Property II Outline

I.

CONTRACTS FOR SALE

Contracts: The remedy for breaking a condition in the transfer of land is forfeiture. The remedy for breaking a covenant will not be forfeiture, it will be some other remedy. Deeds; A deed does not need to be recorded to be valid. Recording the deed is not a prerequisite to validity. The Purchase and Sale contract Statute of frauds (SOF) No interest in land could be creates or transferred except by an instrument in writing signed by the party to be bound thereby. (p. 472). Therefore, to satisfy the SOF, a memorandum of sale must, at minimum, be in writing, signed by the party to be bound (charged), describe the real estate and state the price and method of payment. Additionally, some states will require that the parties be named and the memorandum of sale includes all the material or essential terms of the agreement. Elements of the SOF (Florida) In writing Names of the parties--- full name ADEQUATE LEGAL DESCRIPTION a. Legally adequate description of the property to be conveyed (this term varies from jurisdiction to jurisdiction and will have different requirements. Same require properly recorded and others allow legal descriptions such as Joe Shmows farm) i. Not the address---ii. ????? Sales price and method of payment ** Essential/Material Terms (financing, in a purchase and sales agreement is usually a contingency), (if time is of the essence, than a closing date is needed******) a. maybe NO essential terms--- REASONABLE b. Time is of the essence----- at bottom applies to all terms. *Earnest money binder* The buyers initial payment on the sale of real property Signed by the party(ies) to be charged/bound (the DEFENDANT must have signed the contract. The Plaintiff is the person bringing the lawsuit and the K does not have to be signed by the Plaintiff) For example, a deed only has to be signed by the grantor. Earnest money binder- Shows that the buyer is serious about purchasing the house. **if price is discussed but none is conclusively arrived at, they will likely say that the element has not been sufficiently met to satisfy the SOF. If the parties discuss appraisal, then the court could allow it to be issued at fair market value** If we dont have a legal remedy we look for equitable remedies (exceptions). Exceptions to the SOF 1

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Part performance -(some jurisdictions dont recognize part performance as an exception) *FL DOES* 1. Taking possession (physical possession); and 2. Paying all or part of the purchase price OR 3. Making valuable improvements (substantial performance) Equitable/ promissory Estoppel 1. Party has been induced to perform based on a reliance which if allowed to stand would create unjust enrichment or irreparable harm to the party who had been induced.

Statutes of frauds- to satisfy SOF a memorandum for sale must, at minimum, be signed by the party to be bound, describe the real estate and state the price. An agreement is not enforceable unless the parties refer to price and indicate the method they intend to use in fixing it (ex. Fair market value) Exceptions- Two exceptions are part performance and estoppel. y Part performance allows for the specific enforcement of oral agreements when particular acts have been performed by one of the parties to the agreement. (buyer taking possession and paying all or part of the purchase price or making valuable improvement. DOES NOT APPLY TO ACTIONS FOR DAMAGES (because it is an equitable remedy) Estoppel is when unconscionable injury would result from denying enforcement of the oral contract after one party has been induced by the other seriously to change his position in reliance of the K and the reliance is foreseeable to the promisor. Also applies to unjust enrichment. (an equitable remedy) Hickey v. Green Facts: (D) was selling lot S and the (P) were interested in purchasing the land. On July 12 they agreed on a price of $15,000 and D accepted/held a deposit for $500. P told D they wanted to build on that land but needed to sell their house first. P found a buyer for their house and accepted a deposit. D then told P that she had found a different buyer and would no longer sell her property. P filed suite for specific performance. D contends it is unenforceable based on SOF. ISSUE: WHETHER an oral agreement and presentation of a signed check for deposit of $500, which stated was the deposit on lot Massasoit ave. manomet.. subject to variance from town of plymouth, along with the selling of plaintiff house which was previously discussed b.w parties, is enough reliance to constitute partial performance or equitable estoppels when the def changed his mind b.c of a higher seller and check was never cashed or deposited and the elements for statifaction of the SOF are not met? RULE: A contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply with the statute of frauds if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against who enforcement is sought, has so changed his position that injustice can be avoided only by specific performance.(under equitable doctrine of estoppel) NOTE: This case is an equitable estoppel case because the elements of part performance could not be established. (In another case walker v. Ireton the sale of property in reliance of an oral contract was not sufficient reliance because it was not within the contemplation and understanding of the parties and not foreseeable by the seller. The seller did not know the other party intended to sell their property.) 2

Hickey - Oral agreement -no discussion of written agreement -cash -deposit not cashed -EE applies because the injurious reliance was foreseeable because she knew they planned on selling their property

Walker -oral agreement -in writing (had requested discussed one) -method of payment unknown -deposit not cashed **EE turns on b/c it was not within the contemplation and understanding of the parties and not foreseeable by the seller (this is why there was no EE in this casethe buyer never told the seller they were intending on selling their property to raise money for the sale)

Problem 2 546: To transfer a valid deed, there must be a new instrument to convey the property. She must make a new deed saying A O For property to be transferred for title of ownership a new deed must be written. Cant tinker with the existing deed. each CONVEYANCE requires a new document. E-Sign a signature contract or other record may not be denied legal effect, validity or enforceability solely because it is in electronic form. The court will look to the intent to sign. (authenticate)  The emails dont have to be in a single document, they must be incorporated by reference.  Also, typed signatures can fulfill the signed requirement. (not a certainty in every jurisdiction. Some court find a way around it) Marketable title In a contract of sale of land, the seller must convey to the buyer a marketable title. If the seller cannot convey a marketable title, the buyer is entitled to rescind the K. Marketable title is 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.  Generally this means an unencumbered fee simple with good record title.  Marketable Title: there is an implied warranty in EVERY land sale K that at CLOSING the seller will provide the buyer with a title that is marketable. Does not have to be perfect title, but must be free from questions that would present an unreasonable risk of litigation (generally mortgages, liens, easements and covenants render title unmarketable unless the buyer waives them. These are the types of things look for during due diligence-not all are things covered by title insurance). Title: shows that a person has legal ownership of property and is shown on a deed. 3

LIENS-ENCUMBRENCES-CREATES BUYABLE .. Chain of title: shows the sequence of ownership of everyone who had owned title to a specific property (starting with the first person called the sovereign) Ex: Sovereign A B C DEtc FLORIDA MUST BE JUDICIAL FOR FORECLOSURE. Marketable title: title which is free from the possibility of litigation (clear title) 1. Lohmeyer v. Bower whether a property that is in violation of a restrictive covenant or city zoning ordinances can be conveyed under good merchantable title even if the k reads subject however, to all restrictions and easements of record applying to this property. Facts: P contracted to buy a specific parcel of property from D. The k said that D would convey, by warranty deed good marketable title, free and clear of encumbrances, but subject to all recorded restrictions and easements applying to the property. P discovered that the property was in violation of both the city zoning ordinance and a restrictive covenant previously imposed on the lot. P sued to cancel the k and D counter sued for specific performance. Rule: If seller cannot provide buyer with marketable title, then the buyer may rescind the k. A restrictive covenant is by definition an encumbrance in all jurisdictions. In this case P accepted the property with restrictive easements. It was the existence of a violation of a city ordinance that made the title unmarketable not the presence of the ordinances themselves. Lot 37 required a two story house (restrictive covenant). Covenant limits the ability to do something on the lot. By definition a restrictive covenant is an encumbrance.  A violation of a city ordinance is an encumbrance (the violation is an encumbrance). Just the zoning ordinance itself is not an encumbrance.  The restrictive covenant itself is an encumbrance whether it is violated or not. The buyer accepted the restricted covenants in the clause of the K. (Restrictive covenants are usually there for the buyers benefit). The buyers have been noticed of these encumbrances and take title subject to these encumbrances.  Affirmative covenant - An agreement by the purchaser to pay a fee every month (condo, homeowners association)  Restrictive covenant an agreement not to do something (not to put a chain link-fence) Encumbrances: generally mortgages, liens, easements, and covenants render the title unmarketable unless the buyer waives them. When someone buys a house and title insurance shows some defect, the seller has the opportunity to rectify it. The contract language on marketable title free and clear of all encumbrancessubject however to all restrictions and easements of record applying to this property so he waived his right to the recorded encumbrances (easements, because you need them to get electricity, water, cable) Satisfaction- paid off the loan4

Majority rule for restrictive covenants: A restrictive covenant is considered an encumbrance, therefore, the mere existence of a restrictive covenant renders title unmarketable (e.g. cant have chain link fence, park cars in front of house, etc.) limits what you are allowed to do with your land. Encumbrance in and of itself (whether you are in violation or not) Usually in condos or gated subdivisions City ordinance: is not and of itself an encumbrance, but if there is a violation, it is an encumbrance. Majority rule for zoning and land restrictions: Mere existence of a zoning or land use regulation does not rise to the level of an encumbrance, but a violation or a regulation does. (In the Lohmeyer case there was a requirement for 18 feet between houses. The violation of this created an encumbrance and rendered the title unmarketable.) Title insurance: what insurance companies do is warrant all of the property except for.(the title company wont cover encumbrances, liens, etc.). Sometimes, even if it something they agreed to pay for, it doesnt turn out to be such a good deal. (example of avenues movies, the title insurance company made a mistake in the title search. All they had to do was make whole. They purchased the small portion of land for $16,000. The builder had to stop building and pay interest on the loan for the 4 months it took) A court will find marketable title if: 1. The seller has fee simple; 2. The title is free from encumbrances*, and 3. Buyer is entitled to possession If a buyer has taken subject to certain encumbraces then the title is good. NOTE: Due diligence period I the time between the purchase and sales agreement and the date of closing/when title passes. 2. Doctrine of Equitable conversion Under the doctrine of equitable conversion, for the sale and purchase of real property, the BUYER is viewed in equity as the owner (equitable ownership) from the date of the contract. The SELLER has legal title as trustee for the buyer (bare legal title). Risk of loss- If property is destroyed between signing the contract of sale and the closing, and the contract has no provision allocating the risk of loss. Under equitable conversion doctrine: (Majority view) if property is destroyed between signing of K the loss is on the buyer because they have equitable title If no equitable conversion doctrine: (Minority view) view is that loss is on the seller until legal title is conveyed. - Minority states may have specific rules on point such as Massachusetts risk of loss is on the seller if the loss is substantial and the terms of the k show that he building constituted an important part of the subject matter of the k; if the loss is not substantial, either party can enforce the k, thought an abatement in purchase price may be given 5

Inheritance when one of the parties to a K for the sale of land dies and the issue arises whether the decedents interest is real property or personal property. If equitable conversion has occurred, the sellers interest is personal property (right to purchase price of the land) and the buyer is treated as owner of the land. Doctrine of equitable conversion: If there is a specifically enforceable contract** for the sale of land, equity regards as done that which ought to be done. Used to establish who bears the risk of loss between the signing of the contract and the closing.  Because its a doctrine (it is an equitable doctrine) it is not a rule of law, it is a guideline (court can choose whether or not to apply it).  ** Specifically enforceable contract when determining whether a k is specifically enforceable, look at the status of the K, most Ks have contingencies. If the contingencies are material and substantial most courts will say it is not a specifically enforceable K. (Contract contingencies: 1. Mortgage contingencycontract is contingent on the buyer getting the mortgage. 2. Marketable title- K is contingent on the title being marketable, this is not something that will be known right away, it will be researched during the due diligence period) When does the ownership transfer from the seller to the buyer, leaving the seller withbare legal title and the buyer with equitable ownership? when the k can be specifically performed (when an executory k is formed-all contingencies have been satisfied. Means the parties are entitled to specific performance). Equitable conversion is important to know because of 1) risk of loss or burden of fortuitous loss. If your jurisdiction has adopted equitable conversion (FL has) then the risk of loss will fall on the buyer. Under equitable conversion- from the time of the contract of sale of real estate the burden of loss is on the purchaser even though the seller retains possession (possession follows the legal title so even though the buyer is regarded as owning the property, the seller is entitled to possession until closing)(this means that if the property was destroyed prior to closing the buyer would still have to pay the purchase price he is the owner) Problem: O contracts to sell Blackacre to A for $10,000. Before closing, O dies intestate. By the applicable intestacy statute, B succeeds to Os real property and C succeeds to Os personal property. Who gets the $10,000 and why? C gets the personal property which is the money (the $10,000) because c was getting the personal property A is entitled to the real property and C will still have to convey it at closing Deceased sellers interest passes as personal property and deceased buyers as real property If you have a risk of loss clause (who bears the burden of loss if the property is damaged), you probably also want an insurance clause (that the property is ensured during the due diligence period up until the date of closing) A. Duty to disclose defects 1. Stambovsky v. Ackley 6

Facts: Stambovsky (P) contracted to purchase a house from Ackley (D). He then discovered that the house was widely reputed to be possessed by poltergeists seen by D and his family. The Phenomenon was reported in the local paper as well as Readers Digest and the house had been a walking ghost tour. The impact of the reputation impairs the value of the property as well as the potential for resale. P sought rescission of the K. Issue: Does nondisclosure of a condition which has been created by the seller and is peculiarly within the knowledge of the seller constitute a basis for rescission as a matter of equity? Rule: Where a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care with respect to the subject transactions. Nondisclosure constitutes a basis for rescission as a matter of equity.(this is not the caveat emptor law)(only applies to similar situation). Caveat emptor Mere non-disclosure does not constitute actionable misrepresentation, BUYER BEWARE PROPER APPLICATION OF THIS RULE IS WHEN THE UNDISCLOSED DEFECT IS PATENT DISCOVERABLE UPON REASONABLE INSPECTION. Some affirmative misrepresentation must have occurred in order to hold the seller liable for undiscovered defects effecting the premises. Active concealment where seller actively did something to conceal the defect (built fake ventilation system) even under caveat emptor this would be actionable. (Fake ventilation system, cracks covered by the buyer.) Active concealment is actionable even in a caveat emptor state. In order for caveat emptor to apply the seller must say nothing. The seller is not required to disclose, but if the buyer asks a question (how is the ventilation) and the seller says its fine (knowing it isnt), that would be actionable. Stigma statutes- codified by legislature says that the broker or seller does not have to disclose if there was a murder in the house, suicides, HIV/AIDS in the house, but they have to answer the question truthfully if asked (shields sellers from a failure to disclose these psychological/prejudicial factors that might affect market value) Megans law- (not a stigma statue) makes the sexual offender register in a public registry. So it is up to the buyer to go to the sexual predator registry to check for themselves. There are more and more states that are requiring sellers to be more candid in what might be considered a defect and that would therefore cause economic harm. Johnson v. Davis Facts: The Davises entered into a k to buy the Johnsons home for 310k. The Johnsons knew the room leaked but they affirmatively represented to the Davises that there were no problems with the roof. After the Davises made a 31k deposit, the Johnsons vacated the home. Subsequently Mrs. Davis discovered the roof leaked badly. The Davises brought an action for fraudulent misrepresentation and breach of k. Issue: Whether the seller of a home has a duty to disclose latent material defects to a buyer? Rule: where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose the defect to the buyer.

 Prior to this case FL was a caveat emptor state. Supp. Ct. made a conscious decision to overturn the caveat emptor in the state of FL. It was then replaced with the Johnson v. Davis rule. The supreme court has not yet extended this rule to commercial or industrial real estate, it is only for the sale of homes  WHETHER the seller of a home has a duty to disclose latent (hidden) material defects to a buyer?  P alleged (1) fraudulent misrepresentation (2) breach of K.  It is important to note: that the courts are much more likely to allow a remedy for rescission before closing. That is because the parties have not substantially changed their positions- (deed has not been tendered, money has not been tendered). (There are cases where rescission is a remedy post closing, however it is much more likely for the court to allow rescission before closing)  The court distinguishes between action (misfeasance) and inaction (nonfeasance).  **Once the seller has made a representation that something is good. The buyer is under no obligation to get it inspected.  Rule: Where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose the defect to the buyer. Types of misrepresentation 1. Fraudulent misrepresentation- (intentional) 2. Negligent misrepresentation- (knew or should have known) 3. Innocent misrepresentation- (mistake of fact/ saying something you believe to be true) Note: all of these apply to sellers. *In Fl brokers are liable for fraudulent or negligent misrepresentation Failure to disclose -- not telling the buyer of defect Misrepresentation --- when buyer asks the seller about a defect and the seller tells the buyer anything but the truth about the defect (3 types of misrepresentation) Fraudulent--- the seller and broker are liable for fraudulent misrepresentations. Negligent-- the seller and the broker are liable for negligent misrepresentations. Innocent-- in most jurisdictions an innocent misrepresentation by the seller will still hold the seller liable; however the broker who makes an innocent misrepresentation is not held liable when the broker made the statement based on information given by the seller. The seller, under the majority rule, is always liable for innocent misrepresentations. The broker, under the majority rule, is not liable for the innocent misrepresentations. **When dealing with misrepresentations, It is important that the statements induce the buyer to Buy the property ** Latent defect: Prudent reasonable buyer upon reasonable inspection of the property would not find the defect. Could also be a defect that has not materialized yet.

