1.1.

1 VOLUNTARY TRANSFERS OF PROPERTY

1.1.2 SALES AND GIFTS
A. Contracts of Sale: sale of land usually involves 1) contract signed, and 2) closing (seller gives buyer
deed to property).
a. Statute of Frauds: provides that no interest in real property can be conveyed w/o a writing
(memo, note, check, email, etc.) signed by the party to be charged. Purpose of SoF is to prevent
sellers / buyers from reneging to get out deals when a better offer comes along
i. The writing must contain the names of the parties, a description of the real estate, an
expression of an intent to sell or buy, the agreed upon price (the court will usually imply
a reasonable price if a specific one is not stated), and the signature of the party to be
bound.
b. Statute of Frauds Issues
i. Whether the statute of frauds applies to the transaction
ii. Whether there is a document that constitutes a writing
iii. Whether the writing satisfies the statute of frauds
iv. Whether an exception to the statue of frauds applies
c. Specific performance: all property is unique so courts often use equity powers to compel a
buyer or seller to go through with the deal, rather than award damages. Specific Performance
would be a stronger deterrence in other areas as well b/c cannot decide to breach knowing you
will fare better economically; Somin has a sympathy for this argument, but recognizes the
arguments for damages vs. specific performance
d. Exceptions to SOF: Part Performance, Estoppel
i. Complete performance-complete performance of the K by the parties.
ii. Part performance—allows an oral sales K to be enforced if the buyer has taken
substantial steps to complete the transaction. The courts focus upon three factors:
1. Payment of all or a substantial part of the purchase price
2. Taking possession of the property
3. Making substantial improvements on the land
iii. Promissory estoppel—allows an oral sales K to be enforced if evidence is presence that
establishes the:
1. Existence of a clear and definite promise which the promisor should reasonably
expect to induce action by the promise
2. Proof that the promisee acted to his detriment in reasonable reliance on the
promise
3. A finding that injustice can be avoided only if the court enforces the promise.
iv. **Key is: person must have performed conduct that is unequivocally referable to in the
K. Thus proving the K’s existence.**

e. Oral revocation: Most states allow subsequent oral modifications or revocation of the K.
f. Time of Performance: Unless K says time is of the essence, if K is not performed on date called
for, each party has a “reasonable” time to complete the performance.
g. Hickey v. Green (Specific Performance)
i. Rule: Court may enforce K for sale of land even if it fails SoF if there is a clear oral
agreement and actions in taken in reliance
ii. Facts: Ps put deposit on Ds lot after orally agreeing to a sale. D accepted the deposit. D
held the check, did not endorse it, and did not fill in the payee’s name. Ps sold the house
 and accepted a deposit check. D told Ps she had decided to sell the lot to 3rd party. Ps
sought specific performance and D claimed Statute of Frauds.
iii. Issue: May K for transfer of land be enforced w/o Statute of Frauds if party seeking
enforcement reasonably relied on the K?
iv. Held: Yes, as stated in the 2nd Restatement of K.
h. Marketable Title: absent an express provision to contrary, it is implied in every K for land that
seller furnish buyer “marketable title” to the property at closing. Marketable title does not mean
perfect title, just good enough for a title insurance company to be willing to insure it.
i. A title not subject to such reasonable doubt as would create a just apprehension of its
validity in the mind of a reasonable, prudent and intelligent person, one which such
persons, guided by competent legal advice, would be willing to take and for which they
would be willing to pay fair value.
i. Good Record Title: less frequently, Ks call for good record title meaning that precludes title by
adverse possession.
j. Defects in Title: Common ones include problems in chain of title, private encumbrances,
unrecorded easements, covenants, liens (mortgages, judgments), and restrictions on use of
property.
k. Curing Title Defects: seller has until closing to cure any defects in title. Generally, seller must
deliver the property unencumbered (no outstanding mortgages or liens). If an easement benefits
the property it does not make the title unmarketable. Zoning restrictions do not, except in
unusual circumstances, make title unmarketable.
i. Realistically, the seller needs only to have the means of making the title marketable at
closing. The title, then, would become marketable after the closing with the buyer.
l. Violations of building codes and zoning restrictions: if there are violations of zoning
restrictions for which gov’t can demand correction, title is usually held unmarketable. Reason is
that the law is loath to require someone to buy into the possibility of a lawsuit.

