEMENT o A given right to enter B‘s land and remove something PROFIT o A given right to require B to pay money for the upkeep of specified facilities (Either a real covenant or equitable servitude) Easement terminology o Profits a prendre—go and take something o Positive/Affirmative Easement—do something o Negative Easement—Person can‘t do something  37  Don‘t remove support. o Things we want to control o Homeowner‘s association rules. o Government regulations to help prevent damage to property or surrounding property. o Easements—cable company, let someone else onto your property (cable, utility)  Positive-- Not stopping someone from doing something on their property, but allowing them to come onto your property  Negative-Stop someone from doing something on their property.  This was not expanded in England nor in the United States.  Instead of calling it a negative easement, when you are tyring to stop the from doing something on their property, we treat it more as a contract and promises THAN PROPERERTY INTERESTS. o These property interests stay in the land.  There are a few negative easements transferred here. o Stays with the land. o Go from easements into covenants… When we transfer the land, then what to do we do about that promise?  Make a K—won‘t build a factory—but then someone sells it… what happens?  We will find out! Creation of Easements o Created by written instrument o Reservation = New Interest Created o Convey a property but want to reserve some right for yourself o If you own two adjoining lands and there is a road that crosses over one of your lands to get to the other it is ‗quasi-easement‘ because he owns both. It‘s not an easement because he doesn‘t have an interest in someone else‘s land o If OA then that stupid road becomes an easement  What about the written instrument  needs to reserve that easement o Let‘s say OB giving blackacre  We have an easement because A needs to cross over to the road  The easement is in writing, then O is not reserving an interest but is granting an interest  A has a reserved interest to use the road that is not his own The road is an easement BA road WA  If B goes out and looks at white acre he is not going to see the easement, even if it is recorded because 38  we are not looking at black acre, we‘re looking at whiteacre  It‘s the common grantor problem.. o IMPLIED EASEMENT  It‘s not automatic you‘ll get an implied grant.  However, if A can‘t get off the property o Reservation = New Interest Created (we are like handing the dirt clod to yourself)  as if grantor transferred whole parcel to A, and then A transfers back (re-granted) the easement to grantor  Regrant Theory- Create an interest reserving out ourselves…t here is only one deed. It will work, but the regrant theory gets rid fo all the technicalities.  BUT becomes problem b/c "re-grant" makes A the party to be bound and A's signature not on the deed  thus, we just assume that A has signed the deed for purposes of being bound Easement in favor of a third party Easements Appurtenant v. Easements in Gross  Easements appurtenant o Have a dominant and servient parcel o Easement appurtenant benefits land ownership (must be connected to a benefit to land) Dominant parcel has the benefit of the easement (here church in its ownership of land is benefiting)  Easement in Gross o Will only have a servient parcel o Easement in Gross must benefit the individual owning the land, not the land itself (is not connected to the land itself, but typically the servient parcel will be nearby)  C/L Rule: Can‘t have an easement reserved in favor of a third party  Restatement/CA rule: Can reserve it for the benefit of someone else  Willard: Lot sold but told that must allow church parking there, P didn‘t know about restriction but doesn‘t have BFP status b/c of inquiry notice (cars park there), 20 = servient parcel o There was an easement as long as it was used for church parking. This is an easement appurtenant. As such it runs with the land. o Why reject CL Rule? Here, intent of grantor was to burden lot 20 w/ the easement, thus probably wouldn‘t have sold it w/o making sure that church had a place to park Creating an Easement   If it is in the land it needs to be in writing There are other ways that we can potentially create an interest in land then violates the statute of frauds. 39     o Estoppel—based upon license.  Some JD not allow oral in nature to turn into property interest. o Implied from prior use o Prescription o Necessity Difference between Easement and Fee Simple o Right to Use (easement) o Right to Possession (fee simple) o CL presumption favors easement Easement v. License o License: a license is oral/written permission given by the occupant of land allowing licensee to do some act that otherwise would be trespass  This privilege to use the land resembles an easement, but a license is revocable whereas an easement is not o Two distinct exceptions to this rule that a license is revocable  license coupled w/ an interest cannot be revoked  one incidental to ownership of chattel on licensor's land  license that becomes irrevocable under the rules of estoppel  coupled w/ an interest if associated w/ a profit Easement created by estoppel o A license you get that you reasonably rely upon can become an easement.  Holbrook v. Taylor  Road used for moving/ingress/egress/construction, originally license b/c permission, became irrevocable b/c detrimental reliance to build house, easement created b/c of equity Easement implied from prior use o Prior use is a (quasi-easement)------5 elements  Common ownership  Conveyance  Prior use  Necessary  Strict or reasonable? o Strict—Absolutely need it or can‘t access land o Reasonable—It would be extremely inconvenient if you don‘t‘ have it, but still could access the land.  The court here used reasonable necessity. o Other courts may have used strict necessity. We ask if we have an implied grant or an implied reservation. It was an implied reservation. Bailey wants to use the pipeline. If bailey had conveyed first, lot four then it would have been an implied grant.  English rule/minority: no implied reservation unless strict necessity, but implied grant based on parties‘ inferred 40 intention (this second part is more like reasonable necessity)  Restatement/Majority: implied based on intent of partiesextent of necessity only one factor. o Other factors is how much they paid for the property (pay less then it may mean the sewer would run underneath their property) o Reservation or grant o Necessity or reasonable. o Person may be getting less of a property interest, so they losing the right to exclude people form using the sewer pipe underneath them.  