Sale of Real Property – Land Conveyances – Sale of Real Estate
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Sale of Real Property – Land Conveyances – Sale of Real Estate


Sale of Real Property (a.k.a. Land Conveyances
or Sale of Real Estate) Normally, the sale of personal property is
a quick and simple transaction. However, real property (a.k.a. real estate
or land) presents a slightly more complicated transaction. There are two steps in the sale of real property:
the contract and the deed. The contract is the controlling document until
the closing of the sale when the buyer makes payment in exchange for the seller’s deed
which becomes the controlling document. These two steps change the way we refer to
the parties involved. When the contract is the controlling document
we refer to the parties as the seller and buyer because contract law is involved. When the deed becomes the controlling document,
the seller becomes the grantor and the buyer becomes the grantee because property law is
involved. Thus, this is why we interchangeable use seller/buyer
and grantor/grantee depending on where we are in the transaction. The Contract.
The contract is temporary and expires at the closing of the sale. The contract must be in writing to satisfy
the statute of frauds. However, it does not have to be in writing
if the buyer takes possession and: pays at least part of the purchase price,
or makes substantial improvements to the property. This is called the Doctrine of Part Performance. While normally a contract is signed by both
parties, the only required signature is the signature of the party who will be potentially
sued, i.e. the future defendant. The contract must describe the property and
state the price, i.e. the consideration. Note: If the amount of land ends up being
less than the amount described in the contract, then the contract is still honored but instead
the price is reduced proportionally. This means that the seller is held to specific
performance (i.e. the seller must still transfer the land). The common law has a doctrine called Caveat
Emptor which means, “buyer beware.” Thus, it is not a surprise that there are
no implied warranties of fitness (i.e. habitability). The one exception is for the sale of a new
home. The new home comes with an implied warranty
of fitness and workmanlike construction. However, today there are two implied warranties
in every real property contract: Marketable Title and Duty to Disclose (i.e.No False Statements). Marketable title is the seller’s promise
to provide property that is free from reasonable doubt at closing. This means that at the time of closing, the
property does not have any current or future threat of litigation. Examples of when the property does not have
marketable title. If any part of the property is affected by
adverse possession, the property is not marketable. If the property has any encumbrances, the
property is not marketable. An encumbrance is a right, interest, or legal
liability on real property that diminishes its value. Some examples of encumbrances are servitudes,
and mortgages. If the property is in violation of a zoning
ordinance, the property is not marketable. Duty to Disclose. The Seller promises not to make any false
statements of material fact. In addition, the majority of states require
the seller to disclose known latent material defects. This means that even if the buyer conducts
a reasonable inspection before the sale and the defect develops later after the sale,
the seller is liable for his material omissions. Note: The implied promise against false statements
cannot be defeated by a general disclaimer of liability, i.e. “sold as is” or “with
all faults”. One scenario that the bar frequently tests
on is when there is destruction to the property sometime after the contract is signed and
before the closing of the sale. Once the contract is signed, the buyer is
responsible for the land. This includes the risk of any loss. The reasoning behind this is based on the
Doctrine of Equitable Conversion; which states, “Equity sees that as done what ought to
be done.” In simple words, this means that: out of fairness,
something that will truly be completed in the future is treated as having already been
completed. For review, please see the video lecture on
Concurrent Estates at 7:00 minutes. Since it is physically impossible to transfer
real property by hand, a written instrument which represents ownership is used instead. Thus, all transfers of real property, whether
it is by gift, or sale, or some other form, must be accomplished by the transfer of a
written instrument that represents ownership of the property. This written instrument is known as the “deed.” Although the buyer already owned equitable
title to the property when the contract was created, as we just learned in discussing
the doctrine of Equitable Conversion, the buyer obtains ownership of legal title when
the deed is transferred. Legal title requires that that the deed be
Executed and Delivered. Execution of a deed requires
Written form because of the statute of frauds. The Granting Clause: This is a statement which
indicates that the grantor is transferring property to the grantee. Note: The actual names of the grantor and
grantee do not have to be specified so long as there is no doubt as to who the grantor
and grantee are. Description of the property. Any other statutory requirement. And, the signature of the grantor. The granting clause usually states the consideration
(i.e. the buyer’s payment) but it is not required for a deed to be executed. However, consideration must be included if
the buyer wants to prove that he was a bona fide purchaser. Being a bona fide purchaser is necessary to
gain protection from future repossession by an adverse party. Note: Bona fide purchasers and the risk of
repossession is discussed in detail later in a subsequent lecture on the Recording System. Delivery: While the typical delivery is made
by a physical transfer, it does not have to be. Delivery is decided based on the intent of
the grantor. So long as the grantor’s intent is to be
immediately bound by the transfer, then there is a delivery. There are three types of deeds: the Quitclaim
