1Real Estate Law, 6th ed., by Siedel and Aalberts Real Estate Law, 6 th Edition by George J. Siedel,...
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1 Real Estate Law, 6th ed., by Siedel and Aalberts Real Estate Law, 6 th Edition by George J. Siedel, III and Robert J. Aalberts Slides prepared by Heidi Bulich
1Real Estate Law, 6th ed., by Siedel and Aalberts Real Estate Law, 6 th Edition by George J. Siedel, III and Robert J. Aalberts Slides prepared by Heidi
1Real Estate Law, 6th ed., by Siedel and Aalberts Real Estate
Law, 6 th Edition by George J. Siedel, III and Robert J. Aalberts
Slides prepared by Heidi Bulich
Slide 2
2Real Estate Law, 6th ed., by Siedel and Aalberts Real Estate
Law What is Law? System of rules and principles devised by
organized society for the purpose of controlling human conduct.
Sources of Law US Constitution Sets up 3 branches of government.
Powers are express and implied. Bill of Rights Remaining amendments
State Constitutions Statutes Judicial Administrative Chapter 1
Slide 3
3Real Estate Law, 6th ed., by Siedel and Aalberts Important
Principles Common Law court-made law Stare decisis courts must rely
on earlier decisions involving similar facts and higher court
decisions trump Equity to provide relief to parties who had just
claims but who can not be adequately compensated with monetary
damages Chapter 1
Slide 4
4Real Estate Law, 6th ed., by Siedel and Aalberts The Court
System Chapter 1
Slide 5
5Real Estate Law, 6th ed., by Siedel and Aalberts Nature of
Property Property refers to rights and interests of ownership.
Rights include: Possession Control within the law Enjoyment within
the law Exclusion Ability to convey Chapter 2
Slide 6
6Real Estate Law, 6th ed., by Siedel and Aalberts Real Property
vs. Personal Property Real Property Immovable, fixed and permanent
Governed by case law and state statutes Oftentimes conveyed with a
deed Often taxed Personal property everything that is not real main
characteristic it is moveable, may be tangible or intangible
Governed by UCC Article 2 Sometimes a bill of sale is required
Oftentimes NOT taxed Chapter 2
Slide 7
7Real Estate Law, 6th ed., by Siedel and Aalberts Fixtures
Annexation = Attachment. Two types of annexation Permanent Removal
would cause serious damage i.e. furnace, pipes. Constructive
Property may not be physically attached, but look at its
relationship with the real property i.e. screens for storm windows,
garage door opener Fixture a tangible object formerly treated as
personal property but now has become so connected with the real
property that it becomes real property Chapter 2
Slide 8
8Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Fixtures Adaptation Adaptation of article to use in property i.e.
plumbing apparatus designed for use in a plumbing system, air
conditioning unit installed into a specific site. Some courts look
to see if articles are necessary or beneficial to enjoyment of real
estate. Intent Most important. Did he/she intend to make article a
permanent part of the real estate? Best if expressed in a contract.
Chapter 2
Slide 9
9Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Fixtures Important to distinguish personal property from fixtures:
Different laws apply Means of conveying differ Fixtures are taxed
Eminent Domain Mortgage instrument often describes a security
interest in all mortgagors originally owned and after acquired real
property NOT personal property. Foreclosure sales fixtures, not
personal property are subject to sale Tenant fixtures Chapter
2
Slide 10
10Real Estate Law, 6th ed., by Siedel and Aalberts Growing
Crops Fructus naturales Any plant with perennial roots (trees,
shrubs, grasses) which is produced by the power of nature alone.
Fructus industriales Sometimes known as emblements. Plants which
are sown annually and grown primarily by human labor (wheat, corn,
soybeans). If real estate is sold all unsevered growing things pass
with the land. If growing crops are sold separately from land UCC
2-107 applies (sale of forestry rights, sale of potatoes) Chapter
2
Slide 11
11Real Estate Law, 6th ed., by Siedel and Aalberts UCC 2-107 If
articles can be severed without material harm to real estate, then
they are: Personal Property If material harm caused to real
property if severed... Look to see WHO severed If severed by S then
personal property law govern If severed by B then real property law
governs Chapter 2
Slide 12
12Real Estate Law, 6th ed., by Siedel and Aalberts Doctrine of
Emblements Emblements are annual crops produced by labor and
industry. Doctrine applies in L T situation. T in interest of
fairness, keeps fruit of labor if: 1.Period of Tenancy of uncertain
duration 2.Tenancy terminated by L or Act of God; and 3.T can prove
he or she planted crop during tenancy Chapter 2
Slide 13
13Real Estate Law, 6th ed., by Siedel and Aalberts Competing
Interests -- Fixtures Transfer of Real Estate Unless specified in
the purchase agreement to be personal property, will be considered
real property and pass to the Buyer Tenants Fixtures Some will be
considered fixtures and remain on the property at the termination
of the tenancy. If the tenants fixture is a trade fixture,
agricultural fixture or a domestic fixture AND 1. Tenant can remove
fixture without subjecting harm to premises; and 2. Articles are
removed before surrendering premises to landlord, THEN : Article
may be removed by tenant at termination of tenancy. Chapter 2
Slide 14
14Real Estate Law, 6th ed., by Siedel and Aalberts Fixture
Financing Real Property Deed is used between B & S. Mortgage is
used between ME & B. Personal Property Bill of Sale is used
between B & S. Security agreement is used between B &
(Seller or Lender) When property is transferred, the following
rules apply: Chapter 2
Slide 15
15Real Estate Law, 6th ed., by Siedel and Aalberts Important
Definitions UCC Compilation of commercial laws which were drafted
by legal scholars. Adopted by every state except LA, therefore
uniform laws in US regarding sale of personal property. Article 9
Applies to any transaction which is intended to create a security
interest in personal property or fixtures. To create a security
interest, must obtain and perfect security interest. Chapter 2
Slide 16
16Real Estate Law, 6th ed., by Siedel and Aalberts Creating
Security Interests In Personal Property TO OBTAIN: execute security
agreement between B & (Seller or Lender) or take possession of
article TO PERFECT: file financing statement (UCC-1) with Secretary
of State. This gives secured party rights against third parties.
PRIORITY Determined by who files first In Real Property TO OBTAIN:
Execute security agreement between B & (Seller or Lender) or
take possession of article. TO PERFECT: file financing statement
(UCC-1A) with Register of Deeds). This gives secured party rights
against third parties. PRIORITY Determined by: Against Concurrent
or later creditors WHO FILES FIRST Against all prior security
interests, except construction mortgages must be perfected at time
fixture affixed or within 20 days to take priority over prior
security interests (except construction mortgages) Chapter 2
Slide 17
17Real Estate Law, 6th ed., by Siedel and Aalberts 3 Common
Fixtures Scenarios ME vs. MR Many mortgages cover fixtures,
therefore, all articles annexed to real property become subject to
lien of mortgage and cannot be removed by owner. Owner vs. Secured
Party If security agreement executed and no other creditors, no
need to perfect and secured party may repossess articles. Secured
Party vs. Other Creditors See page 38. Chapter 2
Slide 18
18Real Estate Law, 6th ed., by Siedel and Aalberts Scope of
Real Property Airspace Ownership of land generally includes
ownership of airspace above its surface. Owner of air rights may
sell rights separately from surface of real estate, i.e. high rise
real estate projects. Subsurface Rights - Ownership of land
generally includes ownership of subsurface space below its surface.
Owner of these rights may sell rights separately from surface of
real estate, i.e. sale of minerals, oil and gas. Special
considerations for oil and gas leases -- Some states permit oil and
gas to be sold as real property (ownership principle). Other states
do not consider oil and gas owned until they are captured. Right to
extract = personal property right (exclusive right). Chapter 3
Slide 19
19Real Estate Law, 6th ed., by Siedel and Aalberts Water Rights
Limited Resource Who owns land under water? Who has right to use
water? How should water be used? Navigable Water If a stream or
body of water may be used for commerce between or among the states,
it is navigable water it becomes a public river or highway.