Apparent—purchaser of the servient parcel. (makes you think of notice in the recording act and BFP)  Reasonably discoverable?  Two places you can talk about notice— o can‘t create an easement if it was no apparent enough to give notice. o If not recorded then you can complain about it under the record  No protection under the recording act if not apparent o 1-JD—Not recorded so you‘re not responsible for it o 2-JD---Others say if you have inquiry notice-?nothing recorded but b/c apparent the BFP should be on notice o Split of Authority  English rule/minority: no implied reservation unless strict necessity. But if implied grant, then based on parties inferred intentions:  over WA (for BA) but it's implied, thus O gets to continue using it even though O said nothing to B  Restatment/Majority: implied based on intent of parties - extent of necessity only one factor, thus not determinative  Implied by grant- you get to continue crossing over prop o Where one grants parcel of land by metes & bounds, by deed containing full covenants of warranty w/o any express reservation, there can be no reservation by implication, unless the easement claimed is one of strict necessity o Van Sandt:  Sewer under prop of common grantor, nothing visible to indicate existence of drain but should have known sewage had to go somewhere- implied notice  Van Sandt was not a BFP--- may not have seen a recordable interest, but you had inquiry notice. If Bailey were still alive could Van Sand sue her on the general warranty deed 41  Would it be a present or future covenant? (present wouldn‘t‘ work because of SOL) o Could try to sue under quiet enjoyment—future covenant  Sewage was coming up into the house and that is the actual damage o Right to convey—She wouldn‘t have the ability to convey the pipe o Covenant against encumbrances-o Covenant of seisen—weren‘t giving me what you are saying o BFP    Some JD will say you can‘t get protected because its not something that could have been recorded. (can‘t claim protection under the recording system for something that could not be recorded) Another view is too look at that and still hold the subsequent purchaser to notice if they had actual or inquiry notice.  Necessity o Elements  Conveyance  Common Grantor  After severance, right of way is necessary (must exist at time of severance) o Before easement can be held as created by implied reservation it must be shown that 1) there was unity of ownership of alleged dominant/servient estates; 2) roadway is necessity, not merely convenient; & 3) necessity existed at time of severing the estates Easement by Prescription o You are getting a new property right with prescription o Elements  Continuous  Actual—Where the pathway is located. A use can be something other than a pathway.  Notorious and Open  Exclusive  Something we have to look at differently. It causes us a problem when we have to deal with a public prescriptive easement. It‘s lots of members of the public using it independently.  Hostile  Idea of permission is difficult. o Public Prescriptions  Majority: public obtains use based on prescription  Minority: no public prescriptive use allowed because of exclusivity problems 42  o Beach Use Public Trust Doctrine  Navigable waters and the land up to the high tide land belong to the public and government bodies cannot restrict that.  Public has right to use the water and the wet sand area.  Requires there to be reasonable access  Prescriptive uses of beaches  Majority: not allowed, based on implied permissive use  Minority: allowed if public uses beach without seeking permission as a public recreation area; also implied dedication o The doctrine of customary rights—idea that certain use have existed so long that the memory of man runneth not to the contrary—not widely used (fl, Oregon, Texas)  CA says that we make you give us an easement when you go to remodel your house… This way we can get people to the beach. Else we won‘t let you remodel. o Lost Grant Theory: owner of land is presumed to consent or acquiesce in the use (after all, the owner or his predecessor is though to have granted the easement)  if use made w/ permission of the owner, the use is NOT adverse  To secure pres. Easement under LG theory, claimant must show that use not permissive & that owner acquiesced (didn't object)  In JX w/ LG fiction, to prevent prescrip. easement from being acquired, owner must effectively interrupt/stop the adverse use o Matthews v. Bay Head Improvement Association  Bay head will only permit residents to go on the beach. The association owns several parcels of land and has lifeguards and try to keep up the beach. The public beach doctrine says you can‘t prevent public from being on the beach. This is only up to the wet sand mark… But, how can you enjoy the beach if you don‘t‘ have a place to sit down.  He let the public on to the dry sand. Couldn‘t do it legislatively. Judge isn‘t making association pay private landowners. Association already has a lot of leases and have purchased some property. Terminating Easements o easement by necessity  If the necessity no longer exists we can terminate it. o Implied by prior use?  Can only be terminated by extinguishment. o Easement by estoppel  Can lose it if the underlying reason for the reliance goes away. o Extinguishment— when dom/servient owner same (own both parcel owning easement and one being burdened by easement) o Easement by prescription— 43   Can terminate it with extinguishment… It is not as good as prior use because of it‘s scope. The right you get when you get it by prescription, it is going to be limited to the right you were using it for when you gained the prescriptive right.  