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Property II Law Outline | Haifa Nesheiwat

I. Transfers of Land
A. The Land Transaction: Contracts of Sale, Deeds, Mortgages, and Financing
1. The Contract of Sale
I. Land Sale Purchases
a. Overview
i. Possessor of the property is purchasing "title" to the property (or thinks s/he is).
1. Title - refers to the elements that constitute ownership or interests in
property - ownership interest in the property
ii. Distinct from a leasehold:
1. Leasehold - tenant never owns title to the property itself: LL always owns title
to property - Title is always with LL
iii. Steps in Typical Real Estate Purchase Transaction Today
1. Buyer finds a listing of available properties. Buyer then inspects the
properties s/he is interested in purchasing
2. When Buyer (B) decides on a property, the Buyer sings a purchase contract
with the Seller (S), obligating the Buyer to purchase the property and
obligating the Seller to sell it to him or her. (typically contains many
conditions on both sides).
3. One such typical condition is that the Buyer is agreeing to accept whatever
the "title" he "approves" during the process.
4. After K is signed, parties go through a "due diligence" or "escrow" period.
5. During this period, the buyer usually obtains financing from a bank and title
insurance from a title insurer.
6. 2 main types of title insurance:
a. One type only guarantees items that are reflected in written records. -
protects title of property for seller
b. Other type guarantees items reflected in written records as well as any
other "title defects" that typically can be discovered through a physical
inspection of the property. (e.g., unrecorded easement: right of
another to make limited use of property- access path across land)
 Ex: ppl get right to use property if ppl have been using property
that way for a while - can possibly decrease value of property -
 Value of Property effected through use
c. Buyer obtains a "title report" (often from the insurer) reviews the
"exceptions to the title stated in it, and then approves or disapproves
each such exception listed.
 NOTE: seller is entitled to cure any unapproved "exception."
7. Seller always owes Buyer only that quality of title that the seller promised to
provide to the buyer.
a. Quality of title only what buyer promised - not subject to litigation.
8. - Closing - However, Seller has a "reasonable time" after the closing to
provide the promised quality of title, unless the purchase contract states
something to the effect that "time is of the essence."
a. If purchase contract contains such a statement, then the promised
quality of the title must be provided by the closing date.
9. There is a "closing," where the Buyer provides the money and the Seller
provides the "deed" to the property.
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a. Deed - legal document that transfers interest in property. Transfers


prop rights
b. Western states: escrow co. handles all of the details and there is no
need for parties to get together
c. Some states follow a "merger doctrine," - provides that the title terms
stated in the purchase contract are extinguished by the deed terms
(this means that the B can no longer rely on the title provisions in the
purchase contract.)
 More courts are abandoning the merger doctrine,
 But it’s still best for the Buyer to have the purchase contract
state that title provisions of the contract survive closing and
delivery of the deed.
II. Sale of Land
a. Duty to Comply with the SOF
i. Statute of Frauds (Hickey v. Green)
ii. Policy:
1. Supporting SOF for G
2. Supporting Exception for H
3. Fungible - moves around
iii. Notes:
1. Part Performance - fairness factor
b. Duty to Provide Marketable Title IF the Quality of Title to be Convey is not explicitly
Covered in Purchase Contract (Lohmeyer v. Bower)
i. Agreement set forth in a contract affecting the use of property
ii. In this case, house had 1 but required 2 or else it is in violation
- even if not violated not so great b/c a person might want 1 or 3 stories
c. Zoning Law - limits use of property set forth by gov regulating land use
i. Public restriction by gov
ii. In this case, here, it required owners of frame buildings to refrain from building
within 3 feet of any side or near lot line
1. Here, this house was located w/in 18 inches of the northern lot line.
d. Duty to Disclose (Non-title) Defects
i. Stambovsky (psychological auras) - Minority Rule
ii. Johnson (latent material defects) - Majority Rule

The Statute of Frauds

Statute of Frauds: Hickey v. Green


Facts: Green orally agreed to sell vacant Lot S to the Hickeys for $15,000. She knew they intended to build on Lot
S. Hickeys gave Green a $500 check as a deposit. Hickeys were told to leave the payee space blank, as it wasn’t
clear if Green or her brother, who was her agent, was to be the payee. Hickey wrote on back “Deposit on Lot ...
Massasoit Ave. Manomet ... Subject to Variance from Town of Plymouth.” (At 5me, it was thought that a variance
[permission] to build on the lot was needed.) Hickeys then entered into K to sell their own house and accepted a
$500 deposit check for their home. Green then changed her mind, saying that she had decided to sell Lot S to
another buyer for $16,000. She even refused the Hickeys’ offer to also pay her $16,000. Green admitted the
existence of the oral contract with the Hickeys, though.

Issue: 1. Does the check satisfy the SOF, as there was no other written documentation of Greens
promise to sell Lot S to the Hickeys? 2. If SOF was not satisfied, should Green still be forced to sell her
house to the Hickeys?
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Rule: To satisfy the SOF, all of the material terms must be stated: parties, property, and parties (or at
least a method of calculating it)
 Some states require payment terms (e.g., "all in cash") must be stated in writing too.
 The writing must be signed by the party to be charged ("charged" means bound by the
agreement). All of the material terms must be stated: P3
 Parties
 Price (or at least a method of calculating it) AND
 Property
 Writing MUST be signed by party to charged - bound by the agreement.
Holding: SOF not satisfied' Check didn't state all of material terms - not signed by party to be held to the
agreement, property, price)
 Does Exception apply here?
o Part Performance
Rule: Under MA's doctrine of Part performance, however, K is still enforceable. Doctrine provides that
SOF can be ignored if 2 criteria are met: Evidence and Detrimental Reliance.
1. Evidence - There is satisfactory evidence of the contract (i.e., an act that is unequivocally referable
to the K ) and Here, Green admitted the K; and
2. Detrimental reliance - There is detrimental reliance by the promisee with the knowledge and
assent of the promisor
Note: other states recognizing the "part performance" exception to the SOF vary on how
much they emphasize each of the above 2 criteria.

Rationale: There was detrimental reliance by Hickey because they contracted to sell their old house in
reliance on the K with Green and accepted the deposit check of the person to whom they agreed to sell
their old house.
 Hickeys may even be subject to litigation if they don't follow through on the sale of their old
house AND Green knew that Hickeys were planning to build on her property and that they were
likely to sell their house to someone else
 Part performance is equitable doctrine, and equitable remedy(specific performance) is
appropriate here, if the circumstances are in fact those which the court assumes.
o Specific performance here would require sale of the property to the buyer.

Procedural Disposition: Case remanded so TC can ascertain whether the Hickeys are still in the same
negative position with regard to the contract to sell their old house.

Rule: SOF requires that a contract for the sale of land or any interest in land be in writing, signed by the
party to be charged (meaning bound by the agreement).
 This is a judicial concept in most of the States.
o Court justify the SOF by arguing that it is important to prevent fraud regarding something as
valuable & unique as a piece of real estate and
o some courts also justify the rule on the grounds that a writing causes the parties to
"seriously reflect" on their commitments.
 Courts tend to recognize one or both of 2 exceptions to SOF:
o Part Performance; and
o Estoppel
 Court here relied on MA "part performance" statute.
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Estoppel - Other exception to SOF


 Estoppel requires justifiable detrimental reliance such that non-enforcement of the contract will
cause:
o Unconscionable injury to the plaintiff; and/or
o Unjust enrichment to the defendant because the defendant has received the benefits of the
plaintiff's performance
 States vary on the degree to which they emphasize each of the 2 estoppel criteria
 Some States only require one or the other criterion, but in general States tend to emphasize the
"unjust enrichment" criterion more than the "unconscionable injury" criterion. With an "Estoppel"
claim, the plaintiff typically can obtain damages or specific performance

Policy arguments supporting SOF


 A K for something so unique and important as land should be in writing
 There should be no misunderstanding between the parties, and a writing prevents such
misunderstandings
Policy Arguments supporting Exception of part performance:
 If there is sufficient evidence of the K anyway, and especially if there detrimental reliance one the
K by one party with the assent of the other party, the K should be upheld.
o Do not like innocent parties to be hurt
Notes:
 With regards to the doctrine of part performance:
o For "detrimental reliance" criterion, usually it is not enough that the buyer has paid a
deposit or even the entire purchase price for apiece of real estate. Why?
 This is only money and the buyer can be made whole with a payment of money
damages.
o Example of "detrimental reliance" include where the buyer does the following:
 Taking physical possession of the new property
 Making substantial improvements to new property
 Vacating or selling a previous property
o With "Part Performance" exception, usually plaintiff is limited to specific performance as a
remedy

Review: Hickey v. Green (SOF)


 Issue:
o Does the check satisfy the SOF since there was no written k, and if not, then should
Green still be forced to sell her house to the Hickeys (possibly an exception applies)?
 Holding:
o SOF NOT satisfied. But under MA doctrine of "part performance," this K is still
enforceable provide: There is satisfactory evidence of the K; and: Here, Green
admitted it. There is detrimental reliance by the promisee with the knowledge and
assent of the promisor Hickey's entered into a K to sell their old house.
 Rule: SOF requires that a contract for the sale of land or any interest in land be in writing, signed
by the party to be charged (meaning bound by the agreement).
Property II Law Outline | Haifa Nesheiwat

Marketable (or Default) Title

Marketable Title Lohmeyer v. Bower (Kansas, 1951)

Facts: Lohmeyer contracted to purchase a lot in Emporia, Kansas. • The house on lot violated the
following: –1. a private restrictive covenant • This is a contractual restriction in a document (usually a
prior deed) that affects use of the property. Here, it required the house to have two stories – this house
had only one story. – 2. a zoning law • This is a public restriction regulating land use within a zone. •
Here, it required the owners of frame buildings to refrain from building within 3 feet of any side or rear
lot line – this house was located within 18 inches of the northern lot line. Lohmeyer brought suit to
rescind the contract, claiming that seller was not providing “marketable” (or “merchantable”) title,
because there were the above “defects” or “clouds” on the title. L contracted to buy lot from B. But
house on lot violated law (1) Private restrictive covenant & (2) Zoning law issue. Seller did not provide
marketable title, at least not explicitly. L wanted to rescind K b/c the lot was not a marketable title.

Issues:
1. Did S promise to provide marketable title to the buyer, and, if so, can the B rescind the K if the S
didn't provide it?
2. Did the violation of the restrictive covenant and the violation of the zoning restriction render title
to this property "unmarketable"?

Rule: What is a marketable title? Marketable title is a title that reasonable buyer would want to
purchase and a reasonable S would want to sell. More specifically, it is title that is not likely to subject
the B to litigation.
 "A promise to provide "marketable title" will be implied in every land sale contract, if the parties
haven't explicitly agreed upon some other quality of title to be conveyed.
 If Seller does not provide the quality of title promise, the Buyer can rescind the contract.

Holdings: Restrictive Covenant: The majority rule is that mere existence of a private restrictive covenant
makes the title unmarketable because it is an encumbrance on the buyer's use of the property. They
need to be disclosed to, and waived by the buyer.
o NOTE: Here, however, the contract actually provided that the conveyance was subject to all
restrictions of record. Restrictive covenant re: 2 stories had been recorded, so they were
restrictions "of record." So, the buyer had waived any claims as to the existence of the
restrictive covenant
 Restrictive Covenant violation. However, the contract did not waive violations of restrictive
covenants, and this restrictive covenant was violated. So, buyer could still rescind due to the
violations of the restrictive covenant in this case
 Zoning violation: The mere existence of a zoning regulation does not render title unmarketable,
but the violation of a zoning regulation often does, because such a violation could subject the
buyer to a lawsuit. A reasonable person would not expect the mere existence of a government
regulation to allow him or her to back out of a purchase contract.

Summary from class: PRC - Private Restrictive Covenant - Contractual restriction affecting property use -
Here 2 stories required, but only had 1 story Rule: Majority rule is that mere existence of PRC makes title
unmarketable. Never agreed to waive violation. Agreed to waive existence of all restrictions but did not agree
to waive the violation and thus
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Note: In some JX, even the violation of a major building code might not render the title "unmarketable.
Though a major violation probably would render title unmarketable (because it would subject the buyer
to litigation.
 Parties can contract around the implied term to provide "marketable title."
o Buyer is only entitled to receive the qualify of title for which s/he actually contracted to
receive.
 Typical clause regarding title in a purchase agreement is:
o "This Conveyance is subject to all restrictions of records."
 If there is anything in written record, B understands the potential issues upon
purchase of lot or land and agrees to something less than marketable title. In other
words, the B is aware of the potential risks, accepting all restrictions on record of
property.
 Means that Buyer accepts all private and public restrictions on the property that can
be ascertained from a review of the recorded document regarding the property.
Policy behind Implied Covenant to Provide Marketable Title:
 Today, there can be so many different types of private and public restrictions on property,
there is no such thing as "perfect title." Thus, in the absence of an explicit agreement by the
parties as to what quality of title was promised there has to be a "default rule."
 Default rule is that Marketable title was promised.

