Real Estate Brokers Exam PDF

**REAL ESTATE BROKERS: EXAM TIMELINE: Q1 (35 MINS): 9:35 Q2 (35 MINS): 10:10 Q3 (35 MINS): 10:45 Q4 (28 MINS): 11:13 Q5 (42 Mins): 11:55** - Broker -- a person who for another for commission... directly or indirectly lists, sells, exchanges, buys or rents, manages, or offers or attempts t...

**REAL ESTATE BROKERS: EXAM TIMELINE: Q1 (35 MINS): 9:35 Q2 (35 MINS): 10:10 Q3 (35 MINS): 10:45 Q4 (28 MINS): 11:13 Q5 (42 Mins): 11:55** - Broker -- a person who for another for commission... directly or indirectly lists, sells, exchanges, buys or rents, manages, or offers or attempts to negotiate a sale... of an interest... in real estate, or advertise or holds out as engaged in these activities. - Type of listing agreements: open, exclusive agency, exclusive right to sell - Duties of brokers: Loyalty, Obedience, Disclosure (all material facts of which broker has knowledge which might reasonable effect use and enjoyment of property(fee, dual agency, override list, failure to disclose can stop right to seek enforcement of commission)), Confidentiality, Reasonable Care, Accounting - Rangel v. Denny (LA): can sue for breach reasonable care, skill, and diligence (realtor was hired but didn't do job in sale, sale falls through because buyer cant secure financing): brokers duties determined by nature of task they are hired for - Relocation Realty (MN): Prerequisite to sue for brokers fees: Must be licensed broker, have written agreement, made required agency disclosures, no hold harmless provision. (moved to mn for job and relocation service sued for fees) - Earning Commission (see procuring cause doctrine below if agreement is silent on commissions): Dworak v. Michaels (NE): Seller lied about rent roll: A seller is required to pay a commission to a real estate broker when a sale is completed, or when a sale fails due to the fault of the seller. - Ellsworth Dobbs Rule: commission if broker produces ready willing and able buyer to purchase on acceptable terms, buyer enters contract, and transaction is completed by closing. (Exception: still gets com'n if failure to close due to wrongful acts or interference of seller). (Not MN rule) - MN Rule: Olson v. Penkert: broker is entitled to his compensation upon the completion of the negotiations which he undertook, whether or not the contract negotiated is actually consummated. You can waive this in listing agreement. : if you bring a ready willing and able buyer you are owed commission - Century 21 v. Vasquez (CA): if property is sold during term of listing agreement commission is owed: family selling restaurant but c21 wasn't doing shit so hired someone else and insta sold. - Best Practices if Rep Seller: No commission unless transaction close, or if seller obtains buyer without help, right to delist property, right to reject any buyer, exclusions for named parties. - Listing Agreement Requirements: (1) definite expiration date, (2) description of property, (3) sale parameters price, (4) broker comp. (5) disclose if fee negotiable statutorily (6) grounds for broker to earn commission. - Protected list: individuals specifically identified, affirmative prior interest in prop, delivered to seller 72 hours, double com'n disclaimer. - Procuring cause doctrine: if agreement is silent on post termination conditions: must be evidence that broker originated course of events, that without a break sale was result. Not enough to merely contribute to result (MN rule) - Rosenberg (MN): selling 350 condo units, listing agreement didn't have expiration date as required. Court ruled substantial compliance, agreement was more an at will employment agreement, entitled commission on units already in closing - Colorado v. Vizzi: Real Estate Agent Cannot contract away state law obligations - Schleuter v. Latek: if fee is paid and broker is unlicensed, party cannot go back to sue for commission. USCOA WI law - **Broker Obligations:** Easton v. Strassburger (CA): A broker must check a property carefully and tell potential buyers about any important issues that could affect the property\'s value or desirability. You have to do an inspection but not the most thorough one - **Broker Obligations:** Salahutdin (CA): Broker liable because the salhutdins made it clear that they need to purchase property over an acre, the broker had a fiduciary duty to investigate key facts.: broker has duty to investigate material facts of the transaction & seller has the duty to verify representations to buyer - Constructive fraud - don't need to know what you are saying is fraudulent, but you were negligent in not finding out if your statements are truthful - **Broker Obligations:** Holmes v. Summer (CA): If a seller\'s agent knows of circumstances that make a successful closing unlikely, the agent must disclose to buyer. (short sell case, broker didn't disclose debt, sell doesn't go through, buyers sold their other house to buy this one). - Short Sell: House worth less than debt, need all creditors agree to sell at loss to extinguish all debt. - **Broker Non-Obligations:** Grief v. Sanin (CA): a broker acting on behalf of the buyer does not have a duty to the seller to disclose a discrepancy between the fair market value and the actual purchase price. (old man trying to sell land for \$3m and shady broker put 300k in contract) - **Lawyers** - In Re Roth (NJ): It is not unlawful or unethical per se for an attorney to be a real estate broker but cannot collect fee for both. - Cardinal v. Marrill Lynch (MN): ML charged fees for preparing legal documents but weren't lawyer -- court looked at complexity of tasks band balanced practical public benefit versus harm of minor infractions (not rule in other states and NE) - Lawyer Disclusre Duties: Petrillo v. Bachenberg (NJ): An attorney owes a duty of care to avoid making negligent misrepresentations to a non-client third party if it is reasonably foreseeable that the third party will rely on the attorney's representations. (percolation tests, lawyer gives partial file that shows 2 successful tests, when it was out of 30). - Florida Bar v. Belleville: Belleville had an ethical obligation to inform Cowan that he represented Bloch and to explain the material terms of the documents.: didn't know house was being sold in agreement. - In Re Lanza (NJ): It is unethical to represent both the buyer and the seller in a real estate transaction unless both parties expressly consent to the representation after a full disclosure of the situation, and the parties obtain separate counsel while negotiating the sales contract. He had an obligation to represent seller with undivided fidelity - **Tips: Representing Seller:** Limit buyer to specific performance or termination of PSA and return of earnest money -- cap damages. Buyer: limit seller to termination of PSA and retention of earnest money. - Blunier v. Staggs(OR): A mortgagee may initiate foreclosure proceedings based on the mortgager's failure to comply with the terms of a trust deed forbidding waste and assigning attorney's fees **PURCHASE AND SALES TRANSACTIONs** - **Letters of Intent:** - Purpose