m. Lohmeyer v. Bower (Violation of public and private restrictions)

i. Rule: Marketable title in real estate requires that the buyer not be exposed to litigation.
The existence of a restrictive covenant on the property is enough to encumber it.`
ii. Facts: P contracted to buy house provided D could give good merchantable title. In the
event of imperfections in title, D would have a reasonable time to correct them. Under a
zoning ordinance, no frame building could be erected within three feet of the lot line
(house was 18 inches from lot line). D offered to buy P two feet of adjoining lot. P
refused offer and brought suit to rescind K.
iii. Issue: Does violation of private and public restrictions render title unmarketable?
iv. Held: Yes.
1. Violations of restrictions: P doesn’t base suit on the fact that a private restrictive
covenant on building height and a public zoning restriction (3 ft from lot line)
existed. He bases the suit upon the violation of the restrictions.
2. Policy: the two violations have exposed P to the hazard of litigation. Therefore, D
could not convey marketable title.
3. P wins because even though the K waives the right to restrictive covenants, you
can’t waive violations.
B. RISK OF LOSS
a. Introduction: property is subject to being damages or destroyed b/w time of K and closing.
 Allocation of risk of loss is important.
i. Equitable conversion:
1. The buyer is viewed in equity as the owner from the date of the K
2. The seller has a claim for money secured by a vendor’s lien on the land.
3. The seller holds the land in trust for the buyer and must deliver the deed if buyer
abides by the terms of K.
4. Equitable conversion is the by-product of the reasoning equity courts used to
rationalize granting specific performance as a remedy for a non-defaulting buyer
against a defaulting seller. That rationale is that,
a. As of the contract's effective date, the purchaser acquires an equitable
interest in the real estate.
b. Therefore, the seller retains only bare legal title, rather than full legal title.
c. So, it is this equitable interest that the buyer enforces when proceeding in
equity against the seller for specific performance.
5. Risk of Loss: buyer bears the risk of loss or damage to the property:
a. Occurring b/w the K date and the closing date.
b. Provided seller did not cause the loss.
c. Loss generally includes physical damage to the property and loss resulting
from rezoning of the property.
ii. Alternative Approaches: majority rule is that once buyer acquires equitable title, the
risk of loss passes to him. Minority rule is opposite.

C. DUTY TO DISCLOSE DEFECTS

a. Where a vendor is aware of defects or conditions which substantially impact the value or
habitability of the property and the existence of which are unknown to the purchaser and would
not be disclosed by a reasonably diligent inspection, then the vendor has a duty to disclose the
same to the purchaser.
b. Caveat Emptor (Buyer Beware) used to be the traditional approach. Exceptions began to come
along. This is where duty to disclose comes in. Exceptions include the seller actively concealing
defects from the buyer, making a partial disclosure that was misleading w/o seller’s providing a
full disclosure.
c. In most jurisdictions, seller has a duty disclose all defects which the seller is aware or ought to be
aware and which the purchaser is not likely to discover through reasonable inspections.
d. Stambovsky v. Ackley (Duty to disclose defects)
i. Rule: Where seller has unique knowledge of a latent defect, he has a duty to disclose it
ii. Facts: P discovered house he had K’d to purchase was possessed. House’s reputation
affected resale value. P wanted to rescind K.
iii. Issue: Does seller have duty to disclose conditions that materially impair the value of the
K and is peculiar knowledge of the seller?
 iv. Held: Yes. Inspection would not reveal this (latent) so D had duty to disclose. Buyer had
signed the K after the disclaimer from the owner.
1. Disclaimer’s won’t be given effect when the facts are only known by the party
creating the disclaimer, in this case the seller.
2. The seller knew of the poltergeists.
3. Court is saying this is a unique property and the uniqueness of the property was
created by the seller. Since it was created by the seller, he needs to tell the buyer
upfront.
4. It would not be discoverable so it has to be disclosed.
e. Johnson v. Davis (Duty to Disclose Defects)
i. Rule: where the seller knows of facts materially affecting the value or desirability of the
propriety which are known or accessible only to him and also knows that such facts are
not known to or within the reach of the diligent attention and observation of the buyer,
the seller is under a duty to disclose them to the buyer.
ii. Facts: P’s sold D’s a house. D’s knew that the roof leaked but firmly represented that
there was nothing wrong with the roof. Water started leaking in during a rainstorm. P’s
wanted to rescind the K.
iii. Held: case marks the shift of strict caveat emptor interpretation. One should not be
allowed to stand behind the impervious shield of CE. Court applies a test looking for
material defects. First, an objective test of whether or not a reasonable person would
attach importance to it in buying it. Second, a subjective test of whether the defect affects
the value or desirability of the property to the buyer.

