Property II Professor Donald J. Kochan

Property IIProfessor Donald J. Kochan Spring 2009 Class 32-33 21 January 2009

Today’s Materials TRANSFERS OF LAND • Recording • Buying and Selling Real Estate • Statute of Frauds • Marketable Title • Duty to Disclose Defects • Implied Warranty of Quality • Warranties of Title • Title Assurance • Chain of Title • Inquiry Notice • Registration • Title Insurance • Delivery • Mortgage • Pages 559-635

General Issues re Buying and Selling Real Estate • Real Estate Agents • Attorneys and Agreements • Price Agreements and Mortgages • The Sales Contract • Investigation of Title (full searches and abstract searches) • Function of Closing • Obtaining Deed and Recording It

Standard Residential Sales Contract • Provisions should include: • Description of Buyer • Description of the Property (value and metes and bounds) and survey validation • Description of any encumbrances and any exclusions or reservations in the sale • All monetary arrangements • Closing date and terms • Terms of Delivery • Terms and Dates of Possession • The full Deed (including any warranties) • Any financing conditions • Any prorating for tax or utility payments, etc. • A provision for any disclosures • An opportunity for attorney modifications within a limited period of timr • A provision for performance obligations • A provision regarding inspections • A provision regarding seller’s representations • Provisions transferring and guaranteeing title • A provision regarding escrow • A provision regarding risk of loss between contract and closing • Statements regarding statutory and regulatory compliance • Statement of a merger of agreements made during negotiations (full and complete codification of the parties’ agreement) • See supplemental reading examples on page 453 et seq.

Statute of Frauds • Requires that Real Property sales contracts must be • In writing • Signed by the party to be bound • Describe the real estate • State the price • Meant to avoid fraud • Writing serves as evidentiary proof • Some courts recognize part performance and estoppel as exceptions

Marketable Title and Marketable Title Acts • One can only sell as much as she has • Rescission of a sales contract is justified by the buyer if the seller is incapable of transferring marketable title • Substantial defect in title test in Lohmeyer v. Bower – marketable title exists unless there is a substantial defect in title • For supplemental reading, see also Conklin v. Davi

Duty to Disclose Defects • Non-Required Supplemental Readings: • Stambovsky v. Ackley • Poltergeists • Johnson v. Davis • Disclosure obligations for latent defects

Implied Warranty of Suitability and Quality • Not universally or uniformly applied • But, recognized by the Uniform Land Transaction Act • Focuses on persons in the “business of selling” real estate • For supplemental reading, see Lempke v. Dagenais

Warranty of Title • Recognized as a legal cause of action to prevent fraud in sales and create certainty for purchasers • Explicit or Implicit? • Where does the burden of verifiability lie?

Sample General Warranty Deed For good consideration, we________________________________________ of_____________________________________, County of_____________________ State of_______________________________, hereby bargain, deed and convey to______________________________ of ____________________________ County of______________________________, State of_____________________, the following described land in _________________county, free and clear with WARRANTY COVENANTS; to wit: Grantor, for itself and its heirs, hereby covenants with Grantee, its heirs, and assigns, that Grantor is lawfully seized in fee simple of the above-described premises; that it has a good right to convey; that the premises are free from all encumbrances; that Grantor and its heirs, and all persons acquiring any interest in the property granted, through or for Grantor, will, on demand of Grantee, or its heirs or assigns, and at the expense of Grantee, its heirs or assigns, execute and instrument necessary for the further assurance of the title to the premises that may be reasonably required; and that Grantor and its heirs will forever warrant and defend all of the property so granted to Grantee, its heirs, against every person lawfully claiming the same or any part thereof. Being the same property conveyed to the Grantors by deed of ______________________________________, dated___________________19____. WITNESS the hands and seal of said Grantors this____day of_______, 20____. _______________________________________Grantor _______________________________________Grantee STATE OF COUNTY OF

General Warranty Deed • Covenant of Seisin • Covenant of Right to Convey • Covenant Against Encumbrances • Covenant of General Warranty • Covenant of Quiet Enjoyment • Covenant of Further Assurances • Supplemental Reading: Brown v. Lober, Frimberger v. Anzellotti, Rockafellor v. Gray

Delivery • “To be effective, a deed must be delivered with the intent that it is presently operative.” D&K • Supplemental Reading: Sweeny v. Sweeny; Rosengrant v. Rosengrant

Mortgage • Acquisition/Financing Issue • Real Estate Transactions are facilitated by this separate financing market • Equity and “Equity of Redemption” • Foreclosure Issues • Supplemental Reading: Murphy v. Financial Development Corp., Bean v. Walker

Title Assurance Generally • Verifiability – assurance adds to an incentive to invest • Priority Issues • Confidence in Ownership • Evidentiary issues for judicial resolution and assignment of rights between conflicting claims of ownership • Public Records Issues • Protections for bona fide purchasers

Indexes • Read the Note on “How to Search Title” • Understand Tract Index • Understand Grantor/Grantee Index • Most common • More likely to efficiently discover title issues • Alphabetical listings

Luthi v. Evans • Assignment of oil and gas leases case • Notice issues – analyze the discussion of generality v. specificity of recording • Subsequent purchaser protection issues and types of notice

Orr v. Byers • Misspelled name and constructive notice case – • idem sonans – even when a name is inaccurately written the identity can still be determined from similarity when recording even if not precise; but if the written name is “material” or the misspelling was meant to mislead then it does not apply • Burdens – what is a reasonable search for a purchaser?