of LOI: parties make emotional commitment, allows vetting of deal, outlines parameters for complex transactions, creates documentation of proposed transaction for exec approval, break negotiation into logical segments. - Enforcement Factors: (state by state): Intent of parties, existence of express disclaimer, partial performance, whether LOI contains transactions essential terms, statute of frauds. - Enforceable Terms: Confidentiality, exclusive right to negotiate, examination of due diligence docs, early entry for inspection, preconstruction, or construction, cooperation with entitlements, key money and reimbursement costs and expenses. - Merger Provision: this agreement is the entire agreement.: Panos v. Olsen(UT): The merger doctrine holds that the final documents in a real estate transaction abrogate any prior written or oral agreement between the parties. - LOI Disclaimers: **ADD THESE** NonBinding Disclaimer and Partially Binding Disclaimer - GMH Assoc. v. Prudential (PA): The enforceability of a letter of intent for the sale and purchase of real property depends on the intent of the parties. Acceptance must be unequivocal - Language of this LOI said this isn't contract, contract needs approval. Etc. - **Acceptance:** - **Counteroffer:** Roth v. Malson (CA): Contract formation requires the objective manifestation of an offeree's unqualified acceptance of the offeror's proposal. Signed counter to counteroffer when intended to accept. - Starlite v. Landry's Restaurants (MN): Defective acceptance of an offer may not be waived by performance to create a binding contract. Didn't return lease by certain day but still operated in building until stopped paying. - Sterling v. Taylor (CA): A memorandum containing an unclear essential term does not satisfy the statute of frauds if extrinsic evidence contradicts the terms of the memorandum. (buying apartment building for 10x income, income turns out different and wants out because not clear). - Moran v. Erk (NY): An attorney-approval contingency in a real-estate contract is not subject to a bad-faith exception. If a clause says atty must approve, and atty doesn't for whatever reason, the deal is done. - **Purchase and Sale Agreement Requirements** - Elements: (1) statement of consideration, (2) adequate description of parties, (3) adequate description of land ("**reasonably certain guide or means of identifying such land to the exclusion of other lands**"), (4) general terms and conditions of transaction, (5) signature of vendor. - Parole evidence can be used to explain(not contradict) and judicial notice may be used. - Greer v. Kooiker: selling farm -- didn't say the adequate description of land -- touring it not good enough or did it state consideration - **Partial Performance** Exceptions: (1) payment of all or substantial part of purchase price, (2) taking possession of the property, (3) making substantial land improvements. Most courts require a combination of at least two of the three acts, and a few courts require all three. - **Option to Purchase:** Steiner v. Thexton (CA): Partial performance of an initially illusory bargained-for promise may constitute sufficient consideration to render an option contract irrevocable. Wanted to subdivide land and spent thousands getting permit, then seller decides doesn't want to sell anymore. - **Loans:** - **Contingent Purchase Agreement:** Proctor v. Holden (MD): A financing application initiated prior to the execution of a real estate contract satisfies the contract's requirement to apply for financing within a fixed time period. - **Contingent Purchase Agreement:** Bushmiller v. Schiller (MD): A financing condition in a contract for the sale of real estate requires the purchaser to take bona fide, reasonable, and prompt action to obtain the financing specified. - Walsh v. Catalono (NY): Purchase contingent on securing lender approval or deposit back, gets approval but hurricane sandy hits, approval revoked, sues for deposit back: In general, a buyer who defaults on a real estate contract without lawful excuse cannot recover their down payment. This contract the court gave back the deposit though - Common Purchase and Sell Agreement Contingencies: Sale of existing home, financing, physical condition, title condition, entitlements (current and desired), well & septic condition. - Bob Acres v. Schumacher Farms (MN): "Exchange of promises provides adequate consideration to furnish a contract". Said they were going to pay deposit and time is of essence but didn't and kept negotiating. - Right of First Refusal: Right of optionee to match the offer of a prospective buyer - Right of first offer: right of optionee to receive an offer to purchase prior to the owner marketing the property to third parties - **Pre-Closing Destruction of Property: Doctrine of Equitable Conversion** - Holsher v. James (ID): If a property sale contract explicitly places the burden of pre-closing losses on the seller, the doctrine of equitable conversion cannot be used to shift the burden of pre-closing losses to the buyer.: buyer took possession early and cabin burns down -- losses still sellers responsibility - Bush Grocery Kart v. Sure Fine Market (CO): After executing a contract for the sale of real property, the vendee does not bear the risk of loss to the property prior to the transfer of title unless the vendee is in possession of the property. Grocery store moves out, no insurance on property and hail storm comes: seller responsible - If the party who doesn't have the right of possession's negligence causes the damage, they are liable - **Massachusetts Rule of Equitable Conversion:** Party with legal title bears the risk until the change of the title. - Adverse Conditions: - Bourland v. Heaton (TN): An economic downturn is not an appropriate basis for termination of an agreement to purchase real estate. Purchase agreement had adverse conditions clause for commercial land, buyer tried to get out. - Incorrect Statement of Land - Perfect v. McAndrew(IN): Tried to sell 81 acre farm, turns out farm was 96 acres, tried to undo sell. no mutual mistake because for mutual mistake to exist there has to be mistake as to something which is the essence of the agreement. Circumstances determine whether a contract for the sale and purchase of real property can be terminated for an error in describing the property. - Remediation - Claire v. Hillenmeyer (KY): A contract for the sale and purchase of real property may allocate the parties\' responsibilities for remediating the property\'s defects: septic tank on party, clause wanted it to be repaired to code but buyer rejects all sellers solutions --q for jury - **Required: Disclosures**: **Caveat Emptor v. Duty to Disclose** - Ridge Seneca Plaza v. BP(**NY**) **See Also Lick Mill --real estate secured...