Review: Lohmeyer v. Bower (Kansas, 1951) - marketable title

Issue: Did the violation of the restrictive covenant and the violation of the zoning restriction render title
to this property "unmarketable"?

Rule: What is a marketable title? Marketable title is a title that reasonable buyer would want to
purchase and a reasonable S would want to sell. More specifically, it is title that is not likely to subject
the B to litigation. Rule: Majority rule is that mere existence of PRC makes title unmarketable.
 "A promise to provide "marketable title" will be implied in every land sale contract, if the parties
haven't explicitly agreed upon some other quality of title to be conveyed.
 Restrictive Covenant: The majority rule is that mere existence of a private restrictive covenant
makes the title unmarketable because it is an encumbrance on the buyer's use of the property.
They need to be disclosed to, and waived by the buyer.
 Here, violations of the restrictive covenant (2 stories vs. 1 story) and zoning law (setback
provision) made title unmarketable
 Note: even the mere existence of a restrictive covenant that is not waived would
make title unmarketable.

The Duty to Disclose Defects

Duty to Disclose Defects - psychological auras

Stambovsky v. Ackley(NY, 1991) - duty to disclose psychological auras


Facts: This is the haunted house case. Ackley, who lived in the country, contracted to sell her house to
Stambovsky, who lived in New York City. Stambovsky subsequently discovered that the house was
reputed to be possessed by poltergeists. Ackley herself had previously publicized the existence of the
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poltergeists, so she couldn’t deny this. When he found out that the house was reputed to be haunted by
ghosts, Stambovsky brought suit to rescind the purchase contract.

Issue: Is the reputation of the house for being haunted by ghosts subject to the rule of caveat emptor
(buyer beware), which is the general law in New York re: a Seller’s obligations to disclose to the Buyer
“physical defects” in the property? • Or, must the Seller disclose the reputation of the house for being
haunted?
Is reputation of house subject to the rule of caveat emptor (buyer beware) where seller is required
to disclose any information concerning the premises

Rule: In New York, the general rule in land sale contracts is “caveat emptor” (buyer beware).
• In a land sale contract, “what you see is what you get,” so the Buyer should inspect the property
carefully.
o But the court followed a rule - opposing caveat emptor - the seller must disclose the
reputation despite caveat emptor - exception
 Defect created by seller here and thus she knew about it
 It also could not have been discovered by the Buyer even in a physical inspection (unless
the poltergeists are real and not hiding, of course).
 Nor could it have been discovered in a search of the records Buyer is not expected to
search old copies of the Reader's Digest

Rationale:
 If we’re concerned about the effects of the failure to disclose on market value, aren’t there people
in the world who would pay more money for a haunted house?
 And if the ghosts aren’t real, how is Stambovsky really harmed?
o The point of the ruling is that Buyers of real estate should get what they contract for, and
Stambovsky didn’t contract for a house that was reputed to be haunted with ghosts.
 This prevents any unfair bargaining in contracts for purchase of land.
 Here, this is not what the B bargained for.

Policy Arguments Supporting Caveat Emptor:


 Society cannot determine all of the different things about a property that a Buyer might consider
material. Thus, a Buyer should inspect property and decide what the property in its current state
is worth to her.
o It is not society to determine all diff things of property but for B's due diligence to inspect
the physical premises of property.
Policy Arguments Supporting “Psychological Aura” Disclosure Rules:
 This is something that the Buyer cannot determine for herself through either a physical inspection
or an inspection of the records. A Buyer should be protected against such situations. The Buyer is
innocent in this situation, and the Seller is not.

Rule after this case:


 "Psychological aura" - cannot be found either through an inspection of the records regarding the
property or through an inspection of the physical property
o Different states have different statute on "psychological aura"
o Most states require the disclosure of:
 If someone died on property within the last year, even if of natural causes
 felonies that occurred on property (3 yrs or so)
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 Other deaths on the property (dog, cat, fish)? Unclear.


 Previous owner had AIDS?
 For a while, sellers were required to disclose and then they were prohibited
from disclosing this.
 DV occurred - even if no one was convicted of DV
 Previous owners got divorced
 Sexual predator - Megan Laws
 There is a sexual predator living in the
neighborhood?
 Megan’s law - A convicted sexual predator lives in the vicinity of the property
is not, in and of itself, a defect or condition “of the property” per se. It does not
have to be disclosed.
 However, some States require Sellers and real estate brokers to recommend to
Buyers that they check a website or contact the local or state police if they are
interested in learning if there are any registered sex offenders in the
neighborhood.
 In CA , S required to disclose to the buyer "any neighborhood noise problems or other
nuisances"

Review: Stambovsky v. Ackley(NY, 1991)


 Issue: Is the reputation of the house for being haunted by ghosts subject to the rule of caveat
emptor (buyer beware) which is general law in NY re: a Seller's obligations to disclose to the Buyer
"physical defects" in the property?

 Holding: No. The "defect" was created by the Seller here and thus she knew about it
o It also could have been discovered by the Buyer through a physical inspection or in a search
of the records.
o Buyers should get what they contract for, and Stambovsky didn't contract for a house that
was reputed to be haunted with ghosts.

Johnson v. Davis - Duty to disclose Latent material defects

Facts: The Davises contracted to buy the Johnsons’ home and made a $31K deposit on the $310K
contract price. Johnson specifically told Davis that there had never been any problems with the roof.
Several days later, after the Johnsons had vacated the house and it had rained heavily, Davis discovered
water gushing into the house through the roof in several places and then sued to rescind the purchase
contract.

Issue: Does the seller have a duty to disclose a defect regarding a material, physical condition of the
property that is known by the seller, not readily observable by the buyer, and is not known by the buyer
(i.e., a latent material defect)?

Holding: Yes. The seller must disclose a latent material defect.


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Rule: The seller has a duty to disclose a defect regarding a material, physical condition of the property
that the seller is aware of, is not readily observable to the buyer, and is not known by the buyer.
 What this holding is really saying is that a Seller’s nondisclosure calculated to mislead the Buyer
constitutes “fraudulent concealment.”
o In this case, the seller even affirmatively misled the buyer.
 But note: States following the “caveat emptor” doctrine maintain that it isn’t always easy to
decide when something is “latent,” or “material,” or even a “defect,” so it’s not easy to claim that a
Seller’s non-disclosure was calculated to mislead the Buyer.
 In other words, those States following caveat emptor don’t require disclosure of latent material
defects.

Policy Arguments behind the Majority “Latent Defect Disclosure Rule”:


• The Intent of the Parties Should be Upheld. The buyer shouldn’t be held to have contracted for a
property with a physical defect that he couldn’t reasonably have discovered in the investigation
process.
• Courts should Protect Innocent Parties.
 Here, the Buyer is innocent, and the Seller is not. An innocent Buyer shouldn’t suffer.
Policy Arguments Supporting Caveat Emptor:
• It’s hard to define what is “latent” or “material” or a “defect” for a given Buyer. So, a Buyer
should inspect property and decide what the property in its current state is worth to her.

Aftermath: This is the modern trend, but there are sell some “pure caveat emptor” jurisdictions (e.g.,
New York), that charge the Buyer with knowledge of even latent physical defects.
– In caveat emptor jurisdictions, the Seller need not disclose even latent material defects.
• But, Sellers do need to disclose reputational defects created by the Sellers themselves
(Stambovsky), and they cannot affirmatively misrepresent the property (no lying).

One Major Problem In Recent Years Re: Physical Condition of Real Estate
Mold! - At first, mold was just thought to be a “cleanliness problem;” it wasn’t known to be a “health
problem.” Now that it is, it is being found everywhere. Different States and local communities have
enacted various statutes re: the Seller’s duty to disclose the presence of mold.
 **Tip: If a test question doesn’t indicate such a statute, then use the common law rules (split re
disclosure and caveat emptor) as to the Seller’s duty to disclose material, latent physical defects.

Caveat Emptor - minority


 S has No duty to disclose; must not misrepresent any conditions or information pertaining to
premises

Latent Material Defect - Majority


 Must disclose any material, physical defects to buyer

Rationale or Idea-
B should get what they bargained for

Review: Johnson v. Davis


 Issue: Does the seller have a duty to disclose a latent material defect (here, a leaking roof)?
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 Holding: Yes; seller has duty to disclose a defect regarding a material, physical condition of the
property that the seller is aware of, is not readily observable to the buyer, and is not known by the
buyer.
 Note: This is a modern trend, but there are still some "pure caveat emptor" jurisdiction(e.g.,
NY), that charge the Buyer with knowledge of even latent physical defects.
 Rule: Latent Material Defect - Majority - Must disclose any material, physical defects to buyer

Supplemental Problems 1 - 2

1. For several years, Conn has been living in a house he leases from Shane. Shane notified Conn
that he intended to sell the property, and that Conn would have to make the property available for
inspection by potential buyers and real estate agents. Conn asked Shane what he was asking for the
property, and Shane told him he wanted $175,000. Conn offered to purchase the house for that
amount but said he would need at least a 120-day escrow because he was waiting for a distribution
from his deceased uncle's estate. Shane, realizing he could save the real estate commission if he
didn't have to list the property, agreed, and they shook hands on the deal. In anticipation of his new
status as a homeowner, Conn undertook a major remodel of the kitchen, bathroom, and master
bedroom. About 90 days into the escrow period, Shane told Conn he had decided to sell the
property to his cousin, Mahon. Conn said, "What about our deal?" Shane responded, "What deal?"
In a panic, Conn calls you. Advise Conn as to any claims and/or defenses between Conn and Shane.

o SOF
o Exceptions to SOF
 Part performance, and
 Estoppel
o Probably good part performance claim
 Here, Conn probably could force shane to sell the property to him, based on the doctirne
Part performance'
o He has done an act, that only makes sense if there is a contract - made
improvements to the proeprty - this provides evidence of the contract) and
arguable he will be i
o Weaker estoppel claim

o Estoppel - Other exception to SOF


 Estoppel requires justifiable detrimental reliance such that non-enforcement of the contract
will cause:
o Unconscionable injury to the plaintiff; and/or
 Shocks the consciousness:
 Facts that undermines this argument is that the seller is not aware of
the model work
o Unjust enrichment to the defendant because the defendant has received the
benefits of the plaintiff's performance
 States vary on the degree to which they emphasize each of the 2 estoppel criteria
 Some States only require one or the other criterion, but in general States tend to emphasize
the "unjust enrichment" criterion more than the "unconscionable injury" criterion.
 With an "Estoppel" claim, the plaintiff typically can obtain damages or specific performance
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2. Betty and Sam signed a written contract wherein Sam agreed to sell his house to Betty for
$150,000. Escrow was opened and Betty deposited $1000 earnest money into the escrow. Before
escrow closed, Betty discovered a large tax lien on the property that Sam had not mentioned. The
next day, Betty found a different house that she liked better and that cost less than Sam's house.
Betty contacted Sam and told him she had found a better deal and that she wanted to cancel the
contract. Sam refused. Betty asks you if there is any way she can get out of the deal with Sam so
she can buy the house she really wants. Advise Betty as to her rights and liabilities in regard to
Sam.

Checklist:
 SOF
o No because there is a written contract
 Marketable title
o Parties do not have appeared to agree on something less than marketable title - so we assume
that if no facts are to the contrary then the buyer does buy the house with
o Lien - claim on residential property for homeowners’ unpaid bills, and means owner cannot
legally sell, refinance or otherwise transfer a clear title of ownership to the home. If loan is
not repaid or lien is not satisfied, then asset may be seized by either the creditor or by a law.
Seller's duty to disclose (deliver)
Marketable title

With regard to the tax lien, Betty must first notify Sam of the tax lien and demand that Sam pay
it off.
 Because the purchase contract doesn't indicate otherwise, Sam just has to provide "marketable
title" within a reasonable period following the date.
 But Betty could have inserted into the K either the following two clauses in order to ensure that
she was entitled to receive marketable title by the closing date:
o "Time of the essence"
o "marketable title must be provided by the closing date"

Dukemineir problem - Pg. 575 Problem 2


 O, owner of Blackacre, executes and delivers a deed of Blackacre to her daughter A as a gif.
 Subsequently O tells A that she would like Blackacre back, and A, a dutiful daughter, hands the deed
back to O and says, “The land is yours again.” O tears up the deed. Who owns Blackacre?