If you use a pathway to walk over, then you can only have it under prescriptive use to walk over it. This is only the second strongest. The necessity or the estoppel can be lost if the necessity goes away or the reliance goes away. o Case: Othen v. Rosier:  from initial severance, is it an easement by necessity (here not necessary for ingress/egress), not by implied reservation b/c common grantor still owned other lots  prescription needs AP elements (here not hostile/exclusive), irrevocable license~ here permissive b/c of gate but TX adopts NY view that no easement by estoppel b/c SOF prob Assignability of Easements o The benefits and burdens of appurtenant easements pass automatically to assignees of the land to which they are appurtenant, if the parties so intend and the burdened party has notice of the easement. Where the benefit is in gross however, the benefit may not be assignable o Easement in gross is different from easement appurtenant which is tied to a piece of land (thus both dominant and servient parcel)  w/ easement in gross, have servient parcel but NO dominant parcel o CL view that easement in gross is not assignable  Since personal/not attached (no dom), can't transfer to another  Benefit is to the land, and the use of the land making use of servient parcel is going to be controlled if appurtenant  but w/ in gross, many people using it so could be overuse o Modern View 1st Rest- Will be assignable based on intent- did first person who had it intend to give it to others?  Easement in Gross can be assigned if of a commercial character (used primarily for economic benefit rather than personal satisfaction) o New Restatement 3rd—Look at the intent the parties  Intent of the parties of when easement was granted.  This situation is difficult because the right came by prescription. However it said ―To Frank Rufus, his heirs and assigns‖. Termination of Easement o Ws easement extinguished? o This comes from an analogy to profits (go on and take things off)  If you attempt to split up your profit you will extinguish it. He is transferring ¼ of the interest and when he did that he is extinguished it because of an analogy to profits.  44   There is no limit. Two people can take more than one person. You will really decimate what you have here.  Court says we are not going to extinguish it, band we will permit ownership by more than one person. In fact we will allow that.  ―One Stock‖ rule—We won‘t extinguish it, but we will only allow you to treat it as one stock.  Won‘t let you license it out unless everyone agrees. All must consent to this. Though they only have ¼ interest they must exercise it with Frank. o Lutheran Conference and Camp Association: Make artificial lake. Guy dies. They try to say they have bathing rights. Frank assigns ¼ interest to Ruthus (fish, boat, and bathing rights—though he does not have an express easement to bathe). Ruthus dies. Ruthus‘ heirs try to lease this out to Lutherans. The Lutheran‘s get a license. Pocono springs ends up as pocno pines which ends up under Frank‘s wife.  Easement in gross—no dominant parcel. Right to bathe by prescription. Whoever is using it. Both Ruthus and Frank used this. Ruthus doesn‘t get it by the purported express assignment of the ¼ right. He got it through his use.  Because of this we treat it like tenants in common. You need both tenants to license out the easement in gross under the ―one stock‖ rule. Termination of Easements (limited duration) o Term of years easements o Determinable easement  Not using it for purposes of church parking o Extinguishment—Unity of Title o Prescription  If the servient owners keeps the dominant user from using it for a certain period of time. The servient owner gets fee simple absolute by making sure the other person doesn‘t use it. o Misuse  Go outside the easement. Only results in termination if the court enjoins you from using it, then you can‘t use it anymore. o Case: Presault v. United States: Railroad tracks are used to allow trails. The presaults say that the government is exceeding the scope of the easement. They say that it was abandoned (pulled up tracks). They call it an easement becaue it was the railroad. Scope of An Easement o What does scope mean? o How is scope and location determined?  If it is in express easement then we will allow an expansion.  Unless language is very limiting.  Implied from Prior Use  Go to the time that it was created… time of the conveyance out from a common grantor.  45  Can expand for reasonably anticipated changes… (changes in the mode of transportation)  o Necessity—  Look at what point did this parcel become landlocked  The scope of that we may expand for reasonably anticipated changes. o Prescription Easement- Not quite as generous – must go back to time when all elements are met.  Case where it was originally for livestock.  Then wanted to use motor vehicles… Said this I not expansive. It‘s too noisy. There is a significant difference between horses and motorcycles according to the opinion. o Scope of Appurtenant  Scope is limited to serving the dominant parcel. o Subdivision of dominant parcel  Give land for residence. Person wants to put 10 homes on it instead of onoe.  Can we expand the easement. If it is reasonably anticipated that you are going to develop property, then yes we will allow you to expand the scope.  Won‘t let you do it if you are going to extend it to a non-dominant parcel. o Can you expand for utilities?  No o Water lines  Yes  Can bring water by truck, but the electricity and phone lines you can‘t bring by truck so we won‘t allow it. CAN‘T HAVE AN EASEMENT THAT BENEFITS A NON DOMINANT PARCEL o If it does benefit a non-dominant parcel we ask:  Is the expansion of the easement a misuse?  Was there irreparable harm?  Parcel C will become landlocked.  There is no additional burden.  It‘s just one house. o Brown v. Voss: Use roadway to reach landlocked parcel that was not granted in original easement.  What if Vosses want to change the location of the easement as a servient parcel holder.  The C/L rule is no, even if it is on their own land.  The restatement says the servient owner should be able to do that as long as it is at their cost and they will not necessarily interfere with the dominant owner‘s use. o It‘s the reciprocal to allow the dominant owner to have changes 46 REAL COVENANTS – COVENANTS RUNNING WITH THE LAND Negative Easements  Right of dominant owner to stop the servient owner from doing something on the servient land o Can‘t build factory on the property  Four types at common law o Blocking windows  Blocking lights o Interfering with air flow o Removing support of building o Interfering with waterflow in an artificial stream  England – why limited?  