If the defect is not material the court is unlikely to find for the buyer and there will not be a remedy. Elements: (steps) Is this residential? Is the defect material? 8

Is the defect really latent? Is there economic harm? Note: these elements are from the Johnson v. Davis case. Apply to fact patterns involving residential property and a latent defect. If yes to these elements, there are 2 remedies: Rescission or damages (abatement of sales price, cost of repairing the roof, etc. ) Ex: a family comes to town and are specifically looking for a home in a specific school district to send their kid to a specific school. If the buyers tell the seller and the seller knows of this reason and knows the house is outside the district for the school, that can be a material defect. Material Defect where no harm has been done: Under Lohmeyer case, If Lohmeyer would have agreed to purchase the house with the encumbrances provided that the seller gives him an abatement in the purchase price to cover the construction costs for adding a second story, then if the roof had been faulty it would not be a material defect because they would have to tear it down anyway for the construction. HYPO Handout Brokers duty to disclose extends to the seller who is the principal and therefore, responsible for statements made by the principals agent the broker/agent Class example crack in slab of concrete, the structural engineer comes in a certifies that it is fixed. Then later you decide to sell your house, DO YOU HAVE TO DISCLOSE THAT THERE WAS A CRACK IN THE CONCRETE? If there has been a significant period of time since the defect was fixed and it did not reoccur then you will likely be ok. If there hasnt been enough time to know whether the problem, has been fixed then it is better to disclose the repair. - ONCE a seller makes a representation, the buyer is under no obligation to get an inspector to inspect it. The buyer may rely on the sellers position that it is fine. The FL board of realtors (after Johnson v. Davis) requires homeowners to fill out a form listing all repairs made to the home. MUTUAL MISTAKE (Pg. 489): Is when the buyer enquired about a crack in the ceiling and the seller stated that there was absolutely no problem with the roof because the leak had been fixed. Later the buyer found new evidence of leaking and elected to rescind the K, either b/c of fraud or mutual mistake. The court permitted rescission, reasoning that when the seller stated there was absolutely no problem with the roof, he either knew it still leaked, which was fraud, or thought the roof had been repaired and no longer leaked, which led to a mutual mistake of fact (that the roof would not leak).

Difference between mutual mistake and innocent misrepresentation there really isnt one. Doctrine of Merger: (pg 494) Upon acceptance of the deed tendered by the seller, the buyer is deemed to be satisfied that all contractual obligations found in the purchase & sales agreement (PSA) have been met. Should some promise in the PSA not have been met after closing, the K is considered terminated and buyer must sue seller on the promises in the deed. The doctrine principally applies to questions of title or quality of land. **FL applies the doctrine of merger** It says at the closing the purchase and sales contract for all intensive purposes is terminated or merges in the deed. So if a lawsuit arises the document upon which the seller can be sued is the deed itself. (There has to be a promise contained in the deed for the seller to be sued. If there is no promise in the deed the seller cannot be sued) However there are certain promises in the K that will survive the deed, called collateral promises. Collateral promise: Promises that dont affect the quality of title. doctrine of merger does not kick in for collateral promises. (Example: woman who ripped out her gardenia bushes and took them with her) this is an example of a collateral promise that would survive the deed and can be used from the purchase and sales agreement. offsite disclosure (Pg. 493): Some courts hold that the builder and selling brokers of new homes had the duty to disclose to potential buyers the existence of offsite as well as onsite conditions that are of sufficient materiality to affect the habitability, use, or enjoyment of the property and, therefore, render the property substantially less desirable or valuable to the objectively reasonably buyer. As is clause (493): is premised on buyer making a reasonable inspection, and knowing that they have to make the repairs. A seller cant cannot hide or fail to disclose latent defects. As Is Clause- as is clause in a sales k, will be upheld if the defects are reasonably discoverable and there is no fraud. But if there is a fraudulent representation or concealment of info by the seller, the buyer is not bound by the as is clause. Pg 501 note 2 : says you cannot make a general disclaimer of AS IS under the under uniform land transaction actHowever no state has adopted this act.

B. Implied Warranty of Quality

AFTER THE CLOSING Lempke v. Dagenais Facts: The previous owner of Ps house contracted with D to build a garage. 6 months after the construction the owners sold the property to P. P then noticed the roof was defected, and the roof trusses were bowing out (latent defect). Fearing the roof would cave in they asked D to repair, D agreed but never fixed the roof. P filed action against builder (D). Issue: WHETHER a subsequent purchaser of real property may sue the builder/contractor on the theory of implied warranty of workmanlike quality for latent defects which cause economic loss, absent privity of K. ROL: See Rule below 10

Regardless of whether courts have found the implied warranty to be based in K or Tort, many have found that it exists independently, imposed by operation of law, the imposition of which is a matter of public policy. (implie warranties arise by operation of law and not by agreement of the parties, there purpose being to protect the buyer from loss) Ps set forth three claims in their complaint 1. Breach of implied warranty of workmanlike quality 2. Negligence 3. Breach of assigned K rights ******GENERAL RULE PUNITIVE DAMAGES NOT AWARDED IN CONTRACT BUT AWARDED IN TORTS. Rule: Privity of K is not necessary under certain circumstances*. All elements must be proven, plus time period must be reasonable. Circumstances*: Subsequent purchaser Must be builder/contactor (vendor) Must be a latent defect (Unknown at time of purchase and not presented itself yet.) Must be economic loss First buyer can always sue the builder/vendor under privity of K theory, but subsequent buyer no longer has a contractual relationship the builder/vendor.

1. 2. 3. 4.

Burdens: 1. P must show that the defect is caused by Ds faulty workmanship 2. D can show defects result of age or normal wear and tear, or previous owners have made substantial changes Implied warranty is imposed by law on the basis of public policy in order to give innocent buyers a remedy and to hold builder/vendors accountable for workmanlike quality. Policy reasons for applying an implied warranty of workmanlike quality to subsequent buyers: Many defects cannot be discovered by an inspection (latent). Builder/vendor is the person who can eliminate the loss at the least monetary cost (cheapest cost avoider) b/c they can spread the costs Subsequent buyers expect house to have a reasonable life span. (property law borrowing concepts from the UCC) May discourage sloppy building practices and encourage more careful construction. Eliminates possibility of sham buyers (selling to a fake 1st buyer to cut off liability) Warranty of quality (pg 502): A warranty of quality is not normally implied where the seller is not a merchant of housing that is, a builder, sub-divider, or commercial vendor. Suits against a person who sells his home to another ordinarily must be based on fraud, misrepresentation, or failure to disclose.

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1. 2. 3. C. 1.

Public Reasoning!!!*** see notes Redawroicz page 567 568 Blagg v fred hut chag eof title UCC Plaitiff burde to show ULTA HAS NOT BEE Adopted by any states Remedies for a breach of K by the Seller (Buyer Remedies) Rescission. the buyer wants out and the seller has to retake the property and return the binder money (and if the K is closed then they have to return the entire purchase price); Offer to perform and if the other side fails bring an action for specific performance (this only comes when there hasnt been a closing yet); OR Elect to retain the realty and file suit seeking damages award (after closing). Remedies for the breach of the sales contract Jones v. Lee Facts: Parties entered into a written agreement where d was supposed to buy a home from P for $61,000, with D paying $6,000 in earnest money to solidify the deal. Two months after the forming a written K, D told P they could not go through with the purchase for financial reasons. P rejected Ds proposed termination and sold their home 3 months later for $540,000 ($70,000 less than they were selling to D for). P sued D for breach of K requesting damages. Issue: WHETHER a non-defaulting party to a breached real estate contract is entitled to an award of damages when the defaulting party breaches the contact for the sale of the home and the non-defaulting party is forced to sell the house to a 3rd party for $70,000 less, and if so, how are damages determined? Rule: Yes, calculated by loss of bargain rule. If a purchaser defaults on a contract to purchase realty, as a general rule, the seller has three alternative remedies. The seller may (1) seek in equity for rescission (2) offer to perform and bring action for specific performance (3) Elect to retain the realty and file suit seeking award of damages. (burden is on that party that party to present compelling evidence to support such claim for damages) Loss of bargain Rule vendors measure of damages is the difference between the purchase price and the market value of the property at the time of breach. Rule: The measure of damages is the difference between the sales price of the contract and the market value of the property at the time of the breach Loss of bargain rule (Policy behind this rule assumes that there is a static market) **How do you determine market value at the time of sale? (Get an appraisal) Loss of bargain rule: (Majority rule) Damages are difference between sales price at time of K and market value at the time of the breach. (One way to do that is to look at comparable sales in the area.) Minority Rule: first you would have to prove to the court that the market was not static, but was in decline in your jurisdiction. If this is established then they could apply the formula that was the difference between the contract price and the price of the sale. (This is a narrow caveat the market MUST be in decline)(Proff says: the economic decline is the condition precedent to the application of the minority rule) NOTE: if you see a fact pattern on a essay that doesnt specify, address both.

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Under the loss of the bargain the seller has options If the buyer defaults, seller may: 1. Rescind and keep binder deposit 2. Sue the buyer for specific performance (a lot of people dont like this because long litigation and prevents buyer and seller from buying or selling during that time frame) 3. Retain reality and seek damages/then put house back on the market **Courts are trending away from allowing seller to sue for specific performance Special Damages: 1. Solar system and heating Warranty 2. Interest payment on the mortgage. **(Consequentials = reasonably foreseeable) Special damages may be awarded by the factfinder in a breach of contract case if the damages are shown to have resulted as the natural and probable consequence of the breach and at the time of the formation of the K, the breaching party reasonably knew or should have anticipated from the facts of the circumstances that the damages would probably be incurred. Punitive Damages Executory K (Ask shorstein)- When both parties have signed the PSA and there are no contingencies. (This K is contingent on the buyer getting a loan and that would have to be met for the K to be executory. If it is not executor then there is nothing to sue on) 2. Kutzin v. Pirnie Facts: Pirnies (D) signed a K to purchase the Kutzins house worth $365,000. The contract called for a $1000 down payment on the date of the signing of the K and another $35,000 within 7 days. The contact did not contain a forfeiture or liquidated damages clause. D breached the K and wanted to recover part of their down payment back. P felt they were entitled to keep the entire sum. Issue: Whether the seller of a house may retain the entire sum of a deposit when a buyer breaches the contract for sale and the contract does not contain a liquidated-damages or forfeiture clause, but merely states if this contract is voided by either party, the escrow monies shall be distributed pursuant to the written direction of both parties? ROL: Modern trend (but still minority view) is toward restitution to the buyer for the portion of the deposit that exceeds amount of damages incurred in the absence of a liquidated damages clause on an unjust enrichment theory.  This case rejected the common law rule and adopted a different rule (Minority Rule decision).  Liquidated damages clause (forfeiture clause) -- What happens when there is a breach? They usually use the binder deposit for the liquidated damages.  Prof: liquidated damages clause is used to set an agreed upon figure for damages if there is a breach when you dont know what the damages will be. You cannot recover more than this amount even if the damage turns out to be more.  Common law rule (Majority Rule)- where the vendee or real property makes a part payment on the purchase price, but fails to fulfill the k without lawful excuse, he cannot recover the paymenteven though the vendor may have made a profit by reason of the default. Therefore, the seller may retain a 13

deposit even when the amount of the deposit exceeds the amount of the actual damage incurred. Rule of thumb: A 10% forfeiture is reasonable. (Courts are not interested in changing this rule of thumb)  Liquidated damages as a penalty court looks at the amount of excess of the loss suffered. (The issue is at what point does a liquidated damages clause become a penalty clause? Courts do not like penalty clauses so if they determine that a liquidated damages clause is excessive they will construe it as a penalty clause)  This case Minority Rule - Modern trend (but still minority view) is toward restitution to the buyer for the portion of the deposit that exceeds amount of damages incurred in the absence of a liquidated damages clause on an unjust enrichment theory.  In the Kutzin case, there was no liquidated Damages clause, the court overrules the common law and holds that vendors are not entitled to the entire deposit, merely to the amount of injury caused by the breach. 1. Damages & Timing Static market vs declining market. The general rule for a party seeking damages for breach of k to convey real estate is the difference between the k price and the fair market value at the time of breach. This rule might only protect the expectations of the parties in a static market. A real estate market that is rapidly declining, making it more difficult for the non-defaulting seller to find a new buyer, some courts have allowed damages to be calculated on the date the property is resold (resale price in a declining market). 2. Retention of deposit Normally 10%, but courts have held for higher often attributable to unique facts of the situation (e.g. Trump Tower case-buyer pulled out after 9/11 stating that Trump had prior knowledge of the dangerousness of living at the top of the building). Rule of Thumb is that 10% is reasonable. -Efficient Breach Theory: when the costs of the breach (damages) is less than the potential gain from the breach (due to changing market conditions), breach of the k is the economically sufficient result. 3. Specific Performance (Doctrine of Mutuality- whatever remedy is available to one party, the same remedy is available to the other *this is starting to change however*) property unique/money fungible. See Centex Homes Corp (pg. 512). (Also not good from a policy point of view-Shorstein?). - courts have been particularly hesitant to automatically award specific performance to condominium sellers, presumably based upon the absence of uniqueness among homes in a development (undermines the availability of specific performance but is still a minority opinion) 4. Sellers breach due to the title defect- Usually earnest money deposit plus interest and reasonable expenses incurred in investigating title. Purchasers may elect to sue for specific performance of the K despite title defects and ask for an abatement of the sales price (to reflect decreased value of the property with the defect). a. English rule 50 %-- limit the buyers recovery to his down payment plus interes and reasonable expesnses incurred in investigating the title i. Only if seller has acted in bad faith or has assumed the risk of a failure to secure title will he be liable for ordinary contract damages. b. American rule becoming the majority- purchaser may recover expectation (benefit of the bargain) damages plus any other reasonably foreseeable special damages.

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5. Time is of the essence State in the K on or before If not, then court will give parties a reasonable time for performance -unless the parties expressly provide that time is of the essence a court will give the parties a reasonable time for performance, and either party can fix the time for performance by giving notice to the other, provided the other leaves a reasonable time for rendering performance.

Deeds
In 1677 the Statute of Frauds (SOF) was enacted, doing away with livery of seisin and requiring a written instrument to transfer title for the ownership of land. General Warranty - The grantor will warranty against all defects in title whether they arose before or after the grantor took title 2. Special Warranty Warranties only against the grantors own act, but not the acts of others (warrants that he himself did not create any title defects during his tenure). 3. Quit Claim no warranties 4. Statutory Warranty See specific jurisdiction See diagrams in notes NOTE: Most jurisdictions require a witness(es). Florida requires 2 witnesses. Pg 515 Gen Warranty Deed To satisfy SOF you need the name of the grantee-in most jurisdiction (but dont need his signature). You need the grantors signature Some jurisdictions dont require an acknowledgment unless you want to record the deed. Deeds state: Consideration (not the actual amount just proves that you are a bonafied purchaser) but in states that require the recording of the deed to be accompanied by a documentary stamp tax, the actual amount can be calculated (bonafied purchaser- means you paid sufficient value for the property) Description of the tract describing its boundaries. Hierarchy of description (if there is discrepancy as to the boundaries described in a deed-these rules of construction apply) Natural monuments (old oak tree) Artificial monuments (stakes by surveyor) Reference to adjacent boundaries (over to Mr. Jones barn) Distance (25 ft. N.W.) Area (5 acres of land) Place names (Bobs house) Note: Look at the legal description to see where it falls in to the hierarchy Seal- for a period of time there was a requirement for a seal marking Forgery and fraud If the deed is forged it is void. If a deed is fraudulent it is voidable by the grantor. **A deed procured by fraud is voidable by the grantor in an action against the grantee, but a subsequent 15 1.

1.

2.

1. 2. 3. 4. 5. 6. 3. 4.

bonafied purchaser from the grantee who is unaware of the fraud prevails over the grantor. (O (fraudulently)A (w/o knowledge of the fraud) B ) *B= subsequent bonafied purchaser per value (BFP) A deed containing warranties (covenants) usually contain the following Present warranties (covenants) Breached at the time of the conveyance (closing). 1. Covenant of Seisin I own the property that I am conveying. Ex. If I say I own 8 acres then I do own the 8 acres. 2. Covenant of the Right to Convey- I am legally able to convey this property to you (ex. Trustee, Tenants by the entirety). Trustee may have legal title but be forbidden by the trust instrument to convey it. 3. Covenant Against Encumbrances- the grantor warrants that there are no encumbrances on the property other than those stipulated by the grantor. If other are found then the grantor has broken the covenant. (warrants against both visible: easements, profits etc and invisible encumbrances: mortgages) Note: SOL begins running at conveyance (closing) regardless of whether the parties are aware of the breach. See diagram in notes Future Warranties (covenants) Breached at some point in the future. A future covenant is not breached UNTIL the grantee or his successor is evicted from the property or part thereof: 1. Covenant of General Warranty: same thing as QE 2. Covenant of Quiet Enjoyment: the grantor covenants that the grantee will not be disturbed in possession or enjoyment of the property by a third partys lawful assertion of superior title. 3. Covenant of Further Assurances: grantor covenants to perform whatever acts are reasonably necessary to perfect title if it turns out to be imperfect (unusual) Brown v. Lober Facts: In 1947 the owner of 80 acres of land conveyed it to William and Faith Bost, reserving a 2/3 interest in the mineral rights. In 1957 the Bosts conveyed the 80 acre tract to James R Brown and his wife (P) by a general warranty deed (warrants against all defects in title) containing no exceptions. In 1974 the Browns contracted to sell the mineral rights to Consolidated Coal Co. for 6k but upon finding that the Browns only owned 1/3 of the mineral rights the parties had to renegotiate the k for 2k (1/3). The prior grantor had never made any attempt to exercise his mineral rights. The 10 year SOL barred a suit on the present covenants (seisen) so the P sued the executor of the Bosts seeking 4k damages for breach of the covenant of quiet enjoyment. Issue: whether the plaintiffs have alleged facts sufficient to establish constructive eviction under the warranty deed which purported to convey the entire interest in land when they discovered the existence of a paramount title held by a 3d party to 2/3 of the mineral rights of the land? Rule: the paramount title holder must act to evict (assert adverse title) the grantee in order to create a breach of the covenant of quiet enjoyment. They could have a beach of covenant of seisen and won if they would have had a title search, but the SOL ran out.

