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VIEWS: 18 PAGES: 22

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									I. Real Estate Brokers & Listing Agreement
       i. broker: usually hired by the vendor to arrange for the sale of property; a fiduciary of the vendor
                  1. listing broker - when working for the vendor
                  2. selling broker - when working for the vendee to find property to buy
                           a. selling broker is still the vendor's agent b/c the vendor pays the commission, so the
                              broker has to tell the vendor all material information about the vendee
                           b. you can sign an agreement to make the broker the agent of the vendee, but this isn't
                              default
                  3. both brokers generally get about 3% of the sale (6% split) and both have to pay 1/4% to
                     MLS
       ii. commission - the broker is entitled to commission when the vendor accepts an offer, not when the
            title transfer is made
                  1. c/l view - ready, willing, and able - if the vendor and the realtor agree that the vendor wants
                     to sell the house for $500k, all the vendor has to do is find someone ready, willing, and able
                     to pay that amount; if they do, the vendor has to pay a commission to the realtor, regardless
                     of whether or not he accepts
                           a. if the realtor brings a buyer willing to pay less money, then the vendor can agree
                           b. if the buyer isn't "able" (doesn't have a job, etc...), then the vendor hasn't performed.
                  2. modern view (minority) - Created by Ellsworth Dobbs - commission is only due if the sale
                     is consummated unless sale is precluded by acts of the vendor
                           a. Drake v Hosely - broker finds buyer; although buyer will perform as per K, the
                              vendor decides to sell the house to someone else before the buyer can buy; broker
                              still wants K b/c he found a buyer; court adopts the modern view, but rules that
                              Drake thwarted the sale, so the commission is still owed
       iii. listing agreement - k btwn broker and vendor governing their relationship; K for services, so no
            statute of frauds
                  1. exclusive listing agreement - regardless of who sells the property (vendor, another agent), a
                     commission is owed (even if the house is destroyed by fire or taken off the market)
                  2. exclusive agency agreement - same as above, but if the vendor sells, then no commission
                     unless the realtor was the procuring cause of the sale
                  3. open listing agreement - only get commission if that broker is the procuring cause of sale
                  4. net listing agreement - a base sale price is established; any surplus goes to the broker;
                     generally only used in commercial transactions
       iv. MLS - Multiple Listing Services - essentially a database that all member brokers submit their
            listings to so that other brokers can sell
II. Remedies and Real Estate Contracts
       i. executory K - once the vendor and vendee agree to complete a sale, an executory K of 30-180 days
            is created governing the sale
                  1. once the deed is delivered, under the doctrine of merger, the K essentially disappears
       ii. closing - when the deed is transferred from buyer to seller
       iii. clear title - marketable title - title that a reasonably prudent buyer would accept
       iv. Installment Land Sale Contract - buy property using monthly payments
       v. Purchase Money Mortgage - mortgage supplied to buy the property (and isn't used for anything
            else)
                  1. 3PMM - third party purchase money mortgage - financed by a third party like a bank
                  2. VPMM - vendor purchase money mortgage - money supplied by vendor
       vi. damages on breach of K (b/c the vendor can't deliver marketable title)
                  1. English Rule - just return the deposit and incidentals, no benefit of the bargain (expectation
                     damages); no recording act in old England, so hard to know before hand if there was good
                     title; only applies if the vendor acted in good faith
                  2. American Rule - expectation damages (diff btwn fair market value on day of breach and the
                     sale price)
                           a. but note that breach generally occurs close to K time, so there probably isn't much
                  change in value in the property; also, what is the best measure of the FMV? sale
                  price!
               b. Donovan v. Bachstadt - vendor gave the vendee a good interest rate o n property;
                  vendor later reneged on the financing and the vendee sued to get the benefit of the
                  bargain on the interest rate (which couldn't be matched elsewhere); court rules that
                  under the American Rule, you cannot recover the difference in interest rate over
                  time although you can consider the interest rate given to the vendee when
                  considering whether they paid FMV or not (perhaps paid more total b/c they were
                  given a good interest rate)
       3. specific performance
               a. b/c land is "unique" you can get SP for property when there is a breach by the
                  vendor; however, if the land is resold before SP is granted, the vendee only gets
                  damages
               b. lis pendens - notifies the world that there is some litigation pending on the property
                  that takes priority over all other subsequent actions (makes title unmarketable)
                       1. if you put on a lis pendens and are wrong, you can get slapped with "slander
                          of title"
               c. there is a growing trend to deny SP to fungible units like identical condos in a
                  building
vii.    when determining what type of damages to seek in suit, ask who breached (who is seeking
    remedy) and is the market rising or falling?
                    Rescission               Expectation damages               specific performance

        Vendor      Returns party to         * damages measured at date        * equitable remedy
                    status quo through       of breach                         * can't use when violates
                    return of deposit,       * only seek in declining          public policy, like
                    etc... Would like this   market b/c prop value             violating a spouse's
                    to be written so title   dropping                          unwillingness to sign a
                    isn't screwed up         * english rule - only get         deed
                                             rescission if the breach was      * use in a declining
                                             b/c of bad title and vendor       market
                                             was acting in good faith          * can get this b/c of
                                                                               mutuality of remedies -
                                                                               vendee is able to use it,
                                                                               so vendor can as well

        Vendee      * should only do this    * only seek in a rising market    * if title is somewhat
                    in a flat or declining   * loss of beneficial interest     defective and the land is
                    market b/c they can      rate can be part of the           marginally diminished in
                    get like property for    expectation damages, but          value, can seek SP with
                    less $                   only if interest rates change     abatement
                    * election to rescind    drastically, not if the vendee    * use in rising market
                    could mean they are      got a sweetheart deal from        * should file a lis
                    barred from other        the vendor                        pendens first to ensure
                    remedies ????? is that                                     that vendor can't resell
                    right?                                                     the property before you
                                                                               get SP
viii. vendors lien?
ix. vendees lien?
x. forfeiture of earnest money as liquidated damages for breach
        1. in most states, if written into the K, then it is okay regardless of the actual loss
        2. in NY, <10% ruled to be okay, but >10% earnest money forfeiture might become
                    unreasonable (must look at actual loss
III.   Time of Performance & Title to be Conveyed
       i. at law, closing date = closing date; at equity, if you don't state "time is of the essence" in the K,
            then the court will give the non-performing party a "reasonable" amount of time to perform
                 1. time is of the essence can be declared unilaterally by one party after the K has been signed
                    (Miller v Almquist)
                 2. Miller v Almquist (NY 1998) - you can declare time is of the essence unilaterally, but have
                    to give a reasonable time after that for performance by the other party; court watches out
                    for opportunistic behavior
       ii. can request any combination of the titles below
                 1. marketable title - title that a reasonable person will accept; can be easily sold to reasonable
                    person
                          a. reagan v lance – test of marketability is whether there is an objection to it such as
                             would interfere with a sale or the market value of the property
                          b. encumbrances reduce the value of land - mortgages, leases, liens, easements,
                             servitudes, BUT NOT public land restrictions like zoning
                 2. insurable title - title that a title insurer will accept; doesn't have to be insured without
                    exception
                 3. record title - title that is "proved up" using the records; similar to insurable title, but it uses
                    the real records rather than what the insurance company is willing to take a chance on
                 4. even when you take property subject to CCRs, you don't take property subject to violations
                    of those CCRs
       iii. searching title
                 1. today we only go back 60 years
                 2. grantee index - a list of each person that bought property
                 3. grantor index - a list of each person that sold property
                 4. want to search grantee index to see who your vendor bought the property from, who that
                    person bought it from, etc....; then search forward in the grantor index to see how the
                    property was sold to each grantee, other things recorded on the title (easements, mortgages,
                    covenants, liens, etc....), and whether the grantor sold an interest to anyone else
                 5. title insurance - title company does the search for you and insures your property against
                    any undetected deficiencies in the property (from the past, not new problems you may run
                    into)
                          a. mortgagee's policy (required by bank) - only protects the mortgage interest in the
                             property; as you pay down the mortgage, the coverage by insurance goes down
                          b. owner's policy - covers you for everything the property is worth
                          c. Laba v Carey (NY 1971) - can require insurable title, subject to CCRs; generally are
                             requiring insurable title at the normal insurance rates (i.e. there are minimal risks)
IV.    Equitable Conversion
       i. installment land sale K - a long term contract where the vendor essentially finances the purchase of
            real property through a long term installment payment plan
                 1. title only delivered IFF all payments are made
                 2. generally two clauses in K: 1) can't record the K; 2) if one payment is missed, the interest in
                    the property is forfeited
                          a. most states won't enforce "2", but Virginia will!
