PROPERTY

SPRING 2003

I. COMMERCIAL REAL ESTATE TRANSACTIONS

  1. LAND SALE CONTRACTS:

The sale of land is ordinarily a 2-step process: 1st a contract of sale is signed by the buyer and the seller. Then, after a couple of months of more, the closing takes place. At the closing the seller delivers a deed to the buyer, and the buyer hands the seller a check for the purchase price. This two step process is necessary because the buyer, after signing the contract buy before paying the purchase price, needs time to check out the seller’s title, arrange for financing and take steps to move into the premises. You will always have two things in writing – the contract and the deed.

  1. The Land Sale Contract
  2. It is a contract + special bilateral executory contract
  3. It has:
  4. Special statute of frauds (writing + minimum terms)
  5. Remedy presumed – specific performance
  6. Promises marketable title – implied or expressly
  7. Immediate legal consequences in the form of equitable conversion. (as soon as the LSK is signed the buyer is treated as the owner and faces risk of loss).
  8. HICKEY v. GREEN (575)
  • Facts: This is a case of three different land transactions (Green and Hickey, Hickey and the buyer of his house, and Green and the 2nd purchaser). The first check between Hickey and Green was not valid under the Statute of Frauds because Hickey had not filled in the pay to line. Since Green didn’t sign or endorse the check it was not binding. The second two agreements were valid under the Statute of Frauds
  • Holding: Judge Cotter found an exception to the Statute of Frauds in the form of promissory estoppel and held that there was reasonable reliance by Hickey on the contract and that only through enforcing the contract would the parties be in the same condition as they would have been if the contract was carried out. Here since specific performance was possible Hickey just got the land – if it was not possible then he would have gotten compensatory damages as well. CA courts would NOT likely find the same way because they are more reluctant to pull things out of the Statute of frauds.
  1. Marketable title
  2. Definition: A title not subject to such reasonable doubt as would create a just apprehension of its validity in the mind of a reasonable, prudent and intelligent person, one which such persons, guided by competent legal advice would be willing to take and for which they would be willing to pay fair value.
  3. It is an implied condition of a contract of sale that the seller must convey to the buyer. It demonstrates that the seller has the full right to convey the land and they are conveying it without mortgages or encumbrances. No land will every be perfect with absolute ownership – so marketable title is effectively the best title you can get.
  4. It is called marketable title because it is a title that a reasonable person would be willing to pay for. There is an implicit promise of a land sale contract.
  5. Hierarchy of title
  6. Clear record title – always marketable and better than marketable title
  7. Marketable title – in the middle. It is not the best, but better than unmarketable insured title.
  8. Insurable title – this is often not marketable and title companies will often insure land even when they have no clue if the title is good or not.
  9. Quick Claim Deed – here there are no assurances of insurable or marketable title.
  • LOHMEYER v. BOWER (580)
  • Facts: P entered into a contract with D to buy lot 37 of the Berkley Hills addition. A zoning violation made the contract invalid, and D volunteered to buy the necessary land around the property to eliminate the problem, but P refused and brought suit to rescind the contract and demand money back. There were two marketable title problems 1. to build two story houses only, and that the building must be set back.
  • Holding: The title was held unmarketable because the violations could subject Lohmeyer to litigation. The violation of the two ordinances exposes the party holding lot 37 to the hazard of litigation and makes such title doubtful and unmarketable.
  • CONKLIN v. DAVI (584)
  • Facts: This is a case of whether title by adverse possession is marketable. P contracted to sell and convey to D a residential property. Purchasers refused to go through with the sale because they said there were defects in the title and misrepresentations on the part of the sellers. If there was dispute about the validity of the title the sellers could have brought an action to quiet title – but this would take longer than the time before the closing – so the buyer would be unsure of his title and that is not good.
  • Holding: The sellers could have quieted title, or believing the title to be marketable despite imperfections, enter into a contract for sale hoping to convince the buyer of the same.
  1. Clearing title
  2. This is the seller’s obligation to make sure that the title is good and clear before the closing and can be done through
  3. Actions to quiet title (in rem, quasi in rem)
  4. Purchasing the outstanding interest
  5. Remedies for breach of LSK
  6. Specific performance
  7. Rarely – benefit of bargain damages
  8. In CA – consequential and punitive damages
  9. Doctrine of Equitable Conversion
  10. When a LSK is signed land ownership changes AUTOMATICALLY by operation of law
  11. Results:
  12. Risk of physical loss on purchaser
  13. Seller holds personal property and purchaser owns real property
  14. Merger
  15. After the deed is delivered, the seller has no continuing liabilities – their promises are satisfied in the LSK
  16. CAVEAT EMPTOR – buyer beware – do not take the deed if you have doubts about it
  17. Buyers Protection Measures
  18. Required Disclosures
  19. Warranties of quality
  20. Closing