  

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 There wasnt a breach in the covenant of quiet enjoyment. In order to approve constructive eviction there must be an affirmative act. If they would have started digging on the land and the third party who owned the property would have sent them a cease and desist order, that would have been an affirmative action that would have been sufficient to establish a breach of the covenant of quiet enjoyment and allowed for constructive eviction.  Rule: The paramount title holder must act to evict (assert adverse title) the grantee in order to create a breach of the covenant of quiet enjoyment Mere existence of a paramount title holder does not constitute a breach. Frimberger v. Anzellotti Facts: In 1978, D's brother conveyed land to D by quit claim deed. The property bordered a marsh and had a seawall built. In D conveyed to P by warranty deed to P, who decided to repair the seawall and filled area, and hired an engineer, who ordered a survey of the tidal wetlands property. DEP officials and engineers found a violation, and ordered a second survey. Second survey found that the seawall and possibly the corner of the house violated the statute, and directed P to submit an application to DEP demonstrating the necessity of the bulkhead. P filed action against D claiming damages for breach of warranty against encumbrances and innocent misrepresentation. Issue: Whether an alleged latent violation of a land use statute or regulation, existing on the land at the time title is conveyed constitutes an encumbrance such that the conveyance breaches the grantors covenant against encumbrances and establishes the elements of innocent misrepresentation? Rule: Latent violations of state or municipal land use regulations that do not appear on the land records, that are unknown to the seller of the property, as to which the agency charged with enforcement has taken no official action to compel compliance at the time the deed was executed, and that have not ripened into an interest that can be recorded on the land records do not constitute an encumbrance of the deed warranty.  P took the property Free and clear of all encumbrances, but subject to all building, building line and zoning restriction as well as easements and restrictions of record.  P filed an action for breach of the covenant against encumbrances and innocent misrepresentation.  Definition of an encumbrance: every right or interest in the land which may subsist in third persons, to the diminution of the value of the land (pg. 522) Kinds of encumbrances: 1. Pecuniary damages (Money damages- tax liens mortgage, etc) 2. Estate or interests less than a fee (Lease) 3. Easements or servitudes (section of the land that a party who does not own it has the right to use it) Court holds that the concept of encumbrances cannot be expanded to include latent conditions on property that are in violation of statutes or government regulations. Innocent misrepresentation count based on the assertion in the covenant against encumbrances. Therefore if the violation isnt an encumbrance, there can be no misrepresentation given that the assertion relied upon was that the property was free from encumbrances (Because there was no encumbrance, there was no misrepresentation) Damages: 1. Breach of covenant of seisen return of all or part of the purchase price (ex. Brown case: had the browns been timely in filing the complaint for breach of covenant of seisen they would have received the $6 thousand. Lets say someone was deeded 8 acres of land and they actually only have 6 the damage would be 1/3 of the purchase price) 2. Breach of the covenant against encumbrances 17

a. If easily removable, cost of the removal b. If not, difference of the value of land with encumbrance and the value of the land without the encumbrances. Estoppel by Deed : Where a grantor purports to convey an estate in property that he does not then own, if the grantor subsequently acquires title, the title passes by operation of law to the grantee under the earlier deed. O is stopped from asserting that he had no title at the time he conveyed to A. O to A but O doesnt own the property O transfers to A but O doesnt really own the property (Z does). But later, Z deeds the land to O. At that point, A becomes the owner. If Z never transferred to A but instead sold it to B. then first A can go after B to quiet title. If he loses, he can go after O for damages. Delivery: (is valid if)- a deed is not effective to transfer an interest in realty unless it has been delivered. Grantor Intends (to immediately transfer property to) Grantee Irrevocable (gives up dominion and control) Acceptance There is a rebuttable presumption that the deed was accepted by the grantee Rule that need to know is that in order for delivery to be effective the grantor must intend to deed the property to the grantee and it must be IRREVOCABLE. That is the grantor should not be able to take back the deed after its conveyance **A deed with a condition in it is a conditional deedIf it is conditional it must remain with a third party (not a party to the transaction)

Donative Transactions
A. Delivery: to be effective, a deed must be delivered with the intent that it be presently operative. Sweeney v. Sweeney Facts: P is Maurice Sweeney s widow and administratix. Maurice deeded property to John Sweeney (D) (this gave john paramount title). This deed was recorded pursuant to Maurice s request a second deed was executed which deeded the property back to him (to protect Maurice if John died before him). This deed was not recorded. Later Maurice gave John both deeds. John gave the second (unrecorded) deed to his attorney. It was subsequently destroyed in a fire. Maurice continued to live on the deeded property until his death. He made leases and exercised control over it w/o interference from John. Maurice died and his wife brought an action against John. Issue: whether the second deed was delivered and if so, whether or not a condition claimed to be attached to the delivery is operative? Rule: Delivery must be made with the intent to pass title. This claim is not good b/c the delivery was to the grantee. A conditional delivery is and can only be made by placing the deed in the hands of a third person to be kept by him until the happening of the event upon the happening of which the deed is to

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be delivered over by the third person to the grantee. Conditional delivery to a grantee vests absolute title in the latter. Rule: delivery must be made with the intent to pass title immediately. Rule: In order for a conditional deed to be valid, the deed must remain with a third party until the condition is met, at which time the third party will deliver the deed the grantee. If the conditional deed is handed directly to the grantee, then the courts will find the condition to b void and will take the deed without the condition attached. Some jurisdictions do not require a third party and allow the grantee t hold the deed until the condition is met. To effectuate a new deed there has a new writing; you cannot just change the language in the first deed. Has to be a separate instrument. Maurice could have just transferred M M for life, remainder John. Question 3 on page 536: seller is reay to deliver a deed to a buyer, but buyer does not yet have the money. Seller says to buyer I ll give you this deed now on the condition that you pay me by the 1st of next month. Buyer takes the deed and records, but subsequently does not pay. If the Sweeney case is followed, what is sellers remedy? The sellers remedy is to sue for the Price on the promise. You cannot sue on the deed b/c the condition was not written on the deed. Delivery without handing over: To deliver a deed of land, it is necessary that the deed be handed over to the grantee. Delivery means no more than act that evinces an intent to be immediately bound by the transfer. Laypersons often do not know of the sharp distinction the law draws between an Intervivos transfer of land, requiring the delivery of a signed instrument, and a transfer at death, requiring an instrument compliant with the statute of wills. (intent must be to be immediately bound even if it is turning over a future interest: LE remainder to B- cannot be revocable until death b/c then acting more like a will.) Rosengrant v. Rosengrant (no delivery when the deed is put in escrow and the grantor has a right of retrieval. This means he never gave up control which is necessary for an effective delivery) Facts: Harold and Mildred Rosengrant had no children but 6 nieces and nephews. Jay, one of the nephews lived close to the couple and helped them with their chores. Mildred called Jay and asked him to meet with her and Harold at the bank. Jay was introduced to the banker who presented the couple with a deed to their farm which he had prepared according to their instructions. Jay accepted the deed and then handed it back to the banker who told him he would put it into an envelope and keep it in the vault (he handed it back because they felt this was the way to make it legal). Harold discovered that he had lung cancer and put $10K into 2 certificates of deposit in joint tenancy with Jay. When Harold died, Jay & his wife went to the bank for the contents of the safety deposit box and the envelope containing the deed, which Jay recorded the next day. Petition was filed to cancel and set aside the deed claiming it was void and never legally delivered and alternatively it was a testamentary instrument and void for failure to comply with the statute of wills. Issue: Whether an unrecorded deed placed in the custody of a third party is a valid conveyance to the named grantee at that time, or is it deposited for some other reason such as in trust for testamentary purposes? Rule: Where a grantor delivers a deed under which her 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, grantors actions are nothing more than an attempt to employ the deed as if it were a will. 19

Rosengrant v. Rosengrant: Whether a deed is valid when the grantor delivered he deed to the grantee and then was placed with a third party with the grantor reserving the right of retrieval and with the condition that the deed only become operative upon the death of the grantor and the grantor continues to exercise control over the property. The problem was that everyone else that was a party to this transaction was died so they had to go on Jays word alone. The court is concerned about fraud, and therefore without anyone elses testimony they had to go by physical evidence. The only physical evidence was the envelope that dais retrievable by either Jay or Harold. B/c that language was on the envelope the court decided Harold had the option to REVOKE the deed and therefore was not valid. Revocable trust- it functions like a will but it doesnt have to be probated. (pg 541)

MORTGAGES
A mortgage is comprised of two instruments: 1. A promissory note (IOU I lender owe to pay you $80,000 cash and will pay it by *); and 2. A security instrument detailing the property used for the security *we will be using a fixed rate mortgage over a period of 30 years Traditionally, a mortgagee (lender) will loan a mortgagor (borrower) up to 80% of the value of the property (sales price or appraised value). This calculation is known as the Loan-to-value Ratio (LTV). - Loan divided by the value of the property (80k / 100=80% LTV) -traditionally banks would not give a loan to a potential buyer if their montly payments were more than 33% of their monthly income. If your buyer doesnt has the remainder in cash ($20k), but they qualify for the loan on the sales price on the property. The bank will loan them the $90K but the bank will take out PMI on the additional $10 (the amount over the LTV) so if something happens and the house forecloses and only brings in $80k at a foreclosure sale then the Private insurer will pay the extra. The PMI rate is paid by the mortgagor to the mortgagee (the bank) and the mortgagee pays the Private mortgagee. Example: If the sales price of the property is 100k the bank will loan 80k or 80% of the value of the property the borrower would pay 20k cash at the closing. The 20k is called the mortgagors equity (diff between the value of the home and the outstanding loans) PMI-Borrowers who dont have the ash to put down must look to a Private Mortgagor Insurance (PMI) to insure any amount loaned by the lender over 80%. With PMI borrower can get a loan of 90k and the lender will have an insurance policy for the 10k that exceeds the LTV of 80%. PMI insurance is paid monthly as part of the payment to the lender. The lender then pays the insurer. There are many types of mortages, but we will concentrate on a fixed rate (principal plus interest rate) fully amortized over thirty years. Generallly, a monthly mortgage payment would include the Pricipal reduction, the amount of interest, the home Owners insurance payment proration and the ad valorem tax proration. This is usually known as PITI. This assumes that it is an 89% loan and therefore there is no PMI payment. Amortization question- on the table see handout Grant S. Nelson & Dale A Whitman, Real Estate and Finance Law: all jurisdictions adhere to the recognized rule that mere inadequacy of the foreclosure sale price will not invalidate a sale, absent fraud, 20

unfairness or other irregularity. Courts generally articulate 2 main standards for invalidating a foreclosure sale based on price. 1. Many courts state that inadequacy of the sale price is an insufficient ground unless it is so gross as to shock the conscience of the court. 2. Other courts require that, in the absence of some other defect in the foreclosure process, the price must be grossly inadequate before a sale may be invalidated. Transfer by the Mortgagor: Notwithstanding any agreement to the contrary, the mortgagor can transfer his interest in the land by sale, mortgage, or otherwise. The transfer will not, however, shake off the mortgage. The land remains subject to the mortgage in the hands of the transferee. the purchaser of the equity may buy the mortgagors equity either: 1. subject to the mortgage : the purchaser does not assume any personal liability for the mortgage debt, for which the mortgagor remains liable. But the purchaser agrees as between himself and the mortgagor, that the debt is to be satisfied out of the land; if the debt is not paid, the land will be sold, and the debt paid from the proceeds. or 2. assuming the mortgage : the purchaser promises to pay off the mortgage debt. This promise does not relieve the mortgagor of the duty to pay the mortgagee, unless the lender consents to this change in the k, but it gives the mortgagor the right to pay the debt and sue the assuming purchaser for reimbursement. The mortgagee can enforce the promise made by the purchaser of the equity in assuming the mortgage. Although the mortgagor can transfer his interest, the mortgage k may contain an acceleration clause that enables the mortgagee, upon transfer of the morgagors equity, to declare the whole amount of the mortgage debt due and upon failure to pay, to foreclose. By enforcing the acceleration clause, thus requiring the new purchaser of the equity to refinance, the lender may use a due-on-sale clause to increase the loan interest rate to current rates upon transfer of the property

The promissory note contains a number of clauses, some of which have default as remedy and some of which have a monetary remedy. If the remedy is default, then the mortgagee may decide to foreclose on the property calling the entire loan due and payable, this is known as accelerating the mortgage and is found in an acceleration clause. In FL, the period between the notice of foreclosure and the day of the actual foreclosure sale 90 days. The time period which is known as the buyers equity of redemption varies from state to state. During the equity of redemption period the buyer may cure his default by paying all monies owed. A mortgagor may hold more than one mortagee. Example: Bob buys a house and takes $80,000 mrgage from First Bank, he subsequebtly borrows $25,000 from Second Bank and after that $15,000 from Third Bank. The $80,000 first loan is known as the senior loan, the other loans are known as junior loans and a subsequent mortgagee takes a position subject to the prior rights of the mortgagee ahead. Example: using facts above, Bob fails to pay his monthly payment to Third Bank. First Bank decides not to foreclose its interest. Second Bank decides not to foreclose its interest, leaving Third Bank as the only mortgagee foreclosing, In this case, only Third Bank is participating in the foreclosure action. Th the foreclosure sale, the high bid is $20,000. The proceeds would be distributed as follows: Third Bank: $15,000 Mortgagor: $5,000 21

Note: high bidder will take the property subject to the mortgages held by First and Second Bank.  Any banks below most senior bank participating must participate (senior bank(s) choose whether to participate)  If the senior bank is satisfied through the foreclosure sale- the high bidder does not take subject to a mortgage (if e.g. 2d, 3d and 4th participate and are satisfied, bidder takes subject to the 1st banks mortgage) If the high bid falls short of the amount owed, then the lender who did not receive payment must get a deficiency judgment from the court to levy against mortgagors general assets. However, some states have anti-deficiency statutes which preclude certain transactions from deficiency judgment. (Pg. 546.) Says: If a bank forecloses on a particular type of property and the sale doesnt satisfy the loan amount the bank is precluded from going after the mortgagor for a deficiency judgment (usually done on peoples primary residences). Lender has to sue mortgagor on breach of K in order to get deficiency judgment. Some states also have statutory redemption periods (pg, 544-45). These statutes give the mortgagor the right to redeem the property from the high bidder a period of time after the foreclosure sale. The period can be as short as a week or as long as 18 months. - The mortgagor can show up and pay for the price paid by the high bidder and get their property back. The mortgagor does not have to reimburse the buyer for any money spent on cosmetic improvements during the statutory redemption period. Class Hypo: 2-9-10 on mortgages. Deed of Trust: Used often to avoid the requirement for judicial foreclosure (instead of a mortgage, buyer/mortgagor/trustor records a deed of trust that embodies the agreement between the lender/beneficiary and himself to transfer an interest in the borrowers land to a neutral 3d party/trustee who will retain legal title for the benefit of the beneficiary, to the property until trustor pays it off. If he defaults, the trustee can initiate foreclosure through a power of sale. He will pay the beneficiary and then the remainder to the trustor)

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Murphy v. Fin. Dev. Corp. Facts: The Murphys bought a house in 1966 financing it through a mortgage loan. In 1980 the Ps refinanced and executed a new promissory note and power of sale mortgage with Financial Development Corp as mortgagee. The note and mortgage were later assigned to Colonial Deposit company. In Feb of 1981 Mr. Murphy lost his job and by September they were 7months behind in their mortgage payments. After unsuccessful attempts to refinance, or pay off what they owed, the Murphys house was foreclosed on December 15, 1981. Although the D complied with statutory requirements for notice of the sale, no buyers showed up. The only bid was made by the Ds representative for 27k which was the amount owed on the mortgage plus costs and fees. The sale was concluded. Within 2 days the D had resold the property for 38k. Ps brought this action seeking to set aside the foreclosure sale of their home or in the alternative money damages. Issue: whether the Defendant lenders failed to exercise good faith and due diligence in obtaining a fair price for the plaintiffs property when they sold the property at a foreclosure sale for 27k and resold it within 2 days for 38k when the fair market value was 54k and the outstanding amount on the loan was 27k? Rule: in his role as a seller the mortgagees duty of good faith and due diligence is essentially that of a fiduciary In order to constitute bad faith there must be an intentional disregard of duty or purpose to injure. The test for due diligence is whether a reasonable man in the lenders place would have adjourned the sale or taken other measures to receive a fair price.