US – Expanded? o Expanded Negative Easements for US (in addition to the four at common law)  Solar easement  Conservation Easement  Easement for view  Do not imply negative easements Real Covenants/Equitable Servitudes  Covenant = Promise to do or to refrain from doing something (easement is someone having an interest in your property (crossing over it to reach a destination)) o The servient parcel has the burden of the promise o If you transfer the land, then what happens? That person didn‘t make th promise. They aren‘t in privity  We must treat it like a property interest. Whether they made a promise or not, they are still bound o If it is an easement then it is already a property right  Affirmative Covenant – To make a person actually do something  Negative Covenant – to make a person not do something  Promisor/Covenantor = burden  COvenantee – benefit  Historically Contract Rights and Duties Not assignable except: o When privity of estate (connection because of land) exists  Principles for Running of Burden (PIT) o Privity of Estate o Intent to bind successors o Touch & Concern (promise to be somehow connected to the land)  Need to find horizontal privity and vertical privity o Horizontal is the original relationship between the two promising parties  The relationship between A and B (In England had to be Landlord/Tenant) 47   England: Had to be LL/T, or burden would not run US: Split o Some JD Following England o Others say: There needs to be a grantor/grantee successive relationship o Vertical Privity: Look at what is being transferred  For burden to run, you must transfer the entire estate  You transfer a life estate, then you cannot run the burden  For Benefit to run just need to hav eaprtial transfer  You can‘t run just a lease. Tenant will not be held to that promise o Let‘s say B gives to C and C builds factory. Still go after B b/c he has a duty to make sure it doesn‘t happen to his land Equitable Servitude o Real Covenant Can be In Writing; Equitable Servitude can be implied o If you find a promise (for instance, a real promise that only residential stuff can be on property), and you can’t make it run at law (intent, touch and concern, and privity), then you try to make it run at equity  Equitable Servitude o When there isn‘t horizontal privity, then we look to see if there is notice  Notice  Intent  Touch and Concern o Damages will be in equity and not at law…Look for injunctions o Tulk v. Moxhay: Tulks gave to Elms land with an affirmative covenant that he is to maintain the garden in the courtyard. He also had a negative covenant that he is not to build anything over the garden. He is also to allow other tenants to use the property. Elms gives to Moxhay who wants to build on the garden. Tulk sues.  Held: first we must decide what we are trying to do. We are trying to enforce the burden (not to build.) This means we need PIT. However, there was no privity b/c this was England where you need the LL/T relationship b/t the original promisee and promisor. Didn‘t have this. SO we go into the idea of equitable servitude, where we replace notice with privity. Here third party had notice of the burden. There was intent b/t the original promisee and promisor for the covenant to run. It touched and concerned the land  This created an equitable servitude. With equitable servitude, slowed for the injunction, but not for the remedy. Remedy – o Can get damages for enforcing a real covenant o An equitable servitude can look exactly the same as a real covenant, and it might be in writing, but we will have different elements to satisfy before   48   we run it, but the difference is that real covenant you get damages, and equitable servitude you get injunctive relief. Privity of Estate o Have to start labeling the A B and C stuff again o Find the promise you‘re trying to enforce. That is your horizontal line o To have a real covenant Analytical Framework o When you see a promise (someone has agreed not to do something on their land or to do something)  First ask – Can it fit into one of the four negative easement types allowed in England or the additional ones allowed in US?  IF so, it is a negative easement and it stays there no matter who gets it  If it does not fit into one of the negative easement categories, find the promise at issue, and go through the following: Privity of Estate A Privity between original parties HORIZONTAL PRIVITY B Promisor; burden on Blackacre Promisee; benefit to Whiteacre VERTICAL PRIVITY VS. VERTICAL PRIVITY D C      Determine if the covenant will run at law  B promised A not to build a factory. B grants to C, A grants to D. C builds a factory. First we need burden to run to C. If horizontal privity is required, then the American rule/ Majority requires that A and B have some successive relationship…Find the original promise, put that on the horizontal line (B promised A)  See if the property has changed hands If no, then it is a K. We don‘t need to attach it to land If yes, then we have to keep going DRAW A DIAGRAM TO DETERMINE WHAT YOU NEED TO RUN Here we want the burden to run from B to C  IS there intent??  Touch and Concern? (Ask value of property question)  Do you have privity?? 49  o Horizonal Privity – Was it just a promise or a conveyance of land. If just a promise, no horizontal privity unless there is a conveyance of land. Assume A owned both BA and WA and conveyed BA to B. Then, we have horizontal privity o But, is there vertical privity? A conveyance? YES. For the burden to run, it has to be a conveyance or the entire estate. Here, it was (all of BA). IF we had just given term of years, the burden could NOT run.  For D to be able to sue – we also need the benefit to run. For this we need:  Intent  Touch and Concern  Vertical Privity  DO NOT need horizontal privity  D can also have less than full estate and still have right to sue  Benefit will run more easily than the burden  Won‘t run for adverse possessor  IF covenant will not run at law, then see if it will run at equity. (Equitable Servitude)  Example:  Neighbors A & B agree to mutually restrict their lots to single – family residential  Agreement is recorded  B C who builds apt. house  A v. C for damages – Result o Privity – Don‘t have it… no transfer of property o There is vertial privity o Perhaps if there was a benefit you don‘t need horizontal privity, but the promise you are suing on is B saying to that I won‘t build anything residential. A is not building. C is suing over the burden not the benefit Scope of the Covenants o Limitations:  In interpreting real covenant that is unclear or ambiguous:  Resolve in favor of the free enjoyment of the property and against restrictions  Will not read restrictions on use and enjoyment in by implication  Must interpret reasonably but strictly so as not to create illogical construction  Must give words their ordinary and intended meaning. 