**: Doctrine of **Caveat Emptor:** A property seller is not liable for nondisclosure of information that a buyer could have reasonably ascertained during the inspection process.: agreement said as is and buyer needed to conduct own diligence, contaminated property - Reed v. King (CA): A seller has a duty to disclose information that would materially affect the value or desirability of a property if the information is accessible only to the seller or is not within the diligent attention and observation of the buyer. -- **Murder in House** - Stambovsky v. Ackley (NY): Poltergeist: If a seller creates a condition that materially impairs the value of a contract and is within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care, nondisclosure of the condition constitutes a basis for rescission of the contract. - **Modern Trend**: Duty to disclose in residential transactions: courts impose liability for the seller\'s nondisclosure of information regarding the condition of the property if the information is both \"material\" and unknown to the buyer and the condition is \"latent\" (not readily observable by the buyer). Courts are more likely to impose liability for nondisclosure where the seller has taken active steps to conceal a defect. Most courts will uphold a disclaimer by the seller of the duty to disclose specifically identified risks, but ***courts have split on the enforceability of a general (\"as is\") disclaime***r. - MN Statute Required Disclosure, seller must: **(1)** disclose material facts, **(2)** pertaining to adverse physical conditions, **(3)** of which the seller is aware, **(4)** that could adversely and significantly affect, **(5)** an ordinary buyers use and enjoyment, or **(6)** an intended use of which the seller is aware. Need good faith based on best knowledge. - When don't have to disclose: family transfers, new construct, foreclosure sales. Don't have to disclose, Aids, Suicide, Paranormal Activity, Nursing Home, Predatory Offenders. -- 2 year SOL - **Elements of Nondisclosure Claims:** Seller has duty to disclose hidden facts that seller knows or should have known, that present an unreasonable risk of harms to persons or property, and seller knows that buyer will not recover. **CONVENYANCE AND TITLE ISSUES** - **Fraud: (1)** a representation by a party, (2) falsity of representation, (3) materiality of representation, (4) speakers knowledge of falsity or ignorance of truth, (5) speakers intent that representation be acted upon in anticipated fashion, (6) actual reliance by another, (7) right to rely and reasonable reliance, and (7) consequent and proximate injury. - Smith v. Beatty (NC): old man signs, tries to retract when gold is discovered. Weakness of mind alone, without fraud, does not appear to be a sufficient ground to invalidate an instrument: old age not enough. Buyer doesn't have to say purpose if not asked. - Conveyance - Wiggill v. Cheney (UT): old lady puts deed in safety deposit box and tells kid to deliver it after she dies and its his house. Not allowed, deed must be delivered by person conveying title. - In Re Savich(MN): no quitclaim deed after death, - Stone v. Jetmar (MN): A court may reject application of the doctrine of corporation by estoppel when a corporation uses fraud to accomplish its business.: bought land under corp name and filed corp after to try to get out of it. - Delivery of Deed Rules: Physical delivery not necessary, grantor must show a present unconditional intention to part with ownership: Essential Elements (I) surrender of control, and (II) intent to convey title. Deed signed but not conveyed prior to death is void. A deed cannot be delivered to nonexistent entity or deceased being - Acceptance of delivery: acceptance is essential, a grantee who accepts and retains deed is presumed to know contents, when deed creates no burden or benefits grantee, acceptance is presumed. - Delivery Cont. **Doctrine of After Acquired Title** - **After Acquired Title:** Schwenn v. Kaye(CA): When a grantor transfers title of a property to a grantee, and the grantor subsequently acquires certain rights in said land, those rights will automatically pass to the grantee.: Owned oil royalties, passed to daughter sold land, had daughter pass back. - Old Republic Insurance Company v. Currie(NJ): If a mortgagor reacquires a property after it was foreclosed upon, any junior mortgages previously on the property are revived.: sold property because underwater, bought back years later, junior mortgagors came back. - Survival v. Successors and Assigns: - **Typical Survival Clause:** All of the representations, warranties, terms and conditions of this Agreement will survive and be enforceable after the Closing - **Typical Successors & Assigns:** This Agreement binds and benefits the parties and their successors and assigns - Bruggeman v. Jerry's Enterprises, Inc.(MN): All the terms of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties, and their respective heirs, personal representatives, successors and assigns. No assumption of merger exists. - **Condition Subsequent:** An agreement or event that, by its very nature, must occur after closing (e.g., repurchase option). - **Collateral Agreement:** A covenant, representation, warranty that goes other than to price and/or the condition of title (i.e., an item with no necessary relation to the main subject of the agreement). - Escrow: - Miller v. Craig(AZ): A court will strictly construe an escrow agreement\'s definition of the escrow agent\'s duties. Escrow agent cant deviate from express rights granted to them. - In Re Lanza: - Escrow: an arrangement whereby documents or funds are kept in the custody of an agent and then delivered or applied according to specific directions - Used for: Holding and applying an earnest money deposit made by the buyer upon signing the purchase and sale agreement, Handle deliveries during the real estate transaction, Technique used to resolve a closing contingency or problem. - *Deposit escrow* - secures deposit paid by buyer during executory period - *Post-Closing escrow *- parties appoint an agent to conduct their closing: Takes delivery of the signed closing documents prior to closing: Confirms payment before releasing deed  - *Contigency escrow* - allows parties to complete their closing even if a problem or issue remains unresolved, Witholding portion of the purchase price pending correction of the problem, Buyer pays an amount that is enough to cover the costs to correct the unresolved problem into escrow pending resolution of the problem, Any funds not used in the resolution of the issue are eventually released to seller once parties agree the contingency has been met  - Contingency/ Post-Closing Escrows should (1) Identify matter at issue and exactly what needs to be done to fix it (2) define cost parameters, (3) Identify action needed to be taken by each party and time period for doing so, (4) Establish proof neccesary to demonstrate compliance, (5) Grant one or both parties the right to make inspection to ensure compliance, (6) Establish conditions for release of funds. - Delivery of Funds: - Choice Escrow v. BancorpSouth (USCOA): An institutional banking customer bears the risk of a fraudulent payment order if the bank used a commercially reasonable security measure and accepted the payment order in good faith. Choice declined 2fA account was hacked and