If there is a fiduciary relationship you have a duty of good faith and due diligence. Breach of the duty of: 23

1) Good Faith; and 2) Due Diligence If not acceptable bid, mortgagee should 1) Pick an acceptable upset price 2) Postpone the action of the property 3) Advertise in a commercially reasonable method of sale Predatory lending and equity stripping (pg. 552) Adjustable rate mortgage- say you borrowed 100k- 4% interest rate (rate could go up) in todays market could be upside down (value of land is 90k and your loan is for 100,500) Govt has tried to correct this by enacting predatory lending statutes (subprime market has led to higher housing rates). equity stripping-predominantly seen with elderly people: e.g. a person has a house worth 200k and their mortgage is only 20k b/c they have been paying on it for 20 years. They have 180k equity in the house people refinance house and take out a 160k refinance and b/c of high interest rates often end up losing their house FL-predatory lending act  Random fact: monthly payment should not be more than 31% of monthly income  (you can borrow 80% of the cost of your home or 80% of your equity?)  *FL has passed a predatory lending act. Deed in Lieu deed in lieu of foreclosure (note 5 553) you as the mortgagor cant pay or are in foreclosure, instead of going into foreclosure, the buyer goes to the lender and says (I will sign the deed over to you as the lender in you will forgive my debt) this only happens when the market is steady. In our market right now this is problematic because lenders cant maintain all of these houses. Up until a few months ago if you got a deed in lieu of foreclosure and your debt was forgiven it was considered income and had to be reported on taxes. Congress passed a bill to stop this (only for a two year period) Transfer by the mortgagor the land remains subject to the mortgage in the hands of the transferee. In other words, the mortgage runs with the land * in this context, subject to applies generally. 1) Subject to * In this context subject to is used with specificity. (This means that the buyer takes the mortgage without any personal liability on the note. So the lender cant go after the buyer, just the seller)(like a sublet) 2) Assumption of buyer assumed liability of the note, however seller is still liable as well so if lender cant get money from the buyer, they will go back to the seller (like an assignment) -(CTM) cash to mortgage 100k was the amount of house (80 mortgage) you have to pay 20k to get the mortgage transferred to you. Seller becomes transferor and buyer becomes transferee. S B (80k loan is transferred= lien on property ** have to know this for test (but courts do not allow subject to not going to let buyers off the hook). 24

Novation-have to specifically release the transferor from liability on the mortgage (the only way the original mortgagor escapes all liability) (Novation- is the act of substituting for an old obligation a new one that either replaces an existing obligation with a new obligation or replaces an original party with a new party) Have to be able to differentiate between subject to (mortgage) and subject to (easements etc) Prior written approval clause/ due on sale clause (an acceleration clause-accelerates the entire mortgage) e.g. transferor make a deal with transferee and do not go to lender for approval- the lender if they finds out will call the entire amount on the loan due and payable (deterrent to doing something w/o talking to lender first).  Protects lender against unsatisfactory credit risks  Makes the new purchaser re-finance for a higher interest rate (as opposed to taking advantage of the low interest rate of the prior owners mortgage).  Accelerates the payments by making the entire amount due on sale. Seller transfers land to the buyer and any lien on property the buyer takes subject to the loan. Prior written approval clause/Due on sale clause (known as an acceleration clause) Installment land contract (contract for deed) Agreement by seller and buyer using a contract than creating a mortgage (It is paid in installments, there is no mortgage created) Usually has a clause providing that the buyer forfeits the land and the payments if the buyer goes into default. This is problematic because if the buyer stops paying they are in breach of K and are subject to forfeiture. If you put a lot of money into the house and then breach the K the seller can take the house and keep all the money. Because they often include liquidated damages clause which treats the money paid rent. If jurisdiction recognizes k for deed- can get some very inequitable results (if a payment is not made vendee is in breach of k and subject to forfeiture of the property. Vendor often includes liquidated damages clause saying that payments should be treated as rent). In New York if an owner purports to convey title to real property as security for a loan, the conveyance is deeded to create a lien rather than an outright conveyance This is called Lien Theory Bean v. Walker Facts: In January 1973 Ps agreed to sell and Ds agreed to buy a single-family home in Syracuse for 15k. The k was to be paid in installments over a 15 years. The sellers retained legal title to the property which they agreed to convey upon payment in full according to the terms of the k. The k also provided that in the event purchasers defaulted in making payment and failed to cure the default within 30 days, the sellers could elect to call the remaining balance immediately due or elect to declare the k terminated and repossess the premises. If they choose to repossess then a forfeiture clause came into play where the seller could retain all the money paid under the k as liquidated damages (treated like rent). Ds make the required payments until they defaulted. They had paid almost one half of the purchase price and 5k in interest. After the required 30-day period to cure the default Ps commenced this action sounding in ejectment seeking a judgment that they be adjudged the owner in fee. Issue: whether the vendee under a land sale k has acquired an interest in the property of such a nature that it must be extinguished before the vendor may resume possession when he has resided on the property for 8 years, made substantial improvements and paid half the purchase price as well as 5k in interest? Rule: notwithstanding the words 25

of the k and implications which may arise therefrom, the law of property declares that upon the execution of a k for sale of land, the vendee acquires equitable title. The vendor holds the legal title in trust for the vendee and has an equitable lien for the payment of the purchase price. The vendee in possession for all practical purposes is the owner of the property with all the rights of an owner subject only to the terms of the k. The vendor may enforce his lien by foreclosure or an action at law for the purchase price of the property-the remedies are concurrent. (When property is sold at foreclosure by the vendor, the excess money must be given back to the vendee) Upon the execution of a k an interest in real property comes into existence by operation of law, superseding the terms of the k. Contract law-forfeiture upon default vs. property law. In this case: the court found the buyer became the owner of equitable title. Meaning that the seller had to go through the foreclosure process (court said going to treat as if it were an equitable mortgage) foreclosure: if they get near the value of the property the buyer gets everything in excess out the amount outstanding to the seller (so seller would get 7900 and buyer would get 44k-7900) Doctrine of equitable conversion at the time the K becomes executory equitable title is transferred to the buyer, and the seller holds mere bare legal title. Meaning the seller holds the deed in trust and the real property interest transfers to the buyer and the personal property interest is in the seller. At the time the

k becomes executor you get a switch in ownership value

Pg 558-not always going to be the case; sometimes k for deed will be honored: 1. Abandons the property and absconds 2. Vendee paid a minimal fee and then defaults ** most states are going to apply EC (unless you are in a state that does not recognize doctrine of EC. Ex Washington)

Title Assurance
Title Assurance- the system set up to assure purchasers of land that they have good title to the land purchased. At the heart of the system is the public records office where all instruments affecting land titles (deeds, mortgages, liens, wills and so forth) are recorded. The Recording System: Every America states has statutes providing for land title records to be maintained by the county recorder (or equivalent public official) in each county. The recording acts generally do not affect the validity of a deed or other instrument. A deed is valid and good against the grantor upon delivery w/o recordation. The recording system serves 3 main functions: -1) establishes a system of public recordation of land titles -2) Preserves in a secure place important documents -3) Protect purchasers for value and lien creditors against prior unrecorded interests. Example (protecting purchasers): O mortgages Blackacre to A. O subsequently conveys Blackacre to B who does not know of the mortgage. At CL B takes the land subject to As mortgage. (In equity, the doctrine of BFP would protect B against As mortgage if As mortgage was purely equitable and not a legal interest. Equity refused to enforce prior hidden equitable interests against BFP of the legal title). The recording acts in general have adopted and broadened the equitable doctrine of BFP. Under the recording acts, a subsequent BFP is protected against prior unrecorded interests. Thus, a purchaser of 26

property will want to search the records to make sure that there are no adverse prior claims, and a purchaser records his deed in order to prevent a subsequent purchaser from a previous owner prevailing over him. But remember: the CL rule of prior in time, prior in effect, illustrated by Example 1, continues to control unless a person can qualify for protection under the applicable recording act. Title insurance handout- 1st page states that the company is going to insure and then goes through he type of things it is going to insure against: (2)- insurance company would pay you for any value you lost (if someone AP 2 of your 8 acres) b/c obviously there was a defect in the title search. (4)-landlocked piece if you didnt know was landlocked would have a right to collect 2d page- commitment # and Simultaneous(owners policy) number-thats b/c there was a mortgage on the company. Mortgage company will want insurance as well. 2 titles issued- one to the mortgage company and one to the owner (simultaneous- 2d title insurance policy issued with the first) Amount of policy-68k Legal description of property-block 6 etc Schedule B is the things they are not going to insure: 1. 25 foot building line 2. Easement Schedule B lists things that will not be insured.

The Recording system how constructive/record notice is created ** A deed is valid and good against the grantor upon delivery without recordation but if it is not recorded you have less protection. For the recording system to work the way it is intended, then it is important for deeds to be recorded. The recording system developed in order to assure purchaser of land that they have good title to the land purchased. This is accomplished by examining the chain of title from grantor/seller. An examination of title is not always perfect, therefore most people purchase title insurance (see handout) Lis Pendens puts subsequent claimants on notice of claims to be litigates (considered a red flag) When you file a lawsuit, you would file a lis pendens on the property to show that there is some litigation pending on the property. - In Rem action when you file a lawsuit you will file a lis pendens on the property. This will be recorded on the chain of title so that a buyer will be given notice that there could be litigation on the property. There are three kinds of notice 1. Actual actually seen the deed or talked to someone with interest in the land 2. Constructive/record once a deed is properly on the chain of title then other property owners are deemed to be constructively notified (constructive notice). e.g. statutes give constructive notice (doesnt mean you have to know it means that you are supposed to be on notice of it. As to all laws in the State of Florida you will be charged with knowing it). That is the concept with properly recording things on the chain of title-then the world is on notice 3. Inquiry once you have information that someone may own/occupy the property, that is inquiry notice and you have a duty to investigate. e.g. O has contracted with A to sell little house. A has been to little house. Only problem is bad weeds, overgrown etc. Know you will have to get a landscaper. On the way 27

to buy the house from O and pass the property on the way to buy it and see someone mowing the lawn. O tenders the deed to A and A pays. Go to the house and the guy with the lawnmower said what are you doing on my property. The guy says I bought it last week. Now the court will have to decide who owns the land -once you have information then you are charged with looking up the chain of title (inquiry notice) Another example that is fairly common-homeowners association and thinking about buying there-driven all the way through it and failed to notice that none of them have front-facing garages but there are a couple of lots left so you decide to build a house-which has a front facing garage and then you get a lawsuit from the homeowners association saying that you are in violation of their covenant saying that there cannot be a front-facing garage. You will be charged with inquiry notice b/c you should have noticed that there were none (you will also be charged with constructive notice- in the bylaws then you are constructively noticed of it). Usually inquiry notice will drive the party to find what is recorded at which point there is constructive notice as well **Notice- the person who is buying the property should have notice of what all the prior interests are-in order for recording system to work as it supposed to work, every lien, encumbrance and judgment has to be recorded on it b/c that is how a purchaser is put on notice Recording Acts Recording Acts are designed to protect a subsequent bona fide purchaser (bfp) against prior unrecorded interests. Most jurisdictions will give the seller until closing date to cure any defects in the title. Know grantor/grantee index Pg 562 563 Oliver through Anderson Idexes 1. Tract 2. Grantor-Grantee pg 568 Searching title to find the root of title (sovereign) requires that the search begin the present and move backward Marketable Record Title Acts say you dont have to go back to the sovereign in a title search (FL only has to go back 30 years) Types of Recording Acts 1. Race race statute. Under a race statute, as between successive purchasers of Blackacre, the person who wins the race to record prevails. Whether a subsequent purchaser has actual k knowledge of the prior purchasers claim is irrelevant. Example 2. 0, owner of Blackacre, conveys Blackacre to A, who does not record the deed. 0 subsequently conveys Blackacre to B for a valuable consideration. B actually knows of the deed to. B records the deed from 0 to B. Under a race statute, B prevails overly, and B owns Blackacre. 28

2. Notice notice statute. It developed from judicial decisions interpreting race statutes. Early in the nineteenth century some courts held that if a s subsequent purchaser had notice of a prior unrecorded instrument, the purchaser could not prevail over the prior grantee, for such would work a fraud on the prior grantee. In time, legislatures amended the statutes to reflect the judicial interpretation. A race statute protects a subsequent purchaser only if the subsequent purchaser records first. A notice statute protects a subsequent purchaser against prior unrecorded instruments even though the subsequent purchaser fails to record. Example 3. 0, owner of Blackacre, conveys Blackacre to A, who does not record the deed. 0 subsequently conveys Blackacre to B for a valuable consideration. B has no knowledge ofy4s deed. Under a notice statute, 5 prevails over A even though B does not record the deed from O to B. 3. Race-Notice Race-notice statute. Under a race-notice statute a subsequent purchaser is protected against prior unrecorded instruments only if the subsequent purchaser (I) is without notice of the prior instrument and (2) records before the prior instrument is recorded. Example 4. 0, owner of Blackacre, conveys Blackacre to A, who does not record the deed. 0 subsequently conveys Blackacre to B, who does not know of As deed. Then A records. Then B records. A prevails over B because, even though B had no notice of As deed, B did not record before A did. - Does not record RACE O A Then O B A then goes and recordsIn a race statute A gets title because she was 1st to the courthouse to record NOTICE (FL) Have to show that you were the subsequent bona fide (without knowledge of any prior unrecorded interests AT THE TIME OF CONVEYANCE) purchaser for value (paid the legitimate value for property). Subsequent bona fide purchaser is protected, regardless of whether she records at all. Jan 1: O to A Jan 15: O to B- who gives valuable consideration and has no notice of deed from O to A. B prevails. What if A records before B. e.g. A records on Jan 18 and B never recorded. This is irrelevant under a notice statute b/c B had no notice at the time of her conveyance from O. B is protected against a prior purchaser even though B does not record her deed (this is the difference between notice and racenotice statutes). But, if B does not record, she runs the risk that a subsequent purchaser will prevail over her, just as she prevailed over A.

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O A O B O C Under a notice jurisdiction C wins because he was the subsequent bona fide purchaser for value and had NO NOTICE of the others O A O B A then record, B still gets the property because B is a subsequent bona fide purchaser for value **(This technically punishes people for not recording) Race-Notice O O O O A B C D

B then records C then Records B wins because B is a subsequent bona fide purchaser AND was 1st to record. Messersmith v. Smith Issue: Whether a valid mineral deed was conveyed to a subsequent purchaser for value, when a grantor executed and delivered a quitclaim deed of the property to the P on May 7, 1946, which was not recorded until July 9th 1951, when before the deed was recorded the grantor executed a mineral deed on May 7, 1951 containing warranty of title for an undivided one half interest in and to all oil, gas, and other minerals under or produced upon the land and where the deeds acknowledgment stated that the grantor was present before the notary, but in actuality the grantor only spoke to the notary over the phone where the statute requires that in order for a valid deed to be recorded it must be properly acknowledged, and in order for a subsequent purchaser to receive valid tile in a conveyance the deed must have been properly recorded? Rule: the deposit and recording of an instrument proved and certified according to the provisions of the law are constructive notice of the execution of such instrument to all purchasers and encumbrances subsequent to the recording.  The recording of an instrument affecting the title to real estate which does not meet the statutory requirements of the recording laws affords no constructive notice.  In a normal race-notice state, Seal would win because he was a subsequent bona fide purchaser for value and he recorded before Fred.  However, because the deed was not notarized properly between Caroline and Seal, it was not valid (and gave no constructive notice) and therefore Fred won and got title. 30

General Rule: The recording of an instrument affecting the title to real estate which does not meet the statutory requirements of the recording laws affords NO constructive notice. Remember --- recording act does not protect donees (donees, heirs and devisees are not protected b/c they do not give value for their interest) O A O B O C = (but knows of Bs interest on the day of closing) Therefore C has notice and is not a subsequent bona fide purchaser for value Sabo v. Horvath

Facts: The grantor Lowery conveyed the same 5 acre piece of land twice, first to the Horvaths and later to the Sabos. Both conveyances were by separate documents entitled Quitclaims Deeds. Lowerys interest in the land originated in a patent from the U.S. government and his conveyance to the Horvaths occurred prior to the issuance of the patent while his conveyance to the Sabos was after the patent was issued. The Horvaths recorded their deed on Jan 5 1970 while the Sabos recorded their deed on Dec 13 1973. The transfer to the Horvaths, predated patent and title, and thus the Horvaths interest in the land was recorded outside the chain of title. Horvath brought suit to quiet title and the Sabos counterclaimed to quiet their title. ISSUE: WHETHER a party who purchases land from an individual who does not have complete title and interest in such land and records the interest received by a quit claim deed prior to the time when the seller had received complete interest (title) through a federal patent process can assert superior right to land which is also subsequently conveyed to and recorded by a good faith purchaser by quit claim deed from the same seller at the time when the seller had received complete title by asserting that this purchaser had constructive notice of the deed conveyed outside of the chain of title?
Question 1. Whether Lowery had an alienable interest in the property? Lowrey had a future interest at the time he conveyed his interest (future interests are conveyable) Question 2. Whether Sabo is a bona fide purchaser because he received a quit claim deed? -this jurisdiction says that someone who receives a quit claim deed can be a bona fide purchaser for value. Some jurisdictions say that quit claim deeds give notice that there is something wrong (but the buyer on inquiry notice that something is wrong) Question 3. Whether the second purchaser had constructive notice of the third deed? General Rule: A wild deed is outside the chain of title and does NOT give constructive notice under the Recording Act (subsequent bona fide purchaser for value could not feasibly find it).