50  o Hill v. Community of Damien of Molokai – Home for terminally ill patients and AIDS victims. There is a restrictive covenant against non single family residences. Try to kick them out because they are not a family.  Held: The word family is not defined, so they don‘t read it to mean only blook relatives. Failing to enforce it is not going to be unduly hard on the neighborhood (fair housing act) o FHA: in making real covenants, can‘t violate the FHA. Three ways to show a violation of the FHA  Discriminatory Intent – P need only show that membership in a protected group was in some part the basis for the challenge  Discriminatory Impact – D‘s conduct actually or predictably results in discrimination or has a discriminatory effect. (motivation irrelevant, look to effect.)  Refusal to make Reasonable accommodation to afford handicapped persons equal opportunity to use and enjoy dwelling – Isn‘t Rx if it would require fundamental alteration in nature of program, impose undue financial or administrative burden. (here, it wouldn‘t impose undue hardship)  Current drug users are not ―handicapped‖ but recovering ones are o Balance interest of community and neighbors (negative impact of increased traffic, w/o more, are outweighed by community‘s interest in maintaining the home). o Racially discriminatory covenants will fail in a number of ways (can also apply these things to other kinds of discrimination)  Shelley v. Kraemer: There was a restrictive covenant signed by 30 of 39 home owners to keep African Americans out of the neighborhood.  Held: 1968 – Civil Rights Act – now private action has to conform to constitution. Many courts have restricted Shelley v. Kramer to racially discriminatory covenants, but others have expanded. Make an argument. (i.e. if the court is enforcing a religiously discriminatory covenant, just mention this as possibility).  Unreasonable restraint on alienation  Violation of public policy – make argument that the agreement (K) is void b/c of public policy.  Violation of FHA and Civil Rights Act.  Today, it could be considered a violation of FHA just by recording it. Termination of Covenants o Doctrine of changed circumstances: Changed circumstances in a neighborhood may render restrictive covenants void and unenforceable  The change must affect the actual area, not just border or vicinity o Restrictions will be enforced as long as: 51 o o o o o o Original purpose can still be accomplished Covenants still of substantial benefit to area Western Land Co. v. Truskolaski: A large division of housing had a restrictive covenant that only allowed for residential homes. As time went buy the surrounding area changed. Wester Land wished to place a market on the land saying that the area had changed.  Held: The court said this was not enough. It did not matter if the parcel in question would be more valuable if converted to commercial use. The original purpose of the covenant was to keep a quiet and safe neighborhood. Extra traffic from the commercial area would ruin that. The covenant still benefited all of the homes as well. Remedies if changed circumstances are found:  Terminate covenant in law and equity (no injunctive relief, no damages) OR  Deny equitable relief of injunction but award damages for breach of covenant (essentially court forces a bargain). Rezoning When in Conflict with Covenants Many times there is not a conflict because under zoning rules, you cave hare more restrictive uses in certain areas.  Restrictive covenants tend to be more restrictive than the zoning… So we will allow that  Conflict—General rule is that the more restrictive prevails:  Private prevails because it‘s more restrictive.(See above Wester Land) Termination of a private covenant – may be able to argue Eminent Domain.  If city ordinance says private covenant will not be enforced anymore = taking. Must get just compensation  If court terminates the covenant through doctrine of changed circumstances, then you do not have to get paid.  Make argument that it is state action (though Shelley v. Kraemer has not been extended this far).  So far, all of actions court has used to terminate your rights –not taking. Abandonment  Violations by homeowners-- need to effect the entire area, so that the violation by the homeowners make the original purpose of the covenant is frustrated.  A few sporadic violations is not sufficient.  Community abandonment requires violations so general that original purpose of the covenant is frustrated (everyone is violating).  Show intent to abandon the interest. Release The Covenant—    52  Convey back to the burdened property the benefit side. No longer assert the benefit.  One person can hold back and not release it  Rick v. West – Rick sold to several different people, including West, she refused to release covenant (single family homes) even though city rezoned the land. Ps tried to say change in neighborhood. They want to build hospital. Court says she has a right to rely on the covenant. Should she have the right to refuse to sell her property right? o Massachusetts Rule—Statute makes damages the only remedy instead of an injunction.  This may be the only remedy where enforcement of the restriction tends to impair growth or is against public interest.  Where changes in neighborhood which reduce need for restriction or render it obsolete or inequitable to enforce except by award of $  Restriction would impede Rx use of land for purposes which it is most suitable and would impair growth of the neighborhood or municipality inconsistent w/ public interest. o Restatement Property 3d  Balancing the equities, we may not allow injunctive relief, but go with damages o Abandoning property to get rid of burden of covenant  Cannot abandon the land if you have perfect title.  Excessive covenants—If costs are really expensive you can terminate the covenant.  NOT, if it‘s a community interest however.  We do not want people to abandon property and pass on the liability of having to deal with the property. (CERCLA).  Pocono Springs – court found that the homeowners had to pay homeowner‘s fees They tried to abandon property. Homeowner‘s Fees and Equitable Servitudes o Condos – each unit owned separately in fee simple; exterior walls, land beneath, halls and common areas owned as tenants in common.  You become member of the association by accepted the deed.  