they sued the bank. - MN Statutory Rules/ Remedies: Statutory Cancellation: Applies to all real estate contracts: 60 days for CFD and 30 days for P&SA. Protection cannot be waived. - **Remedies and Defaults:** Monetary Damages: Actual/Compensatory(benefit of the bargain, difference between value at contract and value after breach), Consequential(additional costs incurred), Punitive(required egregious action by defendant and tort claim), Liquidated (stipulated in advance). - **Penalty** is a sum which a party similarly agrees to forfeit, but which is fixed, not as an estimate of actual damages, but as a punishment, the threat of which is designed to prevent the breach, or as a security to ensure that the person can collect their actual damages - Equitable Remedies: Recission, Specific Performance(purchaser remedy), Vendor Liens, Reformation(correction of agreement of mutual mistake -- needs clean hands, ready, willing able to perform, and monetary damages insufficient). - Requirements for Specific Performance: Contract must be established, adequate consideration, must not be induced by sharp practice, mistake or misrepresentation, not cause unreasonable or disproportionate hardship to defendant, damages must be inadequate compensation, party seeking performance must be prepared to perform himself. - Liquidated Damages: - Cem Uzan v. UN: Trump Land: Real-estate deposits are not subject to a liquidated-damages analysis.: tried to rescind contract after 9.11 - SF Distribution Center v. Stonemason(FL): A purported liquidated damages clause is an unenforceable penalty provision if the actual intent of the parties to the contract is to induce performance.: 400k depost, had option to enforce specific performance or keep deposit in event of default, not deemed valid because its intent to induce performance - Catholic Charities of Chi. v. Thorpe: A liquidated damages clause that provides for the recovery of liquidated damages, or, at the parties option, allows such party to seek actual damages, is unenforceable. **Majority Rule** - Ravenstar LLC v. One Ski Hill LLC -- CO: A liquidated-damages clause in a contract is valid even if the contract provides a choice of claiming liquidated damages or actual damages. **Minority** - Specific Performance - Oliver v. Ball (PA): If a seller breaches a contract for the sale of land, the court will order specific enforcement of the agreement, unless hardship or injustice would result.: Approproate when no adequate remedy -- land had creek and was unique. - Rigoli v. Monroe (AZ): To establish a contractual waiver of equitable-lien rights, the relevant language of the contract must be clear and unequivocal. **Needs to be express, voluntary, and an intentional relinquishment of known right:** bought land to develop it and doesn't and defaults. - DiGuiuseepe v. Lawler(TX): A buyer is not entitled to specific performance if he cannot prove he was ready, willing, and able to complete the purchase at the time the transaction would have closed. - Wong v. Stoler (CA): Recission: Promptly give notice of recession to other party, restore other party to situation before contract - buyers were prompt in this case -- recission was not impossible and court was willing to do so -- sellers made false and incomplete disclosures saying public sewer system when it was private, city refused to add house to system. - Exception to Economic Loss Doctrine: allow tort damage for breach of contract if: - \(i) the contractual duty or obligation is so coupled with matters of mental concern or solicitude, or with the feelings of the injured party, that the breach will reasonably result in mental anguish or suffering, **and** (ii) the breach is tortious in nature or attended with personal injury. - Sexton v. St. Clair Bank(AL): buyer building home in Alabama -- builder took money and didn't build home, bank said they would monitor and didn't. Court allowed tort claim - Lis Pendens: A notice of a pending action directly involving the ownership, possession or use and enjoyment of real property. Preserves courts priority of property. - Direct Relationship is required between claimant and: (i) title to the property, (ii) possession of the property, and/or (iii) use and enjoyment of the property. - 5303 Realty v. OY equity: lawsuit to enforce specific performance in stock purchase of building. Files lis pendens to put world on notice of lawsuit. Court says notice of lis pendens Must be related to the title of, use or enjoyment, or right to real property - **Expungement:** Legal process of having lis pendens or other matter removed from official land records. - **Slander of title:** Publication of slanderous or libelous statements, false and malicious, plaintiff must have sustained special damages, and plaintiff must have interest in the property subject of the statements. - **Types of Deeds:** - General/Warranty Deed: Fee title is granted subject only to disclosed encumbrances. Grantor warrants against all prior inconsistent transfers or encumbrances. After acquired title applies. - Limited/ Special Warranty Deed: Fee title is granted subject only to disclosed encumbrances. Grantor only warrants against all prior inconsistent transfers or encumbrances that occurred during grantor's period of ownership only. After acquired title applies. Can be either a lesser warranty deed or an enhanced quitclaim deed (Minnesota). - Quitclaim Deed: No deed warranties or after acquired title. Grantee obtains whatever rights the grantor has as of the date of the quitclaim. Grantee bears all title risks. - Marketable Title: Default rule: seller must convey good and marketable title free from defects and incumbrances and II warranty deed is required. - MN: Title is free from reasonable doubt, one that a prudent person with full knowledge of all facts would be willing to accept/ - TX: Title that posseses quality of indefeasibility/ MD: free from encumbrances or any doubt to validity/ NY: may be freely made the subject of resale/ NJ: relatively free from doubt, court would compel purchaser to accept title in case of specific performance. - Mechanics Liens: 2 categories: The statutory right of a party a construction project with a lien for the costs of such items that completed and part of the project. - **New York Approach:** Any claim of a supplier or subcontractor is derived through the general contract and thus the claimant is limited to the amount due under the general contract - **Pennsylvania Approach:** Suppliers and subcontractors have direct claims for the full value of the unpaid item(s). - **Relation back:** approach where priority for mechanics leans relates back to date on which work was first performed. - Errors in Deeds: - **Reformation:** If a deed does not accurately reflect the intention of one of the parties, equity will reform it if the other party was also under a mistake or was guilty of fraud, other inequitable conduct, or even silence in the face of knowledge of the error. - **Void v. Voidable:** A void deed will be set aside even as against a subsequent BFP, while a merely voidable deed will