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Chain of Title (obtain record notice from a chain of title): a title-searcher could reasonably find it. Anything found in a standard grantor-grantee index. Rule : A purchaser has notice only of recorded instruments that are within his chain of title Guillette V. Daly Dry Wall: ISSUE: Whether a defendant is bound by a restriction contained in deeds to its neighbors from a common grantor, when both the Defendants deed and the neighbors deeds refer to the same recorded plan and where the neighbors deed contains language that states the restrictions are for the benefit of the other lots shown on the plan and are hereby imposed on each of the lots owned by the seller and where the defendant took possession without knowledge of the restrictions and under a deed which does not mention the restrictions? -Language in Guilette deed the same restrictions are hereby imposed on each of the said lots now owned by the seller Their deed referred to the same recorded subdivision plan as the Ds. -Other parties to the suit, Walcotts and Paraskivas do not have the same restrictive language (in their deeds). Reciprocal (reciprocity) = both parties are burdened with a promise (both people promise not to put anything but a single family home on their property) *its a benefit and a burden at the same time* Benefit in the sense that the others will only have single family homes which keeps property value up and a burden in the sense that they cannot have more than a single family home on their own property. They have the right to sue the other if they breach. The court says that where, as here, the grantor binds his remaining land by writing (language in guilletes deed), reciprocity of restriction between the grantor and grantee can be enforced. Any subsequent purchaser from the common grantor acquires title subject to the restrictions in the deed of the earlier purchaser.  Essentially saying the other deeds are in his chain of title Majority Rule = allow to imply that the deed will affect the property based on a common scheme or plan. If the plan is for others in a subdivision, they will IMPLY that it affects a non specified property in the subdivision as well. Minority Rule(MA-this case) = Restrictions have to be express. You cant imply a restriction in a plan. (the language has to be express in the deed) *thats why they found third party beneficiary for the two families (based on reciprocity)* In a jurisdiction that will imply restrictions, you would not need the third party beneficiary doctrine. RULE: A common grantor creates a common scheme or plan with the intention to bind all lot owners who are also the intended third party beneficiaries of the scheme or plan. The Walcotts and paraskivas were therefore 3rd party beneficiaries. 32

Court holds that every recorded deed out from a common grantor gives constructive notice of is contents to the subsequent purchaser of ANY LOT IN THE SUB-DIVISION. * Court holds that every recorded deed out from a common grantor (developer) gives constructive notice of the Guillette deed and its contents (D was on constructive notice). [If Gilmore would have just included the restrictions in the plan before he recorded the plan and then referred to the plan in every deed, it would have made it a lot easier] What is valuable consideration? (In bona fide purchaser for value)

Daniels v. Anderson (jurisdiction did not protect as a subsequent purchaser for value b/c he had not paid the full purchase price at the time he received notice of a prior interest)
FACTS: P, purchased two lots from Jacula, and purchased a right of first refusal as to purchase of an adjacent parcel. This interest was not recorded. Jacula later contracted with Zografos (D) to purchase the parcel. P was not notified of D s offer. The contract called for installment payments, with title to pass upon completion of payments. After D had paid several installments, but before title passed, P s wife notified D of P s right to refusal but D ignored this and paid the remainder of the price and recorded the deed. P sued for specific performance of his purchase option. ISSUE: Whether the buyer of a parcel of property can be classified as a bona fide purchaser when during the executory stages of the contract, he receives actual notice of an outstanding interest in that property subsequent to paying some, but prior to paying the full purchase price for the property, yet continues to pay the installments on the property and once fully paid, he records the deed? RULE: pro tanto rule method: is to award the land to the holder of the outstanding interest and award the buyer the payments that he or she made (protects buyer to the extent of payment made prior to notice) Argument of doctrine of equitable Conversion says that he became the owner (equitable title) when the K became executory. The court says that this argument cannot be made because he failed to raise it at TC level 3 Methods to apply Pro Tanto protection 1. Most common is to award the land to the holder of the outstanding interest and award the buyer the payments that he or she made 2. to award the buyer fractional interest in the land proportional to the amount paid prior to notice. (not very often raised or used) 3. to aloe the buyer to complete the purchase, but to pay the remaining installments to the holder of the outstanding interest. Policy: in these jurisdictions is that you have not paid valuable consideration to protect you under the recoding acts from prior unrecorded interests if you have not paid the entire purchase price prior to notice.

Lewis v. Superior Court

Facts: In Feb 1992 Robert and Josephine Lewis contracted to buy a residence from Shipley for 2.3 million. After the Lewises opened an escrow, and just a few days before they acquired title, Fontana Films recorded a lis pendens (notice of lawsuit affecting title to the property) against Shipley. The lis 33

pendens was recorded on Feb 24, but not indexed until Feb 29, the day after the Lewises acquired title. Under the k of sale, the Lewises paid Shipley 350,00 on Feb 25. Closing took place on Feb 28 and the deed from Shipley to the Lewises was recorded on that day. The Lewises gave Shipley their note for 1,950,00 which they paid in March 1992. Within the next year the Lewises spent an additional 1,050,00 in renovating the property. In September 1993 the Lewises were served in Fontanas lawsuit and learned about the lis pendens. The Lewises brought suit for summary judgment to remove the lis pendens and clear their title. Issue: whether a buyer is a bona fide purchaser for value where they contracted to buy a residence for 2.3 million dollars, paying 350,000 on Feb 25 1992 and the remainder of the purchase price of 1,950,00 in March, when the buyers acquired title on feb 28, after a lis pendens had been recorded on the property on Feb 24, but the title was transferred to the buyer from the seller one day before the lis pendens was inedexed on Feb 29th, and on the day of closing the buyers recorded their deed? Rule/Reasoning: for equitable reasons the court held that the Payment of Value rule (from Davis case) does not apply to this case (Payment for value rule-if you receive notice before the entire purchase price has been paid-typically applies when a party is paying cash in installments because a mortgagor will have paid the entire purchase price-you are no longer a bona fide purchaser for value) The court listed several reasons why this rule should not be applied in this case: 1. the payment of value rule stated in Davis cannot be reconciled with modern real property law and practice and should be strictly limited to its facts (based on assumption if you have not paid for the land you are not hurt- but b/c land is unique you are harmed if you are deprived of it). 2. The Davis rule cannot rationally be applied to cases involving only constructive notice (at the time the buyers acquired title a title search would not have informed them of the les pendens. If construct notice before payment threatens loss of title you would have to search before every installment payment). 3. Applying Davis would unfairly penalize the Lewises for paying cash for the property rather than financing the purchase price. This is clearly an installment land K The court held that a Lis Pendens is not properly recorded until it is indexed. The lis pendens was indexed one day AFTER title passed to Lewis, therefore, Lewis has superior title to Fontanas claim They were not on notice at the time of closing (but b /c installment- full purchase price was not paid at closing) The court said the installment land contract puts a buyer on a disadvantage (b/c if he would have taken out a mortgage he would have been a BFP) Distinguished from Daniels case because there was over 1 million invested into improvements. y for equitable reasons the court held that the Payment of Value rule (from Davis case) does not apply to this case (Payment for value rule-if you receive notice before the entire purchase price has been paid-typically applies when a party is paying cash in installments because a mortgagor will have paid the entire purchase price-you are no longer a bona fide purchaser for value)

y y y y y

Creditors: In many states a creditor is not protected until the creditor prosecutes a lawsuit to judgment and forecloses a lien or holds an execution sale.

Inquiry Notice
Harper v. Paradise: 34

WHETHER appellants have title to the land in question where the grantor first conveyed the land to Maude in a warranty deed in 1922 as a life estate with remainder in her named children where the deed was misplaced and not recorded until 1957 but after grantors death her heirs conveyed the land again to Maude in a quit claim deed in 1928 which stated that the deed was in lieu of the 1922 deed and where Maude uses the deed as a deed for security on a loan for which she defaulted causing the land to be foreclosed and a sheriffs deed issue to Ella Thornton conveyed the land to appelles through a warranty deed which was executed and recorded in 1955 with the appellees failing to make any inquiry as to the existence of the interest in the 1922 deed and where appellees are claiming to have satisfied the SOL by there being continuous, open and adverse possession by them and their predecessor in title beginning in 1940 when Maude died in 1972? RULE: A deed which specifically refers to an earlier unrecorded deed puts a subsequent purchaser on inquiry notice of the existence of the earlier deed. The purchaser claiming title under the later deed is not entitled to priority though the later deed was recorded first.
TIMELINE y y y y y y y y 2/1/22 Susan Harper recorded) Maude (LE) remainder Maudes named children (This deed is Misplaced/lost and not

1925-27 Susan Dies intestate- leaving heirs 2/28 New deed by Heirs to Maude says Susans intent was to give the land to Maude and that the 1922 which was not recorded should have been to Maude in Fee Simple. 2/33 Maude executes a security deed (mortgage) for $50 1936 Maude defaults on the loan and the house was and Ella forecloses and gets A SHERRIFS DEED 1955 Land was conveyed to Paradise family 1957 lost deed from 1922 is found and recorded 1972 Maude Dies

Complaint Two accounts 1. Adverse possession says that the adverse possession beginning in 1940 (by way of tacking) was insufficient because they would have only Adversely possessed Maudes life estate and upon her death the Remaindermans interest began in 1972. Thus 1 year is insufficient to adversely possess the property. 2. Quiet title the court says that they were on inquiry notice because the 1928 deed references a 1922 deed. The court says that they are obliged to inquire what the language was in that deed. So when Maude died in 1972, the person holding the interest no longer rightfully had it because they held in LEPAV and the land should have went to the remainderman. Parises were on notice of the 1922 deed by reference in the 1928 deed. NOTE non-compete pg 607 a memorandum of lease that is recorded is not enough to put another company on inquiry notice (of the contents of the lease that were not recorded)(Proff says fuck this noiseusually businesses will look at the building and see a competitor is present). 35

Waldorff Insurance v. Eglin National Bank: WHETHER appellants occupancy, together with the purchase agreement was sufficient notice to make his interest in Unit 111 superior to that of appellee bank where on June 8,1972 Choctaw executed a promissory note and mortgage for 850k, then Appellant entered into a written purchase agreement with Choctow for condo unit 111 on April 1, 1973. Paid 1k as a deposit (total purchase price 23,550) and began occupancy in May and his occupancy was verified by purchasing 5k in furniture, paying utility and monthly maintenance fees, and had the keys to the unit and controlled it, and where on October 10 1973 Choctaw executed a note and mortgage for the principal sum of 600k in favor of the bank (among the properties included were unit 111),on June 28, 1974 Choctaw executed another note and mortgage, for 95k (again unit 111 was part of the property), in 1974 Appellant wrote off a debt of Choctaw to it for 35k in exchange for calling the purchase price paid in full and a quitclaim deed was transferred to Appellant which he recorded in March 1975, and in January 1975 the 850k mortgage was assigned to the appellant with an outstanding amount of 41,562.61 and where in 1976 the Bank brought a foreclosure action against Choctaw, Waldroff and others? Rule- A k to convey legal title to real property on payment of the purchase price creates an equitable interest in the purchaser. Beneficial ownership passes to the purchaser while the seller retains mere naked legal title. Subsequent successors to the legal title take such title burdened with the equitable interests of which they have either actual or constructive notice. -actual possession is constructive notice to all the world, or anyone having knowledge of said possession of whatever right the occupants have in the land. Such possession, when open, visible and exclusive, will put upon inquiry those acquiring title to or a lien upon the land so occupied to ascertain the nature of the rights the occupants really have in the premises (actual possession of real estate is sufficient to a person proposing to take a mortgage on the property, and to all the world, of the existence of any right which the person in possession is able to establish)(bank is charged with inquiry b/c of Ps possession-charged with knowing what a reasonable inquiry would have established) ACTUAL POSSESSION = inquiry notice (in the state of FL) even if there is no recordation on the chain of title. Doctrine of Equitable Conversion (DEC)- An executory contact to convey legal title to real property creates an equitable interest in the purchaser. Beneficial ownership passes to the purchaser while the seller retains mere naked title. (mere naked title is akin to PERSONAL property interest) *under equitable conversion SELLER = personal property interest BUYER = real property interest* Rule: Actual possession of real estate is sufficient [notice] to a person proposing to take mortgage on the property. Note 2: pg 612 Miller v. Green Green leased her farm to miller for the year. In Nov 1950 after miller had harvested his crop, Green contracted to sell the farm to him for $3,500 (neither lease nor K was recorded). In Dec. Green sold to a third person for $3,000 (he recorded). He knew of the lease but not the K for sale. The court held that the third party had inquiry notice of Millers claim because of the work he had done in Nov: 1) hauled lots of manure 2) plowed 2 acres of land. Third party had an obligation to inquire who had done these acts and whether that person had any claim to the land. Marshal v. Hollywood: 36

WHETHER the heirs of real property may maintain a cause of action when the equity interest has predated the effective roots of title under the MRTA which declares marketable title on recorded chain of title which is more than 30 years old, and nullifies all interests which are older than the root of that title, and the heirs claim does not fit under one of the express exceptions of the Act and the recorded deed is one that was either forged or wild, so long as the forged or wild deed meets the strict requirements of the act? Petitionaers most persuasive argument: MRTA (market record title act) preserves case law which is inconsistent with dismissal of petitioners amended complaint. Intent of the Act to extinguish all claims of given age which conflict with a record chain of title which is at east that old. - The act is broader than curative acts, case law, and SOL (because it does not toll for people with disabilities) The act nullifies all interest which are older than the root of title and requires re-recording of outstanding interests in order to preserve the **If you want to maintain your interest on a piece of land you should rerecord EVERY 29 YEARS (IN FLORIDA) ** So if you have a lien on someones property you must rerecord every 29. - cant foreclose on a homestead property with a lien

Title Insurance:
y y y y o o y This is different from an abstracted title or an opinion given by a lawyer (lawyer does title search and then gives abstract of title to insurance company who insures off of the abstract) You have to insure it at the time of purchase It is ONE PAYMENT made at closing and good for the rest of the time you own the property. There are two types of title policies (lenders policy & the homeowners policy) The lenders policy is mandatory The homeowners policy is optional (usually issued simultaneously with the lenders policy and is obtained at a better rate) DOES NOT RUN WITH THE LAND upon the sale of the property to another (it is null and void) Title insurance is paid for by a single premium at the time of closing. The premium is based on the amount of purchase price of the home for the home owners policy and the amount of the loan for the lenders policy. It is a one-time payment and is good as long as the insured owns the property. It does not run with the land. Title insurance guarantees that the insurance company has searched the public records and insures against any defects in the public record except for those defects excepted in schedule B. 37

The standard policy also excludes claims of persons in possession not shown by the public records as well as unrecorded easements, implied easements and easements arising by prescription (anything you would not find in recorded chain of title). Standard policies also exclude defects revealed by a survey upon inspection. In the absence of a recital of the acreage, a title company does NOT insure the quantity of land.  Generally do not insure against anything outside chain of title. Insures accuracy of the records, and agrees to defend the record title if litigated. Exclusions include:  losses arising from regulations affecting the use, occupancy or enjoyment of the land, e.g. zoning ordinances sub-division regulations, claims of persons not in public record, easements.  Liens that are not recorded, claims of parties in possession not shown on the public records (adverse possessors), boundary disputes, easements or servitudes not shown on the public record, zoning or building ordinances (building codes, zoning ordinances, subdivision regulations), hazardous waste (does not insure against hazardous waste being found on property)  Typically liable for the difference of the land with/w/out policy up to the title max E.g. theater example the only obligation of the tile insurance company was to get the land back because it was in the recorded title and they missed it when they did the title search Walker v. Rogge whether a title insurance company must insure a loss under an owners policy when the owner fails to have a current survey conducted on the land before obtaining title insurance and solely relies upon the survey stated by the previous owner when the title insurance company had issued 2 prior title policies on that property one of which contained a deed that stated the acreage to be 5.5 acres less than the acreage stated in the survey of the current deed or in the alternative whether title insurance company can be liable in negligence for failing to disclose documents in its files revealing that the property contained less acreage than understood by the party seeking title insurance?  They are saying that he paid for a title search but it was not for his benefit, it was for the benefit of the company (incidental to the operation of the company).  Rogge failed to do a survey and the Company excludes any claim that would have been discovered by a survey.  (Rogge could have sued Kosa under breach of warranty of siesen (he said he was giving him 18.33 acres)  Rule : In order to sue a title insurance company in tort for negligence have to establish that they literally contracted to do a title search for the benefit for the insured in a jurisdiction that allowed it. Split authority: y y y Half jurisdictions say that you cannot sue the title insurance company under negligence. They say that there are only contractual actions available against the title insurance company. Other half say that you can sue the title insurance company if there is a duty assumed One state got rid of title insurance (Iowa- it is run by the state) Lick Mill Creek Apartments v. Chicago Title: Facts: the property in this case prior to 1979 was owned by various corporations and chemical processing companies. These companies leaked many hazardous substances in the soil. Property was purchased by an investment company and was ordered by the CA dept of health services to fix the toxic contamination on 38

the property. They did not comply with the order and Oct 1986 sold property to the P. Ps purchased title insurance on the property. Ps bought 3 separate title insurance policies from D (Chicago Title and 1st American Title). The title insurance companies conducted a survey of the property before they issued the policies. The environmental and health department ordered P to clean up the hazardous substances on the land. Ps sought indemnity from the title insurance companies. WHETHER the title insurance policy issued by the D insurance Co. entitles Ps as purchasers of land to coverage for cost of clean-up and removal of hazardous substances from the property when the policy issued expressly insures that title to the subject property was marketable and free of encumbrances and whether the presence of the hazardous materials and cost for clean-up of the property constitute encumbrances which affect the marketability of title?
 Marketable Title: marketable title relates to defects affecting legally recognized rights and incidents of ownership. The presence of hazardous materials may affect the market value of land, but on the present record, since no lien has been recorded, it does not affect the title to the land (the court makes a distinction between marketability of title and marketability of land). B/c marketability of title and the market value of land itself are separate and distinct, P cannot claim coverage for the propertys physical condition under the clause of the insurance policy.  Encumbrance: include only liens, easements, restrictive covenants and other such interests in or rights to the land held by third persons. Just b/c the transfer of contaminated land carries with it the responsibility for clean up costs, liability for such costs do not constitute an encumbrance on title and therefore not covered under the policy.

