Glossary of Property II - The Real Estate Contract
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- What are the essential (material) terms of the Real Estate Contract.
- 1. IDENTIFY the parties
2. Include words showing INTENT to buy or sell
3. Adequate DESCRIPTION of the property
4. Specify the purchase PRICE
- How informal can the writing be?
- The writing may be quite informal. Any document will suffice as long as it contains the essential terms and is properly signed. In order for it to be binding, parties must intend it to be. It must identify the parties.
- What are points of divergence in how jurisdictions handle the SOF?
- 1. Some void Oral K's & others say no action brought.
2. Some say the agreement must be subscribed (promised), some say it must be signed.
3. Some require that the agreement be signed by both parties
- What exceptions are there to the SOF?
- 1. Part Performance
2. Equitable Estoppel
- What is part performance?
- A party who has taken action in reliance on oral K may gain (at least limited enforcement of it) if the acts are unequivocally referable to the agreement (take out of SOF).
- What is equitable estoppel?
- If a party, in reasonable reliance on the K, and on the continuing assent of the other party has so changed his position that injustice can be avoided only be specific enforcement.
- Time is of the essence only when?
- 1. When the K expressly stipulates that is is.
2. If inferable from the circumstances of the transaction
3. Conduct of the parties - can be waived through actions (i.e. accepting late payment)
4. Purpose of the sale
- Is reasonable notice necessary to make time of the essence?
- Yes, a party can make time of the essence so long as tehy provide the other party with reasonable notice of this intention.
- What happens if a party fails to perform when time is of the essence?
- If one party fails to perform on time, it will cause their rights to cease at the option of the other party.
- When will a "Subject to Financing" clause fail?
- When it's ambiguous or lacking (indefinite) as to the essential terms and the surrounding circumstances are not enough to ascertain the intention of the parties.
- What are the different types of financing arrangments?
- 1. Mortgage
2. Installment Land K
- A mortgage is a _________?
- A lien, a security interest
- What is involved in a mortgage?
- A conveyance of land is given as security for the payment of a debt. A down payment is made by the purchaser upon payment of purchase price. The purchaser will sign a promissory note to cover the money borrowed and sign the mortgage (SOF).
- What is the equitable right of redemption?
- The mortgagor can default, but this allows him to pay the debt and recover the land. The equitable right of redemption can't be waived in a K.
- Is the UCC available for mortgage law?
- What are the elements of an Installment Land K?
- 1. K between the seller and purchaser where buyer takes possession immediately.
2. Down payment with periiodic payments made to the seller.
3. Default by purchaser can lead to loss of right to buy
4. Trend is to treat more like a mortgage (equity).
5. Vendor retains title until final payment.
6. Vendee bears the risk of loss.
7. Vendee is the equitable owner.
- What are the buyer protections included in an Installment Land K?
- 1. Notice of Forfeiture
2. Right of Redemption
3. Right to reinstate the K by repayment (Sometimes)
- What is the defintion of a "merchantable title"?
- One that is free from litigation, defects, and serious doubts as to it's validity, which a reasonably prudent buyer would be willing to accept.
- When will specific performance be awarded against a defaulting party?
- Specific performance will be awarded against a defaulting party refusing to cure title when it has a curable defect (i.e. paying of a mortgage lien on the property).
- What defects will make the title unmerchantable?
- 1. Breaks in the chain of title
- Is "tender" necessary before a party can place a party in default?
- Yes, because a seller's and buyer's performance are concurrent conditions in a real estate coontract, one party must generally tender performance to trigger the other party's duty to perform before he can place the other party in default.
- What types of cases should courts confine specific performance to?
- Those special cases in which the seller will otherwise suffer an economic injury which damages would be inadequate to compensate, or where other equitable considerations require granting it.
- Is Bad Faith necessary to recover damages from the breach of K?
- The English Rule says Yes. When a sale of land fails due to a title defect, a buyer is not entitled to damages for the loss of his bargain unless the seller is guilty of bad faith.
- How do you calculate damages due to bad faith?
- It is the difference between the K price and the market value of the property either at the time of the breach or at the time fixed for delivery.
- What can the vendee recover if there is no bad faith calculation?
- The vendee may recover any consideration he has paid with interest and any legitimate expense incurred by him, but he can recover nothing for the loss of his bargain.
- What is the American Rule in regards to damages for breach of K?
- You disregard any good faith and always allow benefit of the bargain damages for the breach.
- Can you retain the down payment after breach of K?
- The majority will allow retention of the down payment and the minority will allow its return.
- What is "equitable converstion"?
- The signing of the contract vests in the purchaser equitable ownership of the land and vests in the seller equitable onwership of the purchase price.
- What is the limit to applying equitable conversion?
- EC will not be applied where it will cause hardship and injustice on one of the parties through a change in the circumstances not contemplated by the party at the time the K was made (i.e. intervention by fraud, misrepresentation, or the like-not applicable).
- Does possession follow legal title or equitable title?
- Legal Title
- Is equitable title ok to secure a mortgage?
- What is the effect of the seller dying in relation to equitable conversion?
- Prior to completion of the bargain his property, in equity, is no longer real estate, but personal property and the proceeds of the land will go to the adminstrators/exectuors as personal property.
- What is the effect of the buyer dying in relation to equitable conversion?
- It is determined who must make the payments and who ultimately gets the land (buyer; real property, heirs; receive title).
- Who has the risk of loss when purchasing property?
- Majority Rule says that the risk of loss falls upon the vendee who is in substance the owner of the property due to equitable ownership, if at the time of loss, the K was binding and the vendor was able to convey title (unless K states otherwise).
Minority Rule says a failure of consideration leaves the vendor with his ruins and adquits the vendee.
- When is the risk of loss on the Vendor?
- 1. When the K is not binding (must fulfill all conditions, etc), or
2. If seller is unable to convey title (unmerchantable), or
3. If the destruction was due to the seller's own negligence.
- What is the Uniform Vendor Act?
- It is the statutory adoption of the Minority View in regards to Risk of Loss. It says:
1. Buyer has risk of loss only after he has been conveyed either legal title or possession of the land.
2. Vendee has option of voiding the K and having earnest money returned.
Note: Adopted by 12 States
- How does Insurance effect the Risk of Loss?
- If (in compliance with a K) the buyer insures teh property in sellers name, pending the sale and there is a loss, the seller must apply those proceeds to credit the purchase price.
- Is there a duty to purchase insurance pending the sale of land?
- No, unless expressly stated in the K.
- What is the Old Rule of when a broker is entitled to commission from sale of land?
- Broker is entitled to commission absent special circumstances, if he produces a customer ready, able, and willing to buy upon the terms and for the price given the broker by the owner.
- What is the New Rule of when a broker is entitled to commission for sale of land?
- The broker earns a commission when:
1. Produces a purchaser ready, willing, and able to buy on the terms fixed by the owner.
2. The purchaser enters into a binding K with the owner to do so.
3. The purchases completes the transaction by closing the title in accordance with the provisions of the K.
1. Default by Buyer - If the K is not consummated by fault of the buyer to perform or any other default by ethe broker, then the seller is not required to pay the commission.
2. Default by Seller - If the incompletion is a result of the seller's interference or wrongful act, then the commission is valid and must be paid.
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