 What principle is at issue?


 A owns Blackacre. Title passed to A by the written deed from O.
 • The Statute of Frauds requires a writing of some kind from A to O signed by A to pass the
title back to O.
– This didn’t occur here, so A still owns the property.
• O -> A (SOF satisfied)
• Handing back the deed and tearing it up later will not transfer
the property to O (that is not a writing sufficient to satisfy the SOF).

Suppose that O executes and delivers a deed to her daughter conveying Blackacre to O, herself, and
A as joint tenants. Subsequently, O tells A she would like her son B to have A’s interest, and A
agrees. To save the recording tax on two deeds, A “whites out” her name on the deed and replaces it
with B’s name. Then, O dies. Who owns Blackacre?

O -> + A (JTROS) SOF satisfied


Property II Law Outline | Haifa Nesheiwat

 Both own it together.

A's whiting out" and writing in B's name also is not valid transfer from A to B of A's joint tenancy
interest.
 In other words, the "whiting out" and "writing in B's name" is not a writing signed by A, the
party to be bound, comply with the SOF. Therefore it has no effect.
 A's use of white out and writing in B is not a writing.

So where does the property go when O dies?

O -> 0 + A (JTROS) SOF satisfied)


 On O's death, the surviving joint tenant owns Blackacre in FSA.
 (B owns nothing.)

IWQ - Implied Warranty of Workmanlike Quality

BS Builder (2015) --> Owner 1 (2017)


|
Owner 2 (2018)
(2019: roof caves in)

Can Owner 2 recover against Builder for economic loss?

Courts recognized the nature of the warranty to be a public policy issue in which the Builder might owe
the subsequent buyer (Owner 2) a duty of "quality construction."

Rule: Even though there is no privity of contract between the builder (B) and Owner 2 (subsequent
purchaser), the implied warranty of workmanlike quality protects subsequent purchaser against latent
material defects not discoverable by a reasonable inspection.

Policy Behind the Implied Warranty of Workmanlike Quality

Timing: Defects may take a while to reveal themselves. Contractor should still be liable
Fairness: One contractor shouldn’t be able to get out liability just because the property has been sold
and another is liable because the property hasn't been sold. Properties are sold all the time.
 If the contractor is still liable to the original owner (Owner 1), the contractor should be liable to
the subsequent owner (Owner 2) as well.

How long should the contractor be liable for "unworkmanlike quality?"


 Some states have limited the contractor's liability to a number of years since construction on date.
 The Uniform Land Transactions Act, (ULTA), for example, limits actions to 6 years from the time
first Buyer enters into possession.

Breach of the Sales Contract - Remedies for Breach of Sale: Buyer & Seller
Property II Law Outline | Haifa Nesheiwat

Seller's Remedies for Buyer's Breach


Example:
 Buyer enters into purchase contract with Seller, but doesn’t make a deposit.
 Buyers finds a different house she prefers.
 What are the seller's remedies?

Seller's Remedies for Buyer's Breach of Sale Contract:


In general, a Seller in such a situation can:
1. Rescind the contract (and possibly keep a deposit)
2. Ask the court for Specific performance of the contract
OR
3. Sell property to someone else and sue the purchaser for damages (typically the difference
between the price listed in purchase contract and fair market value (FMV) of the property at time
of breach).
o **NOTE: courts in some states make the party requesting specific performance prove
damages are inadequate. **

Buyer's Breach: where a deposit has been made


Example:
 B makes a deposit for 10K on a 100K house but decides not to purchase it.
 Seller's damages are 6K (for inspections and decreased sale in price)
 Must Seller return the overage?

Rule
Some JX:
 Seller may keep any overage of the deposit over the actual damages in such a situation, so long as
the deposit amount is a reasonable estimate of the seller's damages. Retention of a deposit of
10% of contract price is routinely allowed.
Other JX:
 Restitution to the Buyer of amount of deposit over the Seller's actual damages is the appropriate
remedy. There's no reason to allow the Seller to keep the overage.
Liquidated Damages:
 These stipulated damages are enforceable if not disproportionate to damages actually suffered.

Buyers Remedies to Seller's Breach

Buyer's Remedies Due to Seller's Breach re: Title Defect:

Example
Buyer learns house violates zoning ordinance requiring NO building within 36inches of lot line (b/c it is
18 inches from lot line).

What are Buyer's remedies in general?


IF the Buyer sues for damages, what is the proper measure of the Buyer's damages?

Buyer's Remedies
Property II Law Outline | Haifa Nesheiwat

If the B seeks to go forward with the purchase:


 Buyer can ask for specific performance or sue for damages
o **NOTE: Buyer can even ask for specific performance and an appropriate adjust to the
purchase price.

Buyer's Damages: Seller Fails to Provide Promised Quality of Title


Some Jx:
- Buyer just gets deposit back (*UNLESS seller acted in bad faith)
Other Jx:
 Buyer gets benefit of the bargain damages, plus reasonably foreseeable damages.

The Deed
OVERVIEW: Deed:
Deed Covenant Actions:
 Instrument (Legal document) embodying land transfer
Significance:
 Deed provides a way for seller to transfer interest in property
 Provides evidence that the B owns the property in question
o Buyer can record in order to give notice to subsequent purchase of his or her prior claim to
the property
 (fox rule) first in time, first in right.
 Transfer ownership
 Evidence
 Promise

 If seller handed deed directly to B, creates a rebuttable presumption that the S intended to
irrevocably transfer title to B and therefore deed is valid.
o *Note:B may need to record the deed in order to prove ownership of property to 3rd parties
(in relation to seller not necessary)
 Might contain promises re: title (called deed covenant) that seller made to Buyer
 B might be able to sue for 1 or more of those promises.
 B might be able to sue the remote grantor for breach of promises re: title (that the remote grantor
stated in his deed the grantee)

Classification:
3 main types
GWD
 Warrants title for acts that occurred either before or while grantor owned the title
SWD -
 Warrants title Only with respect to grantor's own acts
QC
 Makes no warranties at all re: title But simply transfer "whatever title" grantor owns which could
be nothing) to the grantee.
o Grantor has not to worry about any liability
Property II Law Outline | Haifa Nesheiwat

Three Present Covenants - General warranty Deed


1. COS - Covenant of Seisin (holding on or actually owning the property)
a. Grantor warrants he owns the estate that he is transferring
i. GWD: "I warrant I own title to the property."
ii. SWD: "I warrant that I did not create any title defects while I owned the property."
Damages: Measure of damages for breach of COS is return all or a portion of purchase price

2. CRTC: Covenant of right to convey


a. Grantor warrants he has right to convey property he says he is conveying
i. GWD: "I warrant I possess the right to convey title to the property."
ii. SWD: "I warrant that I have done nothing to jeopardize my right to convey title to the
property."

3. Covenant against encumbrances


a. Grantor warrants that there are no encumbrances on the title (e.g., no mortgage liens,
easements, covenants
i. GWD: "I warrant no encumbrances to title to the property."
ii. SWD: "I warrant I personally did not create any encumbrance on the title while I
owned the title."
Damages: Measure of damages for breach of CAE
o if encumbrance is easily removable (i.e., mortgage) measure of damages is cost of removal.
o if encumbrance is not easily removable (i.e., easement or restrictive covenant), the measure
of damages is the difference in value between the land with the encumbrance and without
the encumbrance.
o Policy - puts grantee in position as if covenant or warrant had not been breached

Warranty Deeds:
 State exceptions
 Parties can agree with GWD with exceptions or SWD with exceptions

Breach of Deed Covenants and the SOF: Present Covenants


present covenants 1-3
 A present covenant is broken, at the time deed is delivered.
 Either grantor owns property at that time or does not.
 SOL runs at time of breach of covenant at date of delivery of the deed.
 Breach of present covenant occurs, if at all, at time of conveyance of property and transfer of
deed.

Future covenants
4. CGW: Covenant of general warranty
a. Grantor warrants [slide 51] he will defend against superior lawful claims against tile and will
compensate grantee for any loss suffered by assertion of superior title
i. GWD: "I warrant that I will defend you against superior claims of title and I warrant
that I will compensate your for any loss suffered as a result of such a claim."
ii. SWD: "I will defend you against and compensate you for any title problems that I
created."
5. CQE: Covenant of quiet enjoyment (as to title)
Property II Law Outline | Haifa Nesheiwat

a. Grantor warrants that grantee will not be disturbed in possession and enjoyment o pf prop
by assertion of superior title (essentially equivalent to CGQ)
i. GWD: "I warrant that you will not be disturbed in your possession and enjoyment of
the property by the assertion of a superior title claim."
ii. SWD: "I warrant that you wont be disturbed by anyone claiming superior title on
account of anything I did."

6. CFA: Covenant of further assurances


a. Grantor warrants that he will execute any other document required to perfect title
conveyed.
i. GWD: "I warrant that I will execute any other documents required to perfect the title
conveyed."
ii. SWD: "I will execute any other documents needed to fix a title problem that I
created."

Breach of Deed Covenants and the SOF: Future Covenants


Future covenants
 4-6 Slide 58
 A future covenant promises that the grantor will do some future act, such as defending against
claims of 3rd parties or compensating grantee for loss by virtue of failure of tittle. -
 A future covenant is not breached until grantee is evicted from property, buys up the paramount
claim or is otherwise damaged.
 SOL runs at time of eviction or when covenant is broken in the future
 Breach of Future covenant occurs whenever immediate grantee or remote grantee's legal rights
to possession is disturbed by assertion of superior title.

Deeds with a Forged Signature


Ask whether a grantor would prevail over a forger or a innocent party?
Are these considered valid, or can a grantor prevail (get out of these):
 In a lawsuit against the grantee?
 In a lawsuit against a bona fide purchaser who was unaware of the forgery?
o Grantor and innocent party prevail over anyone
 First in time, first in right
 Forged Deeds:
o Forged deeds are not valid
o Grantor whose signature was forged prevails over all persons, including subsequent bona
fide purchase from the grantee who did not know the deed was forged.
o "Grantor" did nothing wrong here, so she should prevail against everyone else.
Are these considered valid, or can a grantor prevail (get out of these:
 In a lawsuit against the grantee?
 In a lawsuit against a bona fide purchaser who was unaware that the deed was stolen?
 Stolen Deeds:
o This is a deed that was signed by the grantor but the grantee or another person stole the
deed from the grantor
o A grantor can get out of this deed with respect to the grantee or a bona fide purchaser.
o Same rules apply here as apply to forged deed.
o Grantor done nothing wrong here.
Property II Law Outline | Haifa Nesheiwat

Fraudulently Obtained Deeds:


 Will grantor prevail (get out of these):
 In a lawsuit against the grantee?
 In a lawsuit against a bona fide purchaser who was unaware of the fraud?

 A fraudulently obtained deed is a deed that was signed by the grantor, but the grantee somehow
got the grantor to hand over the deed without the grantor being prepared to transfer title to the
property.
a. That is, the grantee defrauded the grantor.
 Deed obtained (procured) by fraud is voidable by grantor against the grantee (person who
defrauded the grantor); but subsequent bona fide purchaser from grantee who is unaware of the
fraud prevails over the grantor
 Law usually places loss on the party who could have prevented the loss to the other
a. Here, that is the grantor.
 Innocent party or subsequent bona fide purchaser would prevail - gets the land back and the
grantor receives the proceeds.

a. Consideration
 Customary to state in deed some consideration was paid by the grantee to show
grantee is a bona fide purchaser entitled to protection of record against prior
records
b. Description of tract
 A deed must contain description of the parcel of land
 3 methods of description
 Reference to natural or artificial monument - starting points and directions/distances.
 Reference to the government survey, recorded plat form or other record; AND
 Reference to name of or street and number of properties

c. Seal
i. Old saying: deed to land is effective when signed, sealed, and delivered.
ii. 1677 but not used anymore but under CL, a deed is a sealed instrument conveying or
transferring property.
iii. Use L.S. for locus sigilli

d. Indenture and deed poll


i. Indenture: signed by both the grantor and the green
ii. Deed poll: signed only by the grantor; called deed poll because top was polled or shaven
even, not indented.