At closing the title passes if the deed is validly executed and delivered. Valid execution requires a writing signed by the grantor containing an adequate description of the parcel. Valid delivery requires intent by the grantor to immediately part with the legal control. When title passes the LSK is extinguished by merger into the deed. The only basis for suit by buyer after the title passes is an express covenant if any in the deed. There are six possible ones (Seisin, Right to convey, Against Encumbrances, Quiet Enjoyment, Warranty, Further Assurances)

  1. 4 Post Sale Liabilities
  2. Collateral Obligations – ie fixing the roof
  3. Disclosure Obligations – seller doesn’t disclose something they are required to
  4. Warranty of Fitness – this applies so far only to builders and contractors. LEMPKE v. DAGENAIS – similar to implied warranty of habitability from Landlord-tenant law.
  5. Title Warranties in Deed – these substitutes for marketable title promises are implicit in all LSK
  6. STAMBOVSKY v. ACKLEY (590)
  • Facts: P discovered that the house he had contracted to purchase was supposedly possessed by poltergeists and commenced the action to rescind the contract for sale.
  • Holding: Seller had a duty to disclose this to any potential buyer – it can’t be said that the house was being turned over empty either. The court does not apply caveat emptor here because even if P had done a little more investigation about the house it is not certain that this latent defect could be discovered. This case announces a requirement of the disclosure and the courts belief that sellers are bound to a duty of good faith and fair dealing when disclosing information about their homes.
  • JOHNSON v. DAVIS (595)
  • Facts: The Davis’s entered into a contract to buy the Johnson’s home. The Johnson’s knew that the roof leaked, but said there were no problems with the house. After the Davis’s made a $31,000 deposit the Johnson’s vacated the home and after rain, the Davis’s saw the flooding and brought action for the recession of the contract and return of their deposit.
  • Holding: The affirmative representation that the roof was sound was dales representation and entitled the Davis’s to rescind. Shows that the trend is to restrict caveot emptor. The court rescinds the LSK and returns the deposit + interest.
  1. CONVEYANCING AND DEEDS

A deed is just a piece of paper which is said to be a conveyance and not a contract. It is not about the price – the delivery of the deed transfers the title and the contents of the deed are a memorial of that transfer. It has a dual quality of bring a mode of transfer and a memorial of the transaction. Court WILL NOT add to the terms of the deed – even through parole evidence. Deeds are usually signed by the grantor and not the grantee. There are always three dates required: signed, delivered and received.