                 3. before K is made, vendor has an equitable and legal interest in land; vendee has an
                    equitable and legal interest in $; after K is made, vendor has an equitable interest in $ and
                    the vendee has an equitable interest in land; both retain their original legal interest
                 4. SP looms over both parties - if one breaches or if oil is found, etc... can use SP to enforce
                    the K
       ii. Fulton v Duro (ID 1984) - a creditor of the vendee on an ILSK can file a lien, in certain situations,
            on the equitable interest of vendee in property
                 1. many states don't allow this, but some do allow it if you record the ILSK; can be sold at
                     sheriff’s sale
                 2. note that a creditor of the vendor can also file a lien against the vendor's interest
       iii. exoneration - two situations involving a K to buy property executed on 9/1, but closing date of
            10/1
                 1. if the vendor dies on 9/10, estate still has to perform; whoever gets "personalty" in will
                     receive the money
                 2. if the vendee dies on 9/10, estate still has to perform; whoever gets "personalty" will have
                     to pay, whoever gets "realty" will get the property free and clear (b/c of equitable
                     conversion)
       iv. risk of loss - if property is damaged during the executory period (before closing), the vendee bears
            risk at c/l; this is almost always changed in K to the vendor
                 1. bad policy b/c against the expectations of parties; vendor has access to the property; vendor
                     likely to have insurance on property
V. Intro to Mortgage Financing
       i. assumption of mortgage - vendee agrees to take over the mortgage; although vendee personally
            liable, vendor is as well as a guarantor surety
       ii. subject to mortgage - vendee takes the property, but isn't actually responsible for the mortgage;
            vendee incentive to keep paying b/c this helps the vendor keep the property out of foreclosure
       iii. due on sales clause - requires the mortgage to be paid in full when there is a tra nsfer of title
            (acceleration)
                 1. mortgagee can consent to an assignment of the mortgage, but won't if the interest rates have
                     risen b/c the due on sale clause will get the bank its money back for re- lending at a higher
                     rate
       iv. mortgages have 5 important terms:
                 1. interest rate - affected by points; points cost 1% of your loan and reduce loan by 1/8%
                     assuming a 30 year payback and 100k loan)
                 2. amortization rate - rate at which the loan is paid off
                 3. term - length of the loan
                 4. monthly payment
                 5. loan to value ratio - value of the property compared to the value of the loan
       v. Schrader v Benton - case where S bought property from B with a wrap-around mortgage; bank had
            consented to this for some reason; lower court should not have allowed S to pay bank directly b/c
            B is still liable on the loan and wouldn't know about default; also should allow S to assume
            mortgage and release B b/c the bank wasn't a party to the suit; issue in case was that they told the
            bank about their wrap-around dealy and the bank wanted to enforce its due o n sale clause; perhaps
            read more about this in Liz outline????
                 1. in wrap-around situation, want to pay the payments into escrow and have a check cut from
                     the escrow to the bank in the mortgage owners name
       vi. foreclosure
                 1. generally have a 5 day grace period to pay your balance; after that, have 30 days to pay
                     balance + a late fee to erase deficiency; after that, default; have 90 days to pay off past debt
                     + arrearages (attny's fees, penalties, filing fees, advertising fees, etc...); after that (6-12
                     months later), bank can foreclose on the mortgagor's equity of redemption
                 2. strict foreclosure - only in vt and ct - if the mortgagor fails to make full payment by a
                     certain time, the property goes to the mortgagee; bad b/c there is no test of the value of the
                     property
                 3. judicial foreclosure - court supervises the foreclosure and therefore there is no ability to sue
                     for inadequacy/defects; allowed in every state, but not always used b/c expensive to pay
                     court fees, for attorneys, etc...
                 4. power of sale foreclosure - allowed in many states; conducted privately; more efficient,
                     cheaper, quicker than judicial foreclosure; if state helps to do the sale, there could be 14th
                     amendment issues
VI.    Mortgage Substitutes
       i. equity of redemption - this is the mortgagor's right to redeem the property from the mortgage
            before the property is sold; when there is a foreclosure, the mortgagee is foreclosing this equity of
            redemption
       ii. clogging the equity of redemption - strictly forbidden when the mortgage is made; not allowed b/c
            the mortgagor is taking the risk on the property and should thus get the upside; by clogging the
            equity of redemption, the bank is allowing itself to foreclose when property value is up even
            though it took no risk (bank has an equity interest in a stream of payments, not t he land - the land
            is merely security)
                 1. you can't take what was intended to be a security interest in land (a mortgage) and turn it
                     into an equitable interest b/c this clogs the right of the mortgagor to redeem the equity
                     before foreclosure - e.g. there needs to be a foreclosure to settle the debt
                 2. subsequent agreements between parties are okay if they are for consideration (a mortgagor
                     might give the mortgagee title in lieu of a deficiency judgment)
                 3. i should read more about this in an outline ???? what are some other ways to clog the
                     equity of redemption besides getting rid of foreclosure in an ILSK?
       iii. Flack v McClure (Il 1990) - vendor sells property for $80k, but falls through; same day, vendor
            gives deed to vendee in exchange for a $9k loan that was later to be part of a mortgage for the
            property;
                 1. court considers 6 factors as to whether this was a mortgage or an absolute transfer: 1)
                     whether a debt exists 2) relationship of the parties 3) legal assistance? 4) sophistication of
                     each party 5) adequacy of conside ration 6) who retained the possession of the property
                          a. in this case, there was such low consideration ($9k on an 80k property), so we can
                             see that this was not a sale, rather the title was security for the loan
                 2. as this is a mortgage, it is a 2nd mortgage; when M buys the property at the 1st mortgage
                     foreclosure sale for 35k, then F has to buy the property back for $35k + $9k of the second
                     mortgage = 44k - this is what court rules
       iv. Sannerud v Bratz (WY 1996) - B was owed $22k on $160k ILSK; makes deal with S that for $22k
            would deed title over and then allowed to buyback property for $22k+interest. Court rules that b/c
            22k << 160k, this was clearly meant to be a secured loan, not a transfer of title
       v. Downs v Zeigler (AZ 1970) - Z buys land in ISLK; still owes $30k; gives deed to doctor friends
            who give him $30k with option to buyback in a year; Z retains possession; Doctors assume the
            mortgage; court rules that b/c Z retained possession and the Drs just wanted the $30k back, this
            was a secured loan, not an assumption and the bank has to go after Z, can't go after doctors as they
            are just junior lienors
                 1. Johnson thinks that the better view is that if you explicitly take property with assumption of
                     mortgage, you are liable regardless
VII.   Installment Land Contract
       i. courts have tended to say that b/c the ILSK looks and smells like a mortgage, it's a mortgage; b/c
            of this, you can't contract to forfeit the property upon default b/c this would clog the vendee's
            equity of redemption
       ii. best rationale to deny SP, redemption, restitution, etc...: the non-suing party created the harm and
            signed the K - so the breach was their fault and they contracted for it
       iii. Peterson (CA 1985) - treat the vendee in an ILSK as a mortgagor if there has been substantial
            performance (they have made a lot of payments)
       iv. Sebastien v Floyd - comes to the opposite conclusion for KY - regardless of willful breach, etc...,
            ILSK is always treated like a mortgage and K remedies not available
       v. Summit House v Gershman (MN 1993) - case where D sells to P for 107k, but market is declining,
            so D tries to terminate K and sue for value of property (107k); D wins, puts a lien on Ps new
            property and buys the property at foreclosure sale for 73k; P claims that there should be no
            deficiency judgment at D has both equitable and legal title to the property - how can there be SP in
            this case?; Court rules that P still owes the 34k - they can't get out of payment by allowing
            foreclosure and failing to redeem. I don't get this ???