Recording Acts • Types of Acts • Race • Notice • Race-Notice • Pay careful attention to examples 2-6 in the text – they are very instructive for the difference between the three types of recording acts • Understand the virtues and downsides of each for both sellers and purchasers

Race-Notice Statute in California “Every conveyance of real property or an estate for years therein, other than a lease for a term not exceeding one year, is void as against any subsequent purchaser or mortgagee of the same property, or any part thereof, in good faith and for a valuable consideration, whose conveyance is first duly recorded, and as against any judgment affecting the title, unless the conveyance shall have been duly recorded prior to the record of notice of action.” California Civil Code sec. 1214 Who is protected? And when, why, and how?

Messersmith v. Smith • What is an action to quiet title? • Why do we care whether a purchaser has actual or constructive notice of an adversary claim to title? • Multiple deed issues – which TITLE is legally enforceable is the question • Significance of which recording doctrine applies

Chain of Title • Sequence of passing title – map it • How far back must one go to trace the chain? What can a purchaser discover? How is this related to the utility of recording? • Pay attention to Example 7

For Fun: “The Ideal Title Opinion” Property Lore and Humor (there are several versions that can be found): “A New Orleans Lawyer sought an F.H.A. loan for a client. He was told the loan would be granted if he could prove satisfactory title to a parcel of property being offered as collateral. The title to the property dated back to 1803, which took the lawyer three months to track down. After sending the information to the F.H.A., he received the following reply (actual letter): ‘Upon review of your letter adjoining your client’s loan application, we note that the request is supported by an Abstract of Title. While we compliment the able manner in which you have prepared and presented the application, we must point out that you have only cleared title to the proposed collateral property back to 1803. Before final approval can be accorded, it will be necessary to clear the title back to its origin.’ Annoyed, the lawyer responded as follows . . . : ‘Your letter regarding title in Case No. 189156 has been received. I note that you wish to have title extended further than the 194 years covered by the present application. I was unaware that any educated person in this country, particularly those working in the property area, would not know that Louisiana was purchased by the U.S. from France in 1803, the year of origin identified in our application. “For the edification of uniformed F.H.A. bureaucrats, the title to the land prior to U.S. ownership was obtained from France, which had acquired it by Right of Conquest from Spain. The land came into possession of Spain by Right of Discovery made in the year 1492 by a sea captain named Christopher Columbus, who had been granted the privilege of seeking a new route to India by the then reigning monarch, Isabella. The good queen, being a pious woman and careful about titles, almost as much as the F.H.A., took the precaution of securing the blessing of the Pope before she sold her jewels to fund Columbus’ expedition. Now the Pope, as I’m sure you know, is the emissary of Jesus Christ, The Son of God. And God, it is commonly accepted, created this world. Therefore, I believe it is safe to presume that He also made that part of the World called Louisiana. He, therefore, would be the owner of origin. I hope to hell you find His original claim to be satisfactory. Now, May we have our loan?’ . . . And the loan was granted!”

Bd. Of Education of Minneapolis v. Hughes • Blank name on Deed case • Statute of Frauds Issues • Discusses when a deed becomes operative • How does recording affect subsequent purchasers? • When and how is delivery of a deed made effective? • Read Example 8, 9, and 10 and the corresponding notes

Guillette v. Daly Dry Wall, Inc. • Subdivision Plan Case • Restrictions in some deeds by a common grantor but not in all deeds – was there notice (actual or constructive) • Search of recorded “subdivision plans” and whether that creates sufficient notice to purchasers

Daniels v. Andersom • Right of First Refusal case • What is equitable conversion? • Installment Contracts – When do rights vest and when does notice matter (outset or also along the way)? • Bona Fide Purchaser Issues – when does one become so? • A bona fide purchaser takes title to property without notice of the interests of others • Pro Tanto Rule/Equity

Lewis v. Superior Court • Escrow case • More on the definition of bona fide purchaser • Timing of notice • Wrongdoer implications in equity • Good Faith in Transfer Issues • Actual v. Constructive Notice Distinctions

Notice Issues • Actual • Constructive • Record • Inquiry

Harper v. Paradise • Lost deed case • Good Faith “Purchasers for Value” Issues • Inquiry Notice – A purchaser is not absolved from liability to another owner if simply because they do not have actual notice if they should have been able to “ascertain through diligent inquiry the contents of the earlier deed and the interests conveyed therein,” even if unrecorded. • Triggering knowledge and events – if you are on notice as a purchaser that you should “inquire” then you must make reasonable inquiry

Waldorff Insurance and Bonding, Inc. v. Eglin National Bank • Actual possession by another as constructive notice • Ascertaining adverse ownership claim by physical occupation of another

Registration • The “Torrens System” • Facilitates Conclusive Certification of Titles? Why yes or no? • Readings explain why not widely adopted in the United States

Title Insurance • Controls Risk – Typical Reasons for Insurance • Employing Agents with Specialized Expertise Minimizes Costs, i.e. a service market like many others • Inadequacies and Inefficiencies of Public Records in Protecting Private Titles • Uniform Policy Forms – American Land Title Association (“ALTA”)

Walker Rogge Inc. v. Chelsea Title and Guaranty Co. • Title Insurance Company Search Duties • Title Insurance Company Disclosure Duties • “Reasonably Discoverable Information” contractual duties • Focus on the contractual agreement rather than inherent duties

Lick Mill Creek Apartments v. Chicago Title Insurance Co. • Regarding insuring marketability and freedom from encumbrances/defects • Importance of Exclusion Clauses

Concluding Thoughts • Understand that this is all about verifiability, documentation, certainty, predictability, assignment, disclosure, discovery, etc. • Think about the obligations and protections the law places on sellers and buyers and subsequent purchasers

Property II Professor Donald J. Kochan