Michigan has floating log test. Ownership of Land Under Water If
you are a riparian owner, how far does your land extend? Chapter
3
Slide 20
20Real Estate Law, 6th ed., by Siedel and Aalberts Cont. Water
Rights First Question: Is water navigable? If YES STATE owns
riverbed to high water mark If NO You own to center of river, all
submerged land and land on shore to high water mark. Chapter 3
Slide 21
21Real Estate Law, 6th ed., by Siedel and Aalberts Use of Water
Distinguish ownership, use and control Ownership Just discussed Use
Public has right to use all navigable water as long as federal and
state laws not violated. BUT NOTE Right to use navigable water does
not include license to go on riparian owners land. Private owners
control use of non-navigable waters. Control - Congress over
navigable waters which affect interstate commerce. States all
navigable waters which do not affect interstate commerce. Private
owners all non-navigable waters. Chapter 3
Slide 22
22Real Estate Law, 6th ed., by Siedel and Aalberts Cont. Use of
Water Riparian Rights Theories 1. Natural Flow - each riparian
owner entitled to have water maintained in natural state.
Artificial wants OK as long as they do not materially change
quantity or quality of water. (NOT Common) 2. Reasonable Use each
riparian owner allowed to use water benefits as long as owner does
not interfere unreasonably with beneficial uses of other riparian
owners. Prior Appropriation FIRST come FIRST serve and first person
must have used water Chapter 3
Slide 23
23Real Estate Law, 6th ed., by Siedel and Aalberts Pollution
Credits Transferable rights related to the use of air. 1. Clean Air
Act standards 1990 Clean Air Act amendments established the Acid
Rain Program permanent cap on total amount of sulfur dioxide
emitted by electric utilities nationwide (about of amount emitted
in 1980) 2. Since 1995 US companies permitted to trade units
(called allowances) of certain air emissions. 3. Clear Skies
Initiative. Chapter 3
Slide 24
24Real Estate Law, 6th ed., by Siedel and Aalberts Priority
Among Lien Holders Look to state law to determine when liens
attach: Some states: when any construction began or materials first
furnished; Others: when work completed; Others: when contract
signed or work ordered; and Others: when notice of lien recorded.
Chapter 3
Slide 25
25Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Priority 4/15/02 :Owner of vacant lot hires contractor to build
home 5/15/02 :Work begins 8/15/02 :Work completed 9/15/02 :House
sold and mortgage to Last Bank. LB records mortgage. 11/2/02 :
Notice of lien recorded because seller never pd. contractor.
Contractor had 90 days to record lien IN MOST STATES contractor has
to be paid by bank or purchasers to avoid property from being sold.
* In most states, mechanics liens have priority over mortgages.
Chapter 3
Slide 26
26Real Estate Law, 6th ed., by Siedel and Aalberts
Environmental Liens Comprehensive Environmental Response,
Compensation & Liability Act of 1980 (CERCLA or Superfund)
Federal statute for: 1. Cleanup of contaminated property, and 2.
Allocation of liability for costs Retroactive, strict and where
harm is indivisible, joint and several liability for costs of
responding to a release. No showing of fault is required. Chapter
3
Slide 27
27Real Estate Law, 6th ed., by Siedel and Aalberts Liability
Under Superfund Release has occurred or is threatened Response
costs were incurred Person involved is 1 of the following: Current
owner or operator of facility Former owner or operator of facility
Person who arranges for transport, treatment or disposal of
hazardous substances Transporter of hazardous substances Note:
exceptions apply Chapter 3
Slide 28
28Real Estate Law, 6th ed., by Siedel and Aalberts Limited
Defenses to Liability Purchasers of Property/Innocent Landowners
Innocent owner did not know nor had reason to know it was there
Importance of conducting Phase I and Phase II Assessments Property
acquired after hazardous substance placed on property Secured
Parties Court decisions finding secured lenders who acquired
property through foreclosure or who have restrictive covenants in
loan agreements to be owners or operators and liable under CERCLA.
EPA issued Lender Liability Rule in 1992. Struck down by DC
Circuit. 1996 Lender Liability Amendments passed by Congress - -
codified the Lender Liability Rule Chapter 3
Slide 29
29Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Limited Defenses to Liability Small Business Liability Relief and
Brownsfield Revitalization Act 1. Signed by President Bush on
January 11, 2002 2. Significant revision of Superfund law 3. 2
parts of Act. A. Part 1 Establishes superfund liability exemptions
for small businesses and nonprofit organization which ship only
extremely small or de micromis quantities of hazardous substances
to a site or whose contribution consists of ordinary municipal
solid waste. B. Part 2 Establishes first federal statutory
brownsfield program which includes federal money for remediation of
brownsfield sites, liability protection for new purchasers of
contaminated site and more support for state brownsfield programs.
Chapter 3
Slide 30
30Real Estate Law, 6th ed., by Siedel and Aalberts Easements
Holder does not have an ownership interest in property, only a
right to use These rights include: 1. Use and enjoy land on limited
basis. 2. Entitled to protection from third parties. 3. Easement
owner NOT subject to will of owner of land as with license holder
4. Easement can be conveyed. 5. Easement can be created in ways
other than by written agreement. Easement = interest in land which
gives the owner the right to use real estate owned by another for a
specified purpose Chapter 4
Slide 31
31Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Easements 3 Different Ways Property Can Be Used: EASEMENT - Steve
(Servient Estate) owns property in fee simple, grants right-of-way
easement to Diane (Dominant Estate). Gives her an easement, NOT a
possessory interest in Steve's property. - She may use road, but
may NOT stop others from using it except to extent their use
prevents her full enjoyment. - Steve, as possessor, may exclude all
others, except Diane, even though crossings pose no harm to Steve.
- Steve may use road as long as it does not interfere with Diane.
Chapter 4
Slide 32
32Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Easements LEASE - Steve leases road to Diane -- transfers full
possession. Diane can exclude Steve and all others from road. Steve
transferred full possession to Diane, therefore she could have
excluded Steve and all others from road during term of lease.
LICENSE - Steve grants Diane a right-of-way for 10 years -- NOT
written down. Statute of Frauds requires grants of interests in
land over one year MUST BE IN WRITING. Steve may rescind at any
time. Chapter 4
Slide 33
33Real Estate Law, 6th ed., by Siedel and Aalberts Types of
Easements Affirmative and Negative Easements Affirmative - owner of
easement has right to use land that is subject to easement. (i.e.,
construct sewer tunnel, walk on it.) Negative - owner of easement
can prevent owner of land from performing certain acts on land.
(i.e, negative easement to prevent sun.) Chapter 4
Slide 34
34Real Estate Law, 6th ed., by Siedel and Aalberts Cont. Types
of Easements Easements Appurtenant and in Gross 1. Appurtenant - an
easement which benefits easement owner in that easement owner uses
land appurtenant to his land. Must have two tracts of land owned by
different parties. Two tracts need NOT adjoin, though they
generally do. Servient estate -- tract over which easement runs.
Dominant estate -- tract which benefits from easement. Is ALIENABLE
and can be SUBDIVIDED Easement appurtenant is considered PART of
the dominant estate. If dominant estate is conveyed, easement
passes with title; HOWEVER, title to actual land over which
easement runs is retained by owner of servient estate -- such as
easement, "runs with the land. Chapter 4
Slide 35
35Real Estate Law, 6th ed., by Siedel and Aalberts Cont. Types
of Easements 2. Easement in Gross -- personal interest in or right
to use land of another that is NOT appurtenant to ownership or
possession of real estate. - ONLY have servient estate no dominant.