-P was on inquiry notice Inquiry notice b/c the survey reported all the underground tanks etc. constructive notice -refers to recorded liens etc. (was no constructive notice in this case) Marketable title - there is no third party interest that has a claim against the title holder. Has nothing to do with the value of the land. So you can have a piece of land that is totally worthless but still have marketable title. Marketable Encumbrances - In order to have an encumbrance, there has to be a lien filed. Land use ordinances dont rise to the level of encumbrances. Only a violation of the ordinance can create an encumbrance RULE: Marketable title is not going to be construed broadly to define what the property is worth. Marketable title is merely talking about whether the title to the property is perfect or has clouds on it but does not extend to the marketability of the land. NOTE : even If there was a lien on the property filed by the environmental company it is highly likely that the title company would have excluded it under schedule B. y Schedule B: lists all of the things that the title insurance company is not doing to insure (things found in the survey) Note on pg. 635

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. . .Schedule A insured against Loss or damage,, not exceeding $$$$$, and Costs, Attorneys Fees and expenses Which the Company may Become Obligated to Pay hereunder, Sustained or Incurred by the Insured by reason of :1) Title to the estate of Interest Described . . . (p.632) License: Oral or written agreement that does not rise to the level of an easement. (Not an easement is revocable)(very common: plumber, guests at a party etc. permission to go on land). 2 Exceptions: A license coupled with an interest cannot be revoked. A license coupled with an interest is one that is incidental to ownership of a chattel on the licensor's land. Example O grants to A the right to take timber from Blackacre, owned by O. A has an interest (a profit a prendre) and an irrevocable license to enter the land and take the timber.

A license that becomes irrevocable under the rules of estoppel. A license that cannot be revoked is treated as an easement.

Servitudes
Two types: EASEMENT deal with use COVENANTS deal with promises to do or not do something with the land I.. SERVITUDES - agreements usually involving two parcels of land that are made between the owner of the parcel and one who is interested in acquiring a use of the owners parcel (easement), or one or more parties are interested in extracting a promise from the owner(s) that affects the parcel(s) (covenant) A. EASEMENTS

 All easements are either appurtenant or in gross (an easement is a grant of an interest in land that entitle a person to USE land possessed by another). B/c they are an interest in land they must be in writing to satisfy the SOF.  If there is no language in the easement itself (express written or implied- oral) as to the termination of the easement courts will hold that it is in perpetuity-- that is it will last forever and there is no termination of the easement. 1. Easement appurtenant always involves two parcels of land (usually adjacent). One parcel will be the dominant the other will be the servient  servient parcels are considered less valuable and the dominant parcels are considered more valuable.  The dominant parcel is the one that receives the benefit while the servient party is the one who conveys the benefit. 40

 The benefits and burdens of easements appurtenant pass automatically to assignees of the land to which they are appurtenant, if the parties so intend and the burdened party has notice of the assignment. This is not necessarily so with an easement in gross.  If an easement is given, you need to look at the intention of the conveyance to determine whether it runs with the land. (Express Easement is in writing) 2. Implied easement A. i. ii. iii. iv. B. i. ii. iii. C. Implied from prior use Unity is severed (common grantor) Use was in place prior to severance Use must be visible/give notice at time of severance Easement is necessary for the enjoyment of the dominant estate Easement Implied by Necessity Common owner severs the property Necessity for ingress/egress existed at the time o f the severance Easement is strictly necessary- landlocked parcel. Prescriptive easement: Example: A uses a pathway across Bs land for 20 years which B objects to but never blocks or tries to stop A from using the pathway. Elements needed: 1. Open and Notorious 2. Continuous (CL: 20 years) 3. Hostile and Adverse

DOES NOT require exclusivity D. License coupled with an interest/Estoppel (license is irrevocable and therefore treated like an easement) 3. Easement in Gross - only has a servient parcel. There is no dominant parcel there is only a servient piece of land (Ex. Coke billboard on land. Does not benefit its owner in the use and enjoyment of his land, but merely gives him a right to use the servient land = in gross). Can usually be assigned if the parties intend. 41

 1. It is inheritable  2. It is assignable. But consider:  Surcharge (burden on servient parcel)  3. It can be divisible. But consider:  One Stock Rule (when 2 or more persons own an easement in gross they must use the benefit of it as one stock. Neither can operate independently of the other. One owner can veto use by the other b/c consent of all is required. This is to make sure there is no surcharge that goes outside the intent of the parties) ii. Profit a prendre interest in so it must be in writing. A gives B the right to come on the land and take things off it. Typically given by the individual owning the land. B is paying either a lump sum or a percentage of sales. Usually not done charitably, but instead with the intention to do business (when a profit is granted, an easement to go on the land and remove the subject matter is implied. The rules applicable to easements generally apply to profits). Negative easement language in a recorded easement that goes with the property that is a list of things that you cannot do on the land (certain uses that you are not going to be able to do) COVENANTS Real Covenant Equitable servitude Willard v. First Church of Christ: Issue: Whether a grantor may deed real property to another person and effectively reserve an interest in the property to another when the grantee had no knowledge of the easement and the grantor only obtained the property by agreeing to add a provision to the deed stating the conveyance was subject to an easement for automobile parking during church hours for the benefit of the church on the property at the southwest corner of the intersection of Hilton Highway and Francisco Boulevardsuch easement to run with the land only so long as the property for whose benefit the easement is given is used for church purpose and was sold at a 1/3 discount in exchange for the acceptance of the easement?  Rule: Rejects CL approach to reservation which only allowed the parties of the deed reserve an interest (similar principles that underly the rule that 3rd parties cannot sue on a K unless they are in privity of estate) and allows. Grants are to be interpreted based on the intent of the grantor. (this will produce equitable results because it is presumed that the primary grantee has paid a reduced price for the encumbered property) ***Third parties are often known as strangers to the deed (Ex. The church)*** Petersen buys lot 19 and records. Willard wants to buy lot 19 & 20 from Petersen. Petersen goes backs an buys the lot 20 from McGuigan subject to an easement. The easement is conditional/determinable. And Petersen records. He then sells both 19 & 20 to Willard and does not have the language of the 42

iii.

B. i. ii.

easement in the deed. Willard claims that he did not know. However, because it was recorded and in the chain of title Willard had constructive notice. Old common RESERVATION says that the grantor when granting to a grantee cannot reserve any interest in the piece of property to a third party. The court abolishes this old CL rule (otherwise the grantor could have just conveyed it to the church who could have conveyed it and reserved the reservation for themselves. Also to uphold CL rule would unjustly enrich the grantee who paid a lower price and then turned around and sold it for full price) - P could not prevail based on the deed b/c he had constructive notice from a recorded deed in his chain of title which has the easement on it. - This is an example of an easement appurtenant. Lot 29 is servient and the church is dominant. - if the church would move out and a different church moved in, they would still be able to use the lot in this case b/c the languages says it has to be used for church purposes on lot XXYY  When you write language for an easement you must use clear language that is specific and precise. Condition = forfeiture

Covenant = damages
Language in the deed- Subject to an easement for automobile parking during church hours for the benefit of the church on the property at the southwest corner of the intersection of . .. Such easement to run with the land only so long as the property for whose benefit is given is used for church purposes. (P.672)  Common law rule: one cannot reserve an interest in property to a stranger to the title.  Reservation by grantor is ok. Reservation creates a new servitude on the land that did not previously exist Exception Excludes from the grant some pre-existing servitude on the land License: is oral or written permission to come on the land. A license is not an easement. A license is revocable, an easement is not. [A license that cannot be revoked is treated as an easement] Holbrook v. Taylor: Issue: Whether the Appellees, the Taylors acquired an easement over the use of a road owned by the Appellant Holbrooks, by either prescription or estoppel, when they had tacit approval by the Holbrooks to use the roadway to take heavy equipment, material, and supplies for the construction of their residence, maintained and improved the roadway, and constructed a $25,000 residence which was only accessible by use of the roadway and there were no other locations where another roadway could reasonably be built? Rule: a prescriptive easement is created when a person has openly, peaceably, continuously and under a claim of right adverse to the owner of the land, and with his knowledge and acquiescence, used a way over the lands of another for as much as 15 years. 43

License/estoppels If a person is given permission to use the land by the owner then it is a license. That license is revocable anytime by the owner UNLESS the licensee is also given permission to improve the land/property and they do make improvements on the land, then the license becomes an easement through estoppel (could not be prescription b/c there was consent) 1. License 2. A person expends time and money (detrimental reliance on the part of the licensee)(unjust enrichment on the party who gives the license) 3. The licensor is estopped from granting an easement and it becomes an easement as a matter of law This is an implied easement by estoppel. (you need acquiescence and reliance) The fact that the house was $25,000 on the land was very important (the court will look to see if there is a substantial amount of money used for the improvement). This is very important for there to be an easement by estoppel. Holbrook sat back and watched while Taylor spent 25000 and used the property to get there. If Holbrook didnt want him to use the road then he should not of sat back and watched while Taylor made this substantial improvement. Taylor relied to his detriment. Pg 680 Shepard v. Purvine - shows how implied easements are formed and why they are often not written down. Best friends living next door and an easement is given, the person receiving the easement does not want to insult his friend by insisting that it be in writing. Years down the road, something happens and the easement becomes in dispute. Some courts are less likely to grant easement by estoppel unless there is something in writing in which they can rely. Pg 681 Note 3 why shouldnt the court allow Holbrook to recover damages? You need to assess the amount of use, property value, who is maintaining it, etc (injunction, damages or nothing to the servient owner). What Holbrook should have done in order to avoid the lawsuit he should have had it in writing that he would be willing to grant an easement if Taylor would pay him xxx amount of money and he the other party would help maintain/repair the road.

Easement can be created by: 1. Express written grant; (have to look at the language, description, parties, perpetuity?, does it run with the land? [to his heirs and assigns forever]) If you are writing an easement on behalf of your client make sure you record it against then servient property. 2. By implication; (Van Sandt v. Royster) implied by prior use 3. By prescription; 44

4. By estoppel; (Holbrook v. Taylor)

Implied Easement by Prior Use: Van Sandt v. Royster: Issue: Whether an easement was created by implied reservation on the severance of a servient estate from a dominant estate of the deed from Mrs. Bailey to Jones in 1904 when the sewer pipe in dispute was in existence before the conveyance and remained at the time of severance with Jones knowledge and when it was subsequently conveyed by Jones to P who did not have actual notice, but had inquiry notice through their inspection of that house that had modern plumbing and appliances that must drain into a sewer? Rule: Implied easements /apparent Elements: 1. 2. 3. 4. 5. Common grantor (unity of ownership) there was a single owner who divided the property Use in existence prior to the severance the use must be there (present) before the lots are divided up (example the sewer system in Royster) Severance by the grantor into two or more parcels Use existent at time of severance must show that the use is still in existence at the time of severance Reasonable necessity (courts are not going to allow continuing use of an implied easement unless there are reasonable necessity) A person can argue that there is not a reasonable necessity if there are other reasonable alternatives. [THE COURTS LOOK AT EFFICIENCY AND COST to determine this] Notice to holder of the servient parcel* (actual [told about it], constructive [recorded], or inquiry)(if party does not have notice-dominant party will lose) * Parties will be assumed to know and to contemplate the continuance of reasonable necessary use. The court holds that a quasi-easement ** (the sewer drain itself) existed in 1904 and implies a reservation on that basis ** A quasi-easement is an apparent and continuous use which the parties would reasonably expect to continue when the land is divided. The grantor reserved for herself a an easement in the property. Is Van Sandt a BFP without notice of the sewer? Court charges the P with knowledge of the sewer. Easement by Necessity (Policy: land should not be made inaccessible) Othen v. Rosier: Issue: Whether an owner of a parcel of property may acquire an easement by necessity to use a road on an adjacent parcel of property, when both parcels of property were under a unity of ownership at one point, access to the roadway is necessary for the neighbor to reach his homestead, but such necessity did not exist when the unity of ownership of the parcels of property was severed? Rule: where a vendor retains a tract of land which is surrounded partly by the tract conveyed and partly by the lands of a stranger, there is an implied reservation of a right of way by necessity over the land conveyed where the grantor has no other way out.

6.

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To have an implied easement the P must show: 1) That there was unity of ownership of the alleged dominant and servient estates 2) That the roadway is a necessity not a mere convenience; and 3) That the necessity existed at the time of severance of the 2 estates. Most jurisdiction require a strict necessity (for there to be an easement by necessity) Elements: 1. 2. 3. 4. Common grantor (unity of ownership) Roadway is a necessity not just a convenience. Necessity existed at the time of the severance of the two estates Strict Necessity requirement

(the severance created the necessity)

Othen must prove that when Hill sold the 100 acres fronting Belt Line Road in 1896, the 60 acre and 53 acre tracts retained by Hill were land locked by the conveyance of the 100 acre parcel as it is the parcel that blocks access to the public road. As to the claim for a prescriptive useRoziers used a gate Use was not exclusive Roziers maintained the road Othen did no act that appears to be inconsistent with Roziers ownership interest REMEMBER: Express easement 1) 2) 3) 4) Implied Easment: Easement by estoppel Easement implied by prior use Easement by necessity Easement by prescription

1. 2. 3. 4.

Pg 695. Example of easement by strict necessity Schwab v. Timmons (cost of $700,000 having to build a road)(found not strictly necessary) Note: 2 pg. 695 O is the common grantor, when the 5th parcel was created and easement by necessity was created. FL* will give an easement by necessity even if there is no common grantor. The landlocked person will have to pay the servient parcel for the easement FLORIDA STATUTE: allows a judicial proceeding to condemn property for a way of necessity without the need for a common grantor (see note 4, pg. 696) ALSO NOTE: That an easement is an interest in land just not a fee interest.

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The Public Trust Doctrine

Mathews v. Bay head improvement WHETHER the publics right to enjoy tidal lands gives the public the right to gain access through and use the dry sand areas not owned by a municipality but by a quasi-public body who owns six shore front properties and is a lessee of the upper dry sand area of much of the privately owned beach front property and restricts the beaches use to members of the association and the remaining public lacks access and use of the beaches and whether the public has an interest in privately owned beaches? Public trust doctrine Nationally recognized when you have navigable waters, they are held in trust by the Gov for the people and people have use of them including the wet sand. (they are reserved for the public) The problem is ACCESS, they need access to get to the wet sand. Members of the public must be given reasonable access to the foreshore and be permitted to use privately owned dry sand areas of the beach when such is essential or reasonably necessary for enjoyment of the ocean. Reasonableness Test: Reasonableness is determined by 4 factors 1) location of the dry sand area in relation to the foreshore; 2)extent and availability of publicly owned upland dry sand areas; 3) nature and extent of the public demand; and 4)usage of the upland sand area by the owner *If the court finds that there should be an easement over the public land then it would run with the land unless there is language in the easement that limits it. (b/c easements are usually deemed to be in perpetuity)

Assignability of Easements
If an easement is given, you need to look at the intention of the conveyance to determine whether it runs with the land. NOTE: The benefits and burdens of easements appurtenant pass automatically to assignees of the land to which they are appurtenant, if the parties so intend and the burdened party has notice of the assignment. This is not necessarily so with an easement in gross. Miller v. Lutheran Conference: WHETHER an easement in gross may arise from prescription by open use of property that is known by the owners who fail to raise any objection but instead encourage the user to expend large sums money in pursuance of their use and if so, is it assignable divisibly if the parties evidence in their intention to make it assignable and it is assigned in a manner that the assignees exercise their right as one stock to prevent the surcharge of the easement? Rule: an adverse enjoyment of an easement in gross may ripen into title by prescription.
An easement in gross is assignable if the parties who create it evidence their intention of making it assignable.