You are responsible for the exterior in common and interior in self – not responsible or harmed if someone else doesn‘t pay mortgage. If something happens outside, you pay a share.  Requirements for horizontal privity – developer and original purchasers; vertical privity – original and subsequent purchasers; touch and concern is usually met.  In CA, we make these equitable servitudes so this doesn‘t matter  Court of Appeals Decision  To terminate it, the court said the restriction must be reasonable as applied to everyone. o Cal. Civil Code Section 1354—  53 Restrictions are to be treated as enforceable equitable servitudes  Don‘t have to go through the whole analysis – don‘t need privity. CA. just gets rid of some burdens of making them run.  Don‘t have to go through the whole analysis – don‘t need privity. CA. just gets rid of some burdens of making them run.  owners and association have standing to enforce. (don‘t have to run benefit). o CA Rule Cont‘d: If the restriction is contained in a recorded declaration of common interest development, restriction is presumed reasonable unless the person challenging it shows:  It is arbitrary (no rational reason or explanation for having the rule) (i.e. color of car) OR  Burden outweighs the benefit – imposes burden on use of land it affects that substantially outweighs the benefit to residents OR  It violates fundamental public policy  Use Shelley v. Kramer if the covenant is racial based.  Nahrstedt v. Lakeside Village Condominium Assocation Inc.: Lady has cats against the restrictive covenant of the condominium.  Held: Cats can cause a nuisance if they get out of the apartment. It is reasonable to have such a covenant. It is not an arbitrary decision. There is a benefit to it. It‘s not against fundamental public policy.  California CC & R‘s (covenants, conditions and restrictions)  Focus on everything as a whole and not individual case. o The Restatement 3d.  Servitude that imposes an unreasonable burden on the exercise of a fundamental right is invalid.  Distinction between direct restraints and indirect restraints?  Direct—can‘t leave out (deals with who you can transfer your property too)… Valid if reasonable.  Indirect—Can‘t have pets—give these more deference. o is invalid ONLY if it lacks rational justification.  Distinction b/w those CCRs in master deed and those promulgated later by board.  Master deed – given more deference- strong presumption of validity. Non enforcement is proper only if such restrictions were arbitrary or in violation of public policy or constitutional right.  Those promulgated later by board – Reasonableness test.  Business judgment rule or reasonableness standard?  Ban on pets – equitable servitude – reasonableness standard  Board‘s action – (new rule or denial of exception or changing a rule) will be governed by the business judgment standard – that gives them a lot of discretion (it may not 54   even be reasonable), as long as in good faith and in exercise of judgmentAre associations state actors? Once we start impacting people‘s Constitutional rights, can they argue it‘s a violation of those rights?  Not if the Association is considered a private actor. LAND USE CONTROLS  Zoning: Protects public safety, health, and general welfare, and protects property values o Validity:  Must be reasonable and not arbitrary or capricious  Any good rationale will protect this test  Must make some statement put forth that promotes the health safety welfare of the community  Regulatory Taking – Imminent Domain – Regulatory taking is so severe you should be compensated for it o Euclidian Zoning  Cumulative Zones permitting higher uses in lower use areas  It‘s a hierarchy. In a residential zoning, only housing for single families. However, because it‘s the first zine, single family homes can be there  R1 can be in all zones. R2 can be in all zones except for R1. R3 can be in all zones except for R!  Court upheld it as it existed  Village of Euclid v. Amber Realty – There was a guy that owned land. His big plot of land fell across different zones. He wanted to use the whole land for business purposes. On of is arguments was that if he didn‘t use it for certain commercial principle it would drastically decreased the value of the land. We have a concern on part of the landowner that his land is not longer value.  Held: Euclidian zoning not unconstitutional on it‘s face. It‘s not arbitrary and capricious. It‘s a defined use area. Had concerns of traffic, efficiency of emergency situations (firefighters need difference equipment for commercial areas as opposed to residential areas), safety and morality. The zoning was reliable as it exists and not as it applies.  This case didn‘t involve takings analysis – not available at time. o Result of such zoning higher reliance on cars; ghost towns at night. o City Rights  City has the right to regulate within it‘s boarders the promotion of safety and welfare.  This creates conflicts between cities. o Zoning Basics  Enabling Authority to Zone—State law 55  Generally no more challenges to zoning authority these days.  Don‘t have authority to zone if it is not in sup port of a comprehensive plan.  Zoning is the means you used to implement your planning  Ordinances  Subdivision control  Exactions— they are a permanent physical occupation – land is not taken but money is. o An exaction is when you are a developer who wants to build a subdivision and the city says that it therefore will need a new school etc, but why don‘t you build these and then sign them over to the city – or if there is no land that can be given for those eservices, you give the city money so that the city can use to mitigate the adverse impact of the subdivision.  There were challenges to this – can‘t ask us to give you land in order to give us the permit to build these houses because this is a taking—so end up with the nollan/dolan test  Nollan/Dolan Test—Nexus (logical connection b/t what the government asks from the developer and what the use is).  Dolan: requires that there be rough proportionality b/ the exaction and the development permitted o expanding business=more traffic, so government requires the business to put in a bike path. But, it has to be proportional – amount of people that will use the bike path, amount in cars; and also in fee simple as opposed to easement. Dealing with Non-Conforming Uses—(we enact new zoning and someone is already there ceases to conform). o Analogize to Nuisance o Amortization—  Majority-- Use amortization as a way of dealing with nonconforming uses.  