(Alienability) Right to Convey Easement in Gross -- this right
connected to the easement is dependent on whether the easement is
commercial or noncommercial. Subdivision or Apportionment of
Easement in Gross -- If easement in gross is transferable, can it
be sold to more than one buyer? Look at intent of parties of
original easement agreement. Chapter 4
Slide 36
36Real Estate Law, 6th ed., by Siedel and Aalberts Creation of
Easements EXPRESS must satisfy formal requirements in writing,
signed, witnessed and recorded IMPLIED 1. By Reference to Easement
or to Plot--where legal description identifies road or path as
boundary and GR owns fee in such path, easement is path passes to
GE. 2. By Prior Use -- Parties situated in such a way that easement
could have been granted or reserved by express language, BUT NO
STATEMENT made. Commonly occurs when owner of two tracts of land
sells or mortgages one tract and does not mention an easement, BUT
as a result of transaction, an easement is created. 3. By Necessity
Chapter 4
Slide 37
37Real Estate Law, 6th ed., by Siedel and Aalberts Easement by
Estoppel If owner of servient estate allows user to make
improvements re: use, servient owner is estopped from denying
existence of easement. ILLUSTRATION R owns sewer and water pipes in
street running past his house and vacant land he owns. - sells lot
to E, but says nothing of pipes. E builds house and R without
objection watches E tie into sewer and water pipes. Thus, easement
to use sewer and water created by estoppel.) Chapter 4
Slide 38
38Real Estate Law, 6th ed., by Siedel and Aalberts Extent of
Easements General Rule: Scope of use is determined by how and for
what reason the easement was created. Owner of easement cannot
materially increase burden on servient estate or impose a new and
additional burden. a. If conditions for use specifically provided
in easement, use is limited to that use and those which are
necessary to its proper enjoyment. b. General grant however, may be
used any way as long as it is reasonable Chapter 4
Slide 39
39Real Estate Law, 6th ed., by Siedel and Aalberts Cont. Extent
of Easements Easement Appurtenant - used only for benefit of
dominant estate. May not be used for benefit of any other tract of
land. Thus, land acquired by owner of dominant estate AFTER
creation of easement, has no right to use easement. Note situations
regarding development and subdivision of dominant estate. Easement
by Prescription - use of easement after prescriptive period must
remain almost the same as use at the beginning of prescriptive
period. (i.e., private right-of-way acquired by prescription is
limited to uses made during prescriptive period. Prescriptive
easement to carry water in open ditch over another's property, does
not include the right to carry same quantity in covered pipes in a
closed ditch). No different or materially greater use may be made
of easement except by further adverse use for a prescriptive period
(i.e., in first example--if G continued to ride motorcycle for
another 10 years--would have prescriptive easemt. to ride
motorcycle.) Chapter 4
Slide 40
40Real Estate Law, 6th ed., by Siedel and Aalberts Cont. Extent
of Easements Easement by Prior Use - Look to prior use, may use
easement for uses which existed at time original estate was severed
AND all uses reasonably contemplated by parties. Easement by
Necessity - Lasts as long as there is a necessity Express easements
- Usually provided by terms. Chapter 4
Slide 41
41Real Estate Law, 6th ed., by Siedel and Aalberts Use by
Easement Owner Since easement is a RIGHT to use another's land for
a specific purpose, easement owner must use easement premises only
for that purpose. (i.e., If I grant Bob an easement for ingress and
egress over part of my land, Bob has no right to lay gas pipes in
the easement.) Also use by easement owner must not interfere with
landowner's use. (i.e., If I give Mary a driveway easement over my
land, I do not expect her to park in my driveway all night and
prevent me from entering my garage.) Chapter 4
Slide 42
42Real Estate Law, 6th ed., by Siedel and Aalberts Duty to
Repair If I give Mary an easement over my property, who has duty to
keep it in repair? 1. The fact that I gave an easement does not
impose duty on me, the servient tenant, to repair easement. 2.
Parties could agree in express easement who would be responsible.
3. If no express agreement, easement owner (Mary) does have duty to
make easement usable. To repair existing road, trim encroaching
trees, remove impediments. 4. In order for easement owner to
perform duty to repair, has right to enter servient estate at all
reasonable times to make repairs and maintenance. a) This right
called a "secondary easement" -- may be used only when necessary
and in a reasonable manner so as to NOT burden owner of servient
estate. 5. If both easement owner and landowner use road -- they
share costs in proportion to use of road. 6. If easement owner
allows right-of-way to fall into disrepair, no right to travel
along another route. BUT, IF: 7. If Landowner impedes easement
owner from using easement, easement owner may travel around
obstruction and over other land belonging to landowner. Chapter
4
Slide 43
43Real Estate Law, 6th ed., by Siedel and Aalberts Termination
of Easements Cessation of Purpose terminates when purpose no longer
exists Expiration of Period Express easements freq. Have term --
when term expires, easement expires Merger When 1 owner acquires
both servient and dominant estates Abandonment Requirement of
intent Destruction of Servient Estate Estoppel Prescription
Cessation of Necessity Applies to easements implied by necessity
Condemnation Release Chapter 4
Slide 44
44Real Estate Law, 6th ed., by Siedel and Aalberts Prescriptive
Easements By Prescription -- acquiring right to use land NOT by
express agreement or agreement between parties, BUT by lapse of
time and certain use of property during that time. REQUIREMENTS: 1.
Use must be ADVERSE (hostile, open, notorious and visible)-- no
permission by O -- NOT a neighborly accommodation. (i.e., A's
driveway used by B to get car into B's backyard. Never got A's
permission. Prescriptive easement, not a neighborly accommodation.)
Chapter 4
Slide 45
45Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Prescriptive Easements Cont. Requirements a. Hostile -- User does
not recognize owner of land has authority to prevent his use--use
is hostile in that he does not recognize authority of owner. i.e.,
Preshlock never thought Brenner could prevent his use of driveway.
See case p. 99 b. Open, Notorious, Visible -- Use must be open,
notorious and visible so that owner would learn about it if he kept
informed about his property through ordinary inspections. p. 101
Downie Chapter 4
Slide 46
46Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Prescriptive Easements Cont. Requirements 2. Use must be continuous
and uninterrupted for the required period. (i.e., occasional
entries on neighbor's land DO NOT ripen into a prescriptive
easement.) ILLUSTRATIONS A owns house -- constructs garage. Builds
driveway over part of B's lot without B's permission. After 20
years has prescriptive easement. A builds driveway over B's land --
uses it for five years without B's permission. A sells land to C --
uses for 5 years. C sells to D -- uses for 10 years. D now has
prescriptive easement. Prescriptive uses of A, B, C and D can be
tacked - since easement benefits TRACT A -- becomes easement
appurtenant Chapter 4
Slide 47
47Real Estate Law, 6th ed., by Siedel and Aalberts Estates in
Land 4 Types of Freehold Estates 1. Fee Simple 2. Fee Simple
Determinable 3. Fee Tail 4. Life Estate Chapter 5
Slide 48
48Real Estate Law, 6th ed., by Siedel and Aalberts Fee Simple
Absolute ownership greatest extent of ownership interest recognized
by law 1. Holder is entitled to all rights of property ownership.
2. No time limit on existence -- upon death, passes to heirs. 3.
Owner can dispose of property as she wishes 4. Only subject to
government regulations and duties which arise out of tort law
(i.e., nuisance) TO CREATE INTEREST IN FEE SIMPLE "TO BOB"--This is
enough even if NOT expressed as estate in fee simple, most statues
assume conveyance of fee simple estates Chapter 5
Slide 49
49Real Estate Law, 6th ed., by Siedel and Aalberts Fee Simple
Defeasible Occurs when fee simple is qualified by language which
causes fee simple to end when a certain event occurs. Three types.
