Property Visual Aids Professor Crump, 2006
Course Plan Intro: Anatomy of Real Estate Trans; Economic 1A. Lease regulation 1B. Leases: the agreement 2. Intellectual propty: copyrt, trademk, patent, secret 3. Real estate ownership 4. Real estate transactns • agreemt/sale • finance-transfer docs • title • closing; remedies 5. Gov’t actions; taking 6. Land use: laws, servitudes 7. Possessory & future int’s 8. Complex transactions
“A Very Different Subject” 1. Traditional parts: a. subject-matter cov’g b. cases, statutes, notes (most)–notes are useful 2. Non-traditional: a. lawyering strategy problems b. transaction (anatomy) book c. methods for policy analysis d. life as a transactional lawyer: satisfaction?
“A very different kind of course” Most law school courses deal solely with this context: This course, however, includes this context, by definition: What will the differences be? 1. “Policy” questions? 2. Customary kinds of transactions? 3. Private negotiations and ordering? 4. “Private” property? 5. Cases . . . or, documents? 6. A “deal-oriented” course? (Can “deals” be taught?)
Special Methods in This Course • Calling on you–sequence • “Anatomy” book–transactional papers, in sequence • Handout of overhead projector transparencies • Internet video reviews • 3 of them; periodically • noted in syllabus • keyed to transp. Handout • can be used as preview • Syllabus: differential reading • Problems: simulations • Practice xam; sample ans; confs • Exam preview (later)
The Lawyering Strateg Problems: An Overview Ch. No.Subject Matter 2A Analyze copyrt agreemt 3A Analyze land sale agreemt 3B Prepare deed 4A Argumt: land agreemt 4B Renegotiate land agreemt 5A Deed boundaries 5B Mortgage foreclosure 6A Analyzing title 6B Curing title 7A Takings; subdivision regs 10A Zoning request 11A Easement dispute 11B Easement conveyance 13A Commercial lease negotiatn Competencies: documt prep, documt analysis, negotiation, counseling, dispute resolution (litigation)
road map for real estate transaction 1. Brokerage 6. Fulfillment of Title Preconditions 2. Negotiations 7. Preparation of the Core Documents:Note, Deed, and Mortgage [or Deed of Trust] 3. “Earnest Money Contract” or “Agreement of Purchase and Sale” 8. Preparation of Ancillary Documents 4. Fulfilling Financing Preconditions 9. Closing: Execution of the Documents 5. Fulfillment of Inspection Preconditions 10. Title Insurance, Funding, Recording, Delivery, Possession
Brokerage 1. brokers 2. licensing 3. reqmt of writing 4. exclusivity? 5. MLS 6. entitlmt/commiss 7. consumer legisln 8. broker tasks 9. agent of both?
The Earnest Money Agreement 1. blueprint 2. emotional event 3. reqmt of writing 4. finance contngncy 5. good & indefeasible? 6. exceptns/seller 7. risk/loss 8. furniture/fixtures 9. delivery/poss’n 10. equitable title/record
The Terms of Financing 1. fixed-rate 2. ARM 3. ROM/balloon 4. GPM 5. why non-fixed? 6. regulation 7. caps
The Financing Process 1. loan commitment 2. RESPA: g.f. est. 3. “points” 4. usury 5. fed preemption 6. engineering rept 7. other inspections
The Deed 1. deed: elements 2. conveyance 3. general warranty 4. exceptions 5. acknowledgement, recording 6. corp resolution 7. fee simple absolute 8. “baron sole” 9. express vendor’s lien
The Promissory Note 1. negot’bl instrument 2. ARM & cap 3. “limited paymt” note 4. prepayment right 5. default; acceleratn 6. anti-waver 7. personal liability?
The Mortgage(“Deed of Trust”) Seller Buyer Lender A deed/trust is literally a “conveyance in trust,” but not really; it’s really a privately foreclosable mortgage, and the “trustee” isn’t one. deed funds note & deed/trust
Terms of the Deed of Trust Mortgage 1. uniform covenants 2. judicial sale mtg 3. pvt sale: D/T 4. foreclosure delay 5. which better? 6. equity redemptn 7. escrow: taxes/ins. 8. mortg ins. (PMI) 9. phys integrity 10. foreclosure proced 11. trustee & subst. 12. deficiency?
