INTRODUCTION This semester of property law focuses on two major topic areas: 1.

The Land Transaction (mostly Sales) 2. Controls of Land Use (public and private) THE LAND TRANSACTION These issues make most sense when viewed against a timeline. The land transaction takes place over a fairly extended period of time, and problems (breakdowns) can occur at a variety of points on that timeline. The points along the timeline are A. Pre-Contract B. The Sales Contract C. The Closing (the Conveyance, the Deed) D. Post-closing: Financing (Mortgages etc.) E. Post-closing: Title ROADMAPPING LAND TRANSACTION PROBLEMS: a. Bear in mind that the entire transaction takes an extended period of time, which makes it rather unlike many (though not all) torts or contracts transactions. b. When youre in practice, youll want to be sure you know prospectively how to ensure each phase of the transaction is done properly. c. But for purposes of taking an essay exam, you can presume that you will most likely be examining a transaction that has suffered a breakdown of some sort. d. Tips for analyzing problems involving a breakdown (IRAC): i. Analyze multiple breakdowns one at a time. ii. For each breakdown, begin by identifying the phase in which the breakdown occurred. (This is I) iii. Identify specifically which element or portion of that phase broke down (This is I with more specificity) iv. Recall (and perhaps jot down in a quick outline) in general what the required elements are or what each partys duties are during that phase. (This is R) v. Correlate your quick outline with the facts in the hypo. (This is A) vi. Determine at least an initial conclusion (This is C). vii. Repeat for each individual breakdown. viii. Examing your list of breakdowns, determine which is/are (a) most important for deciding the ultimate issue set forth in the question and/or (b) most complicated and therefore requiring most time to discuss ix. Allot your minutes in proportion to viii (a) and viii (b) above. A. PRE-CONTRACT ISSUES (Primarily Issues with Brokers) 1. Sellers may and often do (but are not required to) engage an agent to assist in selling. These agents are generically called Brokers in our book. Brokers are engaged to list the property and the terms of the contract with the broker is often delimited in the type of listing. Brokers also may represent buyers. Whoever they represent, brokers owe fiduciary duty to adhere to high ethical and professional standards loyalty and good faith Types of brokers: a. (Seller) Broker works for seller

2. 3.

b. Buyer Broker works for buyer c. Dual agents broker represent both buyer and seller 4. Types of listings (i.e., terms of the contract with the broker): a. Open i. Least protective ii. Seller retains right to sell property can use another broker iii. Brokers earns commission only if first to find a buyer b. Exclusive-agency i. Permits one broker to sell the property for a specified period of time ii. Earns commission if secures buyer or separate broker secures buyer iii. Do not have to compete with other brokers iv. Owner can directly sell the property and avoid commission c. Exclusive-right-to-sell i. Most protective ii. Owner must pay broker if any buyer purchases during specified period of time iii. Majority of listing agreements 4. Commissions are due: a. Traditional rule broker earns commission when bringing the seller a buyer who is ready, willing, and able whether sale is consummated or not b. Minority view broker is not entitled to commission until property sale closes c. Reality is most brokers will not collect a commission until sale is closed; most people pay with closing money, and brokers want to keep good relationship with possible future clients 5. Brokers duty to disclose information regarding the property: a. General ruleNo duty to disclose b. ExceptionIf the broker has knowledge of a latent defect in the property that could not be discovered by a buyer even in the exercise of due diligence. Note, this is about actual knowledge, not what the broker should should have known. Has more or less caused brokers to not seek out information about latent defects. STUDY TIP: Draft a fact pattern that would require you to discuss the above issues/rules/points in your answer. That is, under what circumstances would you need to apply these concepts? SALES CONTRACT ISSUES Major questions addressed: What is required to make a contract for the sale of real property valid (i.e., enforceable?) What will constitute breach of a sales contract? What are the remedies for a breach of a sales contract? A. Validity of the Sales Contract itself 1. To be valid, a real estate contract has to satisfy the Statute of Frauds . . . Remember that alleging a contract d/n satisfy SoF is usually a defense raised by the party charged with breach. They do this because if theres no contract in the first place, their actions cannot constitute breach of a contract, no matter how deplorable. a. Must be in writing b. Must describe the property c. Must state the price OR the methodology by which price will be determined d. Must be signed by the party to be charged 2. . . . except when it doesnt.

These counter-arguments are offered by plaintiff to support enforcement of the contract even though the contract d/n satisfy the SoF. a. Part performance: Oral contracts re: land sales might be enforceable when one party has partially performed duties under the contract AND their actions make sense only if there were, in fact, a contract. Some actions are especially good examples of part performance: i. Payment or partial payment of purchase price ii. Possession iii. Improvement of the property Note that these would all be actions taken by the buyer. Some courts require one of the above facts in order to apply part-performance theory. b. Estoppel (reliance, promissory estoppel): Contract may be enforced when plaintiff has justifiably and substantially relied to his/her detriment on the defendants promise AND justice can only be served by enforcing the contract. B. Breaches of the Sales Contract 1. Failure to Deliver Marketable Title a. Definition of marketable title = title free from any defect that would raise a reasonable doubt as to its validity. b. Defect must be substantial and injurious to the property rights that are the subject of the contract i. Defects are defects of title, not of the property itself ii. Generally includes monetary interests such as mortgages, liens, etc. iii. May also include errors in description of the property and/or defects in recording etc. iv. Public restrictions (zoning) are not defects unless they are being violated now. v. Private restrictions (easements or covenants) are defects per se. c. Seller does not have to produce marketable title until the day the contract is to be performed (i.e., closing date). There is, therefore, time to cure. But buyer often would prefer recission (see Remedies, below). d. As with all matters of contract, the parties are free to dispense with the requirement. Thus, if an encumbrance or other defect is clearly spelled out as part of the condition of the property that the buyer is contracting to purchase, she will have a hard time arguing that there was an expectation that the encumbrance would be removed prior to closing. However, dont confuse this contracting out of the obligation with mere disclosure. Its not about revealing the defect, its about whether the buyer agreed to accept it. Failure to Disclose Known Latent Material Defects in the Property a. Old rule = Caveat emptor i. Seller had no duty to disclose any defects to buyer ii. But seller could not fraudulently conceal or misrepresent condition. Fraud = (a) False statement of material fact (b) with intent to mislead (c) on which buyer justifiably relies (d) and which thereby causes damages

2.

b.

c. d.

Current rule p. 489: Majority of states require seller to disclose known, material, latent defects to purchaser before signing of the sales contract. i. Known States have different requirements for satisfying this element. Depending on jurisdiction, (a) Seller must have created the defect OR (b) Seller must have actual knowledge of defect OR (c) Seller should have known of defect ii. Material = usually has to do with effect of the defect on the market value of the property (a) Objective test whether the fact would be important to a reasonable persons decision to buy (b) Subjective test whether the fact affects the desireability or value of the property to this buyer iii. Latent = either not discovered or not discoverable by prudent buyer exercising due care. (a) Some debate over whether buyer needs to have actually conducted an inspection or whether the defect might be deemed undiscoverable despite buyers failure to inspect. (b) As is clauses apply only to patent defects If defect is serious and truly unknown to either party, alternative argument is that mutual mistake has voided the contract. Some states have statutes setting forth disclosure requirements, including whether such rules apply only to residential property as well as what defects must be disclosed (e.g., lead, hazardous waste, etc.)

3.

Breach of the Implied Warranty of Quality a. Properly speaking, this is not really an element of the sales contract. Rather, it is a theory that permits a remote buyer to sue a builder. Usually used as a back-up if the plaintiff cannot win under a Duty to Disclose Defects argument. b. The quality warranted is workmanship (including materials) in accordance with acceptance industry standards c. The defect complained of must be latent at time of purchase. As is clauses apply only to patent defects. d. Problem must be sued on within a limited time (as set forth in the local statute of limitations)

C.