1. Fee Simple Determinable - fee simple estate continues as long as
certain event continues or building remains, etc. (See pp. 130-131)
Thus, when grantor conveys estate, there is a possibility estate
would revert back to him or his heirs. POSSIBILITY OF REVERTER:
(i.e., Bob holds land in fee simple. Conveys land to Ellen and her
heirs as long as land is used to farm. Ellen has fee simple
determinable and Bob has a Possibility of Reverter. Bob or his
heirs will get land back automatically if Ellen or her heirs stop
farming. Thus estate--fee simple determinable with Possibility of
Reverter Chapter 5
Slide 50
50Real Estate Law, 6th ed., by Siedel and Aalberts Cont. Fee
Simple Defeasible b. Fee Simple Subject to Executory Limitation -
Fee simple estate ENDS when certain event automatically occurs and
passes to 3rd person. (See pp. 130-131) c. Fee Simple Subject to a
Condition Subsequent - Fee simple estate ends if a certain event
occurs, but unlike above, where grantor automatically gets land,
here, grantor MUST TAKE SOME ACTION TO RETAKE PROPERTY. (i.e., Go
to court) (See p. 131). Grantor's interest is right of entry or
power of termination. Thus, when grantor conveys estate, he has
retained a POWER OF TERMINATION or a RIGHT OF RE-ENTRY. (i.e., Bob
holds land in fee simple. Conveys to Ellen, but if liquor is ever
sold on the land then Grantor may re-enter and repossess. Bob has a
power of termination. Ellen has fee simple subject to condition
subsequent.) Chapter 5
Slide 51
51Real Estate Law, 6th ed., by Siedel and Aalberts Cont. Fee
Simple Determinable Limitations on creating fee simple defeasible
which LIMIT use of property: * May not unreasonably restrict
ability of grantee to transfer real estate. * In Michigan a
reversion or right of entry is unenforceable if specified
contingency does not occur in 30 years. May extend contingency for
another 30 years if record affidavit that construction began within
5 year period prior to expiration. Chapter 5
Slide 52
52Real Estate Law, 6th ed., by Siedel and Aalberts Fee Tail
Estate conveyed to grantee until grantee dies without children
surviving then back to grantor. Can not be inherited by others
outside family. * If grantee dies without heirs, property reverts
to grantor. * Abolished by statute in most states because it is a
severe restraint on alienation. Chapter 5
Slide 53
53Real Estate Law, 6th ed., by Siedel and Aalberts Life Estates
Generally is an estate whose duration is measured by life of a
person. Two types: 1. Conventional life estate - created by act of
parties 2. Legal life estate - created by operation of law Chapter
5
Slide 54
54Real Estate Law, 6th ed., by Siedel and Aalberts Conventional
Life Estate 1. Ordinary - limited to lifetime of owner of life
estate, the life tenant. *Upon death of life estate owner, FULL
ownership reverts to original owner or his heirs. THUS, grantor
conveys life estate and retains a reversionary interest or may pass
to third party 2. Pur Autre Vie - estate limited to life of a third
party. *Upon death of third party, FULL ownership reverts to
grantor, THUS, grantor conveys life estate pur autre vie and
retains a reversionary interest or FULL ownership can pass to
another party, thus party gets remainder interest. Chapter 5
Slide 55
55Real Estate Law, 6th ed., by Siedel and Aalberts Legal Life
Estates Legal life estate - marital estates of dower, curtsey,
homestead and community property. 1. Curtsey - Husband's life
estate in real estate of deceased wife. At wife's death, widower
entitled to life estate in all wife's real property inheritable by
issue of M & W IF a child of marriage was born alive. 2. Dower
- Wife's (life) estate in real estate of deceased husband. Unlike
curtsey, dower did not require birth of child, only that child be
capable of inheritance. Dower attaches at marriage, or when
property is acquired. After dower attaches, H is powerless to
defeat it. Not terminated by divorce. Can only be released by
wife's consent. See also Chapter 10. Chapter 5
Slide 56
56Real Estate Law, 6th ed., by Siedel and Aalberts Cont. Legal
Life Estates In Michigan, the W is entitled to 1/3 of all lands H
held in fee simple estate during the marriage. Thus, dower does not
apply to: 1. Leases 2. Life Estates 3. Joint Tenancies 4.
Partnerships 5. Land Contracts 6. Oil and gas leases W must be
party to conveyance of property acquired during marriage if not, 3
rd party owns subject to Ws dower rights Chapter 5
Slide 57
57Real Estate Law, 6th ed., by Siedel and Aalberts Cont. Legal
Life Estates Homestead - A tract of land that is owned and occupied
as the family home. As a homestead, protected from claims of
owner's general creditors and can only be subjected to certain
liens need to look at particular state law. Community Property -
Adopted by eight western and southwestern states. Consists of all
property real and personal acquired by either spouse during
marriage. Each spouse owns 1/2 of community property Separate
Property - is not subject to community property. This is property
acquired and owned by either spouse prior to marriage or acquired
by gift, devise or descent. Chapter 5
Slide 58
58Real Estate Law, 6th ed., by Siedel and Aalberts Life Tenants
Use of Property Rule: Life Tenant's interest in real property is a
true ownership interest and generally Life Tenant can do what he or
she pleases with property without consultation from grantor of life
estate or remainderman if life estate passes to third party. Taxes
and Interest 1. Life Tenant pays all taxes and interest on debts on
land IF Life Tenant has received profits, rents or income from
property. In some states, once Life Tenant has earned profits
derived from land, must pay taxes. In others, mere possession is
enough to trigger tax obligation. Chapter 5
Slide 59
59Real Estate Law, 6th ed., by Siedel and Aalberts Cont. Life
Tenants Use of Property Special Taxes and Assessments - Life Tenant
NOT responsible for special taxes or assessments. (i.e., city
installs new sidewalks and assesses each property owner an
assessment.) Considered permanent public improvement that raises
the value of property -- so property will be worth more when it
reverts to grantor. Insurance - Who insures improvements on real
property? Who is entitled to proceeds of insurance if buildings are
destroyed? Neither Life Tenant nor remainderman has duty to insure;
but if either insures, he or she is entitled to proceeds, depending
on facts Chapter 5
Slide 60
60Real Estate Law, 6th ed., by Siedel and Aalberts Cont. Life
Tenants Use of Property Duty to Repair and Rules Regarding Life Ts
Use of Property General Rule: Life T is NOT to commit waste on life
estate. Life T has role of trustee of life estate in the sense that
he or she cannot injure or dispose of the property to the injury of
the rights of remaindermen BUT he or she can use the property for
his or her exclusive benefit and take all the income and profits.