D. REMEDIES FOR BREACH OF THE SALES CONTRACT

a. Introduction: In the event that the K for sale is breached, three remedies are available to the
nondefaulting party, whether the buyer or the seller: (1) damages, (2) retention of the deposit
(sellers) or restitution of the deposit (buyers), or (3) specific performance of the K. Generally the
winner may elect which remedy he or she prefers.
b. Compensatory Damages: Goal is to put the non-defaulting party in the same position he or she
would have been in if both parties performed all their obligations. (For seller, difference b/w the
K price and the property’s market value at the time of the breach)
i. In other words, the loss of the bargain.
ii. For buyer, (subtract K price from the market value).
c. Liquidated Damages: Damages agreed to by the parties to a K where they include a provision
stating a sum certain or formula for determining an amount. Generally occur in the form of
allowing the seller to keep deposits.
i. Beneficial for the seller b/c it allows him to keep the liquidated remedies as a remedy and
move on to another sale without significant delay.
ii. Liquidated damages cannot be a penalty, must be determined in arms length negotiations
to be a figure that would compensate the non-defaulting party, and once the breach has
occurred, the liquidated sum must reasonably relate to actual loss suffered.
d. Special Damages (Reliance Damages): Generally include title costs, attorneys costs, financing
fees, moving expenses, etc. Usually available only when the parties foresaw them or reasonably
contemplated them as possible damages in the event of a breach of their K.
e. Specific Performance: Remedy is best suited for a buyer who wants to force a recalcitrant seller
 to convey title. Equitable remedy. Must have no adequate remedy at law (generally done by
showing the property is unique)
f. Jones v. Lee
i. Rule: in order to apply the loss of the bargain rule, the trial court must determine the
value of the property at the time of the breach and compare that amount w/ the K price.
ii. Facts: B’s entered into a purchase agreement with S. B’s tried to terminate. S rejected
termination and brought suit after they sold property to another buyer for a $70K loss.
Trial court awarded them the $70K plus additional for special damages and punitive
damages. B’s appealed.
iii. Held: It should not be the difference between the K price and the sale price but rather, the
loss of bargain rule. When a purchaser breaches an executory real estate K, the vendor’s
measure of damages is the difference b/w the purchase price and the market value of the
property at the time of the breach. The special and punitive damages were appropriate.
g. Kutzin v. Pirnie
i. Rule: Whenever the breaching buyer proves that the deposit exceeds the seller's actual
damages suffered as a result of the breach, the buyer may recover the difference.
ii. Facts: Parties were in a binding purchase K. Buyers wanted to back out of the agreement.
Sellers brought suit. The trial court gave the buyers the difference b/w the sales price and
the K price as well as utilities, real estate taxes, and insurance.
iii. Issue: Whether a seller should be entitled to retain a deposit when a buyer breaches a K
that does not contain liquidated-damages or forfeiture clause.
iv. Held: Court turns down C/L rule (seller keeps deposit--Majority) for Restatement Rule
(Minority) stated above. Court used minority rule because the original purchase
agreement did not contain a liquidated damages provision.

1.1.3 DEEDS
A. Requirements: Deeds of land typically contain warranties of title and must be effectively delivered. It
is an instrument for transferring interest in land is a deed. Only the grantor MUST sign the document.
a. Consideration: deed does not require consideration to support it. A grantor may give the
property away.
b. Failures in the description of the property: C/L classified ambiguities as 1) patent or 2)
latent. A patent ambiguity (one on face of deed) could not be resolved with extrinsic evidence.
A latent ambiguity could be resolved with extrinsic evidence.
c. Modern Trend: allows admission of extrinsic evidence for both ambiguities.