not. - **Defects Rendering Deed Void:** Forgery, lack of delivery, and fraud in the execution almost always render a deed void. - **Defects Rendering a Deed Voidable:** Defects which make a deed only voidable include fraud in the inducement, insanity, lack of capacity, duress, undue influence, mistake, and breach of fiduciary duty. - Common Title Defects: - Any defect which may prevent seller from transferring fee simple absolute may impair marketabiluity including: flaws in change of ownership, encumbrances(A right or interest in a property held by a third party that reduces the market value, restricts use of a property or imposes an obligation on a property owner (e.g., mortgages), encroachments(An extension of an improvement or use across a boundary line or setback. There are three types of encroachments: (i) improvements crossing onto one's property from an adjacent property, (ii) improvements that extend from one's own property onto another's property, and (iii) improvements that extend into an easement or setback area), adverse claims, miscellaneous. - **Encroachment:** Staley v. Stephens(IN): A marketable title to real property is one that contains no serious defect and no defect that affects possessory title. Any reasonably prudent buyer expects the seller\'s title to be marketable, but a slight defect should not be allowed to cloud the title.; 1 foot encroachment on neighbors setback - **Property Line Shifts without conveyance**: Adverse Possession, Boundary Line by Practical Location, Abandonment of Public Right of Way, Accretion(change in waterway), Avulsion (rapid change in waterway not effecting boundary). - **Boundary Line by Practical Location:** An alternative to adverse possession in some (but not all) states, where a boundary line is deemed moved to a new location (often a fence) either by express agreement of the parties or after the passage of time - Egli v. Troy(IA): fence not on property line, neighbor sells land and people start building land over fence line. A special warranty deed warrants the title against any encumbrance either created or permitted by the grantor. Iowa -- 10 years of boundary lines become acquiescence. A special warranty deed warrants the title against any encumbrance either created or permitted by the grantor. - Hisefeld v. Lape(VA): View easement placed on the land through a deed restriction. Marketable title is one which a reasonable purchaser would be willing to accept. It exists if the property is reasonably free from liens or encumbrances, lacks serious defects, and does not expose the purchaser to the risk of litigation. But the mere existence of a lien or encumbrance will not entitle a purchaser to terminate the agreement. - Brown v. Lober: The mere existence, without more, of a superior title does not constitute a breach of quiet enjoyment. Owned 1.3 of mineral rights but thought owend all -- 6k of coal rights - Present Deed Covenants: - **Seisin:** Grantor is "seized" of the estate to be conveyed. While traditional seisin required possession by the grantor, modern trend is to merely require good title to the estate to be granted. - **Right to Convey:** Grantor has the legal right to convey the estate the deed purports to convey. - **Against Encumbrances:** Title is free of encumbrances, except for those listed in the deed or implied by law. - Future Deed Covenants - **Quiet Enjoyment:** Protects the grantee from actual or constructive eviction from all or part of the **conveyed property.** - **Defense of Title / Covenant of Warranty:** Grantor warrants the title forever. Breach occurs upon the actual or constructive eviction from the property. - **Further Assurances:** The remedy permits the grantee to seek specific performance, rather than just damages. - MN Implied covenants in Warranty Deed: Lawful ownership and right to convey, free and clear of any encumbrances, quiet enjoyment, defense of title. - Recording Systems: Purpose I title assurance/ risk reduction and II establish prioriy. Cheap and easy. No signle document is dispositive by itself. Makes title searches basic. - Recording Statutes Pure Race (DE, LA, NC): multiple deeds to same property, whoever records first wins - Notice Recording Statutes: TX: Last person who was a bonfied purchaser for value wins, regardless of who records first, so. long as they didnt have notice - Race Notice (MN): Whichever BFP one who records first prevails - Slattengren v. RTS River Bluff: MN: Race Notice -- whoever first records mortgages has priority - 3 Types of Notice - **Actual Notice:** Party has specific and real knowledge of a prior inconsistent interest - **Constructive Notice:** The party is deemed to have notice of all properly recorded interests, whether or not the party in fact searches title. - **Inquiry / Implied Notice:** If a party has notice of facts suggesting someone might have an inconsistent interest, the party has a duty to inquire and is charged with implied knowledge of any interest that would be disclosed by a reasonable inspection. Most typically applies in the context of the inconsistent rights of a party in possession of the land. - First Bank v. East West Bank(CA): two loans on deeds recorded simultaneously: race notice statute but both were determined to have equal priority. - Anderson v. Graham(MN): was a BFP but not first but did record first, therefore took priority - Recording Issues: - **Mis-Indexed:** Properly recorded, improperly indexed, such that it won't be found in a proper title search. - **Wild Document / Missing Link:** Documents outside the chain of title, lost deeds and conveyances with no prior source of title. - **Late Recorded:** Recorded substantially after the conveyance occurred. - **Early Recorded Document:** Breaks in the chain of title, but typically curable under the doctrine of after acquired title. - **Deed Affecting Multiple Lots:** Often applies to retained interest and easements where a party is conveying part (but not all of a property) and retaining either rights or obligations in the other. - **Hybrid Property:** In states with Torrens systems (like MN), property that is part abstract and part Torrens, for which a conveyance is recorded in one, but not both sets of official records. - Nampa Highway District v. Knight: (ID) Property owners are not subject to constructive notice of an encumbrance if a reasonable investigation by their predecessors in interest would not have revealed the encumbrance.: nampa bought right of way but didn't record, land was later sold to a BFP, used shelter rule protection - Abstract Property: Deed is evidence of legal title only. Registerd (torrens mn): Certificate of title is proper legal title - MN **Abstract:** Recording System with the County Recorder. Public records must be examined back through the entire chain of title (subject to any applicable Marketable Title Act). Over time, abstract becomes more and more bulky. Recorders office does not thoroughly inspect documents filed in the Official Records. - **MN Torrens:** Registration System with the Office of the Registrar. All encumbrances on a property are