Remedies for Breach 1. If the contract does not meet the basic elements of a contract (including those required specifically by the Statute of Frauds), the court will find there is no enforceable contract. This is NOT a remedy for breach there is no enforceable contract, therefore there is no breach and therefore no remedy for breach. 2. If SELLER breaches i.e., fails or refuses to convey (marketable) title at closing buyer has choice of these remedies: a. Recission of contract: i. Each partys duties under the contract cease ii. Seller must refund all money previously paid (earnest money, etc.) iii. If breach is due to defective title, seller may be given additional time (and ordered) to perfect title at sellers expense.

b.

Specific performance of contract i. Because land is unique, buyer may be able to require specific performance ii. If breach is due to defective title, buyer may require specific performance with abatement in price as damages.

c.

Damages i. This remedy may be available in addition to recission or specific performance. ii. Damages include deposit and earnest money as well as out-of-pocket expenses iii. Damages may also include benefit of the bargain i.e., market value of property less purchase price. Some courts do not allow this unless seller acted in bad faith. Ordinarily, the non-breaching party states in their complaint which kind of relief they are seeking. Failure to ask for a certain available remedy may make it unavailable. State statutes may limit remedies available. 3. If BUYER breaches i.e., fails to pay agreed price at closing seller has choice of these remedies: a. Recission of contract i. Usually chosen if property has appreciate in value since date of contract ii. Seller will still have to refund deposits etc. paid by buyer if seller elects recission (even though buyer breached) Specific performance. Wont be granted if sellers title is defective. Usually the remedy of choice if market has chilled between date of contract and closing date (i.e., its the equivalent of the benefit of the bargain for the buyer) Damages i. Actual damages (a) expenses plus (b) benefit of the bargain ii. Liquidated damages (a) Contract may state sum (such as earnest money) that buyer will sacrifice upon breach. (b) Must have been a reasonable forecast of actual damages (not a punitive sum) (c) Pretty much always replaces actual damages (you dont get both)

b.

c.

ABOUT EQUITABLE CONVERSION This topic doesnt fit neatly under any particular header, but is worth mentioning. If contract is valid, buyer gains equitable title at time contract is executed. Seller thereafter holds only a personal property interest in the money owed. This is mostly relevant in cases where one party or the other dies before closing. Might also become relevant if property is destroyed before closing. C. Issues with the Conveyance / Deed 1. The sales contract is an agreement (by seller) to convey and (by buyer) to pay. The deed is the legal instrument by which title to the property is actually conveyed. That is, it is the means by which the seller satisfies the sellers duties under the sales contract.

2.

Elements required for all deeds: a. Names of grantor and grantee b. Words of conveyance c. Description of property i. Metes and bounds is the oldest. Uses natural or human-made landmarks to denote a starting point and verbally describe a complete enclosed circuit back to the starting point. ii. Street address iii. Government survey or plat designation d. Statement of consideration i. Unlike sales contract, need not be exact/accurate ii. Because deeds are public record, many state something vague like for $10 and other good and valuable consideration iii. But this can backfire in a later suit on the deed e. Signature of grantor f. Must not be forged or procured by fraud i. Forged deeds are void ab initio ii. Deeds procured by fraud are legally effective but are voidable upon proof of fraud g. Delivery (generally presumed, but can be argued) [h. In some jurisdictions, acknowledgment/notarization] [i. In some jurisdictions, seal] Types of deed a. General warranty deed warrants title against all defects b. Special (or limited) warranty deed warrants title against only those defects attributable to grantors own actions. (Alternatively: In some jx, warrants only whatever it specifically states that it warrants) c. Quitclaim deed contains no warranties of any kind; conveys whatever title grantor holds (which might be a lot or might be nothing) d. Note: Not every jx recognizes special or limited warranty deeds. Michigan, for example, does not (although practitioners have invented a work-around called a covenant deed, which amounts to the same thing).

3.

4.

Warranties There are six warranties in a general warranty deed. Three are present warranties and three are future warranties. a. Present warranties are broken (if ever) at time of conveyance only. These are promises that something is true now. Action on a present warranty must be brought within period prescribed by statute of limitations, and clock begins running at moment the deed is delivered. i. Covenant of seisin (a) Grantor actually owns the very estate Grantor purports to convey. (b) Has nothing to do with encumbrances, only with state of title (i.e., fee simple holder can convey a fee simple etc.) (c) Usually considered breached if Grantor does not own the estate purportedly conveyed, or if Grantor is not in

b.

possession of the estate (even if Grantor owns the right of possession) ii. Covenant of right to convey (a) Nearly identical to covenant of seisin, but not entirely (b) Someone might have seisin without having legal right to convey (because of a trust or something similar) (c) For our purposes, consider them pretty much identical iii. Covenant against encumbrances (a) Title is not encumbered in any way not mentioned explicitly in deed (or, alternatively, sufficiently apparent that it was impliedly considered in negotiations over price) (b) What = encumbrance is not exactly the same as encumbrance under sales contract. Specifically, whereas for sales contract purposes, a zoning restriction or other government regulation is an encumbrance if it is actually being violated, such ordinances or regulations are not deed encumbrances even if they are being violated. (c) Damages measured in varying ways: (1) If encumbrance easily removed (e.g., mortgage or other financial interest), damages = cost of removing the encumbrance (2) If not (e.g., easement or restrictive covenant), damages = difference in value of land with and without the encumbrance. (3) In all cases, damages capped at total price received by Grantor. iv. Note: Present warranties are breached if at all upon delivery of the deed. The Grantee may sue immediately (even if no one has initiated any action against the Grantee), and the statute of limitations begins to run immediately. The covenant ceases to be a covenant at this point and is converted into a cause of action. Many states permit remote grantees to sue for such breaches by a remote Grantor (subject to the Statute of Limitations) under the theory that the cause of action is impliedly assigned to the subsequent Grantee. Other states do not, limiting actions on present warranties to the parties named in the deed. Future warranties promise grantor will do something in the future. Statute of limitations begins to run at whatever future time that grantor refuses to fulfill promise. However, bear in mind that although the duty promised does not arise until the future, the underlying problem that triggers the duty arising must have existed at time of conveyance. i. Covenant of general warranty (a) A promise to defend title against 3d parties, which amounts to a promise to pay costs of defending title against valid 3d party claims. Not a guarantee you wont lose the property, but a warranty for your costs. (b) Breached if (1) 3d party found by court to have paramount title and Grantee is dispossessed;

ii.

iii.

3d party found by court to have paramount title and Grantee buys land to avoid dispossession; (3) Grantee unable to take possession because court finds 3d party has paramount title. (c) If you lose the property to the 3d party, Grantor must pay your damages (usually price paid for property possibly, the FMV of ppy plus interest and costs). If you win the claim, Grantor owes you no damages; no duty to pay costs because your title clearly was good (because you won), which was what Grantor warranted. (Did not promise youd never be sued, only that you had good title). (d) Triggered by actual eviction or litigation mere discovery of a problem that would support a 3d party claim is not sufficient to trigger duty to defend. (e) Covers claims by ANY 3d party on ANY basis. Covenant of quiet enjoyment (a) Identical in most ways to covenant of general warranty, except: (b) Applies specifically to challenges based on Grantors title. (c) Every breach of the covenant of quiet enjoyment is also a breach of the covenant of general warranty (but not all breaches of GW are necessarily breaches of QE depends on who claimant is) (d) Generally no functional difference; for our purposes, treat them as virtually synonymous. Covenant of further assurances = promise to execute any additional instruments necessary to perfect or defend title being conveyed (the paperwork warranty)

(2)

5.

Doctrine of merger i. Once the seller closes the deal by delivering the deed and transferring title, the seller no longer has any obligations under the contract. The promises/covenants in the sales contract are said to merge into the deed, and after the closing, the buyer may not sue the seller on the contract, but only on the warranties, if any, that the seller included in the deed. ii. Exceptions to the application of the doctrine of merger require facts that tend to prove that one or more covenants were not inherently bound up with the promised title transfer :and therefore do not merge into the deed. Examples include: (a) If a covenant in the contract is collateral to the title transfer (e.g., a promise by a developer/builder to build streets or parks in the subdivision) (b) If a covenant realistically cannot be performed until after closing (e.g., a promise to pay the entire insurance or utility bill for the month in which closing occurs since the bill wont ordinarily be available to pay until a later date, this promise almost always would have to be performed after closing). (c) If the terms of the sales contract expressly provide for the

iii.

covenant to be performed after closing. After closing, a buyer who wants to sue under some contract-based theory would have to persuade the court to set aside or rescind the deed, or else argue that the deed was so flawed (lacking one of the essential elements, e.g., it was procured by fraud, or it was never delivered or accepted) that the conveyance, in fact, never took place.