B. Warranties of Title
a. Introduction: all deeds contain the “usual covenants”. These covenants run from the seller of
real property to the buyer. There are six “usual” covenants, one which is unusual for the US:

b. Types of Deeds Warranting Title

i. Warranty Deed: usual type of deed. Warrants against any title defect and contains usual
covenants.
ii. Special warranty deed: contains usual covenants but only warrants title from defects
arising during time the grantor held the land.
iii. Quitclaim deed: deed does not warrant anything. It only transfers interest grantor may
have in the property.
 c. Usual Covenants
i. Present Covenants: in essence, these say “I, the grantor, warrant that…” These are
breached, if at all, when the conveyance is made. Either the grantor owns the property at
that time, or he does not; either there are existing encumbrances at that time, or there are
none.
1. Covenant of Seisin: seller covenants he owns the property conveyed. Covenant is
breached only if grantor does not have all of the legal rights grantor purports to
convey.
2. Covenant of right to convey: seller warrants that he has the right to convey the
property.
3. Covenant against encumbrances: seller promises that there are no easements,
covenants, mortgages, liens, etc. on the property. If there are encumbrances, the
covenant is breached, even though the holder of the encumbrance has taken no
action to enforce his/her rights.
ii. Future Covenants: Promises that the grantor will do some future act. These may be
breached when the grantee or his successor is evicted from the property, buys up the
paramount claim, or is otherwise damaged. They run with the land.
1. Covenant of quiet enjoyment: Grantor is promising in regard to the property
described in the deed that no one who has superior title to or interest in the
property will interfere with the grantee’s rights to and possession.
2. Covenant of warranty: seller warrants that the title is good and that grantor will
defend, at his own cost, from a party claiming paramount title. To be liable for
this covenant, one of two things must have happened.
a. The covenantee must have been evicted (either actually or constructively)
b. Legal process is begun to evict the covenantee and covenantor does not
provide a defense.
3. Covenant for further assurances: (this is unusual in America) seller promises to
perform whatever acts are necessary to perfect the buyer’s title to the property.
iii. Statute of Limitations: begins to run on a breach of a present covenant at the date of
delivery of the deed. It begins to run on a future covenant at the time of eviction or when
the covenant is broken in the future.

C. BREACH OF COVENANTS
a. Introduction: present covenants are breached, if ever, at conveyance. Future covenants are
breached anytime in the future. Present covenants are “personal” and do not run with the land.
b. Brown v. Lober (present vs. future covenants)
i. Rule: Covenant of quiet enjoyment vs covenant of seisin. Enjoyment has to be hindered.
Just the existence of somebody out there with better title isn’t sufficient to breach the
covenant of quiet enjoyment.
ii. Facts: D bought land and owner retained 2/3rd mineral rights. D conveyed land to Ps
with no exceptions. Ps were going to convey mineral rights to Consolidated Coal. P
sued D under covenant of quiet enjoyment (10-yr SOL had run, barring suit on present
covenants).
iii. Issue: Does the warranty of quiet enjoyment constitute a warranty that grantor is the
owner of the entire estate conveyed?
 iv. Held: No.
1. Covenant of quiet enjoyment: only guarantees buyer’s peaceable possession of
land will not be taken from him. It does not guarantee there is no one with
paramount title.
2. Seisin: covenant of quiet enjoyment should not be extended into an area covered
by another covenant (seisin).

c. Frimberger v. Ansellotti (Latent land use violation)