Notes:
Future covenants run with the land to all successors in interest of grantee
 If A gives GWD to B, and B sells to C, A is liable for any future covenants in A's deed.
 If paramount owner O, evicts C, A is liable to C on covenants of GWD and CQE (covenant of quiet
enjoyment)
 Under common law, majority of states follow that C could not sue A if present deed is breached.
 Different view where state allow C to sue A for breach of the COS.
Property II Law Outline | Haifa Nesheiwat

Warranties of Title

Rights of the grantee's successors:

It clear that the deed can give rise to possible causes of action between grantor A and grantee B.

A --> B (GWD)

1. Assume A gave B a GWD. If the facts show breach, B can sue A for breach of the present and
future deed covenants.

2. What happens when grantee re-conveys land to a successor C (Assume a GWD)?


3. Is grantor A still liable to successor C for breach of the present and future deed covenants?

A --> B --> C (Assuming GWD)

 Majority: Most courts hold grantor A IS liable to successor C for violations of future covenants
(breach occurs when superior title holder ousts C)
 Minority: Most courts hold grantor A IS NOT liable to successor C for violations of present
covenants (breach occurs at time deed delivered).
o Rockafellor is in minority in allowing C to sue A for breach of present covenants.

Warranties of Title: Rockafellor v. Gray, S. Ct. of Iowa (1922)

Facts:
 1907: Rockafellor (R) owns property, subject to a mortgage to Gray (G)
 2/11: G forecloses deed to property goes to Connelly (C)
 4/11: C conveys to Dixon (D) by GWD, reciting a consideration of 4K
o C later testifies that no consideration actually paid to him by D; D did not take possession
either.
 6/11: D conveys to Hanson & Gregerson (H&G) by SWD for a recited consideration of 7K
 1918: R brings suit to void foreclosure decree
 1920: H&G sue C for breach of the COS.
 Trial Court invalidates G's foreclosure, leaving title in R, and enters judgment for H&G on cross-
petition against C: C appeals

Issues:
 Can the claim for breach of COS (present covenant) in C's GWD to D be brought by H&G?
C (GWD) D; D (SWD) H&G
Foreclosure --> C ---> D ---> H&G
4k 7K TO (True owner (R)) asserts superior title))

1. Is a claim arising upon breach of COS in a GWD impliedly assigned to remote grantee?
2. If yes to 1, is CAO impliedly assigned when neither the covenantor (C)nor the covenantee (D) ever
took possession of the land?
3. If C in fact received no money from D for deed, is C still liable in damages to H&G for the 4k recited
in deed as the consideration C received from D?
Property II Law Outline | Haifa Nesheiwat

Holding:
1. Yes, in Iowa, the claim for breach of a present deed covenant is impliedly assigned to a remote
grantee.
a. Note: this is a minority rule; majority rule is that it is not: this rule is also sometimes stated
as "the COS does not run with the land.")
2. Yes, the COA for breach of COS can run when neither the covenantor nor the covenantee has
taken possession.
a. Seisin just concerns title, NOT possession.
3. Yes, C has to pay the 4K even if he didn’t receive if from D.
a. Parol proof of actual consideration to contradict that expressed in the deed is admissible as
between the original parties, but not in a suit by a remote grantee
i. Remote grantee can rely on the valuation stated in the deed.

Rules:
 The claim for breach of a present deed covenant is impliedly assigned to a remote grantee.
 SOL, thought commences on date of breach (date of deed).
 COA for breach of COS "runs with the land," whether or not covenantor or convenantee took
possession.
 For breach of COS, remote grantee can get damages equal to the among listed as received
covenantor (at least so long as that amount is not greater than the remote grantee has paid)
 Parol Evidence will not be admitted contradict consideration stated in a deed, except as between
the original parties to that deed.

Policies/Reasons:
 A COA for COS in general is assignable.
o No reasons why breach of the COS shouldn't be assignable.
o No need for a remote grantee to have possessed the land
o Just a contract right that's being passed on.
 Also, Courts felt bound by re: whether parol evidence can be heard as to the true amount paid by
D to C.
o Law also is too well-settled on this point in Iowa. People have a right to rely on the existing
law.

STRATEGY FOR DEED COVENANT PROBLEMS


1. What has really happened to the Grantee?
a. Examine the deed from the Grantor in question (GWD, SWD, QC)
2. What covenant(s) may have been breached as a result?
3. Is each such covenant a present or future covenant?
4. Go back and analyze any future covenant breaches.
5. Go back and analyze any present covenant breaches.
a. In a NON-Rockafellor JX
b. In a Rockafellor JX

DEED COVENANT PROBLEMS - COS

Has B merely discovered that s/he didn’t acquire title to the land?
 If so, then only COS been breached (in addition to CRTC)
Property II Law Outline | Haifa Nesheiwat

 COS (&CTRC) is Present covenant & COA for breach of this covenant is impliedly assigned to the
remote grantees only in Rockafellor JX.
 Even in a Rockafellor JX, remember SOL and damage limitation issues (remote grantee can ONLY
OBTAIN lesser of his other actual damages or consideration listed by the earlier grantee.)

DEED COVENANT PROBLEMS - CQE

Has TO (true owner) asserted superior title?


 If so, then CQE has been breached (in addition to COS).
 CQE is future covenant, so it always runs with the land to the last (remote) grantee. In other
words, last grantee possesses all of the former grantees' covenants of quiet enjoyment.
 However, the damage amount the remote grantee can obtain limited ONLY to OBTAIN lesser of
his other actual damages or consideration listed by the earlier grantee.)

DEED COVENANT PROBLEMS - CAE

Does grantee own title but she has merely discovered on encumbrances on the property?

 If so, then only CAE has been breached


 Like COS, CAE is present covenant, and COS for breach is impliedly assigned to remote grantees
only in a Rockafellor JX.
o Even in Rockafellor JX, remember SOL issue.
NOTE: damage amount owned for an encumbrance is simply the cost to remove the encumbrance or
the diminution in value of the property caused by the encumbrance.

Deed Delivery: Rosengrant v. Rosengrant (Okla., 1981)

Facts: H&M tell Jay, their nephew, land would be left to him. H&M have banker prepare document
granting Jay title to farm. But Banker put deed in the envelope with both "J.W. or H" names on the
document. This mentioned that option to revoke land could be taken by H anytime. Called "revocable"
title.

Issues: Was deed from Aunt & Uncle Rosengrant legally delivered to Nephew Jay during the grantor's
life? If not, can the document take effect as a will?

Holdings: No, deed was not legally delivered to Nephew Jay during the grantor's life.
o Here, banker's envelope had names of Uncle and Nephew on it.
o & bank custom would allow Uncle to obtain deed from escrow
 No, the document cannot take effect as a will.

Rules: When a deed is placed in a revocable escrow, there is no delivery of the deed to the grantee. The
only grantor must intend for the title to pass irrevocably to the grantee in order for a deed to be valid.

Policies/Reasons: The "delivery" requirement is not just symbolic gesture. Law requires this in order to
ensure that the grantor really does intend to irrevocably transfer title to grantee. Remember a person
can always change a will prior to their death. A deed is different, because title cannot be retrieved once
it has been irrevocably transferred to another.
Property II Law Outline | Haifa Nesheiwat

"[A deed] . . . Necessarily carries all force and consequences of absolute, outright ownership at the time
of delivery or it is no delivery at all." Statute of Wills also contains requirements for a valid will, and
these requirements similarly should be strictly enforced in the case of a land grant. Will's require a
witness and a formalized procedure. In OK, two witnesses signatures on the document were required.
The alternative approach, since they failed to comply with the formalities of a will, H&M could have
transferred title to the property to a trust established for the benefit of Jay, at least until their death.

Oral Conditions on Delivery:

Oral Conditions on Delivery: An oral condition generally cannot be attached to a deed that is physically
delivered to grantee himself.

Oral Conditions on Delivery are Void except


 To show deed is a nullity b/c grantor was drunk or incompetent.
 Where deliver was made to a 3rd party to hold in escrow for the grantee, the 3rd party can testify
as to the grantor's intent.

Miscellaneous Sale & Deed Issues

Limit to Grantor Liability for Future Covenant Breaches


 As FC breaches could occur anytime in the future and future covenants "run with the land" to the
most recent grantee, could a grantor's estate be liable forever for a FC breach?
Notice of Right to File Claims Against and Estate
 When someone dies most States have a prescribed method of notifying people of his or her death
and their right to file any possible claim against that person's estate.
 Such claims would include any deed covenant claim re: conveyance of land made by the decedent.
 Usually, notice of the decedent's death and a person's right file claims against that person's estate
is provided by publication of the same in a local newspaper.
 People typically given a specified period of time, such as 3 -6 months, in which to file any and all
claims against the decedent's estate. Thereafter, any claim against the decedent's estate usually is
barred.
 These proceedings can be contested though, on the basis that notice of the decedent's death and
the right to file claims against the decedent's estate was inadequate.

Equitable Conversion
 What is it?
 When does it come into force?

Doctrine of Equitable Conversion.


 If property is destroyed after the contract has become specifically enforceable, but title technically
has not yet transferred to the Buyer, some courts follow the doctrine of "Equitable conversion."
 Provides that the Buyer suffers the loss on the theory that the Buyer actually holds "equitable
title" to the property and the seller is simply holding "legal title" to the property until the closing.

Not all JX follow Doctrine of Equitable Conversion


Property II Law Outline | Haifa Nesheiwat

 Some courts hold that the Seller suffers the loss in this situation (i.e., they don’t apply doctrine of
equitable conversion).
 Yet other courts say the party in possession, whoever that is, suffers the loss.
 Some courts hold that title has transferred to the buyer and hence the buyer suffers the loss, but
any insurance proceeds due to the Seller for this loss go to the Buyer (modified equitable
conversion).

 Some courts also apply the doctrine when the contract has become specifically enforceable and
then the Seller dies before the closing.
o In this case, the Buyer has to purchase the property, but the decedent's "legatees"
(devisees/heirs re: personal property transferred at someone 's death) own the right to the
purchase price
 In light of all of the above, it is bet to specify in the purchase contract which party will the
property in the event of a loss of the property or the death of the Seller (once the contract has
become specifically enforceable)

Estoppel by Deed
What is it? When Seller warrants, he has title to land and does not, if Seller later acquires that title, title to
the land in question is automatically transferred to the Buyer.
 Seller is considered to have acquired land on behalf of the buyer.
When does it come into effect? Even though Buyer already possesses title to the property, she of course
still might need to bring a lawsuit in or der to quiet title to the property in her name.

Merger Doctrine
What is it? Most states provided that, under the "merger doctrine," any warranties re: title contained n
a real estate purchase contract "merged" into the deed that was delivered at the closing. Buyer's
remedies regarding title representation by the Seller thereafter were limited to deed covenant
breaches.
What is the modern trend? Doctrine in disfavor now, with court often holding that the covenant's
stated in contract are "collateral" to title specified in the deed and that the contract promises re: title
"survive the closing." It is best to expressly state in a real estate purchase contract that the title
covenants stated therein survive the closing.

Notice of Encumbrances
Suppose that the Buyer has knowledge of an encumbrance on the property when he accepts a GWD. Is
the Grantor still liable for a breach of the CAE?

Most States:
 Yes, the CAE is breached. If the grantor didn’t intend to deliver title free of all encumbrances
(such as an easement or a lien), then s/he should have made that covenant (he could have listed
exceptions in the deed). The buyer's knowledge of such an encumbrance is irrelevant.

Some States:
 Very visible easements are excepted from a CAE, on the theory that it must have been the
intention of the parties to exclude such easement.
o For example, more and more States are excepting from the CAE visible easements held by
government agencies (e.g., an easement provided for utilities).
Property II Law Outline | Haifa Nesheiwat

Adverse Possession and GWD


Grantors conveyed a lot they owned to grantee by a GWD. Grantee did not go into possession.

Grantors continued to use the lot to mow hay, grow oats, etc. Some 40 years later, grantee's
grandchildren converted the lot into a baseball field

Grantor's finally claim title by adverse possession?

 Because Grantor would be asserting a superior title, court ruled against the Grantor from claiming
adverse possession (later) than the grantee.
 CQE and CGW, which are future covenants, preclude the grantor from claiming adverse possession
later against the grantee.
Property II Law Outline | Haifa Nesheiwat

Mortgages
Mortgages: Terminology
Creditor = mortgagee = lender (often a bank)

Debtor = mortgagor = borrower (often the purchaser of real property).