6.

Damages: Subject to guidelines mentioned above, damages are usually limited to: i. For immediate Grantee, amount paid for property ii. For remote grantee, the lesser of (a) the price they paid OR (b) remote Grantors sales price.

A note about this outline: Unlike most of our outlines, this one contains few rules of law and lots of text. The text is important, but admittedly, not as easy to read or digest as simply stated rules. I am working on a rule-based outline for mortgages, which I hope to post very soon. D. MORTGAGES Mortgages are security interests which cover loans issued in connection with real property. In every loan, the lender lends money to the borrower, who promises to repay that loan. Every borrower signs a promissory note (or just note), which serves as evidence of both the debt and the promise to repay. If thats all the borrower signs, then the loan is an unsecured loan, sometimes also called a personal loan. If the borrower defaults on the loan, the lender sues, and, if the lender wins the suit, the court issues an judgment stating the amount owed to the lender. The lender then must take certain additional steps to enforce the judgment against the borrower. These steps, generally speaking, involve freezing and grabbing the borrowers assets until enough has been grabbed to cover the amount owed to the lender. The lender may go after any assets the borrower has, but has no special rights to any of those assets in particular. If the borrower is bankrupt, the unsecured creditor (lender) must stand in line with other unsecured creditors and gets only a proportional share of all the assets available. Secured loans are loans for which the lender requires more than the borrowers promise to repay. In a secured loan, the borrower still signs a promissory note, but also signs a document giving the lender the right to take certain specific property to repay the loan if borrower defaults (the specific property is almost always the property that was purchased with the loan money). The document signed grants the lender a security interest in the specified property. Secured creditors have priority over unsecured creditors in a bankruptcy, and therefore are more likely to get their money back, thus making secured loans less risky for the lender. A mortgage is a security interest in real property specifically. We use the term mortgage to refer only to security interests in real property. The borrower signs and then conveys to the lender a mortgage which is to say, an interest in the property purchased with (or improved by) the funds borrowed. To that point, its just like any security interest. But, a mortgage is more than just a security interest, because it also works as a kind of property interest. This means that some special rules (most of which we havent learned yet) the apply only to property interests apply to mortgages.

A mortgage is only one type of real property security device, however. 1. Types of real property security devices a. Mortgages (including deeds of trust) i. Purchase money mortgages this is the ordinary type of mortgage, described generally above. As detailed in the casebook, the lenders confiscation and/or sale of the encumbered property is strictly regulated by mandated foreclosure procedures, discussed below. ii. Future advance mortgages basically, a home equity line of credit. b. Installment sale land contract (often called just a land contract) the buyer (borrower/debtor) signs a contract to make regular installment payments until the full purchase price and interest have been paid, at which time the seller (lender/creditor) will convey the property in full. Such contracts usually include a clause calling for forfeiture of the contract rights and all payments should the buyer default. Most courts usually treat these as mortgages (and impose foreclosure rules) despite the label of installment sale. Deeds of trust Some of these details are difficult to understand until you learn more about trusts, but these are the basics: i. In a trust, one person (the Settlor) transfers legal title to property to another party (the Trustee) to hold for the exclusive benefit of a third party (the Beneficiary). In a mortgage that is set up as a deed of trust, the borrower buys the house, and then (as Settlor) transfers the deed to a party (the Trustee) who is actually closely connected to the lender (the Beneficiary). If the buyer defaults on the loan, the Beneficiary (lender) directs the Trustee to sell the property to satisfy the debt. As with installment sale contracts, if the court concludes that the trust is really a set-up for a loan security, it will require the same foreclosure protections as with any mortgage.

c.

ii.

iii. iv.

d.

Absolute deeds as security A loan that is styled as a purchase for the convenience of the lender. i. Owner (debtor) sells land for cash and to a purchaser (actually, someone who is lending the cash to the owner) and gives the purchaser a deed (in fee simple, so the purchaser / creditor actually owns the property). If the debtor fails to repay the loan, the lender already holds the deed and so should be able to skip foreclosure rules.

ii.

But if the court concludes that the whole deal was actually a loan, and that the deed was functioning as security (and not a real conveyance), the court will deem the transaction an equitable mortgage and impose ordinary mortgage rules. The court will examine the following factors: (a) (b) Whether there is any evidence of a debt; Whether the grantee (lender) made any promise to return the property upon payment of the loan;

(c) (d) (e) 2. Mortgage theories a.

Whether the price was overly low compared to the value of the property; Evidence of the parties negotiations prior to the conveyance; Any evidence that the grantor (debtor) had serious financial problems at the time of the conveyance.

Title theory holds that lender takes actual title subject to the condition of borrowers repayment of the loan. Think of it as a fee simple subject to an executory limitation (just like a condition subsequent), where the condition is repayment of the loan according to the terms of the note. If you wrote it as a conveyance, it would be O to A, but if B pays the note according to its terms, then to B. Under this theory, if B fails to satisfy every term of the note (even by a tiny bit), then the condition is never triggered and title never passes to B. Lien theory is the more modern theory. Under lien theory, legal title passes to the buyer/borrower (B), but is subject to the mortgage. If B fails to fulfill the terms of the note, the lender has a right to sue on the note. If successful, the lender will be granted legal title. In practice, title theory really doesnt apply anymore with regard to mortgage litigation. Even where a state employs a title theory, the buyer / borrower / debtor will be protected by the mortgage laws in place. The difference between the two theories MAY result in differences, however, in other areas of law that we have not yet covered. Stay tuned! Subject to vs. assuming i. When property is transferred subject to a mortgage, the original debtor remains personally liable on the note while mortgagee retains the right to foreclose on the property should the original debtor default. If the grantee assumes the mortgage (i.e., executes an assumption agreement), then the grantee becomes primarily liable to the mortgagee. If the mortgage agreement doesnt prohibit it, the mortgagor is free to transfer the property subject to the mortgage. If the original mortgagor and the grantee agree between themselves for the grantee to assume the mortgage, then the original mortgagor remains secondarily liable on the note as a surety. To get the original debtor / mortgagor out of the picture entirely, the lender / mortgagee and the grantee must enter into an agreement (which could simply be a new mortgage entirely). Most mortgages have a clause demanding immediate payment of the entire balance on the loan that is triggered if if the mortgagor transfers

b.

c.

d. 3.

Transfers by mortgagor a.

ii. b.

Rights and obligations i. ii.

iii.

c.

Due on sale clauses i.

the property without the mortgagees consent. ii. These are generally enforceable, though some transfers (e.g., between spouses) might be considered nonsubstantive and therefore not trigger the clause. Best bet is to consult the lender before executing any transfers.

4.

Transfers by mortgagee a. Mortgage follows the note i. ii. The lender may sell or otherwise transfer the promissory note, and the mortgage ordinarily transfers along with it. Notes can be transferred either by (1) endorsement and delivery or (2) by assignment. The first method gives the transferee more rights as a holder in due course, as defined in the UCC. A holder in due course is something like a bona fide purchaser for value in both cases, that party cant be held responsible for anything done by the first mortgagee, e.g., fraud, estoppel, etc. The usual phrase for this is that a holder in due course is not subject to any personal defenses. Holder in due course is still subject to real defenses, however, such as bankruptcy, incapacity, duress, forgery, etc.

iii.

iv. b.

Payment to the original mortgagee does not discharge the debt if the mortgagee no longer holds the note (i.e., if original lender transferred the note). Payment to a party who does not hold the note is not a defense to an action for payment by the holder of the note. (The mortgagor is expected to demand to see the note before paying off the loan, but obviously when it comes to regular monthly payments, this poses some logistical problems). Generally: If the borrower defaults, the lender can take certain actions to cut off the borrowers ownership interest in the property securing the note. Collectively, these procedures are known as foreclosure. Types i. Judicial (a) Mortgagee brings an action in court, sues borrower / mortgagor on the debt. Upon proof of the debt and default of payment, court will order debtors rights foreclosed, usually by sale. Court supervises sale of the property. This method of foreclosure is permitted in all states. If the mortgage agreement so provides, the lender can skip the court proceeding and upon default can proceed immediately to a sale of the property without any court supervision. Slightly more than half the states (29) permit such nonjudicial

5.