The Due on Sale Clause; The “Riders” 1. due-on-sale 2. borrower credit? 3. other concern? 4. due/sale controversy 5. “golden rule” 1. PUD rider 2. adjust/rate rider 3. self-destruct rider 4. forms & riders
The Title Assurance Process 1. trace to sovereign? 2. adverse possession 3. “driveway easement” 4. examiner’s method 5. marketable–legislatn 6. marketable, record, good 7. recording system 8. taxes, judgments 9. variations; attys
Title Insurance 1. insurance: function 2. what’s insured 3. contract?representatn? 4. boundary agrmt: curing 5. cure by affidavit 6. modified policy
Closing 1. function of closing 2. escrow usage 3. escrow disadvantages 4. borrower’s undertakings 5. voluntary disclosures 6. required disclosures 7. Reg Z statement 8. disclosure cost/benefit 9. closing instructions
Subdivision & Homeowner’s Ass’n 1. deed restrictions 2. force of restrictions 3. lapse 4. zoning compared 5. homeowners assn 6. powers/duties 7. maintenance fee 8. officers/directors
Resale; Tax Issues 1. assumption instrumts 2. assumption v. subject-to 3. lender’s consent 4. terms for consent 5. alternative: new note 6. estoppel letter 7. other docs 1. deductibility 2. recognition 3. capital gain 4. ord, nec bus exp
Economic Policy: A Summary of This Coverage I. The Market System and Its Efficiencies A. The Allocative Effect of the MarketSupply & Demand; the Invisible HandContrasting Central ControlEquilibrium Price & Quantity: No Waste B. The Signaling Effect of PricesSupply or Demand Curve Change; PriceEffect of Blockages: Shortage C. Marginal Cost etc.Efficient Use of Factors of ProductionMarginal Cost, M. Productivity, M. Revenue D. Production EfficienciesFactor Use; Innovation; Quantity; Investment E. Distributional EfficienciesPareto OptimalityKaldor-Hicks Efficiency F. The Coase Theorem: Efficiency of Pvt Barg
Economic Policy: A Summary of This Coverage cont’d II. Imperfections Justifying Intervention in Markets A. Equality as a Value, Traded vs. Efficiency B. Industry Structure: Monoply, Oligopoly, Restrictn C. Overcompetition and Distressed Firms D. Public Goods, Hybrids, Free Riders, Tragedy/Commons E. Socioeconomics: the Failures of “Homo Economicus” F. Externalities Types of Responses: Ignore; Use the Law Efficiency of Negligence Law: Cost Internalization Actual and Exemplary Damages: Economic Functions G. Incommensurability, Uncertainty, Irrationality H. Information Asymmetries I. NOT: “Bargaining Power” (but Lawyers Use It) III. Deontology as an Alternative to Consequentialist Economics
law & economics– the allocative effect of the market • supply and demand • comparison to central planning • the invisible hand • equilibrium figure 2: where supply & demand cross is the equilibrium price D S P Q
signaling; controls; misallocation signaling effect of prices:demand or supply curve shifts; equil price changes; and equil quantity follows price controls: shortages figure 3: equilibrium price is higherthan controlled price; demand exceeds supply; shortages result. D S controlled price P shortage Q
consumer sovereigntyone & ½ cheers? problems: 1. housing voucherssupport? oppositn? 2. taxicab fare; apt. safety:reg or competition? 3. rent control: effects? 4. the efficiency of enforcing contracts 5. nuisance law, balancing benefits of conduct vs. harm caused, uses an economic test. Why?
marginal cost, productivity, revenue marginal cost:1 more unit m cost curve–figure 4. U-shaped. factors of production marginal productiv:tends to equal marginal cost marginal revenue:tends to equal marginal cost efficiency mix of factors
problems: 1. how much spend to renovate a rental apartment property? 2. how decide what renovation ideas to spend it on? 3. litigation: economically, how would an efficient lawyer make decisions about using discovery, doing research, etc? 4. efficient breach of contract (with payments of damages: why?)
productn efficiency • mix of factors of prod • innovation • production volume • investment (present/future)distribution efficiency • marginal utility • Pareto-optimalityno trade improvessatisfaction not “equal” • Kaldor-H efficiencytot gains/winners exceed tot lossesPareto-superior if compensate
problems: 1. Pareto-optimalityfrom market: Why? 2. factory’s 100-lb effluent; citizens prefer 50; $100,000cost, $500,000benefit: K-Hefficiency for $100,000 cost to be imposed (should citizens pay it?) 3. revisiting efficient breach of K, with damages: K-H efficiency, why?
efficiency v. equality • mkt = efficiency, but not distrib equality • tolerable inequality? • gross inequality? wealth redistribution: inconsistent w/efficiency problems: 1. H Chavez’s Venezuela 2. scarce necessities 3. in-kind or unrestricted? 4. price (rent) controls/tax & transfer? 5. erad poverty/reduce billionrs? 6. the paradox: equality by redistribution inconsistent w/efficiency, BUT–at some point, is it needed for efficiency?