i. Rule: Latent violation of restrictive land use statute does not violate warranty against
encumbrances
ii. Facts: Ds predecessor conveyed to D by quitclaim deed property on which he had built a
bulkhead and a dwelling near the wetlands. D conveyed property to P by warranty deed,
free and clear of all encumbrances but subject to zoning restrictions, etc. P discovered a
violation of a land use statute and claimed breach of warranty against encumbrances.
iii. Issue: Does a latent violation of a restrictive land use statute constitute a breach of
warranty deed covenant against encumbrances?
iv. Held: No.
1. Latent violations unknown to seller: where no agency has taken official action are
not an encumbrance for a warranty deed. Such enlargement of the covenant
against encumbrances would create uncertainty and confusion in the law b/c
neither a title search nor a physical examination would disclose the violation.
2. Proper way to deal w/ violations: K provisions or language in deed.
v. Essentially they slept on their rights. Brown’s should have done a title search when they
originally purchased the property. They needed some type of notice. If it was recorded in
the courthouse, they had some kind of notice.
vi. Here, the person already has possession of it. This encumbrance doesn’t prevent me from
owning the property. If you’re going to bring an action through deed, it has to be
something that prevents me from having ownership.
d. Measure for Damages for Breach of a Covenant Against Encumbrances
i. If the encumbrance is easily removable (eg. a mortgage), the measure of damages is the
cost of removal.
ii. If the encumbrance is not easily removable (for example, a restrictive covenant or
easement), the measure of damages is the difference in value b/w the land w/ the
encumbrance and w/o the encumbrance.
iii. **In all cases, damages are limited by the total price received by the warrantor**
e. Covenants Running with the Land
i. Future Covenants run w/ the land to all successors in interest of the grantee.
1. If A gives GW deed to B, and B sells to C, A is liable to C on any of the future
covenants in A’s deed. If the paramount owner O evicts C, A is liable to C on the
covenants of the general warranty and quiet enjoyment.
ii. A present covenant, if not breached when the deed is delivered, can never be broken, and
it is senseless to say it either runs or does not run with the land. It can never be sued
upon.
1. However, if a PC is breached when the deed is delivered, the grantee no longer
has a covenant but, instead, has a cause of action for breach of the covenant.
 f. Rockafellor v. Gray (Remote Grantees)
i. Rule: Covenant of seisin runs with the land and is broken the moment conveyance is
delivered
ii. Facts: Doffing conveyed land to P. P assumed Doffing’s mortgage owed to D. P
defaulted and D foreclosed on the mortgage. C party purchased land at sheriff’s sale and
sold to E. E sold to H. Later, P had sheriff’s deed set aside and foreclosure declared
void. H sued C for breach of warranty of seisin.
iii. Issue: Does the covenant of seisin run to a remote grantee even if the original grantor
never had actual possession of the land?
iv. Held: Yes.
1. Minority rule: (English) warranty of seisin runs with land to remote grantees and
is broken the instant a defective conveyance is delivered.
2. Breach of seisin: Because C had no title and no possession of premises when he
sold to E, covenant of seisin was breached. It ran with the land to H.
g. Estoppel by Deed
i. Suppose grantor conveys land to grantee that grantor doesn’t own and he warrants title to
the land. If grantor subsequently acquires title to land, the grantor is estopped to deny that
he had title at the time of the deed and that title passed to the grantee.
ii. Since grantee could sue grantor on the warranty, when the grantor later acquires title, and
compel delivery of a new conveyance, law eliminates necessity of a lawsuit and
automatically passes the subsequently acquired title to grantee.
iii. The law eliminates the necessity of a lawsuit and automatically passes the subsequently
acquired title to the grantee

D. DELIVERY
a. Introduction: one of the requirements of a deed is that it must be delivered by the grantor.
b. Definition: two requirements: 1) grantor, by words or conduct, must manifest intent to make the
deed effective, and 2) grantor must immediately give it to the grantee. Modern cases have
relaxed the manual delivery requirement:
i. Evidence of clear intent: extrinsic evidence can be used to prove delivery or nondeliver
ii. Delivery cannot be canceled: once delivery has taken place, it cannot be canceled.
iii. Estoppel: even if there is no delivery, grantor may be estopped from denying delivery
c. Types of Delivery: two types: 1) those involving only grantor and grantee, and 2) those
involving a 3rd party intermediary.
i. Grantor/Grantee Delivery: if grantor has the deed there is a rebuttable presumption that
there was no delivery. If grantee has the deed, there is presumption that there was
delivery.
ii. Delivery subject to a condition: if condition is in the deed, it usually constitutes valid
delivery of a future interest. Modern trend is to give effect to ddeds that reserve in
grantor power to revoke deed prior to date it passes legal title to grantee.

