Purchase Contract
What are the elements for a purchase contract?
(a) Price
(b) Method of Payment
(c) Time of Performance
(d) Various Conditions and other terms
What is the common law on duty to disclose? What are the expections?
No duty...only liable if:
(a) affirmatively misrepresented the condition of the property
(b) actively concealed its defects
(c) owed a fiduciary duty to the buyer (lawyer, executor)
What are the three steps for a purchase K to be fully performed?
(1) Buyer pays + executes a mortgage and promissory note for the lender;
(2) Lender advances the loan funds;
(3) Seller transfers title to the buyer by delivering the deed
What is the difference/definition of a general warranty deed vs a special warranty deed
General Warranty Deed = grantor warrants against defects against ALL defects (before and after he obtained title)
Special Warranty Deed = grantor warrants against defects that arose AFTER he obtained title
What are the three types of notice? Define them.
(1) Actual
(2) Recording
(3) Inquiry Notice
Name the 4 types of common issues that may occur during the purchase contract/sales process.
(1) SOF
(2) Marketable Title
(3) Equitable Conversion
(4) Duty to Disclose
When is the seller obligated to produce the property AND marketable title?
AT CLOSING
What are the three steps to make a valid deed?
(1) Must be delivered
(2) Must be accepted
(3) Must satisfy the SOF
What are the three documents that can be included in a special or a general warranty deed? (3)
(1) present covenant
(2) future covenant
(3) quitclaim deed
Bonus: define quitclaim deed. what does it promise?
What is the general rule for recording acts?
First in time = first in right
What happens after the purchase contract is signed? (5 steps)
(1) Seller's title is examined
(2) The condition of the property is evaluated
(3) Buyer obtains financing
(4) Escrow is opened to consummate the transaction
(5) Various documents are prepared (mortgage, promissory note, escrow instructions)
What is majority duty for duty to disclose?
Obligated to disclose defects he actually knows about that
(1) materially affect the value of the property AND
(2) are not known or readily discoverable by a buyer (upon reasonable inspection)
When is a deed delivery effective?
What are two ways in which a deed can be delivered that create a rebuttable presumption?
ensure intent to make a present transfer of property
(1) Recording (taking it down to the courthouse)
(2) Physical Transfer
What are the three covenants under a present covenant? What do they promise?
(1) Covenant of Seisin = promise that grantor owns estate
(2) Covenant of Right to Convey = promise that grantor has right to convey
(3) Covenant against Encumbrance = promise that there are no encumbrances on the title other than the ones listed on the deed
Who gets special protection under the modern trend?
bona fide subsequent purchaser for (i) value and (ii) without notice
What are the two expectations of getting around SOF?
(1) Promissory Estoppel/Reliance
(2) Part Performance (2/3)
(a) takes possession
(b) pays at least part of the purchase price
(c) makes improvements on the property
What period of the sales process does equitable conversion take place?
What does equitable conversion mean?
between signing sales K and the closing
(a) seller retains LEGAL TITLE and the right to possession
(b) buyer gains EQUITABLE TITLE and the right to future possession
(aka right to get property IF i pay the purchase price)
T or F: specific performance is available for breach of sales Ks
TRUE
Bonus: Why?
What are the three covenants under a future covenant? What do they promise?
(1) Covenant of Warranty = promise for grantor to defend the grantee against claims of superior title
(2) Covenant of Quiet Enjoyment = promise that possession will not be disturbed
(3) Covenant of Further Assistance = grantor will take all reasonable steps in the future to cure title defects that exist at the time deed was delievered
What are the three types of modern trends for who has priority? Define them.
(1) Race = purchaser who records first
(2) Notice = subsequent bona fide purchaser for
a. value;
b. taken without notice;
c. even if they don't record
(3) Race-Notice = subsequent bona fide purchaser for
a. value;
b. take without notice;
c. who records first
What are the three ways a title is unmarketable?