 Definition: A mortgage is a security instrument for a loan made by a lender to a borrower


o Mortgage provides that if the loan isn't repaid, lender (i.e., bank) can sell property in order
to obtain repayment of the loan
 Elements Required to Satisfy:
o Mortgages are interested in property, so in order to be enforceable against the borrower,
they are required to be in writing and be signed by the party to be charged (i.e., borrower).
 A Buyer of a property takes title "subject to a mortgage filed against the property" if that Buyer
had notice "of the mortgage prior to his/her purchase of the property.
o Such a Buyer is then responsible to repay the loan secured by that mortgage.
 Typically, a Buyer is notified of the existence of a mortgage through the creditor's recordation of
a mortgage line against the property.

 There can be a number of mortgages filed against a property, including a 1st mortgage, a 2nd
mortgage, a 3rd mortgage, etc.

 Mortgages are referred to by their order of priority, or, in other words, by the order in which they
will be paid off with the sales proceeds at a foreclosure sale.

 A creditor on a 3rd mortgage can foreclose on a property, but the 1st and 2nt mortgage holders
will get paid first in any such case.

 The 3rd creditor will only get paid if there are sufficient sales proceeds with which to do so after
the first and second mortgage holders have been paid off.

Example - Mortgage Pay-Offs


Assume a homeowner has obtained three loans secured by 3 mortgages recorded against his home.
Furthermore, assume he owes 100K on the loan secured by the 1st mortgage, 50K on loan secured by
2nd, and 50K on loan secured by 3rd mortgage, for a total of 200K.

At a foreclosure sale, the property is sold for 175K. How will the 175K be distributed among the
creditors?

 The holder of the first mortgage will receive $100,000, the holder of the second mortgage will
receive $50,000, and the holder of the third mortgage will receive only $25,000 of the $50,000
owed that creditor.

 This example assumes that each of the mortgage holders promptly recorded a mortgage lien
against the property so that any subsequent mortgage holder had notice of the prior mortgage.
Property II Law Outline | Haifa Nesheiwat

 In other words, the order of the recordation of their mortgage liens is what establishes the priority
of payment of one mortgage holder over another.

M1 = $100,000
+ M2 = $ 50,000
M3 = $ 50,000
$200,000
Sale price = $175,000

$100,000
$ 50,000
$ 25,000
$175,000

Debtors’ Protections
 State legislatures over the years have enacted many laws to protect the rights of debtor/borrowers in
foreclosure situations.
o For example, if a creditor (bank) wants a debtor (borrower) to be liable for the balance of a loan
following a foreclosure sale and payment of the proceeds to the creditor, the creditor must make this
very, very clear in the promissory note and mortgage securing that promissory note.
 Also, even after a property has been sold to a new buyer in a foreclosure sale, former owner sometimes
even has the right to come back in an reclaim the property back within a certain amount of time following
that foreclosure sale.
 So, buyers of foreclosed properties should be aware of this possibility.

Mortgage Foreclosure: Murphy v. Fin. Dev. Corp. (1985)


Facts:
 At foreclosure sale, lenders were highest bidder, acquiring property for $27,000.
 Later that day, they offer to sell it to their client for $40,000 (and client buys it for $38,000, 2 days
later)

Issues: In concluding the sale:


 Did FDC owe the Murphy's a fiduciary duty in conducting the sale?
 Did FDC fail to act in good faith?
 Did FDC fail to exercise due diligence?

Holdings: in concluding the sale,


 Yes, FDC owed the Murphy's a fiduciary duty to get a fair price for the property when conducting
the sale.
 No, FDC did not fail to act in good faith.
 Yes, FDC did fail to exercise due diligence.
 Affirmed in part, with damages reduced (because no bad faith) and award of attorney's fees
reversed.

Rules:
In conducting a foreclosure sale, a mortgagee/lender has a duty to exert every reasonable effort
to obtain a fair price.
Property II Law Outline | Haifa Nesheiwat

Traditional mortgage law set certain procedural requirements (such as notice) for foreclosing
lenders.
 Only if the resulting price shocked the conscience would the court set the sale aside.
The Murphy court takes a new approach:
 Lender must "use the ordinary methods of making buyers aware that are used when an
owner is voluntarily selling his land."
 **MORE EFFORTS TO BE MADE**

Analysis: Court hold the measure of damages where due diligence is lacking the difference between the
sale price and a "fair" price (not fair market value).
 A "fair" price may be somewhat less than fair market value
 Mortgagee/lender does not have to hold out for the highest price.
 So, trial court's award of damages based on FMV was too high.
Old standard of legal notice is replaced with new standard of commercial reasonableness, to the
advantage of the borrower and disadvantage of the lender.
 This has long been the status for chattel foreclosures (e.g., on auto loans).
 Murphy represents a new approach that will probably continue to gain ground.
 Courts ask whether the sale was commercially reasonable

Policies/Reasons:
Why does the court award damages rather than setting aside the sale?
 Innocent buyer would bear the cost then, and it would undermine certainty in land sale
transactions.
What's an "upset price"?
 It's similar to a reserve or minimum price, below which the property will not be sold at
foreclosure.
 It protects the borrower against an unfair foreclosure price.
Property II Law Outline | Haifa Nesheiwat

Land Transactions: Title Assurance

Financing & Title Assurances: Title Contests


Recording System: Type of Indexes (Luthi, Orr)
 Recording Acts:
o Record Notice
 Luthi (specificity)
 Orr (Misspellings)

COMPETING CLAIMS TO A PIECE OF PROPERTY

Common Law Rule:


 ” First in Time Prevails” - based on the idea that the grantor who keeps giving out title to a piece
of land has nothing left to convey to a second grantee
o Under each of the Recording Acts (RA), the “First in Time” rule is the default rule if the
claiming drones satisfy the criteria stated in the Recording Act.

Common Law Rule:


 ”First in Time Prevails” (first grantee)
Recording Acts:
 Race: Who was the first to record in the chain of title?

 Notice: Did the subsequent bona fide purchaser not have notice of the prior claim at the time of
purchase?
o Actual, Inquiry, Record

 Race-Notice: Did the subsequent bona fide purchaser


o Not have notice of the prior claim AND
o Record first in the chain of title?

Recording Acts:
 Provide a way to set a system to record land sale transaction to know whether the title had
already been conveyed to another purchaser.
 Your record it in a title index
 O sells to A, but later also did to B
 This protracts B (who did not have notice of prior claim) and A to stake their claim in the land.
 If the statute of SBP does not apply (not satisfied) then the default rule kicks in)
 However, recording acts came about in all of the 50 states. For most recording acts, the state
wants to Procter the unseen bona fide purchaser for value unaware of a prior interest in a piece of
property.
 Each type of recording act specifies how parties should act in order to be protected. Again, if the
grantee doesn’t meet the requirements of the Act, then the common law rule of FIRST in TIME is
followed
Property II Law Outline | Haifa Nesheiwat

 NOTE: someone who acquires property through inheritance or gift cannot rely on the RA (but
someone who purchases from their heir or donee can rely on the RA).

Purchaser:
 A purchaser is protected by the Recording Acts applies to any party who has paid consideration
for the interest acquired (which can include mortgagees and lessees).
o Most courts require payment of “more than a normal value: or that is “not grossly
inadequate.”
o A deed reciting “$1 and other good and valuable consideration” raises a presumption that
the grantee is a purchaser for valuable consideration.
 The burdens to challenge consideration shift to the art of attacking the deed.
o Threshold not high
o Show that it is not an heir or donee

Three Types of Recording Acts - 3 types of JX:


1. Race
2. Notice
3. Race-notice

For notice and race-notice, states are concerned about a subsequent purchaser failing to see a prior
claim, and they want the prior purchaser to record his or her deed to prevent this from happening. But
they handle this situation in different ways.

Race Jurisdiction:
 Under the race statute, as between successive purchasers of [prop/land title], whichever party
who records FIRST in chasing of title prevails.

 Example:
o O conveys Blackacre to A, who does not record. O then conveys Blackacre to B for a
valuable consideration. B even knows of O’s deed to A, but B records his deed from O first.
o Who prevails?
o B wins the title contest, as B’s actual knowledge of A’s deed is irrelevant in a Race
Jurisdiction.

Notice Jurisdiction: (AIR)


 Under the notice statute, a subsequent purchaser without notice is protected even if he fails to
record first (or at all) himself.
 What is important is the 2nd party’s lack of notice of the 1st party’s claim
 In a notice Jx, always start by asking what person who purchased last in the chain of title for the
property saw at the time of purchase (not at the time of his/her recording of the deed).
 ASK: Whether the subsequent purchaser was put on notice?

Actual Notice
A - Actual Notice (Buyer actually had notice of the prior claim somehow)
Constructive Notice:
I - Inquiry Notice (facts that should have put buyer on notice of prior claim
Property II Law Outline | Haifa Nesheiwat

R - Record Notice (notice was recorded)


 Anyone of these will cause B NOT to prevail
 If he does not have any of these types of notice at the time of purchase, then B can prevail.

Example:
 O conveys Blackacre to A, who does not record. O then conveys Blackacre to B for a valuable
consideration. B has no notice of A’s deed. B does not record.
 Who prevails?
 B prevails over A, even though B does not record his own deed. What matters in a notice jx is B’s
lack of notice of A’s claim

Race-Notice Jurisdiction:
 Under a race-notice statue, a SP is protected against prior unrecorded instruments only if the SP
had no noise of the prior claim and goes ahead and records first in the chain of title him/herself.
 That is, to prevail, the subsequent purchase needs to be
1. Without notice of the prior claim; AND
2. The first to records the entire chasing of title for that property.

Example 1:
 O conveys Blackacre to A, who does not record. O then conveys Blackacre to B, who does not
know of A’s deed. Then B records; then A records.
 Who prevails?
 B prevails over, because B has no notice of A the time B purchased the property and also
recorded before A did.

Example 2:
 O conveys Blackacre to A, who does not record. O then conveys Blackacre to B, who does not
know of A’s deed. Then A records; then B records.
 Who prevails?
 A prevail over B, because B failed to record before A did, even though B was unaware of A.
 Here, as B did not satisfy all aspects of the statute in this Race-Notice Jurisdiction, A actually
prevails under the common law rule of “First in Time.”
Note: A does NOT prevail under the Recording Act. ONLY a subsequent purchaser can win “under the
Recording Act.”

First: who is the subsequent purchaser?


2nt: who is the second to purchase?
- Did B have notice at the time of purchase?

**Shelter Rule:
An erosion who takes a bona fide purchaser protected by the Recording Act has the same rights as his
or her grantor.
** always analyze this rule under notice and race-notice JX, not really race jx (perfect rule or something
like that is called - don’t worry about that much)
Property II Law Outline | Haifa Nesheiwat

“NOTICE” - Record Notice - A type of Constructive Notice


1. Provided by Grantor/Grantee Index (traditional way)
 Most States have a Grantor/Grantee Index. That is, in the Grantee index, treat your
intended grantor as a grantee and ask for any documents filed under the name of that
person and you should see a deed that was granted to him/her by his /her own grantor.
 Then, treat your grantor’s grantor as a grantee and determine who the even more remote
grantor was. Continue doing this, working your way backwards in time, all the way back
the number of years specified in the applicable State's law.
 Example:
 Gloria ("G") wishes to buy a piece of property form Frank ("F").
 G (or her title insurer) would start by treating "F" as a Grantee and see if he actually
received title form someone else and if so, from whom.
 Assuming "F" appears to have received the property through his grandfather (Edgar
or "E")'s will, G would next check in the Grantee Index to see if "E" himself actually
received title to the property, and if so, from whom.
 What should the Buyer "notice" when he goes back down the chain in the
Grantor/Grantee Index?
 Most JX: you have to follow each Grantor starting on the date that s/he obtained
title to the property up until the date ofhis or her first recorded dee of the property
to someone else.