recorded on Title. System is administered by an Examiner of Titles for each county. Examiner has two duties: **(i)** assist registration proceedings, and **(ii)** administer revisions to the Certificate of Title and adjudicate Proceedings Subsequent. - **Goals:** Reliability, simplicity, low cost, speed, suitability - **Unique:** all proceedings supervised by examiner of title, conclusiveness to a decree, state sponsored assurance fund, no adverse possession, prescription easements, or easement by implications, certificate of title v. abstract - Why Register Property: 1 Acquire good deed after lost or destroyed deed, Establish title by adverse possession, Correct defective legal descriptions, Fix and determine boundaries, Determine validity of tax forfeiture, cancellation of a CFD or mortgager foreclosure, eliminate the need for a bulky abstract - In Re Collier (MN): In general, a good-faith purchaser of real property registered under the Torrens System owns the property free and clear of any property interest not noted on the certificate of title.: collier was bad faith because he had actual knowledge of foreclosure and had previously tried to buy from bank - **40-Year Minnesota Marketable Title Act:** Any interest, claim, or right in real property is presumed abandoned and unenforceable if it is not recorded within 40 years in the property\'s chain of title. - Sampier v. Village of Birchwood(MN): Property interests over 40 years old require claimants to file a statutory notice to preserve those interests. Failure to do so results in a **conclusive presumption of abandonment**. Claimants seeking to invoke the possession exception must prove: Use of the easement beginning at the 40-year filing deadline and Continuous use up until the legal dispute arises.: White bear lake lake access across property. - MN 30 Year Rule: All **private covenants, conditions or restrictions** created by which title or use of real property is affected, **cease to be valid and operative 30 years after the date of the instrument** creating such covenant, condition or restriction and may be disregarded - Except -- restrictions on condos, coops, shopping centers, and subdivisions - **Easements. Right of Way:** - Michigan DNR v. Carmody Lahti: landowner grants right of way to railroad, railroad stops using it and then micigan uses it as snowmobile track. Court rules against Michigan, didn't have prescriptive use. - State v. Hess (MN): Durational language in a conveyance indicates a grantor's intent to convey a fee simple determinable. Once conditions stops to be fulfilled, it goes back to the grantor. b - Factors for Easement: Deed secifies land conveyed for right of way, only nominal consideration stated, shape of land granted makes any other use in future unlikely, railroad can take gravel timber and earth off land. - Factors for fee interest: the right to increase the width of strip as necessary, borrow or waste materials outside the strip, conveyance of additional land rights, relinquishment of dower rights - Legal Property Descriptions: describes one and only one piece of property. Permits the reader to locate described parcel to the exclusion of others. Boundary lines must be discernable on ground, must be able to tell where parcel stops and next begins. - USPLS -- northwest quarter... : used in 30 states, including MN: parcels marked on ground, uniquely identifiable, easy to understand, further subdivision simple and universl, not time consuming, could not rely on prior terrain knowledge. 24x244 mile range, 1 square mile section, 36 square mile town - Subdivision: Lots 1 through 13... Metes & Bounds: 86 degrees. - **Ambiguity:** Use of Extrinsic Evidence: - Butler v. Benefield(TX): description of land added not in purchase agreement. If the description is unclear or ambiguous, Texas law permits the admission of extrinsic evidence. A court should consider extrinsic evidence to clarify an ambiguous description of property in a contract of sale. - Walters v. Tucker(MO): Under Missouri law, the court may not rely on extrinsic evidence to reform a deed that is unambiguous on its face. Built house on land he sold. - McGhee v. Young(FL): An original surveyor\'s boundary monuments prevail against any written description of where the boundary lies. Monuments placed by surveyor to the land not correct with metes and bounds. - **Unmarketable Title and Land: and** Title Products: - Abstracts: A written summary of all items of record on a property, traces chain of title and all encumbrances -- in mn over last 40 years. - Attorney Title Opinions: Rare: The attorney identifies and opines as to defects and clouds on title that would be relevant to a prudent buyer. - Title Insurance: Provides the benefits of: **(a)** insurance v. professional negligence, **(b)** standardization and institutionalizations of, and **(c)** assurance of solvency of the insurance company v. individual attorneys, and have available endorsements and special coverage.: functions to abstract and disclose known encumbrances and provide insurance for undisclosed risks. \\ - Components: insuring provision, conditions and stipulations, exclusions from coverage, exceptions (unique to property)from coverage, endorsements(additional riders for new insurance coverage -- ie contiguity and zoning)("gap" (coverage between title insurance offer date and closing) or Mark up coverage). - Lick Mill v. Chicago Title (CA): The presence of hazardous materials on land does not render the title to the land unmarketable, nor does its presence constitute an encumbrance on the land. Buy apartment complex to develop discover hazmat on land, sue saying title is unmarketable. - Magna Enterprises v. Fidelity Title(CA): property insurance only covers the legal right to access to the land which they had. Had legal access to land but no practical access. **REAL ESTATE SECURED FINANCING** - **Mortgage:** Parties: Mortgagor(borrower) Mortgagee: Lender - Promissory Note: Instrument signed by the borrower to memorialize an indebtedness. - Mortgage: Instrument signed by the owner of the real property interest that is subject to the mortgage, granting the mortgagee a lien on a specific property. - Assignment of Rents and Profits: Grants the lender an assignment and/or security interest in the rents and profits derived from a mortgaged property. - Security Agreement: Pledge of personal property as collateral for the debt. - Fixture Financing Statement: A document memorializing a lender's security interest in personal property and a lien on fixtures created under the security agreement. - In many instances the "mortgage" itself is an omnibus document that consists of a combination of the: (i) mortgage, (ii) assignment of rents and profits, (iii) security agreement, and (iv) fixture filing. - Mortgage Theories: title(title to lender subject to defeasance), Lein(Majority & MN): mortgage creates lien, Intermediate(4 title passes to lender upon execution of mortgage) - **Deeds of Trust:** Trustor: owner of land(typically borrower), Beneficiary(lender, benefit the deed is granted), Trustee (independent third party, typically title company, job to foreclose if default). - **Installment land contract/ Contract for Deed:** An executory contract for the sale of land where buyer has possession and equitable interest in a property, with the seller retaining bare legal title. Pro seller - **Deed Absolute/ equitable mortgage:** Fee interest deed is conveyed by the borrower to the lender as security for borrower's obligations, with an ancillary agreement regarding reconveyance upon repayment of the debt. Typically used by a lender as a means to circumvent mortgagor foreclosure protections - **Sale Leaseback:** synthetic lease accounting trick no longer used - **Foreclosures:** - **Judicial (Foreclosure by Action (MN)).