Extent of Duty to Repair 1. Life T has obligation to return
premises to remaindermen unimpaired by neglect. 2. Life Tenant not
responsible for extraordinary repairs. 3. If Life Tenant makes
improvements, these are considered fixtures and may be removed at
termination of life estate, provided improvement is not an integral
part of real estate. Chapter 5
Slide 61
61Real Estate Law, 6th ed., by Siedel and Aalberts Cont. Life
Tenants Use of Property Life Ts Use of Property - Life Tenant may
act as fee simple owner would if owner were on property, BUT he may
not use property in such a way to limit or diminish market value
for remainderman. 1. Life Tenant may keep rents and profits he
produces. 2. Life Tenant may sell his interest in property BUT he
may not sell more than he owns. 3. Life Tenant may continue
profitable operations on the land if land used for such operations
BEFORE creation of life estate. 4. Life Tenant not permitted to
commence waste -- to destroy property in such a way to cause harm
to reversion or remainder. 5. Right of Estovers Life T may take
whatever he/she needs from land to make necessary repairs. May NOT
take timber for purely commercial purposes. Chapter 5
Slide 62
62Real Estate Law, 6th ed., by Siedel and Aalberts Concurrent
Ownership Joint TenancyPlanned Unit Development Tenancy By the
EntiretyCondominium Tenancy in CommonTimesharing Community Property
UNITIES TimeTitleInterestPossessionPerson Joint Tenancy X X X X T
by the Entirety X X X X X T in Common X Chapter 5
Slide 63
63Real Estate Law, 6th ed., by Siedel and Aalberts Tenants in
Common Characteristics: When a parcel owned by two or more person
as Tenants in Common, EACH of owners has undivided interest in
fractional part of parcel. 1. Deed creating Tenancy in Common can
state fractional interest held by each co-tenant. If no fractional
interest is specified and two people hold title to property - EACH
has undivided 1/2 interest. 2. Tenants in Common do not need to
hold equal shares. (i.e., one can hold 1/10th interest and other,
the remaining 9/10ths interest.) 3. Tenants in Common NEED not
acquire their interests in property at same time or by same
instrument. Chapter 5
Slide 64
64Real Estate Law, 6th ed., by Siedel and Aalberts Tenants in
Common Rights in Property 1. Entitled to share the possession and
rents of property according to their shares in property. 2. EXCEPT
for sharing of possession and rent, almost as if EACH T in Common
owned separate parcel of real estate. 3. EACH T in Common can sell,
convey, mortgage or transfer his or her share without consent of
other co-tenants. Also, share of each co- tenant subject to
judgment lien against him. 4. Death of co-tenant -- his or her
divided interest passes to heirs or devisees according to will. 5.
Partition - If Ts in Common or Joint Tenants wish to terminate
their joint possession, any of co-tenants may file a suit to
partition real estate OR agree among themselves to terminate.
Chapter 5
Slide 65
65Real Estate Law, 6th ed., by Siedel and Aalberts Joint
Tenancy Viewed as a special type of Tenancy in Common, with one
important difference right of survivorship Creation -- Cannot be
implied or created by operation of law. Created only by grant or
purchase or by devise. Need 4 Unities to create: 1. Unity of Time -
All Joint Tenants acquire interest at same time. 2. Unity of Title
- All Joint Tenants acquire this interest by same instrument of
conveyance. 3. Unity of Interest - All Joint Tenants have equal
ownership interests. 4. Unity of Possession - all Joint Tenants
have undivided interest in property. Some states have eliminated
technical requirements of 4 Unities. Modern view is that conveyance
from owner to herself and Joint Tenants is sufficient despite
failing to meet unities of time and title. Michigan follows modern
view. Chapter 5
Slide 66
66Real Estate Law, 6th ed., by Siedel and Aalberts Joint
Tenancy Right of Survivorship -- The death of one Joint Tenant does
not destroy the unit. It only reduces by one the number of persons
who own the unit. The remaining Joint Tenants receive interest of
deceased Tenant by right to survivorship. This then avoids need for
probate. Termination of Joint Tenancy -- Either Joint Tenant can
break Joint Tenancy if he desires and convert it into Tenancy in
Common. To sever Joint Tenancy: 1. Conveyance by Joint Tenant to a
third party 2. Involuntary Transfer of Title 3. A Joint Tenant
files partition suit and partition decree entered. 4. Contract by
one Joint Tenant to sell or convey interest in land to third party
5. Any agreement between Joint Tenants that shows intention to
treat land as Tenancy in Common. Chapter 5
Slide 67
67Real Estate Law, 6th ed., by Siedel and Aalberts Joint
Tenancy The following will not sever a Joint Tenancy: 1. A will by
deceased Joint Tenant 2. Lien created against one of the Joint
Tenants 3. Creation of easement by one of the Joint Tenants 4.
Dower and curtsey interests of spouse of deceased Joint Tenant 5.
Divorce depends on state Chapter 5
Slide 68
68Real Estate Law, 6th ed., by Siedel and Aalberts Tenants by
the Entireties Like a Joint Tenancy: 1. Owners have rights of
survivorship 2.Cannot be created by operation of law Important
Differences: 1. Owners must be husband and wife 2. Title can only
be conveyed by deed signed by both parties 3. No independent right
to partition. Chapter 5
Slide 69
69Real Estate Law, 6th ed., by Siedel and Aalberts Forms of
Ownership for Investment Purposes Factors to Consider in Choice of
Entity 1.Limited Liability Corporations, Limited Partnerships,
Limited Liability Partnerships, Limited Liability Limited
Partnerships and Limited Liability Companies have one important
trait in common: their owners, i.e.: for Corp. -- SH for Limited
Partnership -- LP Limited Liability Company -- Members Limited
Liability Partnerships Partners Limited Liability Limited
Partnerships -- LP ARE shielded from liabilities of entity Chapter
5
Slide 70
70Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Factors to Consider in Choice of Entity 2.Transferability Can the
owners freely sell or transfer their interests to a third party?
3.Taxation Is the business entity a flow-through entity for federal
income taxation purposes or does the entity pay taxes on the
income? 4.Control Are the entitys business and affairs controlled
by its owners or by a central management that can act without the
owners approval? Chapter 5
Slide 71
71Real Estate Law, 6th ed., by Siedel and Aalberts Partnerships
Partnership - very informal form of business entity. Because of its
informality, it is quite common today. 1. Partnerships are governed
largely by state law. Every state BUT LA has adopted the Uniform
Partnership Act. 2. UPA defines partnership as "an association of
two or more persons to carry on as co-owners of a business for
profit." Chapter 5
Slide 72
72Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Partnerships Receipt of profits - prima facie evidence that
partnership exists. Partners share profits AND losses. If losses,
creditors attach to partners' individual property. (i.e., owners
ARE personally liable.) Partnership MUST be a business for profit,
therefore, partnership law does NOT apply to nonprofit
organizations. Partnership is an association of persons --
including corporations, other partnerships, etc. Partnership
created by a voluntary agreement among person who contract to act
as co-owners in a business for profit. DOES NOT have to be express,
may be IMPLIED. (i.e., sharing profits) ALSO, partners jointly and
severally liable for obligations of partnership. Chapter 5
Slide 73
73Real Estate Law, 6th ed., by Siedel and Aalberts Corporations
Very important form of business entity. It provides a 1) continuous
existence and a vehicle for investment which is 2) safe from
personal liability. Corporations governed by state law. Most states
have adopted the MODEL BUSINESS CORPORATION ACT. Four corporate
characteristics -- NEED all four or else "corporate veil will be
pierced" * LIMITED LIABILITY--Creditors of entity can not sue
personally any owners of corp. for debts of corp. * CENTRALIZATION
OF MANAGEMENT--Corp. is governed on a continuing and exclusive
basis by officers and directors. * CONTINUITY OF LIFE--Corp.