2. Provided by Lot Number/Numerical Index (most common)


a. Did O have a valid claim?
i. Look at who O got property from
1. Treat O as a grantee

The Recording System - Types of indexes: Record Notice

Specificity - Luthi v. Evans - Specificity -


(Sup. Ct., of Kan. 1978)

Facts:
 2/1/1971: Grace Owens assigns to International Tours her interest in oil & gas leases on seven
tracts of land.
o The assignment contains a clause conveying Owens’ interest “in all oil and gas leases in
Coffey County, Kansas whether or not ... specifically enumerated.”
 This is called a “Mother Hubbard” clause. Owens owned the “Kufahl lease” in Coffey
County, which was not specifically enumerated in the assignment to Tours. Tours
records assignment.
 1/30/1975: Owens then assigns to Burris her interest in the specific “Kufahl lease.” Both Burris and
a title researcher fail to discover the prior assignment of the Kufahl lease to Tours.
o Kansas has a Notice Recording Act.
 Nothing in the Grantor/Grantee Index itself showed the prior assignment of the
Kufahl lease, and, in Kansas, Burris was entitled to rely on the Index itself (so Burris
wasn’t required to actually inspect each separate deed referred to in the Index).
 This action is between the successors to Burris and Tours.
Property II Law Outline | Haifa Nesheiwat

Issue: Ask whether the SP (Burris) has record notice of a prior claim of the K-
 Did Burris (subsequent purchaser) have record notice (a type of constructive notice) of the prior
assignment of the Kufahl lease to Tours through Tours’ recording of Owens’ general assignment
of “all oil and gas leases in Coffey County?”

Holding:
No, the recording of the assignment containing a Mother Hubbard clause did not give Burris
constructive notice of the Kufahl lease.
– Thus, Burris (subsequent purchaser) owns that lease now under Kansas’ Notice Statute.
• The Grantor/Grantee Index didn’t refer to any oil and gas lease assignments from Grace Owens except
those that had been specifically enumerated in the assignment to Tours.
– Also, even the Numerical (or Lot #) Index for the Kufahl lease property didn’t indicate a change of
ownership of the Kufahl lease, since the lease hadn’t been specifically identified in the Tours assignment
document.

Rule: In order to give constructive notice of an interest in land, a recorded document (or Index if
the Index is part of the record) must specify the land in question with sufficient specificity for a
title searcher to actually discover a prior owner’s interest in that land

Policies/Reasons:
As between Tours and Burris, Burris (subsequent purchaser) is more innocent.
Burris did everything he could to assure that he was buying a lease that hadn’t been assigned to anyone
else.

Is there anything more that Tours (first purchaser) could have done to protect itself?
 Yes, after getting the general assignment, it could have occupied the land in order to give
someone like Burris “inquiry notice” of its claim.
 Or, Tours could have recorded a more specific description of the Kufahl lease so that someone
like Burris would see that Tours claimed ownership of it.

In other words, the Buyer can record a more specific description of a vague description that was
contained in the deed provided by the Seller (in an affidavit).

Who would have prevailed if the clerk had made a recording error (say, recording it under the wrong
name or lot number in the Indexes)?
 • The court in Luthi also notes that if the County Clerk had simply made an error in recording,
Burris (second purchaser) would be out of luck.
o – The second owner is the one who suffers due to a mistake made by the Recorder’s
Office.
o – That is, between two innocent parties, the court falls back on the common law rule that
the first party’s interest in a particular piece of land prevails, so long as that party properly
recorded and tried to give notice to later purchasers.
 Does this seem like a fair rule to you?
o Courts are split on this issue.
Property II Law Outline | Haifa Nesheiwat

What if the clerk made an error?


 County clerks typically are also protected from liability for their negligence under sovereign
immunity statutes.
Note: In Luthi, though, Tours can probably get its money back from Owens, under a theory of
unjust enrichment. Owens should not be paid for the same property twice.

Review: Luthi v. Evans (1978)- Specificity

Issue: Did B (SP) have record notice of the prior assignment of the Kufahl lease to Tours where Tours
had recorded Owens' general assignment of "all oil and gas leases in Coffey County"?

Rule: In order to give constructive notice of an interest in land, a recorded document (or index if the
index is part of the record) must specify the land in question with sufficient specificity for a title
searcher to actually discover a prior owner's interest in that land.

Holding: No, the recording of the assignment containing a Mother Hubbard clause did not give Burris
constructive notice of the Kufahl lease.
Burros owns that lease now under Kansas' Notice Statute.

Record Notice: Orr v. Byers - Misspellings -

Orr v. Byers - Misspellings


Ct. of App. Of CA, (4th District, 1988)

Facts:
 James Orr obtained a judgment against William Duane Elliot.
 The written judgment, prepared by Orr’s attorney identified Elliot as William Duane Elliot, and the
judgment was indexed under that name, and under the name William Duane Eliot.
 Elliot then obtained title to land that became subject to Orr’s lien against Elliot (so Orr technically
had a prior claim to this property of Elliot’s). Elliot then sold this new land to Byers; Byers’ title
search did not disclose the abstract of judgment that had been filed against Elliot by Orr,
because of the misspelling of Elliot’s name. Byers paid Elliot, and Elliot did not even use the
proceeds to pay off Orr. Orr then sued Byers to foreclose on Orr’s lien, arguing that Byers should
have found Orr’s prior claim to the property during his title search regarding the property.
 California is a Race-Notice Jurisdiction.

Issue: Did the recordation of the abstract of judgment under the names "William Duane Elliot" and
"William Duane Eliot" give record notice (a form of constructive notice) to Byer's of Orr's judgment
against Elliott, the Seller, under the doctrine of idem sonans?
 misspelled name imparts constructive notice of it contents under the doctrine of idem sonans?

Rule: The doctrine of idem sonans provides that although a person's name has been inaccurately
written, the identity of the person in question will be presumed from the similarity of sounds between
the correct pronunciation and the pronunciation as written.
Property II Law Outline | Haifa Nesheiwat

"written name is material,… to be material, a variance must be such as ha misled the opposite party to
his prejudice

Holding: No. The doctrine of idem sonans, often applied to misspelled names in various legal
proceedings, such as criminal indictments, pleading and contracts is not applicable to the property
recording systems. A document that is recorded under a misspelled name does not provide constructive
notice of an interest in that person's land. So the subsequent purchaser (Byers) would prevail.
 Note: this is a minority (California) rule.
 Most states follow the doctrine of idem sonsans with respect to recorded interests in land
(particularly in view of increasing computerization), requiring a prospective purchaser to search
for similarly spelled names.

Policies/Reasons:
 Court thought it was unfair, inefficient, and costly to require one inspecting real estate records to
think of every single possible misspelling of the Seller's name that might be pronounced the same
in order to find a document in the Seller's name.
 The burden of recording the correct name should be on the person who records the document.
He or she should know how to spell it correctly. Of course, lawyers and title insurers and the like
are just agents of the recording party (but the recording party can sue a negligent agent).
 Doctrine of idem sonsans should not be applied to a situation where the spelling of a name is
actually material - here, notice of an event involving that name.
 In other situations, where it has been applied, such as were the criminal defendant's order of
conviction misspells the defendant's name, there has been no confusion or injustice resulting
from the misspelled name.
o Application of the doctrine didn’t='t cause the wrong person to get sent to prison, for
example, and in fact it would have been unfair to have rewarded a criminal defendant just
because his/her name had been misspelled on a pleading.

Majority - Idem sonans places the burden of additional searching on the subsequent purchaser.
Minority - Orr rule places the burden of accurate recording on the earlier purchaser (the grantor).

Eye not sight:


 Green v. Meyers (1903) did not apply here because law of notice by record is addressed to eye and
not ear and therefore can't apply to records.
 Court rejected Greens holding since the written name in the case is material and did not dispenses
the formalities of record notice.
Byers was not put on notice that there was a prior lien on the property

Review: Orr v. Byers


Issue: Did the recordation of the abstract of judgment under the names "William Duane Elliot" and
"William Duane Eliot" give record notice to Byers of Orr's judgment against Elliott, the Seller, under the
doctrine of idem sonans?

Rule: idem sonans provides that despite misspelling, the identity of the person in question will be
presumed from the similarity between the correct pronunciation and the pronunciation as written.
Property II Law Outline | Haifa Nesheiwat

Holding (Minority): Idem sonans does not apply to the property recording system. A document that is
recorded under a misspelled name does not provide constructive notice (so grantees should make sure
the record is correct).
 The Majority rule is idem sonans does not apply, and prospective purchaser must search under
common misspellings.

Types of Recording Acts (Messersmith)

Messersmith v. Smith
________________________________________________________________________
CF CSmith SmithSearle. F records (subsq. purchaser,
(NR) Treated as not recorded . Subsequent purchaser, recorded)
b/c improperly notarized

Race-Notice: Did Searle record first without notice?

Holding: Not all deeds in Seale’s chain of title were correctly “recorded” because the earlier C to Smith
deed was defective.
The early deed was not treated as “recorded”, even though technically recorded, because Caroline did
not personally appear before the notary.
So, Seale is not a subsequent purchaser in good faith (without notice) who recorded first in the chain of
title. (Searle doesn’t satisfy the race-notice requirements of the recording act, so F wins under first in
.me rule.)
[Note: Treating a latent defective deed as not recorded is the minority rule. In a Majority of
jurisdictions, the C to Smith deed would be treated as recorded]

Pg 681, prob. 2

Elizabeth Taylor owns Whiteacre, and the record title is in her name. Elizabeth marries Eddie Fisher
and gives a mortgage on Whiteacre to Carol Burnett, signing the mortgage “Elizabeth Taylor
Fisher.” This mortgage is indexed under the name of “Fisher.”
Subsequently, Elizabeth divorces Eddie, resumes her maiden name, and sells Whiteacre to Adam
Sandler, signing the deed, “Elizabeth Taylor.”
Sandler has no actual notice of the Burnet mortgage on Whiteacre recorded under the name Elizabeth
Taylor Fisher.
In a jurisdiction where indexing is a part of the record, does Sandler prevail over Burnett?
 I: The question is whether Sandler somehow should have known to look for documents
recorded under the name “Elizabeth Taylor Fisher.”

 That is, it appears that “Fisher” is not in any way connected to the chain of title on
Whiteacre.

 Does the doctrine of idem sonans apply?


o No. “Fisher” doesn’t sound at all like “Taylor.”
Property II Law Outline | Haifa Nesheiwat

 So, who should prevail?

Sandler should prevail over Burnett, unless the circumstances were such as to put Sandler on
“inquiry notice” of instruments recorded under Elizabeth’s former married name.
E.g., It might be claimed that “everyone knows Elizabeth Taylor gets married and changes her
name every year” or it might be proven that Sandler attended her marriage to Fisher and
hence had “inquiry notice” of her name change.

NOTE: Why don’t we just use social security numbers instead of names re: real estate recordings?

Pg. 685, Prob 1


O conveys Blackacre to A, who does not record.
O subsequently dies, leaving H as her heir.
H then conveys Blackacre to B, who records.
B purchases for a valuable consideration and without notice of the deed from O to A.
Who prevails?

 In the leading case of Earle v. Fiske, 103 Mass. 491 (1870), it was held that B prevails.

 But how can this be?


 If H did not actually inherit Blackacre from O under the “First in Time Rule,” (because O
had already conveyed Blackacre to A), how can H convey Blackacre to B?

 B prevails over A because A failed to record.


o If A wants to maintain his or her priority, she must somehow put subsequent
claimants on notice and recording her deed is the best way to do so.
o It is wrong to think of title passing to A against all the world by O’s deed. While as
against O, A prevails.
o But until A records, O (or O’s heir H) has a power, given by the recording system,
to defeat A by conveying the property to a bona fide purchaser.

 As between A and B, B is more innocent. A could have recorded.


o This example also shows the subsequent purchaser (B) can purchase the property
from someone who is not himself protected by the applicable Recording Act (as H
did not purchase the property), and Recording Acts protect subsequent purchasers.

Pg. 685, Prob 2

 O conveys Whiteacre to A, who does not record.


 O sells to B, who does not record.
 A then records and conveys to C for a valuable
consideration.
 B records. C records.
 Who prevails under a notice statute? A race- notice statute?

Notice JX:
 Who is the subsequent purchaser? C
Property II Law Outline | Haifa Nesheiwat

o ASK - Notice: did the last purchaser, C, had notice of B's prior claim at the time of
purchase?
 Actual, Inquiry, Record
o C would prevail against B in a notice jurisdiction because at the time that C purchased
(A -> C (NR) above), C did not know about B and this is all that matters under the
Recording Act.

Before leaving this problem, apply the Shelter Rule: **always analyze**
 Could the loser B step into the shoe of his/her own grantor (O) and prevail against C? [O vs.
C?]
o No, because O is also C's (remote) grantor.