** Very prescriptive statutory process, administered by the courts. Costly and time consuming, but less susceptible to challenge by the mortgagor. Often required if the mortgagee is seeking a deficiency judgment. - **MN judicial foreclosure process:** Preforeclosure Notices Sent to Mortgagor, Mortgagee Files and Serves Summons and Complaint to Mortgagor and any Junior Lien Holders that will be Foreclosed in the Mortgagee's Action, Mortgagee Files Notice of Lis Pendens, Trial and Judgment on the Debt and Ordering Foreclosure, Copy of Judgment to Sheriff, Mortgagee Publishes Notice of Sale, Sale, Notice served to mortgagor confirming sale - **Nonjudicial (Foreclosure by Advertisement (MN)).** 50% of states. Provides a faster and simpler foreclosure process. States often require tradeoffs from the lender in exchange for use of a nonjudicial foreclosure (e.g., waiver of deficiency judgment). Typically, a very prescriptive statutory procedures. - **Strict.** Only used in two states (CT and VT). No sale is held. The court merely grants the mortgagor a set period of time to pay the mortgaged debt. If debtor fails to satisfy the debt within the specified period, the borrowers right of redemption is extinguished and the title to the property vests in the lender. - Deed in Lieu of Foreclosure: borrowers voluntary surrender -- typicaly in waiver of further action - Short Sale: A voluntary sale of a property made with the consent of any mortgagees, that occurs when the total value of the outstanding balance of existing lenders exceeds the value of the property. - Coker v. JP Morgan: CA: A bank may not obtain a deficiency judgment against a purchase-money borrower who initiates a short sale. - Purchase by borrower: if done, acquires title and subject to any prior interest - Financing Concepts: - **Acceleration:** The right of a lender, typically triggered by a default, sale or further encumbrance, to require that the entire unpaid balance of a debt be paid immediately. - BNH Caleb v. Mabry(NY): A mortgagee's motion for summary judgment in a foreclosure case should be denied if the mortgagor asserts a valid defense.: tried to accelerate loan over \$5 late fee - **Prepayment Penalties:** A penalty or additional interest charged in the event that a borrower pays off the loan early. Usually banned on residential loans - Lopresti v. Wells Fargo(NJ): The prohibition on assessing a penalty for repayment of a loan before the due date does not apply to corporations.: commercial loan secured by property: refinanced bank wanted penalties - **Yield Maintenance:** A means of assuring that the lender will get the value of its bargained for interest rate over the life of a loan. - **Due on Sale / Due on Encumbrance:** The right to require that the loan be paid off in its entirety in connection with a sale or further mortgage of the mortgaged property. - States have strong presumption in favor of enforcing DOS clause. Some states require lender to show reasonable in context of loan, protect against default. Garn-St. Germain federally preempts restrictions on DOS clauses. - **Statutory Debtor Protections**. These protections can include concepts such as anti-deficiency protection, fair value protection and/or a one action rule. Statutory protections are often limited in application to residential loans and/or purchase money financing. - **One Action Rule**: Bank of America v. Daily: CA: only get one action: bank took money from account then foreclosed. Can only do one action in CA. - Usury: Statutory maximum mortgage banks are allowed to charge. States vary as to percentage cap, types of loans covered(often not commercial), and penalties for violation(forefeiture to loss of excess interest to loss of all interest to loss of principal) MN6% per year - **Interest Rates**: Ross v. Peyerk(MI): A mortgage note's effective interest rate might constitute illegal usury.: mortgage that with after fees and interest had pretty much a 26% interest rate.: bank not allowed to collect interest on loan but is owed principal - Bouffard v. Befese(NY): A deed purporting to convey title to property but intended only as a security instrument is treated as a mortgage. Court voided entire loan, debtors didn't have to pay back. - **Usury Protection:** Statutory maximum interest rates that may apply to certain types of loans and/or lenders. Rules vary widely state to state - **Waste:** Blunier v. Staggs(see lawyer): - Fait v. New Faze Dev.(CA): got mortgage, demolished home and then defaulted: The grantor of a security interest in real property is liable to the grantee for damages caused by the grantor\'s bad faith waste of the property. - Waste: The grantor of a security interest in real property is liable to the grantee for damages caused by the grantor\'s bad faith waste of the property. Protect economic goal of nonpossessory owner. - Mortgagee in Possession: Lender takes control (but not ownership) of the property. Has a special duty to the mortgagor to act prudently in taking care of the property - Woodview Condo Assoc v. Shanahan(NJ): A mortgagee in possession of property assumes both the rights and duties of a prudent owner. Has to pay condo fees. - Receivers: court appoints third party to manage and operate property during period following material default - Shelter rule: those who acquire an interest in title form a BFP generally get protections afforded to BFP - English v. Bankers Trust(FL): bank foreclosed on mortgage of first owner when it had been transferred. Need to include **Legal title owner** in foreclosure action - Equitable(all states) v. Statutory Redemption(half state including MNs) - Equitable: until foreclosure sale completed - Statutory: after the foreclosure sale, for a set period: allows mortgagor time to refinance and possess property, encourages fair price foreclosure auction, and allows junior lienors to protect lien. If redeemed, majority view all junior interests are revived, some states redeem deficiency in mortgage. - **Deficiency Judgement:** A post foreclosure judgment against the mortgagor to cover the difference between the outstanding debt and the amount realized by the mortgagee through the foreclosure. - R's of Mortgages - **Reinstatement:** The right (typically statutory) for a defaulted borrower to pay the defaulted amount, plus limited penalties and late fees, and put the loan instrument back into good graces, as if the original default had not occurred. (minority of states including MN) - **MN 580.30**: any time before the sale, mortgage shall be fully reinstated. In re Norwest. - **Redemption:** The right (both statutory and equitable) for a defaulted borrower (and junior interests) to pay off the loan outstanding obligation secured by the mortgage, even while in default. The right of redemption is what is "foreclosed" in a foreclosure. - **In Equity.