       vi. marketable title must be proved at delivery of deed; for ILSK, this means that title doesn't have to
             be marketable until the last installment is paid
        vii.      if there is a senior encumbrance on property that you are getting through an ILSK, it is a smart
             idea to get a subordination agreement from the senior mortgagee; if you don't and the senior
             mortgagor forecloses, that wipes out the junior mortgage and the vendee through ILSK loses all
             interest
        viii. A lien can be executed against the vendee's equitable interest in land in an ILSK
                  1. b/c the vendee doesn't actually have title, however, the lien isn't recorded, thus the lien only
                      carries over to a subsequent purchaser of the title IF the subsequent purchaser has actual
                      notice of the lien
        ix. Vendor and Vendee can both sell or mortgage their interest in the property/payments
                  1. if vendor assigns interest in payments, better rule is that assignee has to notify the vendee
                      of the assignment so the vendee can pay the property party
                           a. property law requires the vendee to receive notice from both the vendor and the
                              assignee b/c it would be too easy to fake being an assignee
                                   1. at common law, this wasn’t true for a mortgage, but now by statute, you
                                      should wait until both banks send you a letter notifying you of the transfer
                           b. under UCC, as the ILSK isn't a negotiable instrument, pay vendor until you get
                              notice
                  2. if vendee gets a second mortgage on their interest
                           a. 2B has to notify the vendor of their interest if they want to be notified of foreclosure
                              in the event of default (b/c not recorded)
        x. Equitable Trust Co v Imbesi (MD 1980) - 1B lends money to I secured by a life insurance policy +
             convenant not to encumber or sell some property (idea was to subvert annoying mortgage laws, but
             maintain ability to reach property assets for loan); I gets a mortgage on the unencumberable
             property from 2B and then defaults;
                  1. if this was looked at as an equitable mortgage in CA, would have had to follow one-action
                      rule and foreclose on the property
                  2. if this was just a debt, would have to pursue K remedies; could seek judgment lien on the
                      property, but if 2B forecloses, that property is gone and you have to go after some other
                      asset
VIII.   Installment Land Contracts and Negative Pledge
IX.     Deeds & Delivery; Escrow
        i. two things are necessary to convey deeds as part of a purchase agreement (bargain and sale deed):
             1) Delivery and 2) Acceptance
        ii. Chase Federal Savings and Loan Assn v Schreiber - R conveys to C for $10 + love and affection;
             C turns around and resells for $50k to P; C had conned R, so R tries to say there was no
             consideration;
                  1. Rule: This isn't a K, so don't need consideration - here there was intent to deliver, delivery,
                      and acceptance, so conveyance was legit and C wins
                  2. old english rule: for love and affection clause to come into effect, have to have
                      consanguinity or marriage; under that rule, P would have searched title, seen the love and
                      affection deed and would inquire into the relationship between C and R
        iii. elements of a deed
                  1. grantors name and signature
                  2. grantees name and indication of marital status
                           a. spouse would have rights with respect to the property – you would want to search
                              the spouse's name as well
                           b. Title Standards – you can assume that an undesignated person is single
                  3. consideration
                  4. description of the real estate (often a mention of a subdivision plat)
                           a. need a legal description (like meets and bounds or mention of a subdivision plat) but
                              can also have an address if you can ID this property to the exclusion of all in the
                              world
            5. a statement of exclusions
                    a. often you buy things subject to CC&Rs and this will be listed here
                    b. warranty of title theory – the deed has to match whatever is in the title, otherwise
                       there is a problem
                    c. if there is a conflict between the K, the deed, and the title, here is how things work
                       out
                            1. prior to delivery of the deed, the K controls in the case of a conflict and
                               decides the remedies. So if you promise a general warranty deed and you
                               show up with a quitclaim deed, that is a breach of K
                            2. If there is acceptance and delivery of the deed despite conflict with the K,
                               then, by the doctrine of merger, the deed covenants becomes the controlling
                               document – the contract is viewed as performed and anything in the K is
                               now a nullity
            6. words of grant (language evincing an intent to make a conveyance)
                    a. assign, assure, convey, give quitclaim, set over, transfer, etc....
            7. date
            8. notary public's certificate of acknowledgment
            9. stamp of the public official
            10.     stamped receipt indicating the payment of the transfer taxes
   iv. Martinez v Martinez (NM 1984) - ILSK from parents to kids, but parents also deliver the deed
       (which they shouldn't have done); vendee records and stops paying; parents try to get land back,
       but the daughter- in- law says no; parents claim that the delivery of the deed was conditional
            1. court says yes, this was a conditional delivery and the condition not met, so the deed has to
               be returned; b/c conditional deed, no merger of real estate K and warranty deed; parents
               should have filed a lis pendens to prevent the daughter from selling her share
            2. better view (and majority) is that b/c the conditions were not in writing, they drop out with
               actual delivery. Daughter should have sold her interest to a BFP who would see the deed
               from parents->children and could buy legitimately
   v. Wiggil v Chaney (UT 1979) - W deeds to C, puts in a safe deposit box, and says "deliver when I
       die"; doesn't work b/c 1) no actual delivery and 2) can't act as a will b/c it is missing many of the
       formalities of a will; would have worked if gave the box to C, so C in possession of the deed
            1. you can give deed to a third party to hold until you die and then give to the person you want
               to deliver (2 fictions - loss of control, relation back delivery)
   vi. Void/Voidable deeds
            1. Forgery - BFP buys a forged deed; the deed is void and conveys nothing; only recourse for
               BFP is against the forger
            2. Fraud
                    a. in the Inducement - grantor is fraudulently induced to sign over a deed; deed is
                       voidable; if transfered to a BFP, deed is good - BFP wins; if still in the hands of the
                       inducer, then the deed is void; idea is that the grantor is the least cost avoider
                    b. in factum - convincing someone who is feeble minded to turn over the deed; split -
                       some say void, some say voidable like in the inducement; AJ likes "inducement"
                       voidable ideas
            3. Wrongful Delivery by Escrow Agents - deed is void

X. Warranties of Quality
      i. At c/l, caveat emptor ruled, but as houses have become more complicated, we require
          disclosure of certain things
      ii. Things that are peculiarly within the knowledge of the vendor have to be disclosed
               1. Varrall safeharbor statutes - you get a sheet that has a list of possible problems and you
                  have to check all that apply to your property; that way you don't have to disclose every
                  damn thing you know about the property
                      1. In varall, the court was correct in allowing V to check the box that the fireplace
                             was working b/c V was relying on a professional's report
                 2. Perkins - Implied Warranty of Quality applies to all new home sales to the initial
                    purchaser - K remedy for damages/purchase price for the first year if the home is
                    defective
      iii. never have to disclose obvious facts as these are equally apparent to both parties
      iv. Deliberative v Causal investment - things that you only discovered b/c of deliberative
           investment don't have to be disclosed, but casual things do
      v. Productive and Redistributive facts - you don't have to disclose facts that create wealth; but
           you do have to disclose facts that would “redistribute” wealth by lowering the value of the
           land
                 1. the fact that a sewage treatment plant will be built nearby
      vi. If parties have equal access to the info, then you don't have to disclose
XI.        Title Convents in Deeds
      i. Standard 6 covenants from a general warranty deed
                 1. Present covenants (breached at the moment of delivery, SOL begins running
                    immediately)
                          1. seisens - I own the property
                          2. right to convey - I have the right to convey property (would be restricted if the
                             property is in a trust, you are not competent, granted power of attorney to
                             another)
                          3. against encumbrances - encumbrances that affect title, but not including zoning
                 2. Future Covenants - can be breached after delivery
                          1. warranty
                          2. further assurances
                          3. quiet enjoyment - courts focus on this one: comes up if you are 1) evicted or 2)
                             someone claims superior title; can ask grantor to defend you
                 3. these are all just defaults, however, and you can change them, add new ones etc...