Foreclosure a.

b.

(b) ii. By sale (a)

(b)

sale under a power of sale clause. Some states permit such sales only when the mortgage is in the form of a deed of trust. Some states prohibit the lender from seeking a deficiency judgment if the foreclosure was by sale. Foreclosure by sale generally not possible when mortgage in form of absolute deed. (c) Nonjudicial sales are always subject to court scrutiny after the fact, on a variety of grounds ranging from fairness to deed problems. Judicial foreclosures are final judgments.

iii.

Deed in lieu of foreclosure In some instances, if both the mortgagee and the mortgagor would prefer to avoid the expense and time of foreclosure, the parties may agree that the mortgagor will simply hand over the deed (i.e., convey the property) to the mortgagee, and the mortgagee will not foreclose. Short sale Technically, a short sale is any sale where the price agreed on is less than remains owing on the sellers note. Ordinarily, the borrower would need to make up the difference. Some lenders may use a short-sale procedure in a manner similar to a deed in lieu procedure; in these cases, the lender authorizes a short sale price and surrenders the right to a deficiency judgment. Equitable (right of) redemption: Mortgagor has the right to redeem the land anytime before the foreclosure sale by paying off the amount due (including interest) i.e., the amount of missed payments and additional interest or fees. This right cannot be waived by the borrower. Acceleration clause: Most mortgages, however, include an acceleration clause that allows the lender to declare the entire amount remaining on the loan is due immediately upon default by the borrower. In that case, the borrower / mortgagor would have to pay off the entire loan in order to redeem the land before the foreclosure sale. Statutory redemption: In about half the states, borrowers have the right to redeem the land for a period of time after the foreclosure sale (usually six months to one year). In this situation, the original mortgagor buys the property back from the purchaser at the foreclosure sale. The original mortgagor must pay the foreclosure sale price (not the amount due on the original loan) plus interest accrued during the time between sale and redemption. Deficiency: When a property in foreclosure is sold at a public sale for less than the loan amount which the underlying mortgage secures, the lender may be able to obtain a deficiency judgment for the difference. Anti-deficiency statutes: Twelve states prohibit or limit a creditors ability to collect on a foreclosure deficiency. These state are called nonrecourse states. The statutes vary widely in detail, generally basing protection on either the nature of the debt or the nature of the property.

iv.

c.

Redemption i.

ii.

iii.

d.

Deficiency and surplus i.

ii.

Here are some of the possible variations: (a) May protect only original mortgagea on loans used to purchase property (purchase money mortgages or PMMs), i.e., they do NOT apply to deficiencies in Home Equity Line Of Credit (HELOC) loans. May protect only those borrowers whose debt was secured with a deed of trust. May protect only in power of sale foreclosures (i.e., not in judicial foreclosures) May apply only when some non-or malfeasance is proven with regard to the price obtained at the sale (e.g., the Murphy case on p. 546)

(b) (c) (d)

iii.

One-action states: Six states limit lenders to one action on the defaulted debt that is, the lender can choose to sue on the debt (in which case there would be a judicial foreclosure sale and a deficiency judgment would be entered for any shortfall), or they can choose to foreclose by sale (in which case they would have no recourse on the deficiency). Priority (a) Multiple mortgages may be given on one property. In the event one or more of the mortgages is foreclosed upon, all of the creditors must be paid from the proceeds of the sale. The mortgagees are paid off in order of priority. Priority is generally determined by the date of the mortgage. The buyer at a foreclosure sale takes title as it stood on the date of the foreclosed mortgage. This means that junior mortgages are extinguished. Example: Buyer gives Lender #1 a mortgage (Mortgage#1) in order to finance the original purchase of the property. Ten years later, Buyer gives another mortgage (Mortgage#2) to a lender (Lender#2) in a HELOC loan. Buyer then defaults on Mortgage#1 and Lender#1 forecloses. Newbuyer purchases the home at a foreclosure sale. Newbuyer will take title as it existed at the time the mortgage was given, that is, without the later, junior Mortgage#2. Priority can be modified by: (1) (2) Failure to record (well learn more about recording statutes soon) PMMs have priority over non-PMMs even when they were given about the same time. A PMM to the seller will take priority over a PMM to a lender. Modification of a senior mortgage can cause it to drop below an existing junior mortgage in priority. Subordination agreements between the senior and junior mortgagees can alter priority.

iv.

(b) (c)

(d)

(3) (4)

6.

Special rules for installment sale land contracts. As weve seen, most courts do not treat installment sales contracts for real property as pure installment sales contracts (with complete forfeiture). Exactly how they handle them varies: i. ii. Some states allow a grace period for the defaulting buyer to finish paying off the contract price. This is analogous to a redemption period. A number of states allow forfeiture of the land (analogous to foreclosure) but require the original vendor to refund any payments that exceed the vendors actual damages (called restitution). Actual damages may be measured by fair rental value for the time period or a drop in the propertys market price. The majority position seems to be to treat such contracts as if they were just regular old purchase money mortgages, requiring full foreclosure proceedings, redemption, etc. In any event, the vendor generally cannot have both the forfeiture and specific performance (i.e., paying the remaining amount due under the contract). The vendor must elect one remedy or the other. In some cases, if the vendor has established a pattern of accepting late payments, they may waive the right to insist on strict performance unless they send the buyer notice of intent to do so and allow reasonable time for the buyer to catch up.

iii.

iv.

v.

Issues concerning Title the Recording System A. Overview It is certainly possible for more than one person to claim to own the same property. In addition to such disputes arising from adverse possession, its also possible for the true owner to attempt (accidentally or otherwise) to convey the same property to more than one person (or party). We have always needed a way to determine which competing party is the true owner. Restated more practically, the state will use its power to back your claim of ownership if you have the better claim, but how does the state (i.e., the court) determine which contestant has the better claim? The oldest rule was First in Time. If O conveyed Blackacre to A on Monday and to B on Friday, A has the better claim because the conveyance to A was first in time. This rule inevitably involves problems of proof. Ideally, one would have witnesses to the conveyance who could testify under oath about when it happened. Livery of seisin was the first answer to this problem. At one time, physical delivery of the clod of dirt or tree branch, made in public before witnesses with recitation of the required words of conveyance, was absolutely required in order to convey land. Eventually the deed replaced livery of seisin, and now, a deed is required to convey property (Statute of Frands requires it). But deeds are essentially private documents, and executing them is essentially a private act, so how do we solve the age-old problem of proof of who is first in time? The Recording System was invented to address this problem.

B.

How the Recording System works, what it does 1. A deed is valid as between the grantor and the grantee at the moment it is delivered. The recording system does NOT alter that fundamental truth. If O and A get into a fight over Blackacre, the deed controls (see outline on Deeds). 2. Disputes between grantees are resolved by the states recording system. a. All title instruments (including deeds, mortgages, liens, and perhaps other documents) for real property may be recorded (i.e., filed in a public place) by the city or county in which the property is located. b. Recording is voluntary. c. Provides others with notice of all prior recorded transfers in that city or county. 3. Example: O conveys Blackacre to A by deed. A immediately records the deed (i.e., takes the deed to the county recorder, who copies it and files the copy. The recorder also notes certain minimal information about the transaction in two or more indices/indexes). O now tries to sell Blackacre to B. B goes down to the recorders office, does some research, and realizes that the property was already deeded to A. B could take the deed from O and even record it, but would not be first in time. B can avoid the financial loss of buying property O no longer owns. 4. Example: O conveys Blackacre to A, who records, and then also conveys Blackacre to B, who also records. Now A and B are in court disputing who really owns Blackacre. The court will look to the recording dates rather than the conveyance dates to determine the answer (see more detail under Recording Acts and Marketable Title Acts, below). First in time still sort of rules, but we have changed what it is that you have to be first in. Recording Acts 1. Recording Acts do two things: a. Set forth requirements for an instrument to be accepted by the recorder, and b. Set forth a means of settling title disputes To be accepted by the recorder, an instrument must include a specific description of the property it relates to (or must provide a specific reference to other recorded instruments which do include a description), the names of the parties to the deed, and the consideration (which must be more than nominal). a. The description must be specific to that particular property. In some jurisdictions, Mother Hubbard clauses which convey separate properties by specific and general descriptions within the same document are only valid between the parties of the conveyance and do not provide constructive notice to subsequent purchasers. b. The deed must name both the grantor and the grantee. c. As a general rule, all material terms must be spelled properly. Methods for settling disputes vary from jurisdiction to jurisdiction. Each jurisdiction has only one way. We refer to the method by terms that describe the type of recording act. There are three types. a. Race i. The first grantee to actually record their deed will prevail over other grantees, even if the other grantee actually received their deed first. Restated, a subsequent purchaser can prevail if she records first. ii. This kind of statute encourages prompt recording of all deeds and favors

C.