d. Sweeney, Administratrix v. Sweeney (Unsuccessful conditional delivery)

i. Rule: A deed is properly delivered when handed to grantee, even where evidence shows
it is only to take effect upon death of grantor.
ii. Facts: Maurice Sweeny deeded farm to brother D. If D predeceased Maurice, D
 immediately deeded it back to Maurice. First deed was recorded, second was not. D
never received any rent or made repairs to property. Maurice died. Administratrix (P)
sought the property.
iii. Issue: May delivery of a deed be deemed conditional when it is made to the grantee?
iv. Held: No. Maurice did not physically possess the unrecorded deed that reconveyed the
property to himself.
1. Intent to deliver; delivery must be made with intent to pass title. Physical
possession is evidence of legal delivery.
2. Signatures: provide evidence that deed was delivered.
3. Conditional: D claims delivery was conditional on Ds predeceasing Maurice.
However, delivery cannot be conditional. Delivery vests absolute title in the
grantee. Conditional deliveries can only be effected through third person who
delivers deed to grantor upon occurrence of the condition.
e. Rosengrant v. Rosengrant
i. Rule: Where a grantor delivers a deed under which he reserves a right of retrieval and
attaches to that delivery the condition that the deed is to become operative only after the
death of grantors and further continues to use the property as if no transfer had occurred,
grantor’s actions are nothing more than an attempt to employ the deed as if it were a will.
ii. Facts: Old couple sought to give their land to a younger couple, nephew. They both
signed the deed to the land which was to be recorded when they died. After the death of
the older couple, nephew went to try and have the deed recorded.
iii. Issue: Whether the deed was validly delivered.
iv. Holding: no. Envelope contained the names of both the grantor and the grantee, clearly
reserving a right to revoke. If it’s revocable, nothing has been transferred. There was a
donative intent but he reserved a right of retrieval and a condition. Legal delivery carries
all of the fore and consequence of absolute, outright ownership at the time of delivery or
it is no delivery at all.