Race-Notice JX:
 Go to last purchaser for value (here C) and ask:
o ASK - Race-Notice: Whether she had notice of another claim at the time she purchased
the property.
 If answer is "no," then ask whether that person also recorded first in the chain of
title.
 If answer is "yes," then s/he satisfied all of the criteria under the Statute and
would appear to win the title contest under the Race-Notice Statute
o Did C have notice of B's claim at the time of purchase?
 No. it doesn’t appear C had notice of B's claim at the time of purchase (A -> C
(NR) above)
o Did C record First?
 It appears C did not record until AFTER B had recorded.
 B appears to be the winner. However, before leaving a title contest problem, ask:
whether the result would be different under the shelter rule.
 Shelter rule: put the apparent loser C into her Grantor A's shoes
 Make a title contest of A vs. B. Who is the subsequent purchaser?
 B is the subsequent purchaser.
 Did B have notice of another claim at the time of B's purchase?
 No. (A had not yet recorded).
 Did B record before A?
 No. B recorded after A
 So, A would prevail under the shelter rule.
 That means A's grantee, C, takes shelter under A
 So, C prevails under the shelter rule.

Chain of Title Problems


Deeds outside the Chain of Title - Board of Education of Minneapolis v. Hughes (Minn., 1912)

Facts:
 5/17/1906: Hoerger executes a deed in blank and delivers it to Hughes for $25.
 4/27/1909: Hoerger executes a quitclaim deed to the same property and delivers this deed to
Duryea & Wilson (D & W) for $25. D & W does not record this deed at this time.
 11/19/1909: D & W executes and delivers a deed to the Board of Education.
 1/27/1910: Board of Education records its own deed.
 12/16/10: Hughes fills in his name as grantee on the 1906 deed and records this deed.
 12/21/1910: Then, the Hoerger èD & W deed is finally recorded.
Property II Law Outline | Haifa Nesheiwat

Court found that the first conveyance from Hoerger to Hughes with blank grantee was not effective

In Minnesota in 1912, the rule was that a deed wasn't operative until a name was inserted as grantee,
even if the deed was in the hands of the grantee.

So the first "conveyance" from Hoerger to Hughes was ineffective under Minnesota law because it was
blank.

Who is competing here in this contest?


Board and Hughes (not D&W, because D&W conveyed to Board.

Who does the court find is the subsequent purchaser?


Hughes. The first "conveyance" from Hoerger to Hughes was ineffective under Minnesota law because it
was blank.

Because Hughes is considered the "subsequent purchaser" in the chain, so then we ask whether he had
notice of the Board's claim and recorded first "in his chain of title."

Hoerger _?_ D & W (nr) → Board (r)

The Board has a missing link in its chain of title to Hoerfer, the common grantor. The 1st deed in its
chain of title (from Hoerger to D&W) has not been recorded when Hughes purchased. So, Hughes (SP)
would not be able to see the recorded deed from D&W to the Board (wild deed). Hoerger is the only
grantor that Hughes could see. So, the Board doesn't record first in its chain of title.

Second Purchaser:
Hoerger → Hughes (r)
[Hughes records the 1st and only deed in his chain, so he is the first to "records in his chain of title."

When Hughes goes to the County Recorder’s Office and asks for all of the documents in Hoerger’s name
(as Hoerger is the only grantor Hughes knows about), Hughes is not going to be given the Hoerges → D
& W deed, because it wasn’t recorded yet. And the County Recorder’s Office isn’t going to give Hughes
the D & W → Board wild deed, as Hughes didn’t mention either name and has no way of knowing to ask
about these names.

Issue: As between Hughes and the Board of Education, who prevails in a title contest in this, a Race-
Notice, Jurisdiction?
(Note: D&W is no longer in the picture as it has sold its interest in the property to the Board of
Education).

Holding: Hughes, because he was the (subsequent) purchaser on December 16, 1910, when he filled in
his name on the deed. At that point, the D&W → Bd. Of Ed. Deed, (although recorded) was "wild"
because the Hoerger → D&W deed had not yet been recorded.
 So, Hughes had no notice of Hoerger's conveyance to D&W.
Property II Law Outline | Haifa Nesheiwat

That is, there was a gap in the Board's chain of title back to Hoerger, so Hughes couldn’t see the Board's
claim to the property when Hughes filled in his name on his deed from Hoerger. So, Hughes did not have
notice of a prior claim at the time of purchase (here, when Hughes filled in Hughes' name).
Hughes also recorded "first in the chain of title," because the Board did not record its entire chain of
title.

Rule: To prevail in a Race-Notice Jurisdiction, one has to be the second to acquire the property, pay
money for the property, have no notice of prior claim at the time of acquisition, and be the first to
record in the chain of title. Here, Hughes met all of these rules, so Hughes prevails.

Wild Deeds - recorded deeds that are unconnected to one's grantor provided no (constructive) notice
to a subsequent purchaser.

This means that in order to prevail in a Race-Notice Jurisdiction, one needs to make sure that all prior
unrecorded deeds in the chain of title are recorded in addition to one's own deed.

It is only the complete chain of title that will notify a later purchaser of one's title, and so someone
relying on a Race-Notice Recording act, tp obtain title must create this chain herself in order to
properly inform even later purchasers of the propety of her own claim to the property.

Review: Board of Education of Minneapolis v. Hughes

Holding:
Although the D&W èBd. of Ed. deed was recorded, it was “wild,” b/c the Hoerger èD & W deed had not
yet been recorded, so Hughes had no record notice (Hughes would only have checked under his grantor
“Hoerger”, and could not have found the wild deed).
Hughes also recorded “first in the chain of title,” because the Board did not record its entire chain of
title.

Rule: To prevail in a Race-Notice Jurisdiction, one has to be the second to acquire the property, pay
money for the property, have no notice of prior claim at the time of acquisition, and be the first to
record in the chain of title.

Chain of Title:
Series of recorded transactions showing how title passes to the present grantee
Here, the chain of title shows how title passed from A to D.

Wild Deed:
A wild deed: A recorded deed that is not connected to the grantee's chain of title.
 O->A (NR). A-> (R)O-> (R)

How could C ever find the deed from A to B

 C wouldn’t to find the A -> B deed because the deed from O -> A was never recorded. C doesn't
know anything about the deed from A -> B
Property II Law Outline | Haifa Nesheiwat

 We call the deed from A -> B deed a wild deed because it is a recorded deed not connected C's
chain of title. The wild deed from A to B does not provide constructive notice to C

B could submit an AOE or Declaration:


 AOE saying that O had title prior to B claiming the land
 Declaration
 This would help cure the chain of title putting the SP on notice that there was a connection from B
to O

Inquiry Notice – Incorporation by Reference


Harper v. Paradise

Facts:
2/1/1922: Susan Harper conveys to Maude for life, remainder to Maude’s named children. Deed is lost
until 1957 (35 years).
Sometime between 1925 and 1927, Susan dies intestate, survived by Susan’s kids: Price, Prudie, Mildred
and John.
3/28: Price, Prudie and Mildred (Susan’s kids) execute and record an instrument that says that Susan in
March 1927 [sic] executed and delivered a deed to Maude, this deed has been lost, and they quitclaim
their interest in the land (if they have any) to Maude. (The fourth heir, John, is married to Maude.)

NOTE: Maude’s children have no remainder to the property in this second (quitclaim) deed executed by
Susan’s thee children (Price, Prudie and Mildred) in place of the lost 1922 deed.

2/27/33: Maude executes a deed of trust to Ella Thornton to secure a $50 loan.
 1936: Deed of trust is foreclosed, and sheriff’s deed to Ella is recorded.
 1936-1955: Ella conveys to the Paradises. Maude is alive this entire time.
1957: The 1922 deed from Susan to Maude for life, remainder to Maude’s named children, is found in
an old trunk belonging to Maude.
7/57: The old 1922 deed is recorded.
 Finally, in 1972: Maude herself dies, 15 years after the 1922 deed was recorded.

Georgia is a Race-Notice Jurisdiction.


Issue:
 Did Maude convey a life estate (per 1922 deed) or FSA (per the 1928 deed) to ET in 1936?
 Whether the Paradises have title to the FSA depends on whether they have notice of the lost
1922 deed (which only conveyed a life estate to Maude).
Issue:
1. Do the Paradises have title under the 1928 deed or did they have notice of the 1922 deed, which
only gave Maude a life estate (so Maude could only mortgage her life estate)?
2. Alternatively, do the Paradises have title by adverse possession?

Holding: The Paradises do not have title under the 1928 FSA deed, because the recitals in that deed put
subsequent purchasers on inquiry notice of the existence of the earlier, lost deed. The Paradises had
notice of the 1922 deed (which only gave Maude a life estate) as did everyone else in their chain of
title, including Ella, the mortgagee, so everyone took title subject to the terms of the 1922 deed (life
Property II Law Outline | Haifa Nesheiwat

estate). Essentially, the court holds that the 1922 deed was “recorded” in 1928, when the 1928 deed
was recorded. That is, the earlier (life estate) deed was incorporated “by reference” in the later deed.
This is strange, as the relevant term (Maude only had a life estate and could not mortgage any more
than this life estate) was not recorded until 1957, and the 1928 recorded quitclaim deed said the earlier
deed was lost.
At the same time, Maude was alive between the dates of the two deeds, so anyone could have asked
her about her interest for many, many years before the 1922 deed itself was recorded.
(But she of course might not have understood that she only owned a life estate anyway.)
Paradises also do not have title by adverse possession, because the SOL did not begin to run against the
remainder persons (Maude’s named children) until 1972, when Maude died and the property went to
them. This is because the court held that Maude only transferred a life estate to Ella.
In other words, Maude’s children had no right to eject the Paradises before this date, as they didn’t own
the property (through their remainder) until Maude died.
Remember the adverse possessors came onto the property when the life tenant (Maude) had the
property. Therefore, the “adverse possessors” were only “possessing” against Maude’s life estate.
The SOL starts over when the remainder persons (Maude’s children) take over.

Reasoning: Reference to the earlier deed triggers inquiry notice of that document, so a purchaser is
charged with knowledge of the entire contents of that document, at least when that document or
knowledge regarding it is ascertainable.

Review: Harper v. Paradise

Issue: Do the Paradises (subsequent purchaser) have title under the 1928 deed (giving Maude a FSA) or
did they have notice of the lost 1922 deed (which only gave Maude a life estate, so she could only
mortgage her life estate)?

Holding: The Paradises do not have title under the 1928 FSA deed, because the recitals in that deed put
subsequent purchasers on inquiry notice of the existence of the earlier, lost deed.

Rule: Essentially, the court holds that the lost 1922 deed was “recorded” when the 1928 deed was
recorded. That is, the earlier deed was incorporated “by reference” in the later deed.

Reference to a lost document in a recorded document is essentially equivalent to the recording of the
referenced document.

Reasoning: Reference to the earlier deed triggers inquiry notice of that document, so a purchaser is
charged with knowledge of the entire contents of that document, at least when that document or
knowledge regarding it is ascertainable.

Possession: Waldorff Insurance & Bonding v. Eglin National Bank (notes)

Waldorff’s possession of a condominium in a complex gave inquiry no1ce to a subsequent purchaser


(here a bank) of Waldorff’s prior title interest in the property.
Property II Law Outline | Haifa Nesheiwat

In this case, Walforff had an unrecorded purchase and sale agreement to purchase that Unit.

“actual possession of a property that is not supposed to be occupied is constructive notice to all the
world of whatever ownership rights the occupants may have in that land”

Issue:Did Waldorff’s possession of Unit #111 in 1973, prior to Eglin Bank’s two new loans after that time,
give notice to Eglin Bank of Waldorff’s unrecorded purchase agreement (i.e., prior title claim) regarding
Unit 111?

Holding: Yes, Waldorff’s possession of Unit #111 gave inquiry notice to Eglin Bank of Waldorff’s prior
title interest in the property, pursuant to its unrecorded purchase and sale agreement to purchase that
Unit.
 Citing the case of Blackburn v. Venice Inlet Co., the court held that it is settled law in Florida that
actual possession of a property that is not supposed to be occupied is constructive notice to all the
world of whatever ownership rights the occupants may have in that land.

Reasoning:
The Buyer should inspect the property in any case, and it is easy for the Buyer to inquire of someone in
possession as to his/her rights.
It is better for all concerned to require the purchaser to inquire of the possessor than to have everyone
upset regarding the possessor’s ownership claims after the sale.

Rule: Mere possession of a property that is not supposed to be occupied gives inquiry notice to a
prospective purchaser of whatever ownership rights the possessor has to that property.