(1) seller's property interest is less than the one she purports to sell
(2) seller's title is subject to an encumbrance
Bonus: Can you name types of encumbrances? Is there a type of encumbrance that does not make a title unmarketable?
(3) there is reasonable doubt to one or two
Who bears the risk of loss after signing the purchase K? (3 approaches)
Common Law = buyer bears risk of loss
Seller continues to bear risk
Whoever is entitled to possession bears the risk
Seller agrees to sell Blackacre to Buyer for $300,000. Buyer obtains financing from Local Bank.
At the scheduled closing: Buyer signs a promissory note and mortgage in favor of Local Bank, Local Bank transfers the loan funds to the closing agent, The purchase price is placed into escrow pending completion of the closing, Seller signs a deed conveying Blackacre to Buyer.
Before leaving the closing office, Seller tells the closing agent:
“I’m still thinking about whether I want to go through with this sale. Don’t record the deed yet.”
However, the closing agent places the signed deed in Buyer’s file and gives Buyer a copy. The original deed is not immediately recorded.
The next day, Seller calls Buyer and says: “I’ve changed my mind. Since the deed hasn’t been recorded yet, the property is still mine.”
Buyer responds that the deed was validly delivered and accepted at closing and demands that the transaction be honored.
Buyer later learns that Seller is attempting to sell Blackacre to another purchaser.
Has title to Blackacre passed to Buyer? If so, does Buyer have a remedy?
Yes! Property has been properly delivered and accepted. Remember, delivery does not require a physical transfer (is just a rebuttable presumption of delivery). Courts focus on grantor's INTENT.
Seller's statement does NOT negate delivery because the transfer is NOT revocable after the K is fully performed. Recording is NOT required for a deed to be effective.
Acceptance by the grantee is usually PRESUMED.
Remedy = specific performance because REAL PROPERTY IS UNIQUE
Seller purchased Greenacre in 2015. In 2024, Seller conveyed Greenacre to Buyer by general warranty deed for $250,000. The deed did not mention any encumbrances.
Six months after closing, Buyer receives notice from Neighbor that a recorded utility easement running across Greenacre was granted by a prior owner in 2008. The easement significantly reduces the value of the property by $30,000 but would cost $80,000 to remove.
One year later, another individual, Paula, files a lawsuit claiming superior title to a portion of Greenacre based on a previously recorded deed from 2010. Buyer ultimately loses possession of that portion of the land.
Buyer sues Seller for breach of deed covenants.
1) Which title covenant, if any, was breached by the existence of the utility easement? When is that covenant considered breached?
2) What damages is Buyer entitled to for the easement encumbrance?
3) Which covenant applies to Paula’s successful claim of superior title, and when is that covenant breached?
4) How would the result change if Seller had conveyed Greenacre using a quitclaim deed instead of a general warranty deed?
1) A present covenant is breached by the existence of the utility easement (covenant against encumbrances). Present Covenants are breached, if at all, AT THE TIME OF DELIVERY.
2) Damages for breach of a present or future covenant is
Amount needed to remove the encumbrance OR
Amount by which property value is reduced = $30,000 in damages to Buyer
3) Successful claim of superior title is a future covenant: covenant of warranty and covenant of quiet enjoyment. Future covenants are breached AT THE TIME EVICTION OCCURS (when Buyer lost possession to Paula)
4) Buyer would not be able to sue or recover any damages against the Seller if it were a quitclaim deed. Because quitclaim deeds only grant the Buyer "this property IF I own it" = no protection if they don't own it or if there are any defects
What are the four types of titles "outside" the chain? Define them/give an example.
(1) Wild deed = one link missing because of missing recording
A → B (B does not record) ; B → C (C records) ; A → D (D records)
(2) Deed recorded too late
A → B (B does not record) ; A → C (C records) ; (B records) ; C → D (D records)
(3) Deed recorded too early
A owns property ; B → C (C records) ; A → B (B records) ; B → D (D records)
(4) Deed from a common grantor
A owns white and blue house ; A → B white house and gives an easement across blue house (B records) ; A → C blue house (C records)