Must give adequate time.  Factors o Nature of the use in question o Amount invested in it o Number of improvements o Public detriment caused by the use o Character of surrounding neighborhood o Amount of time needed to amortize the investment o Balance private v. public detriment  Minority – Amortization is PER SE UNCONSTITUTIONAL. We can only control the non-conforming use if it is a nuisance.  56 If they are not a nuisance, and you want to shut them down, must pay.  If it is a 1st amendment protected business, nuisance is probably best way to go rather than trying to regulate in advance  PA Northwestern Distributors, Inc. v. Zoning Hearing Board—P opens up adult book store. Change zoning area so he can‘t have it in the area. o Held: Don‘t give him enough time to recoup his investment. This being a minority JD said that amortization here was unconstiutinal.  Concurring: Took Majority view. Said the 90 days was not enough time. o Variance – judicial based decisions allowing for specific exceptions to zoning  After doing reasonableness analysis above, ask if there is a variance available to them  Can even let them have variance as part of amortization – give variance for 20 years and have them reapply after that  Two part test  Unnecessary hardship/practical difficulties created by zoning o Consider if:  Self-induced  Earn a reasonable return  Efforts made to comply (i.e. attempt to acquire additional land)  Unique to particular property  All of the landowners in the area are experiencing difficulty, then we should try to change the entire area  Not detrimental to community o If the variance is granted would it be detrimental to the community  Runs with the land – There is going to be economic waste. We aren‘t going to give people the opportunity to apply for a variance.  Area variance – allows you to change the physical dimension of your home. Want a variance on the restriction of how long or how wide. (height of the building)  Commons v. Westwood Zoning Board of Adjustment – Housing community and then a zoning change required the dimension of the house to be specific. This mad eth homes in the area fail to comply. Guy tries to build on a lot that doesn‘t meet the zoning requirements. Applies for an area variance.  57 They did not impose the hardship. They made efforts to acquire other land. Wouldn‘t be detrimental to the community…building a new house and value-wise it wouldn‘t hurt the property. Some of the other houses were smaller, too.  Use Variance – allows you to change the function of what you want to use your property for single family, multi-family, light commercial industrial o Special Conditional Use  Essential and not incompatible (we know that you want this type of variance, but we won‘t allow it unless you ask for permission)  For example: o 24 hour drive thru – it‘s open 24 hours. There is going to be traffic o Church – generate lots of traffic…when are going to be your heavy times o Schools – when it‘s conditional we can put conditions on it (hours of operation…parking requirements)  Variance as compared to special or conditional use  A variance is an exception  Conditional use is allowed o Termination by abandonment, change, or destruction  Non-conforming uses run with the land  Some JDs hold that nonconforming uses can be expanded to meet the changes in increased demand  Change can also end right to have nonconforming use  Destruction of a nonconforming use terminates it  Riots – in LA were not allowed to rebuild b/c the nonconforming uses were not destroyed by acts of god, but by act of man  Abandonment – intent to relinquish the right to continue a nonconforming use  However, by statute you may find that if you stop using it for a certain period of time, even if you don‘t intend to relinquish it, you may allow a municipality to terminate a nonconforming use  Some JDs say non-use for more than 2 years – abandonment o Nonconforming uses running with the land?  You have no vested right for zoning to stay the same  May be able to argue that you relied on the zoning  Vested rights – only pre-existing uses are protected, not plans to engage in a particular use. Essentially, if sufficient commitments have been made in reliance on existing zoning, the proposed use might be protected  58  o Critical question – how far has the developer gone in obtaining government approvals and how much money has been spent in good faith and on what?  Estoppel – sometimes applied when developers rely reasonably and to their detriment on issuance of a permit and proceed to make substantial expenditures o Must be in good faith But, you may have an amortization right or a grandfather right, and if you sell, the buyer will have the right to retain nonconforming sue if you had that right. EMINENT DOMAIN  Basics: Taking property for public purposes so long as just compensation is paid (having gov pay you to confer a benefit) o When the gov uses its power they should do so in a reasonable way to reach a lawful end o Take property for pulic use to song as just compensation is paid o Regulatory takings  Regulation that appropriates property through control without taking little o Fifth Amendment  Nor shall private property be taken for public use, without just compensation  Individuals should not be forced to bear public burdens which should borne by the public as a whole  Requirements o Gov needs to use title or take title  They can hand any title over to another private entity without using it themselves and it remains constitutional o What is public use?  Berman – any conceivable public purpose would be allowed (condemned department store that wasn’t even in blighted area to turn over to private redevelopment agency)  Midkiff – Public use is a public purpose. Standard of Review: o It is okay as long as it is rationally related to any conceivable public purpose o Rational basis review – not hard to find a rational basis, gov will almost always win  Almost anything will pass the test o The public use does NOT have to be primary. It can also be benefiting a private entity (like Costco) – as long as some conceivable public purpose, it is allowed  Kelo – an area was unblighted…however there were employment problems and the area needed rejuvenation. The court allowed for 59 state to condemn homes and then give the land to other private entities.  