2.

3.

iii. iii. b.

those who record over others regardless of how long ago they took the property. Downside is that race statutes provide, in themselves, no protection or remedy against collusion or fraud. Only two states (Louisiana and North Carolina) still have pure race statutes in place.

c.

Notice i. Under this system, a subsequent purchaser prevails only if he had no notice of the prior transaction. ii. There are different ways one can have notice: (1) Actual notice (O tells B he already conveyed Blackacre to A) (2) Constructive notice 2 types (a) Record notice (A recorded and B can see it in the public record B is on notice even if B doesnt look it up; Bs own damn fault) (b) Inquiry notice (A didnt record but is building a house; B saw the construction and should have inquired further) Note that many sources just refer to these as three types of notice actual, record, and inquiry. I organize them as above in order to make very clear that record notice is constructive that is, it doesnt matter whether the grantee actually consulted the records or actually found the deed in question, only that it is, in fact, recorded, thereby giving notice to the whole world. iii. Because recording provides record notice to all subsequent purchasers, recording first is still a good idea. iv. About half the remaining states have a Notice-type act. Race-Notice i. This combines the two, as the name implies. ii. To prevail against an earlier conveyee, a subsequent purchaser must (a) Have no notice of the prior unrecorded conveyance, AND (b) Record first. iii. Example: O conveys to A on Monday and A fails to record. On Tuesday, O conveys to B, who has no actual notice, no record notice, and (well presume) no inquiry notice. On Wednesday, A records. On Thursday, B records. If B sues A later, B will lose because although B took without notice, B did NOT record first. B must do both. iv. All remaining states (including Michigan) have a Race-Notice type act.

4.

Disputes under Recording Acts Chain of Title and Marketable Title Acts a. Recorded instruments must meet the requirements of the Recording Act (names, description, consideration, or whatever the Act requires) to come under its protection. b. In addition, the instrument in question must itself be based on prior instruments that also satisfy those requirements. Example: O conveys to A but the deed is deficient. A records (the recorder should reject it, but sometimes they dont). A conveys to B and the deed is perfect. B records. Then O conveys to C, the deed is perfect, and C records. In a dispute between B and C, C will win. d. Purchasers are deemed on notice of any instrument properly recorded in the

chain of title, even if its not automatically apparent that the instrument is relevant. 5. Method of researching title a. To properly research the chain of title, you must start with the current owner as a grantee and (using the grantee index to find the relevant docs) trace that title backwards. Then you must take the last grantee you find that way and ALSO trace the title forwards, with that person being the first grantor (use the grantor index to find the relevant docs). b. Because you are deemed to have notice of whatever the actual recorded instruments say, you should NOT rely on the indexes, which may or may not be complete or accurate. You should actually read the recorded instruments. c. In theory, you should have to research the chain of title all the way back to the beginning of time. Marketable Title Acts prevent this by setting a time limit on how far back you have to look. A marketable title act PRECLUDES any claim that is not based on a document in the chain of title, and the chain of title is defined as conveyances within a certain time limit. Marketable Title Acts a. Operate in conjunction with Recording Acts by extinguishing claims and interests based in instruments that predate the root of title as defined by the Act. Thus, they function somewhat like statutes of limitations. b. Root of title is the most recent transaction in the chain of title that has been of record for at least the time period specified by the Act. Note that the inclusion of at least means that the root of title may actually be dated substantially earlier than the date youd get by simply applying the time period by itself. c. Example: The applicable Marketable Title Act sets forth a time period of 40 years. The chain of title stands as follows: 1950: O to A, with an easement reserved in O. 1960: A to B, with the easement properly noted. 1971: B to C, with no mention of Os easement. In 2010, D is considering buying Blackacre from C. Will D take Blackacre with the easement reserved, or has the easement been extinguished? The root of title is the 1960 deed (it is the most recent that has been of record for at least 40 years), and because it mentions the easement, D would take subject to that easement. d. Example 2: Same as above, but with the following chain of title: 1950: O to A, with an easement reserved in O. 1960: A to B, with the easement properly noted. 1969: B to C, with no mention of Os easement. In this case, the 1969 deed is the root of title (it is the most recent that has been of record for at least 40 years), and because it does not mention the easement, the easement is extinguished. Note that although the MTA is 40 years in both cases, the actual time limit is determined by tracing the chain of title back 40 years plus one transaction, in order to identify the instrument that has been of record for at least 40 years. Example 3: Same as above, but with the following chain of title: 1910: O to A, with an easement reserved in O.

6.

e.

1971: A to B, with no mention of Os easement. In this case, the 1910 deed is the root of title. It is the most recent that has been of record for at least 40 years, and so it is the root of title even though it is dated 100 years prior to the date at which we are researching the chain of title. Because it specifies the easement, the easement is still enforceable, even though it originates 100 years ago. 7. Putting it all together (ROADMAP). If you have an ownership dispute between A and B (assume B, as subsequent purchaser, is suing A), here are the steps for analyzing it: a. MARKETABLE TITLE ACT: i. Using the Acts designation / definition of the root of title, you must determine which prior instruments are within Bs chain of title. ii. Interests that were recorded before the root of title have no effect they do not count as being recorded first (even though they clearly will have been) and they also do not give record notice (even though they are in the record). iii. Therefore, if As interest was recorded before the root of title, then in the next step, below, you must treat As interest as neither recorded first nor providing notice to B. b. RECORDING ACT: Does B qualify for protection under the applicable recording statute? i. Under a Race act, the question is whether B recorded before A. If so, then B is protected (and probably prevails). ii. Under a Notice act, you must ask whether B had ANY kind of notice of As prior deed. If not, then Bs title is protected by the recording act, even if not recorded first, and B will probably prevail. iii. Under a Race-Notice act, we must ask whether B took the property without notice AND whether B recorded first. Both prongs must be satisfied, or else B will not come under the protection of the statute and will most likely lose. The pro tanto rule: a. Any purchaser without notice who makes a down payment and unequivocally obligates himself to pay the balance of the purchase price is justified in his belief that if he pays the balance of the payment he is the true owner of the property. Example: O conveys Blackacre to A on Monday. A does not yet record. On Wednesday, O contracts to convey Blackacre to B the next Monday, and B pays a deposit. On Friday, A records. B has not yet taken Blackacre, and is now on (record) notice of As prior interest. b. Under the pro tanto rule, a buyer who receives notice of a prior interest after having paid a portion of the consideration is protected by the law in terms of the prior payment, but with regard to any payments made after B is put on notice. c. In the example above, it seems A should win in terms of the battle over title to Blackacre, but the pro tanto rule may call for some other solution, usually cobbled together by the court to avoid injustice to B. Typically, A would be awarded the title to the land and would have to pay restitution to B for Bs deposit. A must then sue O, who created this mess, to get back A had to pay to B. A more likely outcome, from a procedural standpoint, would be that in the

8.