continues to exist regardless of death, incapacity or bankruptcy of
individual shareholders. * FREE TRANSFERABILITY OF
INTERESTS--Shareholders can sell shares of corporate stock without
consent of corporation. All rights of transferor-shareholder
conferred on transferee. Chapter 5
Slide 74
74Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Corporations DOUBLE TAXATION * Corporation taxed as a separate
entity. It does not offer flow- through tax benefits. AND * Income
distributed to shareholders as dividends is taxed at shareholder
tax rate. Chapter 5
Slide 75
75Real Estate Law, 6th ed., by Siedel and Aalberts Subchapter S
Corporations Characteristics: 1.No double tax -- tax attributes
passed through to shareholder. 2.Like a corporation, the
shareholders are shielded from liability. 3.Profits and losses MUST
be shared by shareholders proportionately in relation to stock
ownership. 4.Eligible Shareholder MUST be U.S. citizens, estates,
certain tax-exempt org. or qualified trusts. 5.No more than 75
shareholders. 6.Corporation may only have one class of stock issued
and outstanding. Chapter 5
Slide 76
76Real Estate Law, 6th ed., by Siedel and Aalberts Limited
Partnership Characteristics: 1.Governed by state statute Most
states have adopted ULPA 2.Must contain at least 1 general partner
who is personally liable for limited partnerships debts,
liabilities and obligations. 3.Also contains 1 or more limited
partners who are not personally liable for limited partnerships
obligations. 4.GP and LP may freely transfer shares of profits and
losses and rights to distributions. Remaining rights may not be
transferred without unanimous consent unless partnership agreement
provides otherwise. Chapter 5
Slide 77
77Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Limited Partnerships Cont. Characteristics: 5.Flow-through
taxation. 6.Managed by GP. LPs are passive investors who do not
participate in management. Safe harbor under ULPA. 7.Limited
Partnership can lose limited liability status if it has more than 2
attributes of a corporation. Chapter 5
Slide 78
78Real Estate Law, 6th ed., by Siedel and Aalberts Limited
Liability Company A hybrid entity that (1) has the flow-through
federal tax advantages of a partnership; (2) offers its owners the
same limited liability as a corporations shareholders, and (3) has
a flexible management structure Characteristics: 1.Governed by
ULLCA. 2.Owners are called members 3.Members may be individuals or
business entities 4.Members may participate in management or be
passive 5.Members are not personally liable for for LLCs debts,
liabilities and other obligations Chapter 5
Slide 79
79Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Limited Liability Company Cont. Characteristics: 5.Members can lose
no more than their investment 6.Ownership interest consists of
financial rights and management rights. Financial rights are
personal property and can be transferred without restriction.
Restrictions on remaining interests. 7.Flow-through taxation of
federal income taxes no double taxation 8.LLC may elect to be taxed
as a corporation 9.Control determined by operating agreement
Chapter 5
Slide 80
80Real Estate Law, 6th ed., by Siedel and Aalberts Limited
Liability Partnership Characteristics: 1.Partners have limited
liability 2.Partners may freely transfer their financial interests,
Management and other non-financial interests cannot be sold or
transferred without consent of all remaining partners 3.Taxed same
as General Partner. 4.Controlled by partners each partner has equal
voice, unless partnership agreement provided otherwise Chapter
5
Slide 81
81Real Estate Law, 6th ed., by Siedel and Aalberts The Search
for Real Estate Listing Agreement 1.The Real Estate Agent A. Broker
- One employed to negotiate the sale, purchase or exchange of land.
Compensation generally in the form of a commission. B. Salesman -
Employee of broker. Receives compensation from broker. Responsible
only to the broker. Salesman's activities performed in the name of
the broker. C. License Requirements - All states and Canadian
provinces require real estate brokers to be licensed. Purpose of
licensing laws: - protect public from dishonest or incompetent
brokers. - prescribe standards and qualifications for licensing
brokers. - maintain high standards in real estate profession. -
protect licensed brokers from unfair competition. Chapter 6
Slide 82
82Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Listing Agreement - Real estate broker NOT entitled to commission
unless he had license at time he was hired to perform services for
which he received the commission. - Criminal penalties often
imposed on person who violates broker's licensing statutes. 2. The
Agency Relationship - the Listing Agreement serves as an employment
contract and establishes an agency relationship. A. Parties in
Agency Relationship: Principal (S or B) Agent (Broker) B. Powers
and Duties of Agent Authority limited to agreement between
principal and agent. Some duties set forth in agreement, others are
implied by law. Chapter 6
Slide 83
83Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Listing Agreement Broker is generally not given broad authority to
act for principal. For example, broker may not represent condition
of property, receive all or part of the purchase price, or make
representations to a Buyer that the deposit will be returned if
there is no sale unless these powers are specifically provided for
in listing agreement. Note situations where brokers given express
authority to perform certain acts and other apparent authorities
are assumed granted Chapter 6
Slide 84
84Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Listing Agreement Implied Duties of Broker - (Derived from general
agency principles). Broker always must put interest of principal
first. Guidelines: Care - Broker must exercise a reasonable amount
of care while transacting business. Obedience - Brokers must act in
good faith and in conformity with principal's instructions and
authority. Loyalty - Brokers owe principal 100% loyalty. Place
principal's interest above those of any other person she is dealing
with. Accounting - Broker must be able to report status of all
funds entrusted to them by their principals. Notice - Broker must
keep principal fully informed at all times of all facts which might
affect principal's business decisions. Chapter 6
Slide 85
85Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Listing Agreement Specific Issues Related to Agency Relationship A.
Dual Agent Licensee who is acting as agent of both the B and the S.
General rule prohibits dual agent situation except when parties
provide written consent. B. Buyers Broker Buyer and agent enter
into agreement whereby agent assists B in locating, financing and
negotiating the purchase of property. Chapter 6
Slide 86
86Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Listing Agreement 2.Types of Listing Agreements A. Exclusive Right
to Sell - Most common form for residential sales. One broker is
appointed as the sole agent of Seller and given the exclusive right
to represent the Seller in marketing the property and finding a
purchaser. B. Exclusive Agency - One Broker is authorized to act as
the exclusive agent of the principal, BUT Seller retains right to
sell the property himself or herself without obligation to the
Broker. C. Open Listing - Most favorable to the Seller. Seller
retains right to retain any number of Brokers to act as his or her
agents. Brokers act simultaneously, all looking for buyers. Seller
only pays commission to Broker who successfully produces a ready,
willing and able buyer. Chapter 6
Slide 87
87Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Listing Agreement 3.Antitrust Concerns A. Sherman Antitrust Act 2
considerations: 1. Per se violation of Sherman Act if real estate
board's activities are found to cause a "restraint of trade" (i.e.,
price fixing). See US v. National Association of Real Estate
Boards. 2. Do the real estate activities affect Interstate
Commerce? See McLain v. Real Estate Board of New Orleans. B. Note,
many states have their own Sherman Acts. Chapter 6
Slide 88
88Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Listing Agreement 4.The Brokers Commission A. Broker is paid
usually in form of commission ONLY entitled to commission IF: 1.
Licensed 2. Employed by Seller 3. Procuring cause of sale (i.e.,
from a ready, willing and able buyer). To be considered the
procuring cause of sale, Broker must have taken action to start or
cause a chain of events that resulted in the sale. B. "Ready,
Willing and Able Buyer - Generally, once a Seller accepts an offer
from a ready, willing and able buyer, Seller is liable for Broker's
commission regardless of whether or not the buyer completes the
purchase. Chapter 6
Slide 89
89Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Listing Agreement "Ready, Willing and Able Buyer" is one who is
prepared to buy on the Seller's terms as specified in the listing
contract and ready to take necessary steps to close the deal.
Broker gets commission in the following situations: 1) If Seller
refuses to sign purchase agreement, generally no liability to
buyer, but must pay Broker commission; 2) OR owner's title has
uncorrected defects; 3) OR if purchase agreement signed and sale
never consummated, Seller MUST pay commission; 4) OR owner's spouse
refuses to sign deed, MUST pay. C. Cancellation of Listing
Agreement Principal may terminate listing agreement but must be
acting in good faith and agreement is not for a set term. Chapter
6
Slide 90
90Real Estate Law, 6th ed., by Siedel and Aalberts
Discrimination in Selling or Leasing Real Estate A.Civil Rights Act
of 1866 - prohibits any type of discrimination based on race.