Rule in other States:


When it comes to a property that is supposed to be free of possessors (unlike a property that is subject
to a leasehold), many other States follow this rule.

Review: Waldorff Insurance & Bonding

Issue: Did Waldorff’s possession of Unit #111 in 1973, prior to Eglin Bank’s (subsequent purchaser) loans
in 1974, give notice to Eglin Bank of Waldorff’s unrecorded purchase agreement (i.e., prior title claim)
regarding Unit 111?

Holding: Yes, Waldorff’s possession of Unit #111 gave inquiry notice to Eglin Bank of Waldorff’s prior
title interest.

Rule: Actual possession of a property that is not supposed to be occupied is constructive notice of
whatever ownership rights the occupants may have in that land.

Supp. 5
view
P v. C Common law? Race jx? Notice jx? R-N Jx?
Property II Law Outline | Haifa Nesheiwat

Issue Who was the 1. Who is the 1. Who is the subsequent 1. Who is the subsequent
first to the subsequent purchaser? purchaser?
title? purchaser? 2. What did SP have 2. Whether that person
2. Did that notice of at the time of recorded first and
person record purchase? 3. Was without notice at
first? the time of purchase?

Rule Under common Under a race Under a notice statute, the Under a race-notice
Law, the first in statute, the first to SP without notice is statute, the later grantee
time to the title record in the chain protected even if s/he fails must meet both
prevails of title prevails. to record first (or at all) elements of the statute to
himself. prevail: s/he must purchase
 Actual notice: without notice of the first-
whether the buyer in-time party's prior claim
had actually been put to title and also be the first
on notice of a prior to record in the chain of
claim? title.
 Inquiry Notice: are
there any facts that
should have put the
buyer (SP) on notice
of a prior claim?
 Record Notice: had
there been a record
of any recorded
deed?

Analysis Pearse wins Here, Pearse was Here, C purchased last and Here, while Connelly
because he took the first to record probably wins because eh took his deed without
his deed from in the chain of took his deed from Mac any notice of the deed to
MacDonough title. without any actual notice Pearse, Pearse recorded
before Connelly and also probably without
his deed two days earlier
took his deed. any constructive knowledge
of the earlier deed to
than Connelly did.
Pearse. Connelly fails to meet
There was no recorded both the requirements of
notice at the time Connelly the Race-Notice statute.
took his deed, because So, C doesn't prevail, then
Pearse had not yet recorded the default rule applies and
his deed. P win because P is the first
Probably insufficient facts in time.
for "inquiry notice", even
though it is true that
Connelly purchased the
property for 80percent of
the market value, giving him
a 20% discount on the
property. Connelly knew
that Mac needed the
money.
Property II Law Outline | Haifa Nesheiwat

NO need to discuss the


shelter rule because there is
no way that P can take the
title from M (double-dealer)
Conclusion Pearse was Thus, Pearse Thus, Connelly arguable had Thus, Pearse wins
"first in time" prevails/wins. no reason to suspect that a because he was the first
grantee, so he lower price might have in time.
wins/prevails something to do with an
under the" first earlier conveyance of the
in time" rule. property.

Supp. 6
P v. M R-N Jx? - Statute says "An unrecorded conveyance is invalid as against a subsequent
bona fide purchaser for value without notice who first records."
Issue 1. Who is the subsequent purchaser?
2. Whether that person recorded first and
3. Was without notice at the time of purchase?

Rule Under a race-notice statute, the later grantee must meet both elements of the statute
to prevail: s/he must purchase without notice of the first-in-time party's prior claim to title and
also be the first to record in the chain of title.
Analysis Here, Patrick would win if he did not have notice of Melissa's claim
 Issue: In determining who recorded first, are any of the deeds that were
recorded "wild"?
 In other words, is any of these recorded deeds not connected to Patrick's chain of
title?
Here, because the earlier deed from Camile to Siobhan was not recorded, Melissa did
not record her entire chain of title first. Instead, Patrick was the first to record.

 Issue: Did Patrick purchase without record notice of another claim?

Here, Melissa recorded her own deed first, but her deed is wild because it is not
connected to Camile. Thus, Patrick was not provided with record notice.

 Issue: Did Patrick purchase with any actual notice of another claim?

Here, Patrick was not actually told that anyone had title to the property. Thus, Patrick
was not provided with actual notice.

 Issue: whether Patrick had inquiry notice of Melissa's claim

Here, Camile told Patrick Melissa moved out and perhaps indicated to Patrick no one
was on the property. However, Patrick should have seen Melissa's possession of the
property.
Property II Law Outline | Haifa Nesheiwat

Conclusion Assuming, Patrick satisfied the "inquiry notice," Patrick still failed to satisfy the
requirements of the recording act. Thus, Melissa will then win the title contest,
because she was first in time.

Supp. 7

G v. C Race jx? Notice jx? R-N Jx?


Issue 1. Who is the subsequent 1. Who is the subsequent 1. Who is the subsequent
purchaser? purchaser? purchaser?
2. Did that person record 2. What did SP have notice 2. Whether that person
first? of at the time of recorded first and
 Who recorded the purchase? 3. Was without notice at the
chain of title first?  Did the SP have time of purchase?
3. Any wild deeds here (a notice of another
recorded deed outside of claim?
subsequent purchaser's
chain of title)?
Rule Under a race statute, the first Under a notice statute, the SP Under a race-notice statute,
to record in the chain of title without notice is protected the later grantee must meet
prevails. even if s/he fails to record first both elements of the statute
(or at all) himself. to prevail: s/he must purchase
 Actual notice: whether without notice of the first-in-
the buyer had actually time party's prior claim to title
been put on notice of a and also be the first to record
prior claim? in the chain of title.
 Inquiry Notice: are
there any facts that
should have put the A Race-Notice statute provides
buyer (SP) on notice of that the subsequent purchaser
a prior claim? will prevail if s/he:
 Record Notice: had "had no notice (actual, inquiry,
there been a record of or record notice) of the first-
any recorded deed? in-time Party's claims to title
and recorded first in the
A notice statute provides that chain."
the SP will prevail if s/he: "had
no notice (actual, inquiry, or
Record notice) of the First-in-
A race statute provides that the time party's claim to title."
SP will prevail if s/he: "recorded
first in the chain of title."
Analysis Here, although it appears that Here, Emmet did not have Here, Emmett didn’t have
Grattan recorded first, as far as record notice of Grattan's record notice of Grattan's
Emmett was concerned, claim, because Grattan's claim, because Grattan's
Grattan's deed was a wild recorded deed is wild. That is, recorded deed is wild. The
deed*, meaning a deed that
facts do not indicate that
Property II Law Outline | Haifa Nesheiwat

was recorded but cannot be Grattan's grantor, Davitt, Emmett had any other kind
discovered in the Recorders' didn’t record his own deed. of notice of Grattan's (or
Office. Davitt's) prior claim. Thus,
 (this is because the deed The facts do not indicate that Emmett did not have notice
of his grantor, Davitt, has Emmet had any (actual or
of Grattan's prior claim and
not yet been recorded.) inquiry) other kind of notice of
Emmett recorded "first in the Grattan's (or Davitt's) prior
Emmett wins under a
chain of title" because his claim. Notice Statute.
grantor's deed (from Tone to
Parnell) and his own deed from Thus, Emmett did not have Furthermore, Emmet
Parnell were recorded before notice of Grattan's prior claim recorded "first in the chain
Grattan had recorded his entire and Emmet is the apparent of title" because both his
chain of title. winner under a Notice Statute. grantor's deed and his own
deed were recorded before
Shelter Rule** Grattan had recorded his
chain of title.
A person who takes from a
bona fide purchaser protected
by the Recording Acts has the
As this is Race-Notice
same rights as his or her
jurisdiction, before leaving the
Grantor.
question, ask if Grattan, the
 The shelter rule does
losing party, could win by
not apply to a BFP from
stepping into the hoses of his
a donee/heir (since
own grantor, Davitt.
donees/heirs ar not
That is, could Davitt
protected by
prevail against Emmett
Notice/Race Notice
(in which case Grattan
Recording Acts).
should prevail over
Emmett, when Grattan
As this is notice jurisdiction,
returns to his own
before leaving the question,
shoes)?
ask if Grattan, the losing
party, could win by stepping
This is the "Shelter Rule."**
into the hoses of his own
grantor, Davitt.
 That is, could Davitt
Here, the answer to that
prevail against Emmett
question is no, as Emmett did
(in which case Grattan
not have any kind of notice of
should prevail over
Davitt's claim.
Emmett, when Grattan
returns to his own
Furthermore, Emmett
shoes)?
recorded "in the chain of title"
as soon as he acquired title.
Davitt vs. Emmett:
 SP?
o Emmett.
 Notice?
o No notice
E wins.
Property II Law Outline | Haifa Nesheiwat

Here, Emmett did not have


any kind of notice (A I R) of
Davitt's claim (because Davitt
failed to record).

Conclusion Thus, Emmett wins in a race So, Emmett still prevails in a Therefore, Emmett is the
jurisdiction. Notice Jurisdiction. apparent winner again in a
Race-Notice Jurisdiction.

Recording Act Language

Notice
 Look for:
o SP had "good faith" or "notice" (without "first recorded")
Race
 look for:
o SP "recorded" or "first recorded")
o (Without "notice" or "good faith")

Race - Notice
 Look for:
o SP had "good faith" or "notice" (with "first recorded")

Examples of Recording Statutes:


1. “Every earlier conveyance of real property is void as against any subsequent purchaser of the
same property in good faith and for a valuable consideration.”
 What type of recording statute is this?
 Notice.

2. “No estate of inheritance or freehold, declaration or limitation of use, estate above seven years,
or deed may pass or take effect unless the deed granting it is executed and recorded.” Md. Code
Ann., Real Prop. § 3-101 (a).
 What type of recording statute is this?
 Race. [Note that there is no mention of "notice" or "good faith" here. The SP can even have
notice and prevail, so long as he or she records first.]

3. “Every conveyance of real property . . . is void as against any subsequent purchaser or mortgagee
of the same property . . . in good faith and for a valuable consideration, whose conveyance is first
duly recorded.” Cal. Civ. Code § 1214.
 What type of recording statute is this?
 Race - Notice

4. “Every conveyance of real estate not recorded . . . shall be void as against any subsequent
purchaser in good faith, and for a valuable consideration, of the same real estate, or any part or
Property II Law Outline | Haifa Nesheiwat

portion thereof, whose conveyance, whether in the form of a warranty deed or deed of bargain
and sale, or deed of quitclaim and release, of the form in common use or otherwise, first is
recorded.” NDRC 1943, Section 47-1041.
 What type of recording statute is this?
 Race- notice

5. “Every conveyance of real estate which is not recorded is void against a subsequent purchaser in
good faith for a valuable consideration, whose conveyance shall be first duly recorded.”
 What type of recording statute is this?
 Race- notice

II. Land Use Controls


A. Private Land Use Controls: The Law of Servitudes
1. Easements
a. Creation and Types of Easements
(1) Express (Willard)
(2) Implied
(a) Estoppel
(b) Prescription
(c) Prior Use (Van Sandt)
(d) Necessity (Othen)
b. Assignability and Scope of Easements (Brown)
c. Termination of Easements
2. Covenants Running With the Land
a. Covenants Enforceable At Law: Real Covenants
b. Covenants Enforceable In Equity: Equitable Servitudes
c. Creation of Covenants (Sanborn, Neponsit)
d. Scope of Covenants (Shelly)
e. Termination of Covenants (Western Land, Pocono Springs)
f. Common Interest Communities (Nahrstedt)

B. Legislative Land Use Controls


1. Zoning
a. Introduction: History, Fundamentals
b. Nonconforming Uses (PA Northwestern)
c. Vested Rights
d. Variances (Commons)
e. Conditional Use Permits (or Special Exceptions) (Cope)
2. Eminent Domain
a. The Power of Eminent Domain
b. Public Use (Kelo)
c. Just Compensation
3. Inverse Condemnation
a. Categorical Rules
(1) Permanent Physical Occupation (Loretto)
(2) Nuisance Control? (Hadacheck)
b. Balancing Rules
(1) Diminution in Value (Penn. Coal, Penn Central)
Property II Law Outline | Haifa Nesheiwat

(2) Reciprocity of Advantage


(3) Investment-Backed Expectations
c. Modification of Earlier Rules
d. Remedies
e. Rules for Exactions (Koontz)