lawsuit B v. A, one of the two (either A or B) will seek to join O in the action (basically, seeking contribution). Use this rule if there was actual notice to B (but the actual notice came after money changed hands). Alternatively, the court may award B a fractional interest in the land proportional to the prior amount paid. (This works out the same, probably, as A will probably pay B for Bs fractional interest and then sue O for the amount lost thereby. Whether A can win against O will depend on the type of deed by which A took). The Court may also allow B to complete the purchase but pay the remaining amount due to A (use this rule if there was constructive notice). D. Interests subject to Recording Acts and Marketable Title Acts 1. The Recording Act will set forth which kinds of interests may be recorded. 2. Typically, ANY interest in real property may be recorded that is, this game is not limited to deeds but applies equally to mortgages, liens (whether judgment, mechanics, or some other type), mineral leases, and possibly many more types of interests. Title Insurance 1. A party with interest in property may insure their title. 2. The interest holder is required to pay a premium. The insurer promises to defend the title if anyone challenges it. 3. The insurer will conduct an independent title search to determine if the insured has good title. Title insurance is based on the insurers opinion that the title is good. If the insurer is wrong, they will pay the cost of the owners loss. 4. Any party holding a recordable interest (whether by deed, mortgage, lien, etc.) may insure it. Controls of Land Use A. Overview Up to now, weve primarily examined (1) ways to obtain interests in property property and (2) ways to transfer interest in propert (and limits upon those ways). Now we examine the question of how to control or limit use that is, to control or limit what a property owner can do with their property. There are three primary methods: Nuisance (a judicial doctrine available to private citizens as well as to the government), Servitudes (including easements, real covenants, and equitable servitudes, which are private contractual arrangements), and Zoning and Eminent Domain (which are methods available only to the government) B. Nuisance 1. Overview: The common law divided nuisances into two categories: private nuisance and public nuisance. Most of the law in the field deals primarily with the private nuisance. The modern law governing private nuisances is both complex and confusing. The two key issues are: (1) what constitutes a nuisance? and (2) what is the appropriate remedy? 2. Definition: a nontrespassory invasion of anothers interest in the private use and enjoyment of land. 3. Elements track the definition. a. Interference with a property interest ... Must interfere with an actual property interest ownership, leasehold, security, etc. Interfere generally means an economically measurable harm

E.

III.

b. c.

... that is nontrespassory (no physical invasion)... ... and substantial... i. Element met if a normal person living in the community would regard the interference as strongly offensive or seriously annoying. ii. Slight inconveniences or petty annoyances do not give rise to nuisance liability

c.

4.

... and EITHER i. Unintentional (use tort definition) AND ii. Negligent, reckless, OR abnormally dangerous OR i. Intentional (use tort definition) AND ii. Unreasonable. States vary widely on what constitutes unreasonable interference. Some possibilities (you should discuss all of them): (a) Serious injury to the plaintiff (b) Multi-factor test including such items as the character of the neighborhood, the nature of the conduct, its proximity to the plaintiffs land, its frequency and duration, etc. (c) Balancing test (set forth in Restatement (Second) of Torts and adopted in about one-third of the states) = interference is unreasonable if the gravity of the harm (to plaintiff) outweighs the (social) utility of the defendants conduct. This is sometimes called balancing the utilities. Proper remedy a. Damages to date i. Plaintiff will receive damages to compensate for diminishment of value of land from nuisance up to date of judgment. ii. Note that if permanent damages are awarded (see below), damages to date will simply be rolled into that calculation. b. In addition to damages to date, plaintiff will also receive either an injunction or permanent damages (which the damages to date will be rolled into) i. Injunction (a) The traditional remedy, but no longer automatically available. (b) Court will use balancing test (called balancing the equities): In general, a court will issue an injunction only if the relative hardship to the plaintiff from denying the injunction outweighs the relative hardship to the public from granting the injunction (requiring the nuisance to be permanently halted). (c) Note the subtle but significant difference in the wording of this test compared to the balancing test used in finding a nuisance in the first place. The elements that are balanced for finding behavior to be unreasonable are measured in absolute terms, while balancing the equities to determine the appropriateness of an

5.

injunction is a measure of relative hardships. ii. Damages Kind / amount will vary depending on whether the nuisance is permanent or continuing. (a) If the nuisance is deemed permanent, the plaintiff receives damages for past and future harm in one lawsuit. Damages are measured by the extent to which the nuisance diminishes the fair market value of the affected property. Plaintiff cannot ever sue again. (b) If the nuisance is temporary or continuing, the plaintiff receives damages to compensate for past harm (damages to date of judgment). Plaintiff must sue again in the future as additional damages are suffered. Public nuisance a. Definition: an unreasonable interference with a right common to the general public. b. Almost any intentional conduct that unreasonably interferes with the public health, safety, welfare, or morals may constitute a public nuisance. c. Examples include keeping diseased cattle, detonating explosives on a residential street, and operating an unlicensed casino. d. Usually a public nuisance action is brought by a city or other governmental entity. A private party may sue only if he has suffered special injury.

C.

Servitudes 1. Easements a. Operation i. Affirmative = Right to enter property of another and/or perform some act upon the property ii. Negative = Right to stop owner of another property from doing something to your property limited to (a) Light (b) Air (c) Subjacent support (d) Flow of water in artificial streams Note: dont confuse with rights to the flow of natural streams b. Terms i. Servient tenement is the piece of land subject to the easement (i.e., the land that the easement holder does not own but has a right to enter and/or use) ii. Dominant tenement is the piece of land (if any) that benefits from the easement. iii. Example: A cannot reach her property except by crossing Bs land. B grants A an easement to do so. Bs land is the servient tenement, and As land is the dominant tenement. b. Types i. Appurtenant An easement that benefits a particular piece of land (the dominant tenement). The easement is stuck to the dominant tenement and transfers to subsequent owners of the dominant tenement. ii. In gross An easement that is personal in nature. There is no dominant tenement, and the easement follows the person who holds the easement,

c. d.

not their property. Creation See separate outline posted on TWEN Assignability i. Easements appurtenant are stuck to the dominant tenement and transfer along with the dominant tenement. Generally cannot be transferred (assigned) without the DT (stranger to the deed problem). ii. Easements in gross are assignable if the grantor intended them to be. Intent normally proven by the terms of the conveyance. iii. When analyzing this issue, remember to also consider whether the easement actually TERMINATED (see below). It may have been assignable in theory, but if youre worrying about it theres a strong chance it did not transfer, but simply terminated.

e.

f.

Scope i. Easements are limited to original intended purpose. Any use other than the original intended purposes is misuse of the easement. ii. If there is a writing, scope is determined by the terms of the grant. If there is no writing, or if the writing is silent as to scope, then the following default rules apply: (a). Easements appurtenant cannot be extended to benefit properties other than the original dominant tenement (i.e., any increase in the benefit is misuse). (b) If purpose cannot be determined or proven, scope of easement is limited by the level to which the servient tenement is burdened (i.e., any increase in the burden would be misuse). (c) Scope can be enlarged (or narrowed) if changing circumstances indicate that a greater (or lesser) burden is required to satisfy the original purpose. Termination. There are about 17 methods of terminating easements. You are responsible for knowing 3 of them: i. Purpose accomplished or impossible to accomplish (Impossible to accomplish usually refers to destruction of the dominant tenement) ii. Merger = when the dominant and servient tenements come into the same hands, they merge and the easement ceases. iii. Abandonment. Requires Actual disuse and either Intent to abandon or Actions by the easement holder inconsistent with continued existence of the easement

Creation of Easements A. By express act 1. Any instrument sufficient to create a property interest may create an express easement. a. Ordinarily by deed, but also by will or contract b. Must satisfy the Statute of Frauds 2. Most problems involving express easements arise from the language of the instrument (i.e., ambiguity) a. Note that this is also true of most conveyancing problems generally (not just easements) b. Potential issues include: i. Whether the interest conveyed is an easement or an estate ii. Whether the interest conveyed is an easement, a real covenant, or an equitable servitude iii. Whether the easement is appurtenant or in gross By implication: An easement can also be created by implication in a couple of different broad senses, each of which has several sub-types. 1. The easement can be implied in oral representations not incorporated into a deed a. These violate the Statute of Frauds (i.e., SofF is a defense to a claim of an

B.