                 4. Present covenants don't run - i.e. the right to sue on them only passes with title if right
                    to sue expressly assigned
                          1. if A->B and then B->C using a quitclaim deed, C can't sue B b/c of quitclaim
                             and can't sue A on present covenants b/c don't run
                 5. Future Covenants run - but you can only sue on them if someone presents superior title
                    or tries to evict you; present owner can sue any grantor in the chain of title for a future
                    covenant
                          1. statute of limitations doesn't start until the person is evicted; but to sue someone
                             back in the chain can be hard - they have to be alive or estate has to be open,
                             they have to be solvent, etc...; also, can only recover amount paid for property
                             to the person who passed bad title, not FMV at time of eviction (so A-B, B-C,
                             C-D; if D sues C, can recover what D paid; if D sues B, can recover what C
                             paid only)
      ii. quit claim deed - a deed by which the grantor gives the land, but with no warranties re: quality
           of title; vendee can look at marketability of title still, but can't say not marketable b/c it is a
           quitclaim deed. Often done if you have a remote interest in property or inherit property from a
           distant relative. Should raise flags for the vendee, but just so much as they want to see if there
           is a valid reason to quitclaim.
      iii. special warranty deed - grantor is warrantying all 6 covenants, but only with respect to
           himself, not anyone else in the chain of title
      iv. general warranty deed - contains all six covenants
      v. hypo:
                 1. O owns land; A->B; B->C (QCD); C->D; O then ousts D as the true owner of the
                    land. Who can D sue?
                          1. D can sue C for purchase price or A for B's purchase price, but can't sue B b/c
                             of quitclaim deed; C can only sue A if D sues C b/c no loss otherwise
XII.        Title Assurance (Recording Acts)
       i. estoppel by deed - only applies when there are covenants in the deed;
                 1. gov to O; O promises to A upon death; A sells this right to B; O then conveys to A
                          1. under c/l, deed immediately goes to B even though record owner is A, but if B
                             records, his will appear to be a wild deed
                          2. If A transfers to C, B will win in almost every state even if he doesn't record
       ii. Types:
                 1. Race - (2 states) he who records first wins; subsequent purchaser wins if he records
                    first and gives value, regardless of notice
                 2. Notice 25 states - all we care about is notice (constructive or actual) - if subsequent
                    purchaser gives value and purchased without notice, he wins over prior purchaser;
                    subsequent purchaser doesn't have to record to win, but should record to prevent
                    another subsequent purchaser of the property
                          1. types of notice:
                                  1. actual
                                  2. inquiry - must check the record AND ask questions
                                  3. record
                 3. Race-Notice (24 states?) - subsequent purchaser must show that gave value, had no
                    notice of other purchasers, AND recorded first
                          1. O->A, O->B, A records, B records - A wins b/c he recorded first; under a notice
                             jurisdiction, B would win
                 4. note that regardless of type, if you record immediately, you win over the world
       iii. hypos:
                 1. O->A (owes money to C); A->B; A then gives a lien on the property to C; can C
                    collect against B? No, b/c C didn't give value, just attached a preexisting debt to the
                    property - statutes meant to protect those who give value;
                          1. if C had been pursuing A on the debt and stopped when given the lien, that
                             would count as value (forbearance)
                 2. O->A, O->B who gives a 20k down payment; A records; B pays remaining 30k
                          1. most states say B is only protected up to 20k, but AJ says this is wrong b/c B
                             searched record before first payment and found nothing
                 3. if county recorder makes a mistake, sucks for the grantee
       iv. example of searching record
                 1. 1/1/80 - O->A
                 2. 1/1/85 - A(R)
                          1. when you search title, you will see the date of deliver as 1/1/80, but won't see
                             the recording until '85; because of this, have to check the period from 80-85 to
                             see if there are any encumbrances, easements, mortgages, made by A; also have
                             to check for these things made by O b/c O appears to be the owner of the
                             property; O could also transfer during this period and the BFP would probably
                             win against A b/c A didn't record
                 3. 1/1/90 - A->B
                 4. 1/1/95 - B(R)
                          1. same as above. Note that if the property is residential, you have to visit the
                             property, so you would probably have notice that A doesn't have possession in
                             this time period
       v. hypo
                 1. O->A; O->B(R); B->C; C(R)
                          1. B will beat A unless he has notice of A; if B has notice of A but records anyway
                             and then transfers to C, C should prevail over A b/c C was a BFP; most states,
                             however, say that if B's title is declared a nullity before transfering to C, C
                             loses.
                 2. O->A; O->B (with knowledge of A); O->C; B->D; A(R), C(R), D(R)
                 1. notice jurisdiction - D wins, b/c when he purchased, no one had recorded
                 2. race-notice: A wins b/c he recorded first
vi. circular priority
         1. O owns 50k of property; 1B gives mortgage of 10k; 2B - 14k (R) (knowledge of 1B;
            3B 5k(R)
                 1. in race jurisdiction, 2B has priority over 1B; in notice/race- notice, 1B has
                    priority over 2B
                 2. but in notice/race-notice, 1B over 2B, 2B over 3B (b/c 2B recorded first), and
                    3B over 1B b/c 1B never recorded
                 3. how to split up a 50k foreclosure of the property?
                         1. can do prorate shares - everyone gets 20/29 of what they are owed
                         2. expectation theory
                                  1. 3B is the least culpable, so start with them: 3B expecting 2B to
                                     get share first, so 2B would get 14k, leaving 6k for 3B... 3B only
                                     owed 5k, so subtract 5k
                                  2. 2B expecting 1B to have priority and take 10k, so gets 20k-10k=
                                     10k;
                                  3. 1B gets remainder = 20k-5k-10k = 5k
                                  4. but this is problematic if each had loaned 5k and the payout was
                                     5k
                                          1. 3B expects 2B to get priority of 5k, so 3B expects
                                              nothing; 2B expects 1B to get priority of 5k, so 2B gets
                                              nothing; 1B gets remaining 5k, which seems wrong since
                                              they started the whole mess by not recording
                         3. express subordination/subrogation - assuming all recorded, 3B will
                             usually ask 1B to subrogate interest to 3B - this is fine, b/c it doesn't
                             affect 2B at all
                                  1. 1B would get 10k and would have to offer 5k to 3B; 2B would
                                     get 20k-10k = 10k; notice that this is the same outcome as
                                     expectation theory
vii.        shelter rule
         1. hypo
                 1. O->A, O->B (BFP), A(R), B->C
                         1. in a notice jurisdiction, B wins, b/c he was a subsequent purchaser for
                             value; in race/race- notice, A wins b/c records first
                         2. when C searches title, he will see the A(R), but not B, so C isn't taking
                             possession without notice;
                         3. under the shelter doctrine, however, if B can prevail over A (which she
                             can in a notice jurisdiction), C can prevail over A as well, otherwise
                             notice becomes a race-notice jurisdiction
                         4. A could be wily and transfer to D before C records; to prevent this, C
                             should file a lis pendens on the property
viii.       chain of title issues
         1. hypo
                 1. O-A; O->B (not a BFP); B(R); A(R); B->C
                         1. under the shelter rule, if B was a BFP, B and C would win over A in a
                             notice jurisdiction
                         2. otherwise, what happens? When C searches title would see O->B on the
                             date B recorded, would go back and search O from the date of
                             conveyance until the date B(R) and would never find A. If this is a
                             notice jurisdiction, the wrong outcome would occur. Half of the states
                             say that C loses b/c he should search for O's entire lifetime to see if there
                             were any other recordations!
                2. estoppel by deed
                        1. A->B(R); O->A(R); A->C
                                 1. when C purchases, A appears to be the owner (b/c A->B happened
                                    before A had title, so no one would search back that far); about half of
                                    the states say that B has better title b/c estoppel by title says that at O-
                                    >A, title shoots directly to B; these states would require you to searc h
                                    for the entire life of A in the records
                3. If O has 4 lots and wants to place restrictions on them for the benefit of each other,
                   have to record these restrictions with each lot - placing a restriction on lot 1 for the
                   benefit of the other lots doesn't actually affect the other lots b/c searching title when
                   you buy lot 3 you would never find the restrictions on lot 1 that apply to lot 3. Way to
                   handle this is to convey each property to a strawman and then back to yourself with the
                   restrictions.
      ix. marketable title act - limits title searches to a reasonable amount of time (30-40 years);
          essentially creates a new root of title at that time - any activity beforehand is wiped out. Can
          file a "preserving or protecting interest in property" document every time period to ensure that
          old things in title stay there
      x. torre ns system - used in a few locales; sets up a "registration system" for property just like
          title to a car; when you transfer property, you give the title to the new person which
          memorializes all of the liens, encumbrances, etc...