Notable limitations: a. ONLY applied to discrimination on basis of
race. b. Applied only to U.S. citizens. c. Limited to rights
enjoyed by white citizens -- note, women had no property rights in
1866 Executive Order No. 11063 Issued in 1962 by JFK. Guaranteed
non- discrimination in all housing financed by government --
insured or guaranteed loans. Jones v. Mayer -- 1968 Supreme Court
decision. Court held that statue intended to bar all racial
discrimination, private as well as public, in sale or rental of
property. Chapter 6
Slide 91
91Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Discrimination in Selling or Leasing Real Estate B.Civil Rights Act
of 1964 - Prohibits discrimination in any housing program that
receives whole or partial federal funding. C.Fair Housing Law of
1968 - (Title VIII) Unlawful to discriminate on basis of race,
color, religion, sex or national origin, disability or family
status when selling or leasing residential property by means of the
actions listed on p. 179. NOTE: FHA DOES NOT APPLY TO: 1. Sale or
rental of single-family home when home is owned by person who does
not own more than three such homes at one time (therefore, sale by
owner of single-family homes not covered.) AND Broker or agent not
used; AND Discriminatory advertising not used; AND, in addition IF
owner is not living in dwelling at time of transaction or was not
most recent occupant -- ONLY one such sale is exempt from law in
any two year period Chapter 6
Slide 92
92Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Discrimination in Selling or Leasing Real Estate 2. Rentals in
Owner occupied one-family to four-family dwellings as long as NO
discriminatory advertising. 3. Religious organizations may limit
sale or rental of noncommercial buildings to persons of same
religion ONLY IF membership in religion is not restricted on basis
of race, color or national origin. 4. Private clubs may limit
rental or occupancy of lodgings that it owns to members. Compare:
1866 law prohibits ALL racial discrimination without exception
whereas FHA exempts individual homeowners and certain groups,
therefore any aggrieved person may seek a remedy for racial
discrimination under 1866 law against ANY homeowner. BUT, if
discrimination based on grounds other than color, remedy may not be
allowed. Chapter 6
Slide 93
93Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Discrimination in Selling or Leasing Real Estate D.1972 Amendment
to FHA 1. Brokers must display equal opportunity poster which can
be obtained from HUD 2. Failure to display poster constitutes prima
facie evidence of discrimination if broker is investigated for
discriminatory practices by HUD E.1988 Amendment to FHA provided
for more effective enforcement mechanisms; and provided protections
for the disabled and for families. Chapter 6
Slide 94
94Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Discrimination in Selling or Leasing Real Estate F.Americans with
Disabilities Act - Prohibits discrimination. based on disabilities
in employment, provision of government. services, transportation
provided by public or private entities, places of public
accommodation and commercial facilities avail. to public. State and
Local Laws - If a state or municipality has a fair housing law that
has been ruled "substantially" equivalent to federal law, all
complaints in that state or locality, including those filed with
HUD, are handled by state enforcement agencies. Chapter 7
Slide 95
95Real Estate Law, 6th ed., by Siedel and Aalberts The Real
Estate Contract Introduction to Contracts DEFINITION -- A contract
is a promise or set of promises which constitute a legally
enforceable agreement between two or more people. TYPES OF
CONTRACTS: Unilateral or Bilateral; Expressed or Implied.
Unilateral ContractBilateral Contract "I offer to give you $100 if
you cross "I promise to give you $100 if you promise the Brooklyn
Bridge."to cross the Brooklyn Bridge Offer calls for acceptance to
occur Form of contract when an offer requires by performance of an
act. The unilateralacceptance in form of a promise to perform.
contract is accepted by actually performing duties requested by the
offer. Chapter 7
Slide 96
96Real Estate Law, 6th ed., by Siedel and Aalberts The Real
Estate Contract Express - parties state the terms and show
intentions in words, either orally or in writing. (i.e., most
listing agreements) Implied - Prior conduct - agreement formed by
acts and conduct of parties in past. ALSO--partial performance
Elements of a Valid Contract. 1.Competent Parties - all parties
entering into contract must have legal capacity to contract Mutual
Assent - All parties must be mutually willing to enter into
contract and contract must be signed as the "free and voluntary"
act of each party. (i.e., "meeting of minds") Chapter 7
Slide 97
97Real Estate Law, 6th ed., by Siedel and Aalberts The Real
Estate Contract Cont. Mutual Assent Offer is accepted when offeree
signs agreement and communicates acceptance to buyer. Counter Offer
- If any terms of original offer are changed, changes constitute
total rejection, relieves original offeror of liability--Offeree
has NOT accepted offer BUT MAKES NEW offer. Contract Modification -
Original contract stays if agreement modified after contract is
signed by both parties. So if A and B enter into contract and THEN
B decides to MODIFY agreement, original contract stays. NO MUTUAL
ASSENT IF: Misrepresentation. Fraud, Mistake, or Duress, Undue
Influence or Menace. Chapter 7
Slide 98
98Real Estate Law, 6th ed., by Siedel and Aalberts The Real
Estate Contract Misrepresentation - Innocent misstatement of
material fact upon which someone relies and causes that person to
suffer damages. Fraud - Misrepresentation. of material fact knowing
it to be false upon which another relies and causes that person to
suffer damages. Silent Fraud - Seller must disclose info. re:
defects in property in MI whether or not B inquires--MI Seller's
Disclosure Act-- Brokers probably. NOT liable for silent fraud in
MI but liable in other states. AS IS clause is sometimes used in
purchase agreements. B acknowledges in writing that S has made NO
warranties re: condition of property. In MI, as is clause does not
shield S from fraud or silent fraud. Chapter 7
Slide 99
99Real Estate Law, 6th ed., by Siedel and Aalberts The Real
Estate Contract Mistake - Mutual misunderstanding in negotiations
between parties 1. Consideration - Consideration is any promise or
performance that is made in exchange for a promise or performance
by the other party to a contract. Real Estate Contracts -- promise
by owner to convey title to B and promise by B to pay purchase
price for property 2. Satisfaction of Special State Laws - Satisfy
specific state regulations (i.e., Statute of Frauds) Chapter 7
Slide 100
100Real Estate Law, 6th ed., by Siedel and Aalberts The Real
Estate Contract REQUIRED PROVISIONS IN ALL CONTRACTS FOR THE SALE
OF LAND: 1. Writing - every state has a Statute of Frauds which
requires contracts for the sale of land to be in writing. Every
statute derived from 1677 English law -- Statutes of Frauds. Verbal
contracts for sale of land are unenforceable. Statute of Frauds
satisfied if "Rule of 4 Ps" is satisfied--in MI: 1. names of
parties 2. description of property 3. price 4. terms of payment 2.
Description of Parties: Contract must contain names of both Buyer
and Seller 3. Description of Real Estate: Contract must contain a
reasonably certain description of land to be sold Chapter 7
Slide 101
101Real Estate Law, 6th ed., by Siedel and Aalberts The Real
Estate Contract 4. Sale Price (i.e., Consideration): Contract must
contain sales price and must state how purchase price will be paid.
The payment terms are broken down into: 1. Total purchase price; 2.
Down payment; and 3. Form of financing (mortgage assumption, land
contract, mortgage) 5. Signature of Parties: Purchase Agreement
enforced against parties who sign. If you do NOT sign, you are NOT
liable under contract. Chapter 7
Slide 102
102Real Estate Law, 6th ed., by Siedel and Aalberts The Real
Estate Contract Once four essential terms in the written agreement
-- P.A. will be enforceable, even if negotiations were informal.
Four Essential Terms in P.A. 1. Parties described 2. Description of
real estate 3. Consideration specified (i.e., payment terms) 4.
Agreement signed Chapter 7
Slide 103
103Real Estate Law, 6th ed., by Siedel and Aalberts The Real
Estate Contract OTHER COMMON PROVISIONS IN PURCHASE AGREEMENT 1.
Description of personal property to be transferred with premises.
(i.e., contracts, franchises, permits, leases). 2. Survey 3.
Condition and Inspection of Property 4. Prorations - Property taxes
and assessments 5. Closing 6. Possession 7. Real Estate Brokers:
Purchase agreement should define his or her responsibility for
holding earnest money, preparing closing documents, etc. 8.
Warranties Chapter 7
Slide 104
104Real Estate Law, 6th ed., by Siedel and Aalberts The Real
Estate Contract Sellers Warranties 1. Good and marketable title. 2.
Premises and any personal property conveyed are sole property of
Seller. 3. Seller knows of no claims or encumbrances upon property.