2.

easement arising from oral representations) b. Therefore, the only way to prove such an easement is by the usual exceptions to the Statute of Frauds: i. Equitable estoppel ii. Part performance c. If you believe this is how the interest was created, you should also analyze whether the interest created might actually be a real covenants or equitable servitude. The easement can be implied by the circumstances surrounding a transfer of property, without any reference to any written or parol evidence. a. Creation of an easement by implication always requires i. Land originally in common ownership ii. Which is severed into two or more parcels with separate ownership. iii. Example: O severs Blackacre and conveys Northacre to A while retaining Southacre. iii. Implied easements may either be reserved in the grantor or granted to another. (a) Reserved = under the example above, O subsequently claims an easement in Northacre. (b) Granted = under the example above, A subsequently claims an easement in Southacre. iv. Traditionally, there are two major types of easement by implication: Easement of necessity (or easement iplied by necessity) and easement implied by prior use. v. In addition, modern property law also recognizes easement by implication based on a common scheme. b. Implication from necessity. This occurs when i. The severance (required as stated above) creates a necessity for the easement. (a) This means that the necessity must exist from the time of the severance; a necessity that arises later will not suffice. (b) In this type of easement by implication, necessity always involves access to the parcel. ii. Courts will examine (a) Whether strict or only reasonable necessity is required (1) Strict usually means the parcel is completely landlocked. No road doesnt qualify if theres a river. (2) Reasonable usually means the parcel is not accessible by any means ordinarily employed. River access wont defeat necessity if most people dont use boats to get to their land in this area. (b) Whether the purported easement was reserved by the grantor or granted to a grantee (some courts require stricter necessity to support an implied easement reserved in the grantor). c. Implication from prior use i. Requires an apparent and continuous use that was in existence prior to the severance (quasi-easement) ii. Continuation of that use must be necessary for the enjoyment of the dominant estate

C.

D. 2.

Issues that arise include: (a) What is apparent and what is continuous? (b) What kind of necessity is required? (1) Courts vary in strict vs. reasonable and in reserved vs. granted just as above (2) In addition, some courts define necessity entirely differently for prior use easements, including a wide variety of things beyond mere physical access. (3) Finally, some courts use the same definitions but require strict necessity for implication by necessity but only reasonable necessity for implication from prior use. d. Implication from a common scheme Basically, this is an easement that is inferred for all parcels created at the same time, as in a subdivision, even though not all the deeds specify the easement. By prescription 1. Analogous to adverse possession 2. Requires use that is: a. Open and notorious b. Hostile / adverse c. Exclusive (as to others but not necessarily as to the owner) d. Continuous for the period required 3. Generally, very difficult to prove, probably for policy reasons; where claim of an estate by adverse possession quiets title, claim of a prescriptive easement burdens title (by contrast, gaining title by adverse possession quiets the title -- just in a different owner). By public trust a concept you should know exists, but do not need to spend any time learning in detail. Real Covenants and Equitable Servitudes a. Purpose and function of both Property owners can always agree between themselves to limit their use of their property. Such agreements will bind the parties according to ordinary contract law. You do not need a property concept if the disagreement is between the original parties. Both RCs and Equitable Servitudes (below) are concepts we use to bind non-parties (specifically, successors in interest) to the terms of the original agreement. b. Distinctions between the two i. RCs and ESs have slightly different elements and slightly different rules re: creation and scope. This often tempts students who are analyzing a restriction to worry about what it is. Although you can worry about which label is correct, the two concepts are enough alike that it is often easier and more effective to classify a restriction based on either (a) whether the label will gives you the results your client needs or wants and (b) whether the facts will support claiming that you have the right label. ii. Differences involve creation, elements, scope, and remedies. This is a summary; more details are noted in the appropriate sections below. (a) Creation: RCs must be created in writing, while ESs can be created by a writing or by implication from a common scheme. (b) Elements: RCs require privity while ESs require notice (but dont overlook title issues see discussion of notice below) (c) Scope: Because RCs can be created only by a writing, analysis of the scope will require analysis of the instrument (much like you did in

iii.

c.

conveyancing); if an ES is created by implication from a common scheme, the details of that common scheme (which may or may not be in writing) will have to be argued by examining the subdivision as a whole. (d) Remedies: Traditionally, remedy for breach of RC is money damages, while remedy for breach of ES is injunction. Real Covenants i. Creation (a) Real covenants, like all interests in land, must be evidenced by a writing, per the Statute of Frauds. (b) The usual SoF defenses (estoppel or part performance) remain available. (c) There is NO creation of RCs by implication (cf. easements and ESs). ii. Elements: To bind successors via a real covenant (to enforce the real covenant), you must show: (a) Intent (of the original promisors) to bind successors Generally solved by the words of the writing watch for phrases like heirs and assigns, run with the land, or appurtenant. (b) The covenant must touch & concern the land The obligation must have to do with the dirt, and cannot be merely a personal obligation. Similar to an easement appurtenant (by analogy, we dont permit RCs that are in gross) (c) Vertical privity (1) For burden to run, successor must have succeeded to entire interest of original promisor (2) For benefit to run, successor may have same or lessor estate (d) A word about other outlines and commentaries: Some sources list additional items as elements required for a real covenant to be enforceable. They include: (1) A writing (but I have categorized that as creation) (2) Notice to successor Because a real covenant must be created by a writing, and because that writing is almost always a deed, I prefer not to call this an element of a real covenant, but to remind you strongly that just like any other aspect of a deed, enforceability will depend on the applicable recording statute and Marketable Title Act. Dont forget to include that in your analysis!!! (3) Horizontal privity traditionally, in order for the burden (and according to some, even the benefit) to run, there needed to be not only vertical privity but also horizontal privity, i.e., a certain qualifying relationship between the original promisors. Not every jurisdiction requires horizontal privity. The jurisdiction of Room 330 does not. But be aware that when you study for the bar exam, you will need to conquer this last piece of the privity puzzle. iii. Scope Because RCs must be created in writing, analysis of the scope of a real covenant involves an analysis of the writing itself (usually a deed). iv. Termination: Note that this applies both to RCs and ESs. Either of them can be terminated: (a) By mutual consent (but remember that ALL PROPERTIES SO BOUND OR BURDENED MUST JOIN IN!!) (b) By change of circumstances. Someone seeking to escape enforcement of

d.

a real covenant may argue that the RC terminated due to changed circumstances. The test is, Circumstances must have changed so much that the real covenant: (a) Has lost its purpose AND (b) Is no longer of ANY value Its usually hard to win this argument, especially if more than two properties are involved. Zoning changes may offer evidence of such change, but are not sufficient by themselves to prove it. Illegality, however, satisfies the test, so be careful to review the exact nature of the zoning change: Does it prohibit the use required under the real covenant, or merely add more permitted purposes? (c) By waiver if parties consistently ignore the restriction, courts will not enforce it. Again, if more than two properties are involved, this could be hard to prove, as youd need to show either many properties violating it or lots of properties ignoring an ongoing violation. (d) By abandonment Very hard to win this one. Owner pretty much has to abandon the burdened property itself, which is harder than you might think. Realize its a possibility, but realize also that it almost certainly will NOT be utilized on the exam. v. Remedies Traditionally limited to money damages. Although many courts nowadays will also award an injunction, on our exam I prefer you keep the two concepts as separate as possible, so please consider the remedies available for breach of RC to be limited to money damages. Equitable Servitudes i. Creation (a) by writing OR (b) by implication from a common scheme (the subdivision situation). Remember that if an ES is implied from a common scheme, it probably attaches to all the properties in the subdivision as soon as it has attached to even one. ii. Elements: To bind successors via an ES (to enforce the ES), you must show (a) Intent (of the original promisors) to bind successosr If there is a writing, rely on the writing just as with RCs. If the ES is created by implication from a common scheme, you will need to argue about what FACTS demonstrate the intent to bind successors) (b) The servitude must touch & concern the land (same as for RC) (c) Notice to the successor (for the burden to run) (benefit runs regardless of notice to the successor beneficiary) Remember notice can be satisfied by actual, record, or inquiry notice. If there is a writing and you are arguing record notice, remember to analyze whether there is a recording act / Marketable Title Act problem as well. iii. Scope (a) If an ES is created by a writing, then youll have to analyze the scope with reference to the writing (same as RC). (b) If an ES is created by implication from a common scheme, the details of that common scheme (which may or may not be in writing) will have to be argued by examining the subdivision as a whole. iv. Termination

E.