1.1.4 REAL ESTATE FINANCE—MORTGAGES

A. Introduction: When the buyer borrows the money, he signs a promissory note that is his personal
promise to repay the loan.
a. However, the lender also wants a security interest in the property. This comes in the form of the
mortgage.
B. The Parties: the borrower is the mortgagor b/c he grants the security interest in the property to the
lender. The lender is the mortgagee.
C. Ways to finance real estate transactions:
a. Purchase Money Mortgage—a mortgage taken by the seller of the real estate to secure payment
of part of part of the purchase.
i. Example—O contracts to sell his house to A for $100K. O conveys the house to A. A
pays O $10K in cash and gives O a promissory note for $90K secured by a mortgage on
the house.
b. Regular Mortgage—A mortgage is given by a third party lender as security for a loan used to
acquire the mortgaged property.
i. Example—O contracts to sell his house to A for $100K. A only has $14K in cash so A
obtains an $85K loan from the bank. A uses the cash and the loan to pay for the house. O
 conveys the house to A. A executes a mortgage on the house to the Bank to secure
repayment of the loan.
c. Deed of Trust
i. The borrower (trustor) conveys real property to a trustee as security for the payment of an
obligation owed to the lender (beneficiary). If the borrower defaults on the loan, the
trustee can arrange a public non-judicial sale of the property to satisfy the debt.
ii. A mortgage with a power of sale provision that lets the lender avoid judicial foreclosure.
d. Installment Land K or K for Deed
i. Seller keeps the title to the property while the buyer promises to pay the purchase price
over time. In return, the buyer obtains the right to possess the property and is trated as the
owner of the property. When the purchase price is paid off, the seller will deliver the deed
to the property to the buyer.
ii. K usually allows the seller to regain possession of the property on the buyer’s default and
to keep whatever payments the buyer has already made.
iii. Kind of like a “rent to buy.”
D. Time after default and before foreclosure:
a. EXAM MISTAKE—difference b/w equitable right to redeem and foreclosure right to redeem.
b. The mortgagor has an equitable right to redeem.
c. The mortgagor and anyone else who has an interest that may be cut off by foreclosure has a right
to redeem
d. In order to redeem, the mortgagor may pay off the entire mortgage if its in default or if the entire
debt is not in default and the mortgage does not have an acceleration clause, the mortgage may
reinstate the loan and avoid FC by making late payments of the overdue amount.
E. Equitable Right to Redeem
a. Ends when the FC process is completed.
b. If FC is by power of sale, the right to redeem ends when the sale is final under local law.
c. If FC is by judicial order, the right to redeem ends when the court confirms the sale.
F. Types of FC
a. Strict FC—a defaulting mortgage is given a set period of time to pay the debt to redeem the
property or forever lose all interest in the mortgaged property.
b. Power of Sale FC—FC by out of court sale by the mortgagee after notice has been given to all
interested parties.
c. Judicial FC—after default, the mtgee brings a lawsuit to FC on the property. If the mtgee proves
the existence of the mtg and that the mtgr has defaulted, the court will order a FC decree.
i. The decree provides for a public sale of the property by a court officer, payment of
outstanding balances of the debt to the mtgee, and a transfer of any excess proceeds to the
mtgr.
ii. If the sale does not bring in enough money, the lender may bring an action for a
deficiency judgment personally against the mtgr for the rest of the debt unless there is an
antideficiency statute. In Ohio, deficiency judgments are fully enforceable, but the
deficiency is void 2 yrs after the sale is confirmed.
iii. A FC decree affects only those persons before the court, so the mtgee must name all the
necessary parties. This is how it is done in Ohio.
G. Parties to Judicial FC
a. Necessary parties—those persons who must be joined in order to accomplish the purpose of FC
(mtgr and all persons who acquired interests in the property after the execution of the mtg). The
 interests of necessary parties omitted from the suit survive FC.
b. Proper parties—those whose joinder is desirable, but not essential to accomplish the purpose of
FC (persons who hold no interest in the property but are personally liable on the debt).
H. After FC
a. Equitable right to redemption ends
b. Proceeds of FC sales are disbursed—1) expenses of FC; 2) satisfaction of the FC mtg debt; 3)
satisfaction of junior liens in order of priority.
i. Any excess belongs to the current owner of the property which is usually the mtgr.
c. In Ohio, right to redeem lasts only until the filing of the order confirming the sale.
d. Mtgr may retain possession of the mtged property during the statutory redemption period.
e. If redemption is not accomplished by the end of that period, the purchaser at the FC sale receives
title to and possession of the property.
f. Amt. required to redeem is the FC sale price and no the amt of the mtg. debt. In order to redeem
in Ohio, you must pay the balance due together w/ the court costs.
I. Murphy v. Financial Development Corp. (Mortgagee’s Duty upon Foreclosure)
a. Rule: A mortgagee executing a power of sale has a duty to protect the interests of the mortgagor
by using good faith and due diligence to obtain a fair price at foreclosure.
b. Facts: Ps bought house and financed w/ a mortgage, then refinanced with D. P failed payment
and D notified of intent to foreclose. P paid arrearage of mortgage but did not pay certain costs
and legal fees incurred due to foreclosure. Ds postponed sale to give Ps more time. D refused to
wait longer. At sale, P, D and attorney were present. Ds lowballed and bought the place for
$27k. Ds sold property 2 days later for $38k. P sued to have foreclosure set aside. Court
awarded Ps $27k in damages.
c. Issue: Does a mortgagee foreclosing a property have a duty to secure a portion of the
mortgagor’s equity if it is reasonably possible to do so?
d. Held: Yes. Mortgagee has a dual role as seller and potential buyer. 1) he has duty to act in
good faith and with due diligence and 2) he must use reasonable efforts to obtain a fair and
reasonable price.
i. Ds should have done more to secure a higher sales price. D failed to use due diligence.
ii. Ps entitled to difference b/w a “fair” price and the price actually obtained, not difference
b/w “fair market value” and price obtained.
J. Bean v. Walker (Defaulting Vendee)
• Rule: Installment contracts can be inequitable. Upon execution of a contract for the sale of land, the
vendor holds legal title in trust for the vendee and the vendee for all practical purposes is the owner
of the property subject only to the terms of the contra
a. Facts: Ds purchased home from Ps. Ps retained legal title until payment was made in full. K
said that if D defaulted and failed to cure within 30 days, Ps could elect to call the balance due
immediately or terminate the K and repossess. If Ps chose termination, Ps could retain all money
paid as liquidated damages and money paid would be considered rent. D defaulted after 9 years.
b. Issue: Is this installment K valid?
c. Held: No.
i. Vendee has equitable title and vendor may not eject the vendee. He may only foreclose
the equitable title. Foreclosure not forfeiture would have been correct.
ii. Forfeiture: not appropriate here. Only appropriate where vendee abandons property or
absconds or has paid a minimal amount of the K.
K. Commonwealth v. Fremont Investment & Loan (Originating Subprime paper)
 a. Bank originating loans with characteristics that make default likely by the mortgagors.
b. RULE: Lending institutions that make subprime loans that are in compliance with banking
specific laws and regulations, may still be considered "unfair and deceptive practices".
Additionally, where "loans [are] made to borrowers on terms that showed they would be unable
to pay and therefore were likely to lead to default [are] unsafe and unsound, and probably
unfair," and the lender shall not be allowed to collect on foreclosure without the court's approval.