deed, the General Warranty deed, and the Special Warranty deed. Before we get into the details of each deed,
it is helpful to give you the basic idea of how these three deeds compare. The quitclaim deed does not have any protection. The general warranty deed has full protection. And, the special warranty deed has some protection. The Quitclaim deed is the worst deed to have
because the grantor does not promise anything. Thus, there is no protection. The grantor may not even own the property
in the first place. The General Warranty deed is the best deed
to have. It protects against all defects of the property. This includes defects during the grantor’s
ownership and before. The General Warranty deed has six covenants
which are promises on behalf of the grantor and the past owners. Covenant of Seisin. Grantor promises that he owns the property
that he is conveying. Covenant of Right to Convey. Grantor promises that he has the right to
convey the property. Covenant of No Encumbrances. Grantor promises that there are no encumbrances
on the property. An encumbrance is a right, interest, or legal
liability on real property that diminishes its value. Some examples of encumbrances are servitudes,
mortgages, and liens. Covenant of Warranty. Grantor promises to defend against a 3rd party’s
lawful claims of superior title and promises to compensate for any loss. Covenant of Quiet Enjoyment. Grantor promises that grantee will not be
disturbed by a 3rd party’s lawful claim of superior title. This covenant is practically identical to
the covenant of warranty and is often not included in general warranty deeds. Covenant of further Assurances. Grantor promises to take any other action
that is necessary to insure a perfect title (i.e. marketable title). These covenants are easy to remember because
of our friend named SR. WEAQ who embodies the covenants of the general
warranty deed. SR. WEAQ promises that he owns the property that
he is conveying. SR. WEAQ promises that he has the right convey
the property. SR. WEAQ promises that there are no encumbrances
on the property. SR. WEAQ promises to defend against a 3rd party’s
lawful claims of superior title and promises to compensate for any loss. SR. WEAQ promises that grantee will not be disturbed
by a 3rd party’s lawful claim of superior title. SR. WEAQ promises to take any other action that
is necessary to insure a perfect title (i.e. a marketable title). This means the property will be not be threatened
by litigation. You probably notice that the first three covenants
are phrased in the present tense and the last three covenants are phrased in the future
tense. And thus, the covenants are split into two
groups called present covenants and future covenants. The three present covenants can only be breached
when the deed is delivered. This means that the statute of limitations
for breaching a present covenant begins at the instant of delivery. The three future covenants can only be breached
when the grantee is disturbed in possession. This means that the statute of limitations
for breaching a future covenant begins at a future date. The Special Warranty deed has the same covenants
as the general warranty deed but it is different in that it only protects against defects of
the property which are associated with the grantor’s ownership of the property. Thus, it does not protect against defects
from before the grantor’s ownership. For review, here are the basics in a sale
of real property: A seller and a buyer sign a contract for the
sale of real property. While usually a contract for the sale of personal
property is quick and simple, in the sale of real property the contract is only the
first step. The contract designates some date in the future
when the buyer will exchange his payment for the seller’s deed (i.e. ownership of the
property). This is called the closing of the sale or
‘closing’ for short. The time allotted before the closing allows
the seller and the buyer to conduct research to assure that there are no unknown issues
(e.g. the seller doesn’t own the land). The contract is the controlling document until
the closing. At closing, several things happen. As we already said, the buyer exchanges his
payment for the seller’s deed. This is the part of the transaction where
we shift from contract law to property law. Thus, we no longer refer to the parties as
the seller and buyer. Instead, the parties involved are the grantor
and grantee. As a part of the grantee’s new ownership
of the deed, he now has legal title as opposed to only equitable title which he had when
the contract was created. Remember that legal title requires that the
deed be executed and delivered. Once the exchange is completed, the contract
is also completed. And thus, the deed becomes the controlling
document. Finally, there are three types of deeds: the
quitclaim deed, the general warranty deed, and the special warranty deed. The last bit to know about the sale of real
property is that real property is usually sold with the use of a broker. A seller hires a broker to help find a buyer
to purchase his property. In exchange for finding a buyer, the seller
pays the broker a commission which is usually a percentage of the purchase price. In the contract between the broker and the
seller, brokers will often include that the broker is entitled to commission even if the
seller finds a buyer from a source unrelated to the broker. Otherwise a seller could take advantage of
the broker’s marketing, etc. When a broker completes their job but the
deal fails for some reason which is unrelated to the broker:
At common law the broker was entitled to the commission as soon as the seller was presented
with a buyer who was ready, willing, and able to buy the property for the price asked for
by the seller. The broker would still be paid a commission
even if the buyer ended up breaching the contract and not buying the house. The modern trend entitles the broker to the
commission only when the buyer pays the purchase price. However, if the seller breaches the contract
and the deal fails, all jurisdictions entitle the broker to the commission.

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