                1. problems:
                        1. huge start up costs - to register, you have to sue and bring in all parties who
                            may have a claim to the property
                        2. sovereign immunity - if the registrar makes a mistake, the registrar is going to
                            be liable; states make a fund to compensate victims of this, but it is never
                            enough $
X. Title Insurance
      i. lenders policy - required by the bank - only covers you for the amount of the loan and not any
         equity or increase in value of the property
      ii. owners policy - more expensive, but covers you for the value of the house if someone claims
          superior title and kicks you out
              1. use either a fair market value clause or an inflation rider that uses the base price of the
                 house + specified inflationary amount
      iii. vendee has to buy own policy - can't transfer title insurance policy from one owner to another
      iv. covers only risks that exist on the policy date, not subsequent risks (except for mechanics liens
           for debt before the policy, but filed later)
      v. schedule B lists everything found in the title search (see p239)
      vi. some exclusions are listed, like failure to be a BFP/pay value for the property
      vii.         covers everything not listed in schedule B, like undelivered deed in the chain of title,
           covenants restricting use of the property, unrecorded tenant on the property, etc....
      viii.        most of the cost of title insurance goes to the information gathering; policies are rarely
           paid out on b/c the search is so well done
      ix. abstract - dying out, but basically attorney does a title search, puts together a document listing
           the state of the title; packet is passed from owner to owner, being updated each time by the
           new vendee's attorney
                1. secondary mortgage market is basically killing these b/c mortgages are packaged and
                   sold off rather than invested in individually
XI.        Transfer of Mortgagor's Interest
      i. default in a transaction is that vendee takes a property subject to any mortgage; must have
           explicit language to assume mortgage
      ii. subject to funniness
                 1. when someone takes property subject to a mortgage, they are not personally liable for
                    the mortgage
                 2. the mortgagor, however, does have some recourse against the vendee who doesn't pay -
                    he can foreclose on the vendee as long as the bank doesn't do so first
                         1. but the mortgagor's right is subrogated to the to the bank's right... this means
                            that the mortgagor can't do anything that would prejudice the bank
                         2. if the mortgagor wants to foreclose on the property to get missed payments
                            from the vendee, he has to be able to pay the entire mortgage back to the bank
                            so that the bank isn't prejudiced in any way before foreclosure, which is more or
                            less impossible.
       iii. suretyship - the assignor/mortgagor of property is a suretyship, guaranteeing the note with the
            property as security even though someone else owns the property; land serves as the primary
            obligation (but you can go after surety or property first, unless you are in a security first state)
       iv. hypo
                 1. A->B (assuming); B->C (subject to); C->D (assuming)
                         1. b/c D assumes the mortgage explicitly, his assumption counts even though there
                            was a break in the chain by C; mortgagee, A, B, and C can all sue D
       v. suretyship defenses
                 1. A->B assuming; land value plummets b/c of toxic waste dump; B and mortgagee make
                    an agreement to increase the interest rate - but this increases A's risk, so she can invoke
                    a suretyship defense to get off the hook completely (discharge is total)
                         1. if B had taken subject to, A is only off the hook wrt the value of the land - they
                            are still on the hook for the balance of the mortgage
                 2. situations that could allow for a defense:
                         1. releasing the grantee from liability
                         2. releasing some/all of the real estate from the mortgage
                         3. impairing the mortgagee's right to realize on the security of the mortgage (is
                            this like subrogating to a junior lienholder????)
                         4. modifying the interest rate/terms of payment
                         5. extending the time to maturity
                         6. note that the standard Fannie Mae agreement says that the mortgagee can make
                            any changes without affecting the surety's rights, so no defense
                 3. situations that do not trigger a defense:
                         1. jr encumbrance
                         2. transfer of property upon the death of the grantee
                         3. transfer to spouse or children
                         4. transfer b/c of divorce
                         5. transfer to an intervivos trust in which the grantee is and remains the
                            beneficiary
XII.        Transfer of Mortgagee's Interest
       i. to be a holder in due course, holder must take the note:
                 1. for value
                 2. in good faith
                 3. without notice that the note is overdue
       ii. to be negotiable, a note must
                 1. be signed b/c the maker
                 2. contain an unconditional promise or order to pay a sum certain
                         1. sum certain may not exist if you pay a variable interest rate or you pay a rate
                            that may be determined in the future (see Banker's Trust) (a variable interest
                            rate that refers to a standard source of interest rates is a sum certain)
                         2. also, for all of these, must look at the four corners of the document it self - can't
                            look to a rider/allonge as that is extrinsic to the mortgage
                                 1. as a note on this, never reference a mortgage in a note (except to say that
                                       the note is backed by a mortgage); by referencing an outside document,
                                       the holder of the mortgage doesn't take the note in due course and the
                                       mortgagor can claim personal defenses
                  3. be payable on demand or at a definite time
                  4. be payable to order or bearer
        iii. if not a holder in due course - mortgagor gets to use three "personal defenses" along with real
             defenses
        iv. final payment rule -when the mortgagor is making the final payment, has a duty to see the note
             before making the payment to ensure that the note will be canceled
                  1. it is a personal defense if you pay the wrong party (under the UCC), however if the
                      note is negotiable, then the holder is a holder in due course and thus takes the note
                      NOT subject to personal defenses, so you are still liable if you pay the wrong party
        v. hypo
                  1. 1B->mortgage(O); 1B transfers note to X, who doesn't record; 1B gives O a discharge
                      of the note (either a mistake or colluding with O), which O records; O->A, a BFP who
                      takes the property free and clear of the mortgage (b/c that is what is recorded)
                            1. The UCC would say that A is still liable for the mortgage as you don't have to
                               record the assignment to X if there was a negotiation (i.e. there is an
                               endorsement and the note is transferred to X); the recording act would protect
                               the BFP who was relying on the record
                            2. The recording act trumps in this case; good practice would be to ask O to see
                               the canceled note, who wouldn't be able to produce it b/c 1B doesn't own it, X
                               does
XIII.        Discharge of the Debt
        i. Basic take away point is that if you are a mortgagee and you foreclosure, the foreclosed
             property that is bought is the same property that was mortgaged in the first place
                  1. ex: 2 loans on property: 1B for 100k, 2B for 15k
                            1. if 1B forecloses, the buyer of the property gets the property free and clear of the
                               15k mortgage b/c that mortgage wasn't on the property when 1B mortgaged the
                               property
                            2. if 2B buys the property to protect its interest, it is not the owner of the property,
                               rather 2B merely has bought both mortgages and can foreclose on one or both
                               of them; doesn't get the equity of redemption, however, b/c 2B is ne ver
                               primarily responsible for the debt
        ii. perfect tender rule - c/l rule that said that prepayment can be refused as the bargain was for a
             certain number of payments over a specific time
                  1. standard fannie mae K, however, allows prepayment without penalty
                  2. lock out provisions - forbids prepayment
                  3. big boy provisions - (is that the right name????) - allows prepayment, but only with a
                      penalty.
                  4. penalties will generally be upheld unless they are "unconscionable"
        iii. 3 situations
                  1. big boy language
                  2. acceleration clause for transfer
                  3. allowing someone to prepay with casualty insurance if house is destroyed, condemned,
                      etc...
                  4. in the first situation, prepayment would be intentional, so penalties; third situation,
                      there are no penalties b/c there is no worry of the mortgagor gaming the system
                  5. what if the mortgagor defaults? Can he prepay without penalty? Little worry of
                      opportunistic behavior, but there is a chance that in a market with declining inte rest
                      rates, mortgagor would default just so they can accelerate and get out of their
                      mortgage.
                            1. Westmark allowed a prepayment penalty even though the mortgage was
                            accelerated due to a default. Idea is to prevent opportunistic mortgagor
       iv. Devlin v Wiener (1995) - ??? seems to be saying that even though the obligation in this case
           didn't use as much specificity as would be preferred in a note, b/c the note made it clear that it
           was for $85k and a finished three bedroom, property w/building material, or the old property -
           in all cases, the value is consistent so the note was good enough
       v. generally in a foreclosure context, the bank foreclosing will start by bidding the value left in
           the house outside of the mortgage and will bid all the way up to it's debt. e.g.: house worth
           100k, 75k left on mortgage at foreclosure; 1B will start bidding at 25k and bid up to 75k
XIV.       Merger & Deed in lieu of Foreclosure
       i. Situations where merger is an issue
                1. mortgagee acquires title from the mortgagor
                         1. mortgagor can give the deed to mortgagee in lieu of foreclosing; there is
                            consideration here (no foreclosure/deficiency judgment) so courts will enforce
                            it (not clogging equity of redemption b/c not extemporaneous and for
                            consideration)
                         2. this is bad to do if there are junior lien holders b/c of the doctrine of merger -
                            the senior mortgage will be wiped out and the 2nd mortgage holder will be
                            promoted in priority and can foreclose!