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Assignments of the easement is divisible if the surcharge of the easement (subjecting the servient tenement to a greater burden then originally contemplated) is avoided by the assignees exercise the right of the easement as one stock. [any action under the easement must be done with common consent.] *the license to D could not be granted without the consent of frank (1/4 holder of interest ONE STOCK RULE- use must be as though one person; either on can veto the other (everyone has to agree to the use) Surcharge- is excessive or improper use of the land (They are usually used to get injunctive relief)

to Frank Miller, his heirs and assigns forever, the exclusive right to fish and boat in all the waters... They said that it was an easement in gross because the property owned was under the lake. Easement in gross: 1.Inheritable - yes 2. Assignable - yes A. Surcharge (when the easement in gross is being over used and is no longer reflecting the use of the original parties) 3.Divisible? A. One stock rule There is no preclusion of an easement in gross being assignable in the US. The court says that the parties intention clearly shows that they intended for them to be assignable Also are divisible but have to be in one Go over Notes 714 - 716 Pg 714- Easement in Gross (Lake Naomi case)- most are assignable if the parties so intend (parties intent that will contextually determine if you have an assignable easement in gross). There are still some where they are not assignable (recreational: hunting, fishing, boating and camping). E.g. I give Alicia the right to fish on my property she cant assign that to Chris (b/c it is a recreational use). Depends on the jurisdiction. Note 4 pg 716: A owns Blackacre and coveys an easement over Blackacre to B for the benefit of Whiteacre, which B once owned but sold to C several months earlier. B then conveys the easement to C. WHO IF ANYONE OWNS AN EASEMENT ACROSS BLACKACRE? No one owns the easement b/c B didnt own the land when the easement was granted to him. Scope of Easements Brown v. Voss: Facts: In 1952, the predecessor of Voss (D) granted an easement by express grant to the predecessors of Brown (P) to allow ingress and egress to Ds property. P subsequently obtained title to a third parcel adjacent to the lot and attempted to use the easement to gain access thereto. P sued to establish the right to so use the easement, yet D sought an injunction to forbid such use.

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WHETHER the holder of a private road easement can use it to cross the servient estate to reach not only the original dominant estate, but also subsequently acquired parcel when those two combined parcels are used in such a way that there is no increase in the burden on the servient estate? General Rule: An easement appurtenant to one parcel of land may not be extended by the owner of the dominant estate to other parcels owned by him, whether adjoining or distinct tracts to which the easement is not appurtenant. [Whatever is on the easement grant] Surcharge is an overburden on the servient estate. The court only granted the easement in the end due to the behavior of the parties. (ALTHOUGH THE INTENT OF THE PARTIES IS TO GRANT AN EASEMENT TO PARCEL B) You have to follow the general rule and cannot go beyond the intent of the grant. But this court went on equities. This court was sitting in equity because the parties were asking for an injunction. [one of the criteria for injunctive relief is actual and substantial injury sustained by the person seeking injunction] *on an essay you would have to argue in equity because the general rule is that you cannot go beyond the intent of the grant (easement)* NOTE 3 Pg 724: A private easement of way does not usually permit the easement owner to install on the easement aboveground or underground utilities, such as electrical lines and sewer pipes. Most courts hold such uses are not reasonably foreseeable by the parties. NOTE 4 Pg. 725: The established rule is that the location of an easement, once fixed by the parties, cannot be changed by the servient owner without permission of the dominant owner. [the restatements change the rule but is not widely adopted it grants the servient owner the right to change the location of an easement, at his expense, if the change does not significantly lessen the utility of the easement, increase the burdens on the owner of the easement in its use and enjoyment, or frustrate the purpose for which the easement was created] Preseault v. United States:

WHETHER the conversion under the RTT Act and by order of the ICC of a long unused rightof-way to a public recreational hiking and biking trail constituted a taking of the property of the owners of the underlying fee simple estate when the language in the deed that grants the easement is questionable as to whether it grants a fee simple or an easement interest in the property and if the deed grants an easement does the scope of the easement allow the conversion of the property into a public trail when the railroad company shows clear signs of its intent to abandon by not using the property and removing all railroad materials and the public encroaches on the owners property while using the trail?
*A taking is the permanent physical occupation of property by the government. y o  Court looks at 4 issues Were the 1899 transfers as easements or in fee simple? All three were easements 49

y y

o  y o o  o  

o o 

RULE: when a railroad for its purposes acquires an estate in land for laying track and operating RR equipment on it, the estate that it acquires is not more than needed for the purpose, and that typically means an easement, not a fee simple estate. Tacks A & B were received b commissioners award Track C was deeded and purported to give a fee simple but there is implied limitations that the company will only take so much land or estate therein as necessary for public purposes. The RR had a survey to determine the exact location of the right away right after the land was deeded, indicating an easement If easements, was use limited to railroad purposes or did they include future use as public recreational trails? The scope of the easement may be adjusted in the face of changing times to serve the original purpose, so long as the change is consistent with the terms of the original grant. The easement were granted specifically for the transportation of goods and persons via railroad. The burden imposed on the servient estate would be much greater if the public were granted use because the number of people using would be much larger and harder to contain. Did the easements terminate prior to the alleged taking so that the property owners at that time held fee simple unencumbered by the easements? Yes Was there an abandonment by the Railroad? The usual way an easement is extinguished is abandonment (which causes an easement to be extinguished by operation of law) In order to establish abandonment there must be NON-USE and acts by the dominant tenement conclusively and unequivocally manifesting either a present intent to relinquish the easement or a purpose inconsistent with its future existence. Not only did the Railroad stop using the easement, but they removed all equipment from the land. THE TAKING: the actions by the government constitute taking and P is entitled to compensation The government either took b/c there had been and abandonment and so they had no right of the property, OR the scope of the easement was exceeded and therefore constituted a taking The property was abandoned by the RR prior to the time the rails-to trails programs. How an easement can be terminated 1.Owner release (an easement owner may agree to release the easement, normally requires a writing) 2.Expiration only if there is a date certain or an event certain given. 3.Defeasible easement (an easement created to end upon the occurrence of some event expires automatically, it and when the stated event occurs (used in defeasible fee's and fee subject to condition subsequent)) 4.Merger (an easement ends by merger if the owner later becomes the owner of the servient estate (when A buys B the easement mergers and disappears, because an owner of a property can not hold a easement on their own property)) 5.Estoppel (an easement may end through estoppel if the servient owner reasonably relies upon a statement of representation by the easement owner (dominant owner states that they are not using it any more and then the servient parcel does something with the parcel himself) 50

6.Condemnation (an easement may terminate by condemnation if the government exercises its right (the government comes in and takes a piece of property for their own use) 7.Prescription (the adverse possessor of a prescriptive easement uses the property for the needed period of time and then if you fail to use it then you lose it) 8.Necessity (easements by necessity end when the necessity that gave rise to it ends) 9.Abandonments (an easement may terminate by abandonment, mere non-use by the easement owner does not constitute abandonment, but in several states by abandonment upon non-use for the statutory period of time. (A affirmative act is needed for abandonment)) Development of brownfields. - act uses environmental covenants. (allows certain businesses to come onto polluted lands who are capable of building on the land and use it.) (O to A as long as A maintains the land for a Pet Sanctuary FORFEITURE) * this is a condition Remedy is forfeiture * this is also a covenant Real Covenants 1. Real covenant have damage remedies (at law) 2. Equitable servitude Remedies are in equity Real Covenants is an interest in land and therefore must be in writing. Creates privity of estate and runs at law. (Remedy=damages) Elements: Horizontal privity (grantor-grantee relationship created at THE TIME when the covenant is made snapshot moment like adverse possession) So it requires single ownership at the beginning (A owning the whole piece) and then divides it up with the covenant thus Creating Grantor-Grantee relationship. The grantor grantee relationship is what creates the privity of estate Parties intend for the covenant to run with the land. (heirs and assigns. Or can just say runs with the land) Vertical Privity (successors in interest of the same parcel of land) privity of estate (it is when the one piece of property is sold successively) - some jurisdictions- vertical privity can be disrupted by adverse possession Touch and concern the land (Weasel words) the use of the land is materially affected in some way (could be physically affected or the value is enhanced) Benefit runs without notice. Burden runs only if burdened party has notice. General Rule- Covenants must be in writing because they are within the statute of frauds Remedy is in damages and should NOT be forfeiture this is an FSD and the REMEDY is

1.

2. 3.

4. 5. 6.

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A promises B that A would never build a piggery on Blackacre Restrictive covenant and A and B are in privity. (If A sells to C and C builds in England B could not sue C because they do not recognized privity of estate SO they DO NOT recognize covenant running with the land) American real covenant Will run at law as long as there is actual or constructive notice. Pg. 742 Will The covenant run to C & D? No because there is no horizontal privity Pg 744 Problems 1. Both A and B created covenants and both intended that the covenant run with the land (heirs and assignes). No they cant sue for damages, because there is no horizontal privity (A and B were landowners) Under an equitable servitude (which doesnt require horizontal privity) the court could grant an injunction unless it was already built. 2. You dont need horizontal privity for benefit to run with the land in an equitable servitude **If the jurisdiction requires real covenants and horizontal privity of estate then a lawyer must put the lands in privity by selling them both to a strawman. And then the strawman sells them back to A & B with the promise, therefore horizontal privity is created Tulk v. Moxhay: WHETHER the purchaser of a deed of conveyance (A formal document showing change of ownership of land) who has notice of earlier covenants on the land that prevent any construction from ever occurring on the property, but whose own deed did not contain the restriction may violate the restrictions contained in the earlier deed? The original deed was in 1808 (didnt have a recording system then in England) Deed from Tulk to Moxhay: Maintain garden in proper repair (this is a covenant and it is affirmative because it is a promise to do something) Will not cover garden with any building (This is a restrictive [negative] covenant because it is a promise not to do something) Give tenants the right to use the square on payment of reasonable sum (this is an easement this is an easement that benefits a third party and England does not recognize easements giving a benefit to a third party) (would this be effective under illard?) 1. There was horizontal privity 2. The parties intended to for it to run with the land 3. There was vertical privity 4. it touched and concerned the land 5. couldnt have to worry about the benefit b/c t runs without notice 6. the D had notice

1. 2. 3.

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**All of the elements for a real covenant were met BUT England doesnt recognize real covenants So the court creates an equitable servitude. Hold: if the equity was attached to the property by the owner then someone with notice of it cannot stand in a different position than the purchaser of the land An equitable servitude arises out of a promise and is a covenant respecting the use of land enforceable against a successor in interest with notice regardless of its enforceability at law  It is also an interest in land and must be in writing (like a real covenant) Elements of Equitable servitude: 1. Parties have to intend for the covenant to run with the land 2. Has to touch and concern the land 3. The burdened party must have notice. **No requirement of horizontal privity and in many jurisdictions there is no requirement of vertical privity (but a few require it ) Note 2 Pg 748: equitable servitude is an interest in land just like a real covenant is an interest in land Note 3 749: if the government condemns the burden land the government must pay the benefitted land owner the damages for the loss of their benefit. Ex. Imminent domain action if the land was a burdened parcel then the benefitted party would get damages from the government for the loss of their benefit. Contract law requires consideration for enforcement of a promise whereas property law allows an owner of land to give another an interest in the land. No consideration is required for a gift. (equitable servitude or a real covenant does NOT REQUIRE consideration) Sanborn v. McLean: WHETHER a reciprocal negative easement was created on all 91 lots on Collignswood Avenue, including the subsequent purchaser (D) when they were conveyed by a common grantor and designed and sold for residence purposes and only residences have been constructed, even if the restrictions are explicitly contained on some but not all deeds and the Defendants deed did not contain the restriction, restricting the use of the premises to only contain residential buildings and when the Ds grantor told him there was no restriction on the property, however the D was on inquiry notice from the uniformity of use of all the parcels? y y y y y An injunction was filed to stop the gas station There was a common owner who sells off the first lot that contains the restriction (that said the other lots owned by the grantor will have the same restrictions) Reciprocal negative easements (it is really a covenant but it is called an easement) Anytime you see a subdivision there is likely a restrictive negative easement. Does the grantor intend to impose a general plan of mutually enforced restrictions? ( Only 53 of 91 lots have actual restriction) Rule: If the owner of two or more lots sells one with restrictions of benefit to the land retained, the servitude becomes mutual, and during the period of restraint (the time the covenants are enforced), the owner of the lot can do nothing forbidden to that lot. It must start with a common owner so if you fall

53

within the common scheme or plan if you have a lot that does not have restrictive language in the deed but there is restrictive language in other deeds, the covenant will be implied. o o This is not under all circumstances (jurisdictionally). Some jurisdictions do not recognize implied covenants (Massachusetts) but most do. It is under all circumstances if the common owner records his plan and then mentions the plan in each deed *If the common grantor record his plan and then incorporates by reference in the deed it will ensure that that the condition is considered express in every deed. There is no such thing as a reciprocal positive easement. Reciprocal Negative Easements arise, if at all, out of a benefit accorded land retained, by restrictions upon neighboring land sold by a common owner. **Once a subdivision plat is filed and one lot is sold with restrictions, all subsequent purchasers in the subdivision buy at the risk of the same restrictions that is in jurisdictions that allow implied restrictions. **The difference between equitable servitude and real covenant is the remedy that is sought Easements, covenants and servitudes review By definition an easement is a use. (party A is going to allow a second party to use their land) One land is benefitted and the other is burdened. There are also reciprocal easements which allow people to use each others land. There must be a use. (if it is given to an individual or business than it is an easement in gross) EASEMENT - A use in some elses property (it is often better to state things in the affirmative than the negativefor example dont say B cant build a tattoo parlor. Say B can only use the land for single family residences. This is because it is easier to circumvent the negative covenant)

Real covenant - Interest in land so has to be in writing. 1) Horizontal privity (privity of estate) which is created when a common grantor divides the land and creates a covenant. 2) Parties intend that the covenant runs with the land at law (if it doesnt run with the land it is personal) 3) Vertical privity created by successors in interest 4) touch and concern the land

Equitable servitude 1) Parties intend for covenant to run with the land in equity 2) most jurisdictions do not require vertical privity 3) Touch and concern the land 4) notice to the burdened party * never requires horizontal privity (so no common grantor) Equitable servitudes allow for a remedy in equity. (Injunction, specific performance, etc.)

Common scheme or plan 2 or more lots. 1) Common grantor 2) intent to run with the land at law (so damages) 3) Touch and concern the land 4) Vertical privity 5) the promises must be reciprocal Each land will have expressed in the deed a reciprocal negative easement (single family homes) Others will have implied
54

5) Benefit runs without notice 6) Burden runs only if the burdened party has notice If the party wants damages they will sue under a real covenant, if they want an injunction they will sue under An equitable servitude

reciprocal negative easements (some jurisdictions dont recognize implied reciprocal negative easements)

A buys lot and then builds a house. Then B buys the adjoining lot. They make a covenant for the use of their lands. Under these circumstances, there is no real covenant action, however there is an equitable servitude action (because there is no common grantor) therefore, if there is a breach of the covenant, the non-breaching party would have to bring their action in equity. 2 types of injunctions: 1)temporary and 2)permanent. Whether Affirmative covenants run with the land depends on the jurisdiction (So on an exam a question would have to be properly qualified) Most court will allow property owners associations that own property to collect on affirmative covenants. (Rare to find a homeowners association that does not own interest in the land) Most jurisdictions do not require vertical privity for the enforcements of covenants, in law or equity. The general view is that Ps have standing to enforce covenants on the basis of the third party beneficiary doctrine of contract law. (Vertical privity doctrine giving way to third party beneficiary doctrine.) Old General Rule: For the burden to run at law or in equity, a covenant must touch and concern the burdened land. Newly developed Rule FOR THE Neponsit CASE ONLY: Does the covenant alter the legal relations of the parties as owners of interests in land? (Does it increase the value) Vertical privity - the benefit of an equitable servitude is enforceable only by a person who has succeeded to some possessory interest of the original promisee. Restatements 3rd Property - Endorses affirmative and restrictive covenants running with the land Majority of jurisdictions do not require vertical privity for the enforcement of covenants in law or equity. The general view is that Ps have standing to enforce covenants on the basis of 3rd party beneficiary doctrine of K law. if there is evidence that Ps were intended beneficiaries of the covenant, they enforce it regardless of the lack of vertical privity. Pg 765 developer covenanted with homeowners to maintain a golf course. He later sold it to an entity that let it fall into disrepair. Need 1) Intent to run with the lend, 2) Touch and concern the land, and 3) Notice It did touch and concern the land (b/c the burden on the homeowners produced the benefit if the use of a valuable piece of property). The homeowners sued in equity b/c they wanted an injunction against the D 55

to maintain the golf course. The judge balanced the equities and did not grant the injunction but instead granted an equitable lien on the property which meant the homeowners could foreclose if it was not maintained. Therefore the court says that if D did not maintain he would lose the property but would not lose more than his investment. 2. condo association- required annual dues to be made to a profit making sports club. The obligation to pay dues was secured by a lien on each condominium unit. The court found that this covenant touched an concerned the land b/c the condominium owners had the right to use and enjoy the facility even though it was not on their property. (If you have a lien for $930.00 and at a foreclosure sale you can bid that amount and get a credit bid) Credit bid if you are a mortgagee and you are owed $30,000. At a foreclosure sale if you bid that amount and win it is a credit bid. If you bid $40,000 you still get the $30,000 credit and only have to pay $10,000

The validity of a servitude it has to be legal, constitutional, or not in violation of public policy. There is a very strong presumption that the servitude it valid. The burden is on the individual contesting the validity of the servitude to show that it is illegal, unconstitutional, or in violation of public policy. When looking at public policy person must show that Public policy: a) arbitrary spiteful or capricious (ex. If professors condo prohibited any used car salesman from living there); b) a servitude that imposes an unreasonable restraint on alienation (Shelley); c) the sercitude that imposes an unreasonable restraint on trade or competition; OR d) a servitude that is unconscionable Problemspg. 767 - are any of the following invalid under the touch and concern test? a) b) c) d) e) No flags of any kind? VALID No sign except house location number may be displayed? VALID No solar energy devices shall be installed on the roof? ILLEGAL IN FL (going green) No house shall be used to provide day care for nonresidents of the house? VALID bc its a business Upon the sale of the house, 10% of the capital gain (net profit on resale) shall be paid to the developer? It is a personal benefit in gross

Caullett v. Stanley Stillwell: WHETHER a clause in a warranty deed conveyed by a developer (D) to a purchaser for consideration which states that the garantors reserve the right to build the original dwelling or building on the premesis and designated as a covenant that runs with the land which shall bind the purchasers, their heirs, executors, administrators and assigns constitutes an enforceable covenant that restrict the use of the Ps land?  The court says that there was no touch and concern of the land. It was not specific enough to touch and concern the land b/c it did not speak of : type of structure to be built, 2) the costs, 3) the duration of the grantees obligations  Benefit personal to the grantor doe not usually run with the land if the benefit is in gross and does not benefit neighboring parcels.  This is a personal services contract and would be enforceable if they entered it as a normal contract. Instead in was placed in a deed. So he should have sued in a contracts and used the deed as the written K. 56

1. 2. 3. 4.