structural imperfections monopoly • evil? rational? • restrict output, same motives oligopoly • few enuf/indiv • strategic behavior • prod different’n • barriers/entry responses • regulation • antitrust
problems: 1. patents: a legal “monopoly?” What motivation; what patent standards? 2. professional team wants a smaller arena? 3.-4. historical cost regulation: effect on price signaling f’n? lag politics, undercap, noninnovatn→brownouts; why? 5. prudent cost reg v. used & useful: higher return 6. should conscious parallelism in prices be an antitrust violatn? 7. antitrust & politics
distressed firms and overcompetition problems: 1. antitrust: should govt oppose merger if 2nd largest acquires 5th largest (which is distressed)? 2. let’s start a band! $$! OR: entertainmt law firm! 3. lender, bus plan, market analysis: competition
public goods • public goods • hybrid goods • free riders • tragedy of the commons problems: 1. public housing and advocates of vouchers 2. trade secret law: efficient? 3. patent grant justification: free riders? 4. deed restrictions: hybrid goods? tragedy of the commons? 5. Fiss, Against Settlement, because doesn’t contrib to precedent bank. Efficient?
socioeconomics • homo economicus • Thaler’s experiment • max price/beer brought from[exp resort][cheap grocer] problems: 1. 2 property sellers: same m u/money, same opp/for fraud; one does, one no. Can econ predict? 2. what factors make non-fraudulent seller?
externalities externalities • pollution • accidents, etc.[positive ext] responses • ignore • pvt negotiatn • prohib activity • perform stds • cost-internlzn: • taxes, permits, • subsidies, dmgs
negligence & externalities L Hand’s Formula: it’s negligence, if B ‹ PL, meaning if the safety burden is less than probable loss– figure 5: efficient point (due care) is where P x L curve (probable loss) crosses B curve (cost of safety). Why? market system motivates cost reduction; tort system, as a corrective, motivates socially desired level of safety.
problems: 1. nuisance law (balancing) revisited: balances value of conduct v. harm; how similar to Hand’s formula? 2. negl std for person w/disability efficient? 3. Easterbrook: airline safetyincrease →increased autos; less safety(!) 4. building codes can decrease safety (how?)effect of rent control on safety? 5. ADA requires specific (and costly) building stds for the disabled. evaluate efficiency?
accident claims,efficiency • compens dmgs:deterrence?compensatn? • punitive dmgs?gap-fillers?overkill? problems: 1. Stachura case:compens & pun & “additional,” illegal 2. dmgs for breach of propty sale K: usually, no recovery for “speculative” items (appreciation since breach; distress). Inefficient; why? 3. Smith v. Wadefn of punitives; gross neg? intent? 4. punitive dmgs for real estate fraud: efficient?
incommensurability; shadow markets irrationality of enforcemt uncertainty of future factors problems: 1. eminent domain:value of a strip to widen road 2. should em domain, then, use hist cost transaction costs problems: 1. property sale closing cost reduction: efficiency of regulating uniform disclosures, controlling max costs for some items? 2. litigation as a transaction cost: efficiency of lowering by reducing discovery? 3. title insurance with an exception for adverse possessors: usually chosen by buyers.why? 4. real estate class actns: efficiency? 5. zoning laws; large transaction costs. why?
Coase Theorem railroad → sparks;2 possible legal rules:railroad liable, orfarmers absorb loss if trans costs = 0, it’s immaterial to efficiency which rule; parties will negotiate efficient agreement • argumt for pvt barg • wealth effects remain • is Coase meaningless?
APPENDIX B: ETHICS AND POLITICAL PHILOSOPHY AS THEORETICAL JUSTIFICATIONS OF PROPERTY LAW
The Great Divide in Ethics Teleology = nature & purpose purpose consequentialism utilitarianism Bentham, Mill Deontology = non-purposive(not cost/benefit) Kant imitation principle categorical impertv
Both Theories Are Imperfect 1. Utilitarianism & slavery–slave owners wd like. But Kantianism opposes;why? 2. Utilitarianism & vulnerable minorities: how treat ADA, confiscation of amusemt park? 3. Kant: conflicting categorical imperatives?(performance of promise illegal?) 4. Kant: must you tell truth to terrorist (neighbor in closet?)or: contract bankrupts promisor w/negligible benefit?
consequentialism v. deontology • pun dmgs seen as mkt corrective, vs as retributive, proportional justice • “zero tolerance”: the Advil problem?death p, drunk drivers? • synthesis? • diff ways of same thing? problems: 1. which is best, to evaluate the law–usually conseq; deontol at “borders”? 2. BMW v. Gore: reprehens, ratio, comparables–deontol measures of pun dm?what role for conseq? 3. efficient breach/K: conseq?deontol?