                                 1. should just foreclose instead in this case and wipe out the jr lien holders;
                                 2. courts ask: 1) did the senior intend to elevate the juniors? 2) can 1B
                                     revive the mortgage and foreclose? 3) was there unjust enrichment?
                         3. can sue for deficiency judgment at c/l if the land is now worth less than the
                            mortgage
                2. mortgagee acquires title from a grantee of the mortgagor
                         1. if the grantee took the property subject to the mortgage, there can still be a
                            deficiency judgment
                         2. if the grantee took the property assuming the mortgage, then the mortgagor is
                            off the hook
                         3. this would only happen in a declining market - ????? why? b/c if the value was
                            going up, then the mortgagee/assignee could just sell the property and pay the
                            mortgage or is it that the mortgagee would otherwise do the foreclosure and sell
                            the property?
                3. one lienholder has two mortgages on the same property (Mid-Kansas situation)
                         1. Mid-K owned two mortgages - 425k and 100k
                                 1. if it foreclosed on the first, that would wipe out the second, so it
                                     foreclosed on the second and purchased for $100k
                                 2. Mid-K tried to claim that 1) they got the property free and clear of the
                                     mortgage b/c of merger (it owned the property and the mortgage) AND
                                     it still had the note from the first mortgage, which is now unsecured, but
                                     can be pursued through deficiency judgment
                                 3. court calls this unjust enrichment b/c they have property free and clear
                                     AND they are pursuing the debt; more or less ruled to be a foreclosure
                                     of both mortgages
                4. mortgagee transfers the debt and mortgage to the mortgagor
                         1. when O pays off the mortgage, the bank gives them the note; there is a merger
                            and the note/mortgage disappear!
                5. mortgagor transfers the debt and mortgage to a grantee of the mortgagor
                         1. if the grantee took the property "assuming" the mortgage, there is a merger,
                            otherwise none.
XV.        Acceleration and Marshalling
       i. with residential, you have to tell people that you are accelerating b/c of a default (usually
           banks do so on day 1 of the default), but you don't have to do so for commercial real estate
                1. Federal Home Loan v Taylor (FL 1975) - soldier station in Philippines who acted in
                    good faith but still was behind a payment for a while allowed to not be in default
                    despite proper notice and clause in K; court looks to good faith, hardship
       ii. mars halling - one mortgagor has multiple properties and multiple mortgages; one mortgagee
            has interest in all property, other mortgagees only have interest in some of the property
                 1. requires a senior lien holder to proceed against the piece of a divisible asset that is not
                    the subject of a junior lien to protect the junior lien holder's interest in the property is
                    protected if possible
                 2. if the mortgagee who has all of the property wants to foreclose, the junior lienholders
                    can ask that the mortgagee only forecloses on the property that it owns alone so as not
                    to prejudice the juinor lien holders
                 3. if the foreclosing mortgagee can do this and recover its loan, then it must; otherwise it
                    can foreclose on the other properties as well
                          1. if the senior lien holder can show that it will be prejudiced by splitting the
                             properties (b/c less value as pieces than whole), then it can foreclose on the
                             entire set of assets
                 4. In re Estate of Hanson - Hanson wants plots to be sold off in a particular order, which
                    court allows; court also says that Hanson can't request surface rights to be sold off first
                    as both lien holders had a stake in the surface rights, but only the foreclosing one had
                    mineral rights as well
                 5. hypo
                          1. O owns 3 lots with a mortgage from 1B on all of them; A and B buy lots 1 and
                             2 respectively, but pay FMV for them despite the mortgage
                                   1. if 1B wants to foreclose, has to foreclose on lot 3 first, then on B (b/c B
                                      knew about A when B purchased) then A.
                                   2. A and B should have either
                                           1. gotten 1B to execute a partial release of the mortgage in
                                              exchange for a pro-rated portion of the loan
                                           2. gotten the bank to subordinate to A/B's rights, although this isn't
                                              as good as above b/c there is still a mortgage
XVI.        Miscellaneous and Judicial Foreclosure
       i. three types of foreclosure
                 1. judicial
                          1. more costly and time consuming, but no statutory redemption AND can get a
                             deficiency judgment afterwards b/c the court is thought to be good at valuing
                             property
                 2. strict
                 3. power of sale
                          1. if a sheriff or other state actor is involved, then there could be conlaw problems;
                          2. can get statutory redemption with this type of foreclosure; also, worse chance of
                             deficiency judgment
       ii. necessary party - any interest junior to that of a senior lien holder - includes junior lien
            holders, leasors, etc... These people must be properly notified if there is going to be a
            foreclosure
       iii. proper parties - people with an interest senior to that of a foreclosing lien holder; these people
            may be joined, but don't have to be b/c their interest will not be affected by the foreclosure
       iv. foreclosure is really just foreclosing on the equity of redemption
                 1. junior lien holder can request to "redeem" the senior lien holder's mortgage when the
                    senior lien holder forecloses
                          1. to do this, jr has to pay the amount of the senior encumbrance; sr has to allow
                             this; jr now owns both mortgages
                          2. if 2B decided to bid at foreclosure instead, however, they would end up with the
                             equity of redemption, but they would have to pay the price of their mortgage
                             AND the price of the sr mortgage (although this is basically the same thing b/c
                            they can credit bid their mortgage)
                         3. In the end, these are both more or less the same outcome – 2B ends up with the
                            property and both mortgages at roughly the price of the sr. encumbrance
      v. hypo about omitted junior lien holder
                1. generally speaking, an omitted junior lien holder can redeem the senior mortgage or
                   can foreclose
                2. O gets a mortgage from 1B for 10k and 2B for 5k; property worth 50k
                         1. 1B forecloses, but doesn't include 2B (who is necessary); 3P purchases
                3. what are 2B's rights?
                         1. 3P is at fault here in some ways b/c he could have searched title and found that
                            2B was a lien holder and was not notified
                         2. several options:
                                 1. 3P can pay 2B for the junior mortgage - 2B only has the right to receive
                                     the proceeds of its note
                                 2. 2B can redeem the senior mortgage and foreclose both
                                 3. 2B can foreclose on it's mortgage
                                          1. when this happens, the senior mortgage is revived; the buyer
                                             takes the property subject to 3P's mortgage (3P is in the shoes of
                                             1B)
                                          2. 3P can now reforeclose and notify the buyer
                                 4. 2B can statutorily redeem if O doesn't do so
                                          1. if this happens, then 3P is completely without recourse - 2B
                                             would only do this if the property had econ value beyond the
                                             price of foreclosure
                                                   1. point in statutory redemption is to force bidders to bid up
                                                      value of property so that there isn't value left in the
                                                      property that can be captured by someone
                                          2. in 28 states, 2B can only exercise statutory redemption ONLY if
                                             they got proper notification (which AJ thinks is wrong, b/c it
                                             gives 1B incentive to not notify properly)
                4. what can 3P do?