1.1.5 RECORDING STATUTES: CHAIN OF TITLE PROBLEMS

A. Introduction: To give notice to subsequent purchasers, an instrument must be recorded in the “chain of
title”. Chain of title refers to the title established by the grantor’s predecessors up to the time of the
conveyance to the grantee. Problems arise when instruments are improperly recorded.
B. Issues:
a. Whether the recording statute applies…do we have a BFP? To be a BFP you must pay value and
take WITHOUT notice and satisfy requirements of recording statute.
b. THREE types of notice:
i. Actual Notice—buyer has actual knowledge of prior conveyance.
ii. Record Notice—prior conveyance was recorded so the buyer should have known about
the prior conveyance. In order to be recognized as recorded the document must be
capable of being recorded. Buyers only have record notice of things within their chain of
title. They have constructive notice of everything that a proper search of the public
would reveal.
iii. Inquiry Notice: some event on the property would have put a reasonable person on
notice of the prior conveyances so the buyer had a duty to investigate. She has notice of
anything she would have discovered through a reasonable investigation.
C. Recording Statutes
a. Notice—A later buyer prevails over an earlier buyer only if the later ubyer had no notice of the
earlier conveyance at the time she bought. The statute protects the BFP even if she does not
record first.
i. O conveys to A on Monday.
ii. B does not know about it.
iii. O conveys to B on Tuesday
iv. On Wed, A records
1. A vs. B—B owns land.
b. Race-Notice—A later buyer prevails over a prior unrecorded interest only if she had no notice of
the prior conveyance and records before the prior instrument is recorded. BFP is protected only if
she records first.
i. O conveys to A on Mon.
ii. B does not know
iii. O conveys to B on Tuesday
iv. On Wed., A records
v. On Thursday, B records
1. A vs. B—A owns the land. Since B didn’t satisfy the requirements of the
recording statute, the statute doesn’t apply. Thus, the case is decided based upon
the common law.
c. Shelter Rule: A person who takes from a BFP is protected by the recording statute and has the
 same rights as her grantor.
d. Chain of Title
i. The recorded sequence of transactions by which title has passed from a sovereign to the
present claimant. A buyer has record notice of everything in her chain of title.
ii. A valid chain of title
1. O conveys to A (recorded)
2. A conveys to B (recorded)
3. O conveys to C
a. C is not a BFP b/c the deed from A to B is in the chain of title.
iii. Chain of title problems…
1. Should buyer have constructive notice of transaction?
2. Has something happened to take the transaction out of the chain of title?
iv. 4 Key Chain of Title Problems
1. Wild deed—recorded deed that a later searcher could not be expected to find
through normal searching procedures. The deed is outside of the chain of title, so
it gives no record notice.
a. Example:
i. O conveys to A (UR)
ii. A to B (r)
iii. O to C (r)
iv. B vs. C
1. C is a BFP b/c the deed from A to B is outside of the chain
of title. C’s obligation is to search from O to the present.
Thus, C could never find the deed from A to B b/c A’s deed
was never recorded.
2. Recording Too Early Problem
a. Grantor conveys property that he does not yet own
i. O conveys to A on Monday
ii. A records on Tuesday
iii. O gets title to property on Wed and records
iv. O conveys to C on Thursday
v. A vs. C
vi. C is a BFP b/c the deed from O to A is outside the chaion of title
1. A could sue O by estoppel by deed then sue uinder a
covenant.
3. Recording Too Late Problem
a. O conveys to A on Monday
b. O conveys to B on Tuesday (B has actual knowledge)
c. B records on Wed
d. A records on Thursday
e. B conveys to C on Friday
i. C is a BFP b/c the deed from O to A is outside of the chain of title.