Examples of touch and concern the land: Limit the property to residential purposes Provide minum seback and acrage requirements Proscribe certain architectural forms Limit the number or set the minimum cost of future dwellings to be constructed on the land. Residential as opposed to Take from this case to run with the land covenants must touch and concern the land Defeasible feesthe remedy is forfeiture as opposed to damages. Not used as a land control device in the public sector. Hill v. Community of Damien Molokai WHETHER the use of a house by a non-profit corporation as a group home for four unrelated handicapped individuals with AIDS and providing them with in-home medical treatment which was necessary for their survival violated a restrictive covenant requiring the all lots on the street to be used only for the purpose of a single family residence and in the alternative whether the imposition of such restriction would violate the fair housing act which makes it unlawful to discriminate in the sale or rental or to otherwise make unavailable or deny a dwelling to any buyer or renter because of a handicap of a person residing in that dwelling when discrimination includes a refusal to make reasonable accommodations in rules, policies, practices, or services when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling? The Ps tried to argue that this home was more like a health care facility and not a home. Professor says it is wise to put in a definition section in a restrictive covenant.

Restrictive covenant Court looks at these two things: 1) 1) Residence 2) Family court said the fact that they were not blood related didnt matter (public policy is to allow small group homes to be treated as families). The governments intent is to mainstream group homes, his means that whenever it is possible the government feels that it is better o incorporate people into mainstream society. Whenever there is a group home in a community 2) the community often gets upset.

FHA Discriminatory intent - the P had to show that the neighbors didnt want the group home because the residents had AIDS. (Didnt want people in their neighborhood with AIDS). However, you can try to prove PRETEXT (where they disguise their discrimination as something else like a traffic problem. The burden is on the person alleging PRETEXT. Then the burden shifts to the other party to show no PRETEXT) (facially neutral means that on its face you cannot tell who is going to get discriminated against) Disparate impact doesnt focus on the intent, it focuses on the result and whether the result is that people are being discriminating. 3) Reasonable accommodation- property owners mus make a reasonable accommodation for handicapped individuals. (only times you wont have to make reasonable accommodation - 1. If it would require fundamental alteration in the nature of a program OR 2. If it would impose undue financial or administrative burdens in the D) it is likely not an undue financial burden if your property value declines because of a group. **YOU DONT HAVE TO SATISFY ALL OF THESE, 57

JUST ONE OF THEM* The court says that people with aids are considered handicapped under the FHA (physical or mentail impairment which substantially limits a persons major life activities). After they have been determined to be handicapped, they had to determine whether there was discriminatory intent. In any action brought by a discrimination act (title 7,8,9, etc.) the court will balance the equities The neighbors fail to provide evidence that the traffic was a problem (it was only an allegation tht wasnt backed by evidence) Handicap is a physical or mental impairment which substantially limits one or more of a persons major life activities Note 4. 783 what activities is non-residential? It will all depend on the zoning laws in the jurisdictions that you are in Shelley v. Kramer Covenant that was made in 1911 restricted the selling of property and did not allow it to be sold to people in the negro of Mongolian race. For the 14th amendment (no state may deny persons equal protection under the law) to apply there must be some sort of state action. The court says that in order to apply the restrictive covenant, there must be some sort of state action in order to enforce it. (In order to enforce a restrictive covenant, you must go to court, and the court determined that this was sufficient state action) Pg 785. (covenant created in Georgia forbidding the sale to Yankees) Proff. Says that this does NOT run with the land (b/c it does not touch and concern the land). It is not unconstitutional because it doesnt discriminate against any of the protected classes of people. Shelly v. Kramer case found the court proceedings to be state action (very narrow goes to restrictions of sale of property on RACE) not uses as a precedent case due to the passing of the FHA **it is very rare that a court will take title from someone**

Termination of Covenants
Western Land v. Truskolaski: WHETHER the restrictive covenant limiting the use of the 40 acre tract of land to single family homes was enforceable under the circumstances when the area had significantly changed due to increased population, traffic and commercial development in the area or whether the covenants original purpose was nullified due to the changes? Common scheme or plan - When a common scheme or plan is created it is usually recorded in the county courthouse. 1941 development of subdivision 1961- widening the plumb lane and the beginning of its use as an arterial highways ()

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May 1968 Developer files a map of abandonment (only could file the abandonment on the land that he owned) of the 3.5 acres of land he owned. August 1968 Council adopted a resolution (which has no force in effect it is just a suggestion) **The General rule -highest and best use does NOT trump restricted covenants (zoning is usually based on the highest and best use of the land)** Arguments for termination: Increase in the commercial development around the subdivision Heightened traffic Reno City council adopted a Resolution of Intent to reclassify NOTE: A zoning ordinance cannot override privately placed restrictions, and a trial court cannot be compelled to invalidate covenants merely because of a zoning change. Highest and best use of property Changes and violations within the sub-division. Just because the highest and best use was no residential, the restrictive covenants limited the use to residential. Also, the P was the one who created the restrictive covenants and divided the land up. Modern trend instead of granting an injunction they will allow damages - You calculate loss by the market value decrease to the property that would occur as a result of a commercial intrusion onto the property. Then if the if the investment would still be worth it for the developer to build despite the damages that he would have to pay to the homeowners then he could build after he paid damages to the homeowner. Court of Equity- the court has broad discretion if it is standing in equity. The court may decide that an injunction is not proper and award damages even though damages are a legal remedy. Commercial development problems - (theory of CREEP)- like a domino effect. If an area around the house is commercialized, then the property value of the houses next to it the area that is commercialized will decrease and they will want to sell their houses for commercial use because they might be able to get more money for the house. NOTE: Usually when something is zoned commercial, you can still have something residential, however if something is zoned residential, you cannot have commercial. (Residential people are grandfathered in when the area is zoned for commercial use, however when hey resell, they cannot resell for residential use, it has to be commercial) Just know that a court of equity would be willing to allow a damages award in cases of commercialization and there is a person who is holding out. Pocono Springs Civic Assoc. v. MacKenzie: Issue: WHETHER Real property owned with perfect title (CLEAR RECORD) can be abandoned? 59

1. 2. 3.

4. 5.

Facts: There was an affirmative covenant to pay a monthly fee for the lot they owed. The D purchased the piece of property to build house, later when they went to build they couldnt have a sewage system. They didnt want the property anymore and stopped paying taxes. Property couldnt be sold at tax sale and it could not be gifted to the civic association. Rule:As long as you have clear record title (means that there are no third party interests or encumbrnaces on the chain of title) you cannot abandoned it. Because in order to have a transfer property there must be a written transfer in order to satisfy the STATUTE OF FRAUDS. Owners attempts to abandon: Tried to turn the lot over to the Association, Tried to gift the lot to the Association for a park, Ceased paying taxes - property was put up for sale by the county, Sent notarized copy of intent to abandon the lot, Refused to receive mail related to the property A grantee does not have to accept a conveyance (city did not). A lien is NOT a property interest (so even though city had a tax sale-they had not accepted property or created an interest on it that would disrupt perfect title) Easements, which is a right of use in the land, CAN be abandoned, but the owners underlying property interest is in fee simple. Common Interest Communities Home Owners Associations Condominiums Cooperatives.

1. 2. 3.

HOME OWNERS ASSOCIATION (regulated by statute in almost every state)

1. 2. a. b. c. d. F.S.A. Covenants (CC&Rs Covenants, Conditions, and Restrictions) Affirmative e.g. payment of association fees for upkeep of common elements Restrictive/Negative e.g. no form facing garages Monthly assessments Paid monthly (by definition is an affirmative covenant) **Special assessments voted on by the board to pay for something that needed to be done (rebuild a marina if it got wiped out by a hurricane. It assess each owner an amount to be paid). It is a onetime fee. 3. Lien Failure to pay will result in a lien and allow for a foreclosure action (in Florida there is a homestead act that protects a person primary residence. There are certain kind of liens that will foreclose a homestead failure to pay mortgage, tax lien, mechanics lien on failure to pay contractor or subcontractor for work done a house) ***You can foreclose for a special assessment failure or a monthly assessment failure, but you cannot be fined for failure to pay a fine. 4. Common elements usually owned by the individual units pro rata (if there is 500 units, you owe 1/500 and you have to pay 1/500), give easements to the separate interest. **Special Assessment- voted on by the board. Should something happen or need to be done. Ex. homeowners assn with marina as part of the association. Hurricane destroyed marina. To rebuild 60

association would assess each individual homeowner a portion of that special assessment. You have to pay regardless of use or enjoyment of the marina. Failure to pay monthly or special assessment will result in a lien that will allow foreclosure action even if it was a homestead. FL- we have homestead protection (homestead is protected against certain types of foreclosure actions (for your principal residence)). Certain things in FL can lead to foreclosure 1) failure to pay mortgage, 2) failure to pay assessments (special or regular), 3) tax liens, 4) mechanics lien (any work done on residence that hasnt been paid for. Subcontractor can bring against contractor) what can not be foreclosed upon? (handout: failure to keep up lawn appropriately). Usually CCR has a fine attached (e.g. 25 a day for you not getting the property mowed and trimmed. Cannot foreclose on those. Add up and create a lien on property which would have to be paid at the time the property is closed but cannot foreclose on it). **cannot foreclose for failure to pay a fine. **

Condominium Statutory Entity Chapter 718 Florida Statutes

(Creation of reservation Agreement) Con create a condominium by conversion he common grantor comes in and buys an apartment complex with the intention to turn them into condo. They will send out a RESERVATION letter and give notice to those renting the house that they will be turning the complex into the condos and they will have the opportunity to turn purchase them (reservation). The deposit made for a reservation agreement is refundable. If they do not get enough reservations then will not convert into condos. If there are enough reservations, then they will file for the association. At this point the deposit becomes a down payment and is no longer refundable. F.S.A Own the space/unit you own the place you are living, but not the common elements. You hold as tenants in common (TIC) Can obtain mortgage on the individual unit. If the unit owner defaults on the mortgage, the unpaid assessments will be a lien against the property and if foreclosure occurs, the property would be sold subject to the payment of the assessments due Common elements are shared- pro rata, by unit. Anything that is used by more than one single unit. So common elements would be something like the piping and if the piping burst then the cost to fix the piping would be shared pro-rata. The cost to fix the drywall would have to be paid by the person whose unit it is. (so you pay for everything that belongs to you in your SPACE). Condo documents registered with the state developer must file all the proper documents with the state before the 1st unit can be sold. By-laws developed by an elected BOD Assessment Fees **Homeowners association and condo associations are based on the CL concept of servitudes. Nahrstedt v. Lakeside Village: WHETHERThe (P) owner can show that the burden imposed by condominiums restriction against keeping cats, dogs, and other animals on the 530 unit development is unreasonable because it imposes a burden on affected properties so substantial that it outweighs the benefit of the restriction, is 1) wholly arbitrary, 2) violates a fundamental public policy, OR 3) violates constitutional rights when the restriction 61

1. 2. 3.

4.

5. 6. 7.

is contained in the Declaration of the common Interest development and recorded with the County recorder? When looking at restrictions in homeowners associations and condo associations, you need to be able to differentiate between 2 things: 1) restrictions stated in the declaration (these are restrictive and affirmative covenants that the developer created and included in the declaration of condominium which have been recorded along with the master deed). 2) restrictions imposed by the bylaws (by-laws are things that have been adopted by the board of the community) The developer originally creates the requirements of how the board is comprised (ex: how many people, how often elections are, etc.). Then the board makes further rules and regulations of which all owners have to abide. The purpose of the board is to make regulations b/c the developer is not going to be involved after the development. In Naherstedt the restriction (cannot have pets) was created by the declaration which is important b/c different rules apply in determining whether it will be upheld in court the whether the restriction was created by the declaration, or by the bylaws passed by the board. The court will give a strong presumption of validity to the developers plans (declaration of common interest) and not as much for the BOD restrictions. In order for a restrictive covenant that was created by the common grantor in the declaration to be struck, it must be 1. Wholly arbitrary 2. Violates fundamental public policy OR 3.violates constitutional rights (the UNREASONABLENESS TEST) because those covenants that are created by the developers then the restrictive covenant is clothed with the presumption of reasonableness For bylaws passed by the BOD the court will use the REASONABLENESS TEST whether it doesnt affect the safety, happiness, peace of mind of other tenants. (if it affects one of these then it is unreasonable) Policy: homeowners should be able to depend on what the original grantor wrote in the original document (that didnt change so all owners bought with notice of the restriction). The lower reasonableness standard is appropriate for the bylaw which are created by the BOD , therefore the rules will always be changing based on the biases of the people that create them. The standard to determine if C.C. & R. (declaration) is enforceable enforceable unless unreasonable in the recorded declaration or master deed Florida and Massachusetts courts will strike down covenants in the recorded declaration only if the covenants are: (UNREASONABLENESS TEST) 1. Wholly arbitrarysomething that there is no justification for (ex. no one who drive Nissan cars) 2. Fundamental public policy 3. Or violates constitutional rights Hidden Harbour Estates v. Norman: 62

WHETHER the BOD of a condo association may adopt a rule for regulation prohibiting the use of alcoholic beverages in certain areas of the common elements of the condo? This is a case involving the BOD creating a restriction FHA does not apply to senior living groups. The trial court wanted evidence that drinking in the common areas was causing problems. b/c the condo association did not present any evidence, the court found that the restriction prohibiting alcoholic consumption in common areas was not reasonable. The appellate court found that it was reasonable based on the 2/1 ratio of the homeowners that voted for it. Obviously it affected a majority of the people that voted for it, so it was reasonable. Midlake on big boulder lake v. Cappicio WHETHER condominium owners placement of signs in their windows advertising their unit for sale without prior approval of the BOD in violation of Sec. 7.1.5 of the condo declarations constitutes an infringement of free speech in violation of the constitution of the U.S. and was he trial courts extension of Shelly v, Kramer so that enforcement of the condominium restriction constitutes state action subject to constitutional scrutiny. . . . Shelly v. Kramer is not applicable to the enforcement of a restricvtive covenant in contract between private parties. . . in the absence of a finding that racial discrimination is involved as existed in the Shelly case. The only time that the court is going to find state action where two private contracting parties have to go to court Shelly v. Kramer is only going to apply is if there is a racial bias or racial discrimination. So you ant raise a constitutional issue saying that it is a state action regarding a court enforcement of a condo restriction. Hidden Harbour Estates v. Basso She says that they applied the right test? The court uses the reasonableness test. Says that the BOD isnt making a decision on its own, it is interpreting the condos declaration. So if you had a case that it was difficult to distinguish whether the restriction in question was created by the declaration or was created by the BOD you should apply both tests to cover which ever way that the court would interpret it. Need to differentiate between the declaration of condo and the definition of the board

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