                         1. strict foreclosure - go to court and say that they unintentionally omitted a junior
                            lien holder; if the jr doesn't redeem within 30 days, they lose out
                         2. 3P can also counter any of 2B's moves by just paying off 2B what they are
                            owed
                                 1. this is b/c by buying at the foreclosure sale, they get the equity of
                                     redemption, which allows them to pay off mortgagees of the property
                5. Land Associates - slightly diffn't scenario - judicial sale is ordered 6/79; lis pendens
                   filed right away; 3 mortgages on the property over the next few months; none of these
                   new mortgagees are notified of the judicial foreclosure
                         1. court treats these people diffn't than OJLH b/c they had no rights in the property
                            b/c of the lis pendens
XVII.      Powe r of Sale Foreclosure
      i. If done by state actor, then there are additional DP requirements in notice
      ii. courts will not inquire into the adequacy of consideration, just adequacy of process
                1. this means that if the price is really low, you can only get the foreclosure voided if you
                   can show other defects, like a lack of proper notice
                2. but low consideration can be evidence of inadequate process
      iii. Baskurt v Beal (AK 2004) - two lots sold, financed by separate notes but same mortgagee;
           mortgagee decides to foreclose on both lots even though selling one lot would have been
           adequate; daughter of mortgagee colludes with other buyers at sale and instead of purchasing
           for 250k, buys for $27k
                1. if sale is only voidable, then only void the title if the daughter wasn't a BFP
                 2. foreclosure was void b/c the daughter could not have been a BFP - she took for value,
                    and in good faith (maybe), but she also knew about defects in the process (even though
                    she may not have known about the ramifications of them
       iv. In Re Edry (MA 1996) - bank just did the bare minimum when it foreclosed - it didn't put ad in
            the real estate section nor did it seek to get a valuation of the property (bank has to protect the
            interests of the mortgagor - AJ hates that!);
                 1. What should mortgagor do in this type of situation? Try to get more bidders to the
                    foreclosure to bid up price; selling the property wouldn't do much b/c people would
                    know that there is a 95% chance they could get the property at foreclosure for the price
                    of the mortgage
       v. Glidden v Municipal Authority of Tacoma (WA 1988) - foreclosure sale of property with two jr
            lien holders, neither of whom are notified; one finds out about the sale and asks if the other
            was notified and the trustee says "Of course!"; one jr lien holder buys the property at
            foreclosure
                 1. Can a jr lien holder be a BFP - YES! They are the party most likely to bid at the
                    foreclosure sale, so don't want to exclude them from being a BFP
                 2. Was jr lien holder a BFP here? Maybe, b/c they were assured that the other lien holder
                    was notified. But at the same time, they weren't notified and they could have checked
                    with the other lien holder.
XVIII.      Statutory Redemption
       i. for the mortgagor, redemption is always the price of foreclosure; in all methods, mortgagor
            can redeem and stop all further redemptions
       ii. the USG, as a mortgagee subject to FHA, does not hold interest subject to statutory
            redemption; in the case of a state that doesn't have redemption or has a short redemption
            period, the USG gets 1 year to statutorily redeem its interest
       iii. strict method (MN, preferred by AJ) - mortgagor/assignees ability to redeem for 6 months;
            after that, each lien holder gets 5 days, in turn, to redeem; if one junior lien holder redeems,
            the next one in line gets a chance to redeem from that lien holder by paying the price of
            foreclosure + the costs of the people above them who also redeemed (so if 3B redeems, but 2B
            doesn't, 3B only pays the foreclosure price)
       iv. scramble method - anyone can redeem at any time for a certain time period (say 6 months); if
            one junior lien holder redeems, any other can redeem from that person by paying the
            foreclosure price + the loan of the person they are redeeming from [+ the other liens that the
            other lien holder might have paid off to redeem]; once someone has been redeemed from, they
            can't go back and redeem again b/c they have been paid off, which is all they have a right to
                 1. if the mortgagor redeems, this cuts off all subsequent activity
                 2. if a junior lien holder redeems and then someone more senior to them redeems from
                    them, the senior only has to pay the price of foreclosure, not the junior lien as well;
                    however, the junior lien holder can then re-redeem from the senior lien holder
       v. when the mortgagor redeems, what happens to the non- foreclosed loans?
                 1. CA rule - none of them are revived
                          1. this forces lien holders to bid at foreclosure to protect their interest
                 2. Iowa Rule (common) - if the mortgagor redeems, the loans revive (except the
                    foreclosed one); if an assignee redeems, the mortgages do not revive
                 3. AJ thinks that the best rule is that no junior liens are revived b/c this gives the junior
                    lien holders the maximum incentive to bid at foreclosure so as to not get wiped out
XIX.        Anti-Deficiency Legislation
         Vendor Funded           Purchase Money Mortgage             Non-PMM – money borrowed
         Purchase Money          (different from VFPMM b/c the       by the purchaser, but isn't used
         Mortgage                money is used to buy the            to acquire or build on the asset;
                                 property and sometimes to build     this is the situation where the
                                 the real estate; money provided     mortgagor already owns the
                                       not by vendor, but a 3P like a     land, but borrows money to get
                                       bank)                              extra cash (for college,
                                                                          additions, etc...); in CA, this
                                                                          includes refinancing

Judicial       580(b) – no DJ for      580(b) DJ allowed for              580(a), §726(a) – Fair value
Foreclosure    this type of            commercial property, non           legislation – can get a
               mortgage                residential property and           deficiency judgment, but the
                                       residential property > 5 units     court can take notice of the fair
                                                                          value of the property regardless
                                                                          of the foreclosure price ( this is
                                                                          important b/c of refinancing –
                                                                          in CA, people who refinance
                                                                          lose the protection of 580(b),
                                                                          which would have blocked DJ
                                                                          for residential units)

Powe r of      No deficiency         No DJ                                No DJ
Sale           judgment b/c no
Foreclosure    statutory
               redemption; if 1B
               forecloses and buys,
               2B and 3B's interest
               is wiped out, so they
               should try to buy
               rather than deal with
               deficiency
               judgments

              i. you can't waive the protection of anti-deficiency statutes contemporaneous with making a
                   mortgage
              ii. what about later?
                         1. ??? not sure, although I know that if you refinance in CA, you are suddenly using non-
                            PMM and you lose the protection of the anti-deficiency statutes
                         2. in CA you can't waive protections ever, unless you destroy the character of the loan
                            through something like refinancing (Dugard) (can probably do so in the commercial
                            context)
              iii. in most states, you can go after a guarantor for an anti-deficiency judgment, as long as they
                   aren't the mortgagor in fact (artifice to avoid anti-D leg), although in 5-6 states you can't go
                   after the guarator either b/c of statutes
              iv. Kato Co - you can’t go after a guarantor of a trust either if the guarantor and the trust are in
                   effect the same entity (beneficiary and creator of trust are same person as the guarantor)
              v. Bowen - motel case; mortgagor can go after the mortgagee with a deficiency judgment after
                   foreclosure if there was intentional waste laid to the property
              vi. One Action Rule - you can only go after the note or the security at any given time; once you
                   choose a path, have to pursue that path to completion and can only seek the other path if you
                   still haven't satisfied your debt
                         1. CA (and others) - security first rule - you have to go after the security first; if the
                            mortgagee goes after the note first, mortgagor can:
                                 1. shield - enjoin the mortgagee and force them to go after the security
                                 2. sword - say that the mortgagee waived the right to ever go after the property
                          (which means (in most states) that the lien can never reattach to the property,
                          even as a judgment creditor
              2. Mid-Kansas - mortgagor was a developer building residential homes; tries to hide
                 under protection of anti-deficiency judgment statutes, but the court rules that although
                 property is residential, not being used by the mortgagor for residential purposes, so no
                 anti-deficiency protection
                      1. however, b/c of doctrine of merger, protected from anti-deficiency (I think b/c
                          the mortgagee had two loans out, foreclosed on one, got the property, which
                          caused a merger and thus can't sue on the mortgage????)