** Occurs prior to a foreclosure sale by the debtor paying the amount due. If the underlying note contains an acceleration on default provision, then debtor must pay off the entire debt. - **Statutory (Mortgagor).** Permitted in about half the states (including MN), provides debtor with a period after a foreclosure sale in which the debtor can redeem the property by paying the debt in full plus statutory costs. - **Statutory (Junior Lien).** Right of a junior lien holder to redeem. Junior lien holders are given the opportunity to redeem in order of priority, which can result in multiple redemptions. In MN, juniors must file notice of intent to redeem within the mortgagor's redemption period and only have a 7-day window to redeem. - **Recourse:** The right of the lender to pursue a deficiency judgment against a borrower if the proceeds from foreclosure sale are insufficient to cover the outstanding debt. With a nonrecourse loan, the lender can only look to mortgaged property if there is a default. - **Release:** A recordable document in which a lender extinguishes its mortgage, typically in connection with a payoff of the outstanding loan. - **Reconveyance:** A recordable document in which a lender extinguishes its deed of trust, typically in connection with a payoff of the outstanding loan - **Subordination:** agreement of senior interests to give junior interest priority, seen a lot in commercial property when new larger funding is obtained. - **Doctrine of Marshalling(**all states**)**: Used determine the order of sale of properties, when a mortgage is secured by multiple properties, with the goal of protection to those with junior encumbrances. - In Re Martin(TN): State laws control how assets are marshaled when a debtor with two or more creditors owns two or more real estate properties.: states can exclude homesteads ffrom marshalling - **Two Funds Rule.** If some, but not all, of the mortgaged parcels are subject to junior mortgages or other liens, marshaling requires that the mortgagee foreclose first on the parcels without junior liens. - **Inverse Order of Alienation Rule.** If the mortgagor sold the mortgaged parcels to different purchasers who did not assume the mortgage debt, the mortgagee must foreclose in the inverse order that the mortgagor transferred the parcels. - **No Prejudice to Senior Mortgagee.** Neither the two funds rule nor the inverse order rule are applied, if doing so would prejudice the senior lender's rights. - Deficiency (most states have anti-deficiency statutes) - First Bank v Fischer (MO): If foreclosed property is sold but the sale price does not satisfy the outstanding debt, the amount of the debtor\'s deficiency is measured by the difference between the amount of the outstanding debt and the foreclosure sale price. - Talbott v. Hustwitt (CA): Deficiency alculated by difference in fair value and outstanding debt. - CA Protections: fair value, non-recourse for purchase money mortgage and non-judicial foreclosure, one-action rule - State Bank of Young v. Fabel(MN): full credit bid, then sold for less and sought deficiency: not allowed, loan distinguished by full credit bid - Tyler v. Hennepin County -- MN SCOTUS: The government's retention of surplus sale proceeds from a tax sale violates the Takings Clause. Don't get to get excess. - Homestead: National City Bank: husband unilaterally signed mortgage, after he died wife stopped paying to try to exploit loophole, didn't work: **Homestead Exemption:** MN SS 510.01 - done to protect spouses from signing away property uniformly. Had knowledge of mortgage and affirmed it. - MN homestead exception: The **house owned and occupied by a debtor** as the debtor\'s dwelling place, **together with the land** upon which it is situated to the amount of area and value hereinafter limited and defined, **shall constitute the homestead of such debtor and the debtor\'s family**, and be **exempt from seizure or sale** - Contracts for Deed: Essentially Seller financing - Vendor Remedies: Specific Performance, Rescission, Judicial Termination, Statuatory Cancellation, Monetary Damages, Restitutions: Disadvantages: no protection form liens, liable for damage to property, no second marker, illiquid interest - Vendee Remedies: Recission, Specific Performance, Damages: Vendee disadvantages: 60-day cancellation, balloon payments, potential prepayment restrictions, restrictions on transfer - Peterson v. Hartell(CA): grandma CFD to kids, who missed several payments. A vendee who has made substantial payments on a land installment sale contract, and whose defaults consist solely of failure to pay further amounts due, has an **unconditional right to complete the purchase by paying the entire remaining balance plus damages before the seller is allowed to quiet title.** - Default under Contract for Deed: absolute right to redeem if: Only nonpayment of money and Have made substantial payments on the property, or Make substantial improvements to the property - **Enforcement of CFD** - **Sebastian** v. Floyd: If someone buys a house by using a purchase-money mortgage and then defaults on the payments, t**he buyer does not forfeit his entire interest in the property.** - New Mexico: Russell v. Richards: 60 day redemption If a buyer defaults on a land installment contract, the buyer forfeits their interest in the property absent unfairness that shocks the conscience of the court. - States have different takes when it comes to monetary default on contracts for deeds - MN enforces as CFD: California almost kills CFDs : New Mexico strongly in favor - protects sellers in event of default : Kentucky - treats it as an equitable mortgage - differences aren't material - financing devices for real property judicial action - CA: Is it an equitable mortgage: 1. The existence of preexisting debt or obligation, creditor debtor relationship, adequacy of amount paid by grantee as consideration, party is in possession of the property. **COMMERCIAL LEASING** - **Lease requirements:** lease term, renewals and extensions, permitted use of premises, categories of rent: (base rent, percentage rent, triple net, gross lease) - Triple Net: pay rent plus insurance, maintenance, real estate taxes and assessments - Big ticket lease issues - Landlord: control of use, economics to ensure ROI, recourse/ credit enhancement guarantor, remedies, limited liability: Tenant: right to transfer, control of psas-through charges, landlord remedies and mitigation **Valuing Real Estate:** Cap Rate (rate of return on investment). Expect 6.5% return on property that generates 100k income, you divide 100k/.065 to get purchase price.