This let the door open for condemnation no matter what the public purpose  Misc o So far, courts have interpreted ED as a means to an end, like zoning and will only apply rational basis standard, but Kelo brief argues that it is different b/c ED comes after an individual, so we should treat differently.  Kelo brief says we should use the same standards as with exactions – should be a nexus b/t the use and taking, and rough proportionality. (this would require showing no other way to do it) o Recently, ED has been used to shut down constitutionally protected businesses by calling them blighted areas  ED is coterminous with the police power – both are to regulate health, safety and welfare INVERSE CONDEMNATION/REGULATORY TAKING  Basics o Refers to when you‘ve been regulated so much that the landowner goes in and says that you are taking my property and you must pay o When do these types of actions occur?  Regulation can occur when there is a public purpose o Result – Can change the regulation or can pay you  Generally, they just change the regulation o Penn Coal created maxim that while property may be regulated to a certain extent, ―if regulations go to far‖ it is a taking.  Use an Ad Hoc Factual Inquiry – three part test o Alleged character makes it a taking – Penn Central Tests  If permanent physical occupation, then you can stop…Per Se taking under Loretto  Loretto – the cable lines were a permanent physical invasion (the public purpose was to provide information/cable) o Held: This was a taking. However, the award was nominal because damages were so small  Airplanes flying so low as to scare chickens – court said – taking  Taking away right to exclude (navigable water, requiring the bay be left open) – the court said was per se taking  FHA – requiring people not to discriminate is not a taking – we are not chopping through entire bundle of rights, LL can choose not to rent out at all, and no restraint on alienability  Rent control – not a permanent physical invasion  Exactions are an exception to this rule – they are a permanent physical occupation – land is not taken but 60 money is. The taking of money is permanent, but we treat exactions separately  Spot Zoning – e.g. Historical landmarks  The character of this action is not a permanent physical occupation (problems occur b/c it comes down to personal taste, and arbitrariness)  Penn Central Transportation Co – Grand Central station was designated a national landmark. They contracted with a company to build above the station, but the gov would not let them. They said this was a taking of their property o Held: No taking. The character of the taking was not a permanent physical taking. They didn‘t put anything there. It was simply ―targeted‖ for specific regulation. Did impact the airspace, but not to the point that it deprived them of economic loss. They were not interfering with how the station currently made money. Also were given TDR‘s…So no taking under the factors o Economic Impact  Are you being deprived of all economic use?  If yes, then it is a per se taking, unless power was exercised to prevent a common law nuisance  Lucas: The South Carolina Act imposed restrictions on owners of coastal zone land that qualified as a ―critical area,‖ defined in the Act to include beaches and adjacent sand dunes. Owners of such land had to obtain a permit from the newly formed South Carolina Coastal Council (D) before putting the land to a ―use other than the use the critical area was devoted to on [Sep 28, 1977]‖ o Held: this took away all economic value of the property. Thus it was a per se taking and retribution was granted o Dissent: This property can still be used for swimming, picnicking, and camping; Lucas also retains the right to sell this valuable land  If not an entire taking, then we use Penn Central test and also incorporate the ideas Brandeis used in the dissent:  Public Nuisance – we can regulate it and it‘s not a taking. (Lucas exception to entire economic loss too) o Not that in the Penn Coal case (below)  Diminution in Value – Brandeis argues that it has to be analyzed with the prospective value of the surface rights as well…Look at everything o Would have supported the majority in the keystone case 61 Conceptual Severance – Denominator Issue – if you are trying to figure out if a regulation has gone too far, then you need to look at what is being burdened (numberator) over what‘s the property at issue o Looking at pillars of coal divided by the pillars of coal…taking it all o If your pillars of coal are the numerator, or you‘re entire subsurface rights are going to be the denominator  Reciprocity of advantage (look at other property owners too) – When there is gov regulation and everyone should benefit by the other guy also being restricted. We should consider it as a factor  Preventing a harm versus conferring a benefit – a taking should not occur when you are trying to protect the public. In Lucas, Scalia says that this is not necessary. When you provide a public benefit you are generally protecting the public from harm o Pennsylvania Coal: A coal company sold the above surface rights to land, reserving rights to mine beneath the land to remove coal, with no liability of the caused damages to existing structures on the surface from sinking. Legislation is passed that forbids this  Held: that the taking of these pillars was the entirety of the property. SO basically they took away all the economic value. P reserved the right to take coal, and now the gov was not allowing them  Dissent: These factors are heavily in favor of a regulation and not a taking. Should always use the five factors above. There wasn‘t that much of a taking b/c we have to look at the property as a whole, and not just the pillars. His view was similar to the Keystone case, where it was the exact same fact pattern, but they said the cola pillars were a mere portion of the value of the mineral in the subsurface o The extend to which the regulation interferes with distinct investment backed expectations  Property is an investment. When you buy, you expect to be able to grow on the property. o TDR‘s – If we are going to regulate someone severely, then we help them out by giving them transferable development rights  62    Do we take them into account when we are looking at economic impact. Take TDRs into account when discovering if there is even a taking.  The other argument is that TDRs should be evaluated after you decide whether or not there is a taking.  This is a big debate 63