Real Estate Transactions

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  1. Brokers' fiduciary duty
    • Duties to seller of 
    • -due care- in the process of determining price (i.e. compare similar properties)
    • -good faith- full disclosure: disclose every offer made to them
    • ----"full, fair and prompt" (Daubman)
    • ----not necessarily extended to buyers but owes duty to prospective buyers to submit their bids to the seller

    -agent can lose compensation by violating his duty of loyalty (see Haynes, agent hired salesman and gaves salesman seller's confidential info)

    - broker can lose compensation if incometent
  2. buyer's and seller's duties to broker
    Broker must procure buyer who is "Ready, willing and able"

    a buyer who backs out due to seller misrepresentation may not owe commission to broker, but seller may owe commission (Dworak)
  3. Statute of Frauds
    • 1. writing must be subscribed (signed at the end)
    • --a. if another document is referenced in the document before the end seignature, it is considered attached formally as part of the same document
    • 2. must identify the parites
    • 3. identify the property/subject matter of the sale
    • 4. indicate how much will be paid
    • 5. essentail terms--if not for these terms, the parties would not agree to be bound (ask client their essetial terms to decrease likelihood purchaser can claim contract void under SOF)
  4. part performance doctrine
    • 1) sufficient evidence of oral agreement and 
    • 2) substantial loss suffered by the purchaser that they can't be compensated for and a substantial benefit to the seller
  5. Disclosure obligations
    brokers have duty to investigate to determine material facts that should be known to him; do not have to allege or prove that broker had actual knowledge (majority view)

    seller must have actual knowledge, purchaser doesn’t know, and defect is material (NY has weird exception that depends on whether the seller created the defect) (Stambovsky ghost case where even "most meticulous" search could not have uncovered the defect that affects value of home)

    -implied warranty is largely replacing caveat emptor--building is built in a workmanlike manner and suitable for habitation; imposes burden of repairing latent defect on the person who can notice, avoid, or correct the defect during the construction process

    • express warranty-
    • a. to be an express warranty, must be an unequivocal statement concerning the thing sold. The buyer understands this to be an assertion and not an opinion.
    • b.when there are express warranties in the contrat, they must also be merged (reflected) in the deed, otherwise they are extinguished when the deed is conveyed
  6. Risk of loss
    a risk of property damage between the time purchase agreement signed and closing.

    • Majority view: risk of loss on the buyer under the equitable conversion doctrine.
    • -vendee is considered to have all the indicia of ownership except title
    • - expected seller has insurance anyway. but this  isn't required, so doesn't guarantee compensation for decine in market value

    - under Uniform Vendor Purchase Act (11 states follow, including NY) risk of loss on possessor and a right to terminate when all or a material part is destroyed.

    • 1.    
    • Lucenti v. Cayuga Apartments (New York)

    • 1)   
    • One of two buildings destroyed in fire prior to
    • closing; seller argued buyer should either rescind contract or seller would
    • specifically perform without abatement

    • 2)   
    • Holding: when a building is substantially damaged by fire prior to title closing, a purchaser may obtain specific performance with an abatement of the purchase price even
    • when real estate contract does not contain a risk of loss  provision
  7. substantial performance doctrine
    if no substantial (material) breach, no right to terminate. if substantial, remedy may be abatement.

    -substantial no necessarily more than half, could be less

    - if a buyer has a particular plan for the purchase, they must notify the seller

    -seller has time to perform- must perform "on or about" or "on" the closing date or a reasonable time thereafter
  8. marketable title
    • 1.    
    • Contracts general provide expressly or by implication
    • that the seller will convey title that is good and marketable (can transfer it
    • to subsequent purchaser at a fair market value), otherwise may terminate
    • contract

    • 1.    
    • Marketable only if:

    • 1)   
    • Sole title owner

    • 2)   
    • Fee simple absolute

    • 3)   
    • Entire parcel described is in the contract

    • 4)   
    • Not subject to encumbrances (i.e. right of way,
    • restrictive covenant, mortgage lien) nor any rights that exist in third party
    • that interferes with owner’s full use
    • and enjoyment of the property.