Same as RCs, above. v. Remedies Traditionally limited to injunction (to stop breaching the ES). Although many courts nowadays will also award money damages, on our exam I prefer you keep the two concepts as separate as possible, so please consider the remedies available for breach of ES to be limited to injunction. Eminent Domain (Takings) 1. Overview: The power and its Constitutional limitations a. The power i. The sovereign (i.e., the government) has always had the right to take property from private citizens for its own use ii. The US Constitution presumes this power continues b. Its limitations i. In England, the Crown traditionally granted compensation but was not required to do so ii. The US Constitution, by way of the 5th Amendment, restricts / governs the governments exercise of the power of eminent domain: (a) Any taking must be (b) For a public use (c) Preceded or accompanied by due process (d) The property owner must receive just compensation c. Eminent Domain jurisprudence Takings law has developed out of battles over each of the four distinct phrases of the clause. This outline will review (b) through (d) first, then come back to the thornier problem of what constitutes a taking at all. 2. Public Use a. Although this used to mean for use by the public, that has not been the accepted definition for decades b. Instead, the Supreme Court applies a public purpose test c. At the federal level, this appears to involve only a rational-basis test (i.e., the lowest level of scrutiny) and usually results in strong deference granted to the governmental entitys decision that the action is for a public purpose d. However, outrage over Kelo (economic development takings) has prompted 42 states to enact laws or constitutional amendments requiring some kind of higher level of scrutiny (at least for state- or lower-level governmental action) 3. Due Process a. Condemnation i. When the government is physically taking the land, the usual procedure involves filing a petition for condemnation in court, serving notice on all interested parties, and a hearing and trial on the issues. Note: condemnation is just the name of the action and does not refer to any judgment about the condition of the property. ii. Some states require an attempt at voluntary purchase before a condemnation. In practice, most governmental entities attempt such a purchase before instituting condemnation actions. iii. Whether there is a taking, whether the purpose is public, and whether the process is sufficient are questions of law. iv. What = just compensation is a question of fact and therefore triable before a jury where jury trial is permitted for such actions v. The defendant (i.e., the property owner) has no right to attorney fees or

4.

5.

other damages beyond the just compensation b. Inverse condemnation i. When the government isnt taking the land, but is instead restricting its use in some way, it will not instigate any court action (why would it?). Example: zoning, environmental restrictions ii. If a property owner feels the regulation is so severe that it amounts to a taking (see the materials below), the property owner must sue the government to challenge the regulation. This is called an inverse condemnation action. iii. If the regulation is found to be a taking, one of two outcomes is possible: (a) Traditionally, because the government had denied that the regulation was a taking, the outcome when the property owner won was not compensation but complete invalidation of the regulation (b) Today, the court might either invalidate the regulation or award compensation or both (1) If the regulation includes some process for compensation or if compensation can be granted without undermining the entire regulatory scheme, then compensation might be granted. (2) If it is impossible to grant compensation for some reason, then the regulation will be struck down (3) If the regulation is struck down, the property owner might still be due some compensation based on the loss of use during the time the regulation was in force (see the section on Temporary Takings, below). Just Compensation a. Generally means fair value or market value b. Property will be valued in an objective way (i.e., no dollars awarded for emotional or other non-market values) c. Government has no obligation to take (or pay for) any more property than it needs, and must compensate only for present values, not potential values What constitutes a taking? a. General rule: There has been a taking whenever the character of government interference with property rights is sufficiently invasive as to deprive the property owner of either all rights ordinarily associated with property (i.e., physical invasion) or of all economically viable use of the property (regulatory takings) i. Character of government action (a) Physical invasion (1) CATEGORICAL RULE #1: In general, any permanent physical invasion constitutes a taking, regardless of its economic impact or the public interests it serves. (2) The one exception is physical invasion in response to an emergency. Thus, the government may do any of the following without paying any compensation: (i) Invade and/or destroy property to stop or prevent the spread of natural disasters such as floods or

b.

fires (ii) Invade and/or destroy property as necessary to capture criminals or stop criminal activity (iii) Invade and/or destroy property in the national defense (iv) Take and/or make use of and/or destroy personal property as necessary to accomplish any of the previous stated ends or to respond to any other emergency (b) Regulation of use (1) General rule: Acts done in the proper exercise of governmental powers, and not directly encroaching upon private property, though their consequences may impair its use, are universally held not to be a taking within the meaning of the constitutional provision. From this we get two more categorical rules plus a balancing test: (2) CATEGORICAL RULE #2: A governmental limit or prohibition of any use of property that does not inhere in the title is not a taking, regardless of its economic impact. Thus, prohibiting a nuisance is never a taking (because no one has the right to use their property in any way that amounts to a nuisance). (3) CATEGORICAL RULE #3: Governmental regulations that prohibit all economical uses of a property that are not nuisances are takings. Be careful: Any deprivation less than 100% does not satisfy this categorical rule. (4) Any regulation that falls between the extremes of Categorical Rule #2 and CR#3 are thus subject to scrutiny in order to determine the following balance: (i) The benefit of the regulation to the public, vs. (ii) The cost imposed on the property owner. Games people play with all these nice rules and tests i. Is it a physical invasion or just a regulation? (a) In Loretto, the Court found that a regulation requiring installation of cable was a physical invasion even though the government was not entering the property, the cabling took up a relatively small amount of physical space, and the economic impact was negligible or even positive. (b) Possible rationale: Conceptual Severance, Part One: Government-required physical invasion (by any party) is a taking of some physical portion of the property (however small) that must be compensated (however negligibly). ii. What interest is the property? (a) In Pennsylvania Coal, the Court found that regulation that prohibited any economically viable exploitation of mineral rights was a taking of an estate, and thus a taking that required compensation.

But in Penn Station, the Court found that regulations severely restricting the development of Penn Stations air space was not a taking. (c) Possible rationale(s): (1) In Pennsylvania Coal, the mining in question was already going on, and enormous investments had been made into the mining process; the owners of the mineral rights stood to lose everything theyd put into the project when it was permissible. In Penn Station, the regulation did not interfere with current activity and did not thwart any preexisting contractual obligations. The regulation, therefore, did not frustrate Penn Stations owners distinct investment-backed expectations. (2) Conceptual Severance, Part Two (The Doctrine of Merger Redux): In Pennsylvania Coal, the surface and mineral rights were already split and owned by different parties. The mining companies stood to lose everything they had if the regulation were permitted. In Penn Station, one owner (Penn Station) held both the surface rights and the air space rights. Thus, a regulation that severely limited the possible future development of air space rights did not reduce the economically viable use of Penn Stations owners property as a whole to zero. This is merger coming into play again. iii. When does it become a taking? Its not a constitutionally prohibited taking until the government refuses to compensate. RESULT: Property owners must exhaust all administrative procedures before bringing suit on an inverse condemnation claim iv. Conceptual Severance, Part Three: Temporary Takings (a) If a regulation was severe enough to constitute a taking, the taking began when the regulation was first imposed. RESULT: Temporary takings: Even if an improper regulation (that amounts to a taking) is later invalidated or repealed, there was still a taking during the time that the regulation was in force and therefore compensation must be made for that time period, however brief. (c) However, if all the temporal interests (i.e., present interests and future interests) are held by one party, then a temporary ban on use or development is not a taking. RESULT: In Tahoe, even a long series of temporary moratoria, which effectively banned all development for an indefinite period of time, was not a taking because severing a property temporally (when it is not already so severed) makes no more sense than severing it physically. (But beware: a taking of a future interest or of an easement are takings despite their severed nature; see Pennsylvania Coal). exit lasher make right.between 8 and nine closer 2 8on the left hand sideon the right side is southfiled towers

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the building is behind the deli

That is, twelve that I am certain about. This seems to be an accurate count as of at least 2007. The states are Alaska, Arizona, California, Connecticut, Florida, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington. At least six. They include California, Idaho, Montana, Nevada, New York, and Utah.

Belian - Property

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Winter Term