  1. Three Types of Deeds
  2. General Warranty Deed: warrants title against all defects by anyone
  3. Special Warranty Deed: Warrants against the grantors own acts only
  4. Quitclaim Deed: Contains no warranties of any kind.
  5. Classification of Deeds:
  6. By nature of title warranties, and extent of title warranties
  7. Present Title Warranties:
  8. Representations about the land title
  9. Covenant of seisin ( I own and am in possession)
  10. Covenant of the right to convey (I have the power to convey title)
  11. Covenant against encumbrances (I have not encumbered the land title with interests less than a fee such as leases, servitudes, etc)
  12. FRIMBERGER v. ANZELLOTTI (620)
  • Facts: In 1978 D’s brother divided the lot into two and constructed homes on each half. In 1984 the land was transferred to D by quit claim deed. In 1985 D transferred property to P by warranty deed. When P sought to renovate the land he found out that he was violating the tidal land statute and then brought suit to seek damages for breach of warranty against encumbrances and misrepresentation
  • Holding: Defendant ends up winning because this is not an encumbrance. The title involved in marketable title is different than that involved in a covenant against encumbrances. Key – do an environmental study before accepting a deed like this because regulatory problems are not protected by the covenant against encumbrances
  • Future Title Warranties – promises not to interfere in the future
  • Covenant of warrant – will defend against superior title claims
  • Covenant of Quiet Enjoyment – no disturbance of possession by paramount title. This is identical to the covenant of general warranty and often excluded
  • Covenant for Further Assurance – will execute documents to assure and perfect the title conveyed.
  • ROCKAFELLOR v. GRAY
  • FACTS: Doffing gave a mortgage to Gray, and title (subject to mortgage) to Rockefellor. Gray foreclosed, and the property was bought by Connelly (did not take possession). Connelly then gave a general warranty deed for $4000 to Dixon (no possession). Dixon gave a special warranty deed to Hansen and Gregerson (no possession). Rockefellor then asserts his paramount title.
  • HOLDING: Rockefellor is found to be the owner. The foreclosure sale was invalid and void, and the sheriff’s deed to Connelly should be vacated and set aside, and upon the cross-petition of Hansen & Gregerson entered judgment against Connelly on the covenant of seizing in his deed with interest.
  • Patent Transfers
  • Patent transfers are simple and are based on a nationwide federal registration system.
  • Two kinds of transfers:
  • Assignment: transfers all ownership of the patent
  • License – gives particular rights of usage
  • DIAMOND SCIENTIFIC CO v. AMBICO, INC
  • Facts: Before leaving Diamond, Dr. Welter assigned all his patent rights to Diamond Scientific. Later his company then sued him for infringing upon their patent.
  1. Delivery of Deeds:
  2. Doctrine of Relation Back: When the grantor of a deed irrevocably delivers the deed into escrow this is constructive delivery to the grantee. Therefore, the date of the transfer of the title is counted as the date of the grantor’s delivery into escrow.
  3. Bad Deed:
  4. Forged and Stolen deeds are void. If you deliver a deed to the escrow agent and it gets stolen it can be recorded but it will not be effective. There are NO bona fide purchasers of a stolen deed.
  5. Fraud – deeds procured by fraud that are delivered are voidable BUT NOT void. If it is voidable and you don’t do anything about it and the deed gets recorded you lose title to the property. A defrauded deed must be acted upon before a bona fide purchaser steps in and takes good title away from you.
  6. It is important to know the date of delivery in these cases.
  • SWEENY, ADMINISTRATIX v. SWEENY
  • Facts: The plaintiff is Maurice’s estranged wife and she wants all the property to go to her. He is trying to avoid probate and keep the property from his wife. So he deeded it to John with the condition that John’s death before Maurice would make deed one ineffective, but that deed was destroyed in a fire. The issue was whether that second deed was delivered.
  • Holding: The second deed was found to be delivered to Maurice – it is valid and effective. You can’t set up a transfer that will pass at ones death because that is a will and is invalid. He could have prevented this confusion by setting up either a trust or a joint tenancy with the right of survivorship in himself and John.
  • CHILLEMI v. CHILLEMI (636)
  • Facts: In this case the husband left the deed with the wife and she recorded it – the court was willing to undue this thought because it was not something that was meant to be recorded.
  • Holding: Delivery is more about intent than about the location of a piece of paper
  • ROSENGRANT v. ROSENGRANT
  • Facts: There are 6 nieces and nephews that claim the land should be divided among them but Jay says that the land should be his because his uncle wanted him to have it. There was a deed, and it was handed over and then given back and placed in a security box
  • Holding: This is not enough. The delivery was not valid because when you deliver the deed you must have the intent to transfer the interest at that moment. The uncle’s interest was not to transfer the property at that time and therefore the deed was not valid.
  1. Categories of Land Transfers
  2. Commercial – for consideration
  3. Donative – without consideration
  4. Gifts (inter vivos)
  5. Wills (testamentary)
  6. Transfers by operation of law: No consideration or donative intent. Often without paper at all. This includes imminent domain or adverse possession.
  1. FINANCING REAL ESTATE (MORTGAGES, SECURITY INTEREST IN LAND)
  2. Three main types:
  3. Mortgages – a bilateral arrangement between the mortgagor (borrower) and the mortgagee (lender)
  4. Deeds of Trust – the most common kind of secured lending in CA. This is trilateral – you need a borrower, a lender, and a trustee of deed of trust
  5. InstallmentLand Contracts
  6. How Security Interests Affect Land Title:
  7. Encumbrances: These are a contingent interests.
  8. Detract from marketability
  9. Security interests are valuable property in themselves
  10. The land satisfies the debt if the debt is not paid.
  11. The Paper Trail:
  12. Note: A promise to repay the indebtedness. This is not a security interest
  13. Security Agreement/Mortgage: This says if you don’t pay the loan the land is accountable for the debt. It personifies the land and is usually for very significant borrowing.
  14. Buying Land with a Mortgage on it:
  15. With an Assumption of the Mortgage: The security interest is on the land. You are not only accountable to having the land taken away if the mortgage is not paid, but you also agree to pay the bank back the money. If the interest rate in the original mortgage is low you would do well to take the property and assume the mortgage
  16. Subject to the Mortgage: The security interest is on the land. Here you are not personally responsible for the repayment of the loan. You are better off taking land this way unless the interest rates have risen sharply.
  17. Foreclosure: This is usually for failure to repay a debt. It will satisfy all or part of the debt.
  18. Process:
  19. Borrower defaults on the Note of Security Agreement
  20. Creditor serves notice of default
  21. Equitable right or redemption – you have the right to try to clean up your act and pay the money due.
  22. Foreclosure sale – this closes the equitable right of redemption.
  23. Statutory Right of redemption – This is not in all states – this says that even after the foreclosure sale the defaulting mortgagor can come back with the money and by the property back from the purchaser. If this exists in your state and you buy foreclosed property you may have to wait several years to see if they can come up with the money.
  • MURPHEY v. FDIC
  • Facts: This was a foreclosure sale, but it was not a judicial one, but a sherrif’s sale. The sale was not well advertised and the bid on the property was only for what the debt was even though they knew that the property was worth more than that because they sold it the next day for more money. This means that the debtors couldn’t get that extra money that was over their debt back.
  • Holding: The borrower had the right to have their equity protected. The bank is accountable to the mortgagor and the mortgagee though good faith and fair dealing and as a matter of law. There are strong public policy reasons here.

II. TITLE