    • i.     Note: when a beneficial easement, not
    • considered an encumbrance (i.e. sewer line serving one’s parcel
    • ii.     not an encumbrance if easement is obvious (i.e. driveway, power line) -->
    • visible easement doctrine

    if contract silent, implied promise of marketable title

    • Voorheesville v. E.W. Tompkins (subdivision approval/zoning case) --> title not unmarketable
    • Brokaw- crazy uncle transferred property-unmarketable
    • Chesebro- location of home and garage violated restrictive covenant--> title unmarketable
    • luette v. bank of italy- installment sale, time to cure so not unmarketable yet
    • Mertens- incorrect survey, but just encroachment, not unmarketable
  9. marketable title need not be ___
    perfect. instead, use reasonable judgment standard:

    would a reasonable person knowing the fact about seller's title, accept the title without hesitation (Powell on Real Property)
  10. time of performance
    • breach by buyer:
    • - time is not of the essence in contract of sale unless a contrary purpose is disclosed (Kasten v. Maple Ridge)

    -not of the essence because seller may be subject to unanticipated issues (e.g. marketable title, compliance with local building and zoning laws) and for the purchaser, it might be difficult to obtain financing within the time frame
  11. remedies for breach
    - general rule is when there is a breach of a promise, there is only a right to terminate when: the promise is material and there is a lack of substantial performance

    - Jones v. Lee- buyers paid down payment on home, but couldn't complete agreement b/c of financial reason --> can't be specific performance if contract can't be performed, so alternative is to terminate contract and/or seek damages.

    ---to determine damages to seller, must apply loss of bargain rule: damages are the full contract price minus the market value at date of breachbreach by seller:-Mokar Properties- (sellers were conveyed title to property by a corporation) not delivering marketable title when one knows could be unmarketable and within control to remedy is bad faithWhitmier- (tenant leased advertising space, lost profits case) unless P can prove a period of operations of biz in question at the site in question, any recovery is speculative (majority rule)
  12. materiality
    • objective standard (i.e. what would most purchasers think?)
    • -if the provision is subjectively rather than objectively material, it must be made a condition of the closing to be deemed material
    • -condition of the property in always material in the risk of loss context, so not even brought up
  13. remedies in the event of breach
    • termination
    • specific performance
    • liquidate damages
    • damages (2 types): loss of the benefit and consequential (special)
  14. specific performance
    • general rule: a party is entitled to specific
    • performance only if they can prove irreparable injury (i.e., not compensable in
    • damages)

    o   Must itemize/describe the types of losses suffered

    for purchasers: the right to specific performance is presumed because every parcel is unique
  15. liquidated damages
    implied right of liquidated damages if they are reasonable (Lawrence). Deemed reasonable if LDs are 10% or less of the contract price (Maxton Builders)

    • -implied right to retain down payment as LDs 
    • (Lawrence)

    • -must prove reasonableness if over 10%
    •     --Trump- purchaser put 25% down and voided contract due to concerns over 9/11. Must prove that was the cost of the actual loss and not a penalty to enforce the contract
  16. right to damages-two types
    • - loss of the benefit of the bargain
    • ---seller's damages: fair market value- contract price
    • ---buyer's damages: only receive if seller acted in bad faith (Mokar)

    • - special damages (Jones)
    • ---must have resulted from the natural and probable consequence of the breach
    • ---within contemplation of the parties
    • ---provable to reasonable certainty
  17. right to terminate
  18. title insurance
    when knowledge of the defects, those defects not covered by title insurance
  19. documents necessary to produce contract of sale
    • -deed
    • -survey
    • -certificate of occupancy
    • -copy of current mortgage
    • -tenant leases and related agreements
    • -contracts (management, service, maintenance, etc.)
  20. covenants of title in a deed
    • (present-breach occurs at closing, i.e. a defect at the time of conveyance? remember condo example!)
    • 1) siesen- seller promises that he owns the premises in fee simple absolute, and such is the interest being conveyed; otherwise a breach
    • 2) right to convey- seller has a right to convey the property (goes hand in hand with siesen)

    3) encumbrances-- no third party rights that interferes with seller's unless specified in the deed; has to exist (i.e. frigidaire 3k lien example: unpaid creditor has lien whenever judgment is docekted)

    (future-breach occurs when defect occurs)

    • 4) quiet enjoyment- promise against dispossession
    • a)actual- right has been exercised and physically dispossessed (lawsuit alone not an ouster, condo example discussion B!)
    • b) constructive- buyer has to pay ouster to not be dispossessed

    5) warranty- promise against loss. buyer will not suffer a loss if what is conveyed is less than what was covenanted

    6) further assurance- if defect discover after closing, seller must do whatever is reasonably necessary to cure the defect. Purchaser must first notify and demand cure; if seller fails, then a breach
  21. types of deeds/effect of silence
    • general- grantor makes all six promises
    • special warranty- grantor is liable for any of the six covenants if the grantee's ownership is affected by something he caused or allowed to continue (i.e. encumbrances "made or suffered by me"--if grantor B knew but 3rd party doesn't exercise, B not liable
    • quick claim-  caveat emptor. still have title, but owner doesn't want to be in court after the sale

    if contract silent, seller usu required to provide a general warranty deed. In NY convey any of the three deeds sufficient to convey title
  22. Breaches of covenants in deed
    - Plaintiff must show defect actually exists:

    • general warranty:
    • -once judgment for lien recorded and general warranty deed conveyed, judgement becomes an encumbrance violating covenant (northeast Petroleum)

    • special warranty
    • -Egli v. Troy- land transferred to Troy through SPW. Egli claims land's predecessor's acquiesced land to him with the boundary of a fence for 10 years. Troy sought protection of covenants. If grantor responsible for any portion of the 10 year acquiescence, he has allowed the encumbrance to arise
  23. Remedies for breach of covenants
    -almost never rescission. usu damages:

    • measure FMV at the time of the breach
    • - never more than the grant received
    • -never more than the grantee's actual loss

    majority: where the true owner or holder has not asserted his rights, only nominal damages are awarded
  24. Proper plaintiff
    Until a breach, the obligations grantor has made are covenants; afterwards a cause of action

    a breach of a future covenant only if dispossessed

    • - a present covenant does not run with the land- so cause of action for a breach of a present covenant is not impliedly assigned (majority rule)
    • **minority rule (NY) runs with the land, so if breached, happens at the instance of conveyance

    Geiszler: cause of action once broken, unless there is "subject to the defect" provision in title, then no cause of action
  25. Recording statute and priority of claims
    • -usu title companies just search 50-60 years for clear title
    • --likely any defects before then cured by adverse possession

    recording statutes meant to protect subsequent purchasers

    - an unrecorded deed is binding on the grantor. subsequent grantee who has no notice of an unrecorded deed (or any other interest in 3rd party) is still granted deed and is the bona fide purchaser. 

    • - in most recording statutes, person last in time will become owner as long as bought in good faith (without notice)
    • -where multiple claimants, address two at a time

    • there is no protection where ignorance of the title is deliberate and intentional, nor where only nominal consideration is provided (Horton)
    • ~ some courts require substantial consideration
    • ~ consideration doesn't have to be monetary
  26. three types of recording statutes
    race (2 states)- to be protected, first to record

    notice (24 states)- subsequent purchaser without notice

    • race-notice (24 states)- subsequent purchaser without notice (good faith) and whose conveyance first to be recorded (NY 291)
    • ---291. Protects a 1) subsequent 2) purchaser  who is the 3) first to record and 4) is without notice at the time of conveyance to them.
  27. 3 types of notice:
    tested at the time of conveyance

    • -actual
    • -constructive- a matter of public record(county land records)
    • -inquiry: duty of inquiry when:
    • ~info purchaser actually knows (subjective)
    • ~would a reasonable person knowing same info become suspicious (objective); assuming duty of inquiry, investigation is what a reasonably prudent person in the circumstances would conduct
    • **possession by a third party is always a suspicious event as a matter of law. ask 1) why party in possession 2) any other rights in the property?** (see Martin (farm) and Martinique (tenant in apt building)

    - if subsequent purchaser gets any of the above, not a good faith purchaser, so in 48 states not protected by the recording statute-- you are not the father!! (ie. owner)
  28. financing
    permanent loans:

    • -fixed rate- generally 30 or 15 yrs and then own outright- most expenseive
    • -adjustable rate- more affordable, unclear if more affordable
    • -interest only
    • -payment option (no longer exists)

    recourse: mortgage (lien allowing lender to foreclose and sell collateral) and a note (promise to pay; so lender can sue if recourse loan)
  29. loan restrictions
    • FDIC:
    • - for commercial loans, improved property: max loan to value ration is 85% (can only lend up to 85% of the value of premises( i.e. the value of the collateral); appraised based on similar buildings and/or net operating income(rents from property minus operating costs) 
    • - construction loans for commercial real estate: 80%
    • - construction loans 1-4 family homes: 85%
    • - permanent loans 1-4 family homes: no restrictions
  30. acceleration
    • give clear notice to borrow that lender accelerating
    • -if optional with the mortgagee, some affirmative action must be taken showing taking advantage of acceleration provision
  31. Dodd Frank 1031
    Minimum standards for residential mortgage loans

    Consumer's ability to repay

    a) general: , no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to its terms, and all applicable taxes, insurance (including mortgage guarantee insurance), and assessments
  32. DF 1411 b
    basis for determination of consumer's ability to repay:

     credit history, current income, expected income the consumer is reasonably assured of receiving, current obligations, debt-to-income ratio or th
Card Set:
Real Estate Transactions
2013-05-08 13:34:14
Real estate

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