XX.       Priority Proble ms & Purchase Money Mortgage
      i. Generally
              1. PMMs will prevail over almost all prior liens ???? prior?
              2. with subsequent liens, must look to 1) recording act 2) mechanics liens, etc... that may
                 have been for work done in the past
              3. when there is a dispute between a VFPMM and a 3PPMM, generally the VFPMM will
                 win unless the 3PPMM truly recorded without notice o f the VFPMM (which is pretty
                 rare) - have to execute an express subordination agreement if you want the 3PPMM to
                 have priority
                      1. must be very specific - most note: 1) amount being subordinated to 2) interest
                          rate and 3) the use to which the funds are being put
                      2. See Handey v Gordon - 970? -
                               1. I think Handey says that you have to do all of the above (which is from
                                  the restatement), but the subordination must be "fair and reasonable" and
                                  must adequately define and minimize the risk to the vendor
                               2. under CA law, people can waive the protection of Handey; even if you
                                  have an express subordination agreement that qualifies under CA law, if
                                  there is a subsequent modification of the terms of the mortgage to which
                                  the vendor subordinated, the modification will release or terminate the
                                  subordination agreement if it causes an increased risk of loss to the
                                  vendor
      ii. Fleet Mortgage v Stevenson - indigent who got medical services; town tries to claim that they
          have a higher priority on his property that he later purchases with PM M
              1. court protects the PMMtgee b/c they made the mortgage to get the property; the town
                 didn't rely on the security when it gave him services, so want to be equitable
              2. written in notes, but unclear: PMM will have priority over a mechanics lien, but only
                 when the work is performed by the contractor at the request of the purchaser BEFORE
                 purchaser acquired title to the priority
                      1. this is different than whether a BFP who buys property with a PMM and
                          whether that purchaser will take free of an existing mechanics lien
      iii. After Acquired Property Clause - clause that adds additional security interest for mortgagee in
           all property acquired by the mortgagor after the mortgage executed; between these two
           parties, this clause is good
      iv. Hickson v Gay Lumber - court strangely says that the clause gives the first mortgagee priority
          over all mortgages that guy might get on other properties even though there is essentially no
          way other mortgagees of other properties (especially out of county ones) would know about
          the after acquired property clause from another property
      1. Construction loans
            1. under c/l view, there is a tension in the institutional lender to 1) maintain control over
               the project but 2) to ensure that its disbursements are "obligatory" so that it maintains
               priority over other liens
                    1. want to make sure that every dollar disbursed is valuable, so you don't want to
                       give out the entire construction loan on day 1, but doing that would give you
                  priority over all subsequently recorded mortgages, mechanics liens, etc...
              2. obligatory advances - maintain priority over all liens
                       1. theory is that the intervening lienor/bank will see the construction loan
                           document and know how much the mortgagee will disburse over the
                           course of the loan
              3. optional advances - only have priority over future, not prior liens; if the
                  agreement says that the lender has total discretion, any money disbursed is
                  going to be optional
              4. see commitment letter on 961-962 - 961 fairly standard in that it allows the
                  developer to give loans to buyers
      2. under the restatement view, all loans are obligatory
              1. so no intervening lienors gain priority
              2. but the interesting thing is that they are only obligatory wrt intervening loans;
                  the bank still doesn't have to disburse them
              3. mortgagor can give a "stop order" that terminates the relationship with the
                  mortgagee and limits the amount of the obligation of the mortgagor to the
                  mortgagee and allows the mortgagor to get another mortgage - the problem with
                  this for the lender is that they are suddenly liable for $6mil or something like
                  that, but lost control over the project
              4. AJ hates the restatement view
      3. Once a bank records a construction loan it tends to have priority over all subsequently
         filed loans even if funds were disbursed later (but see Obligatory vs Optional
         Disbursements); This is also true if the construction lender terminates the construction
         loan and simultaneously records a permanent/take out loan
              1. Skaggs - the construction lender was contractually committed to converting the
                  loan at the end of the day; b/c of this, the mechanics lien holders were not
                  prejudiced by the conversion b/c they knew about the potential conversion
2. Mechanic's Liens
      1. NY System - limits the aggregate of all liens recovered to the amount due under the
         original K of the owner of the premises to construct the property; if the aggregate
         exceeds this amount, everything is distributed pro-rata
      2. PA System - no limit on the amount recoverable - everyone gets the full amount of
         their lien; all risk of construction overruns, etc... is borne by the homeowner
      3. how to protect yourself from potential mechanics liens?
              1. get a signed waiver from all workers on the project that htey won't file a
                  mechanic's lien or a certificate of completion that they have been paid by the
                  contractor
                       1. but why would people do this? also hard to find out everyone who
                           supplied, worked on the project
              2. wait out the statutory period (3-6 months) after you get the certificate of
                  occupancy to pay the contractor so no one can file liens
      4. Title insurance covers mechanic's liens under the "plain approach" policy, but in the
         standard policy on 243, material/labor liens are expressly excluded
3. Dragnet Clause
      1. states that the property serves as security for not just the mortgage, but for any
         subsequent loan that you may get from the lender; typically doesn't anticipate that any
         particular loan is going to be made (as opposed to a construction loan)
              1. note that even when these are upheld, any intervening lienor will have priority
                  over a subsequent loan that attaches to the property under the dragnet cla use
              2. the typical situation arises in that the mortgagor doesn't antic ipate impact of the
                  clause
                       1. generally the bank loses b/c 1) the dragnet clause doesn't ID any
                           particular future venture thus bringing into question the intent of the
                         mortgagor to secure future loans with the same property and 2) most
                         mortgagors would assume that clause only applies to similar loans
      2. Shoe/Shu? - case with cattle raising venture that secured a $9k loan; court rules that
         the dragnet clause didn't apply to this loan b/c 1) the loan had separate security and 2)
         there was an integration clause in the K
4. Common Interest Communities
      1. any form of housing where the vendee buys not only the house, but CC&Rs on the
         house
              1. CCRs/declaration of condo, etc.. are filed at the inception of the project before
                 any units are sold;
                      1. court generally hold that b/c you buy into the property with the
                         restrictions, you can't complain
      2. Condos
              1. "declaration of condominium"
                      1. contains things like fee assessments, rules, regs, etc...; also provides that
                         a lien will attach to the condo if the fees are unpaid
              2. Uniform Condominium Act (UCA) - declaration must filed before first sale
                 AND assessments must be based on some sort of formula (like sq footage)
              3. lien for non-payment of assessment relates back to the inception of the condo
                      1. this causes problems with lenders, although it is good b/c the harm that
                         non-payment causes is more than just the amount - it hurts the property
                         value of all the condos b/c the common areas can't be kept up
                      2. UCA compromise - lien will have priority over subsequent liens, but
                         only for some time period - 3-6 months worth of assessments is usually
                         the cap
              4. issue: developer owns the entire building at the beginning so can control the
                 HOA and can change bylaws after some people have bought into the property
                      1. by statute, developer can't add new units to the condo unless they were
                         provided for originally
                      2. UCAs generally protect people here: generally owners have to pay
                         assessments as well for units planned for but not built or occupied
                              1. this protects people b/c the common areas are meant to be borne
                                  by ALL units, not just the occupied ones
                              2. exception: developer doesn't have to pay assessments IFF 1)
                                  developer guarantees the fees to the buyers for x number of years
                                  and 2) there is no deficit in operating expenses (any deficit has to
                                  be paid by the developer)
                      3. common expenses - annual expenses, fix the lights, cleaning, etc...
                      4. maintenance reserves - depreciation of capital investments like HVAC,
                         retaining walls, etc...
                              1. dev only has to pay this for built, not planned units b/c unbuilt
                                  units don't depreciate at all
      3. Coops - proprietary lease; corporation owns the building and you buy shares
      4. Kuaian Dev (HI 1968)
              1. executory Ks (option to buy condos) filed before construction loan taken out;
                 these are "shared" with the CL when CL gave the construction loan; later
                 construction lender takes over the project b/c of a default by the developer; if
                 CL decides to foreclose, will the CL have priority over any over the 20 units
                 that have been subsequently recorded?
                      1. traditional property law would say y - the option to buy was just that -
                         an option; also, couldn't have been recorded b/c it was before the units
                         were built, so just an executory K
                      2. argument is made, however, that the CL knew about the options and
                                        thus should be subordinate to them; court find it inequitable to not allow
                                        the vendees to have priority b/c the CL knew about their Ks; declaration
                                        of condo creates unit and vies priority
                    5. Glenview v Shyman (p1062) - if you want to subordinate purchasers interest to the CL
                       interest get the purchaser to sign a subordination clause

1. A
2. E
3. C, but wtf is a settler/mortgagor?
4. C, but isn’t there an issue here that the foreclosure was on the other loan?
5. A? did we even learn this?
6. C
7. C – V isn’t right, is it? I think it is still a sum certain if you refer to a prime rate or some other variable
thing
8. E
9. B
10. C

Answer 1:
    Foreclose first (although in other states you can go deficiency first)
          o do a judicial foreclosure so you can still seek deficiency judgment afterwards
    sue for a deficiency judgment against all three; probably want to try and recover from B b/c we know
      that B has a larger house
          o homestead exemption might prevent this – depends on the state that this is in

								
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