4. No alleged claims or litigation regarding property. 5. All taxes
and assessments paid. 6. Seller will indemnify Purchaser as to
warranties. Buyers Warranties 1. Authorized to enter into
transactions. 2. Present proof of ability to complete transactions.
Chapter 7
Slide 105
105Real Estate Law, 6th ed., by Siedel and Aalberts The Real
Estate Contract Marketable Title - Seller must have good title,
free from liens, encumbrances or defects other than those specified
in contract. Title unmarketable if: 1. Seller lacks all or part of
title alleged OR 2. Title subject to encumbrance OR 3. Reasonable
possibility of #1 or #2. Title Held By Seller: Unless purchase
agreement indicates otherwise, purchaser is entitled to undivided
fee simple absolute to all property purchased. Title Free From
Encumbrances: Unless purchase agreement provides otherwise,
marketable title is free from all encumbrances. Types of
encumbrances: 1. Easements 2. Zoning and Building Restrictions 3.
Mortgages and Other Liens 4. Encroachments Chapter 7
Slide 106
106Real Estate Law, 6th ed., by Siedel and Aalberts The Real
Estate Contract Equitable Conversion Once Purchaser gets interest
in real estate by executing a purchase agreement -- Purchaser
becomes equitable owner. Seller retains legal title and this title
is only held as security to receive money from Purchaser. Risk of
Loss (After contract signed, before closing): 1. (Majority View)
Buyer is regarded as equitable owner and therefore, real owner of
property. Therefore, he or she bears risk of BOTH profit and loss
during contract period. Buyer can not withdraw from contract
because property damaged. 2. (Minority View) Risk of loss remains
with Seller unless legal title conveyed to Purchaser or unless
Purchaser causes loss--Uniform Vendor and Purchaser Risk Act.
Chapter 8
Slide 107
107Real Estate Law, 6th ed., by Siedel and Aalberts Title and
Insurance After purchase agreement is signed, three important
things happen: 1. Seller proves he has title to real estate. 2.
Buyer makes arrangements for property and liability insurance; and
3. Buyer borrows money to finance purchase. Proving Good Title
Seller must deliver abstract of title or title commitment to
protect real estate purchasers and creditors, public records are
maintained to help officially establish: 1. Who owns what real
estate. 2. To give notice of encumbrances. 3. Establish lien
priorities. Chapter 8
Slide 108
108Real Estate Law, 6th ed., by Siedel and Aalberts Title and
Insurance How do we ensure these records are accurate? 1. Statute
of Frauds requirements 2. Public recording rules NOTICE - CONCEPTS
All Buyers and Lenders are charged with constructive notice
Contrast with actual notice -- everything the Buyer has direct
knowledge of ILLUSTRATION Bill mortgages land to Jane. Jane does
not record mortgage, but she does take possession of land. Bill
later mortgages same land to Ed, who knows of earlier mortgage to
Jane. Thus, Ed is charged with actual knowledge, so his mortgage is
second to Jane's mortgage. ILLUSTRATION Bill conveys land to Jane,
who records deed. Then Bill persuades Ed to buy the same land,
telling Ed he owns land. Ed fails to examine title. Ed has
constructive notice of deed to Jane, Jane has priority. Chapter
8
Slide 109
109Real Estate Law, 6th ed., by Siedel and Aalberts Title and
Insurance Three different types of Notice statutes: Bona-Fide
Purchasers -- one who has paid purchase price in good faith and
without knowledge of prior unrecorded deed or mortgage. 1. Notice
Statute - Unrecorded deed. Not valid against later Bona-Fide
purchasers. Bona-Fide purchasers win. 2. Notice-Rule Statute -
Later Bona-Fide Purchaser only has priority if he records first.
Thus, subsequent Ps must be (1) bona-fide purchasers, and (2)
record 1st to have priority. 3. Race Statute - First to record
wins, therefore, A has title. No need for subsequent purchaser to
be bona-fide. Chapter 8
Slide 110
110Real Estate Law, 6th ed., by Siedel and Aalberts Title and
Insurance Chain of Title Tract Index - Index at recorder of deeds
which allocates a separate page to each piece of property in the
county. All recorded deeds and other documents relating to property
are listed on this page. Grantor-Grantee Index - These records show
ownership of land passing from one person to another. Because most
marketable title legislature only requires us to look back 40
years, start with current owner and go back 40 years. Chapter
8
Slide 111
111Real Estate Law, 6th ed., by Siedel and Aalberts Title and
Insurance Proof of Title Abstract - Brief history of instruments
appearing in county record that affect title to property Title
Insurance - Issued by a title insurance company after it reviews
recorded instruments. Contract by which a title insurance company
agrees, subject to terms of policy, to indemnify the insured
against loss sustained as a result of defects in title other than
specific title exceptions listed on policy. OWNER'S POLICY: If a
Seller wishes to obtain a title insurance policy to prove his or
her ownership in land, he applies to title insurance company and
agrees to pay a fee. MORTGAGE POLICY: Only protects lender for
amount of mortgage loan and risks that affect security interest or
lender. Chapter 8
Slide 112
112Real Estate Law, 6th ed., by Siedel and Aalberts Title and
Insurance Standard Coverage - Generally insures against defects in
public records, plus things such as forged documents, documents of
incompetent grantors, incorrect marital statements. Extended
Coverage - Everything covered with standard policy, plus additional
risks which could be discovered by: 1. Walk-through of property; 2.
Inquiries made of persons in possession; or 3. Examining the survey
Chapter 8
Slide 113
113Real Estate Law, 6th ed., by Siedel and Aalberts Title and
Insurance POLICY DOES NOT INSURE: (EXCEPTIONS) -- some or all of
these can be waived by title ins. companies if presented with
appropriate documentation or higher premium. Specific>1. Defects
or liens listed in policy which are specific to property.
General>2. Unrecorded defects >3. Rights of parties in
possession. >4. Questions regarding survey. (EXCLUSIONS) 1.
Losses resulting from government regulations of property. 2. Losses
resulting from government right to take property. 3. Defects or
liens: created by insured, known by insured, but NOT by company,
causes no loss to insured, created after policy issued. Chapter
8
Slide 114
114Real Estate Law, 6th ed., by Siedel and Aalberts Title and
Insurance HAZARD OR PROPERTY INSURANCE MORTGAGE INSURANCE -
Property insurance obtained by ME or by MR for benefit of ME to
insure security interest. HOMEOWNER'S INSURANCE - Property
insurance obtained by Purchaser as homeowner. When should it be
purchased? Types of Coverage: Basic, Broad and Comprehensive (note
exclusions) Liability provisions often protect insured from
accidents caused by insured or on insureds premises Chapter 8
Slide 115
115Real Estate Law, 6th ed., by Siedel and Aalberts Financing
the Real Estate Purchase OTHER COMMON SECURITY DEVICES: security
interests, guarantees and suretyship MORTGAGE - Conveyance of land
given as transaction security for payment of debt. Definitions:
Mortgagor or Debtor - Gives interest in real estate as security for
debt. Mortgagee or Creditor - Person who takes interest in property
as security for debt. Mortgage Loan - Loan obtained to pay portion
of purchase price for real property which is secured by real
property. Deed of Trust - Regular mortgage only involves two
parties - borrower and lender, with a Deed of Trust, Borrower
conveys land to third party (Trustee) in trust for benefit of
lender or party who holds mortgage note. Chapter 9
Slide 116
116Real Estate Law, 6th ed., by Siedel and Aalberts Financing
the Real Estate Purchase Purchase Money Mortgage - or - Seller
Financed Mortgage - Seller takes a mortgage from Borrower for any
amount of purchase price not paid. Equitable Mortgages - Any
written instrument by which parties show intention that real estate
be held as security for payment of debt will be considered an
equitable mortgage. ALSO an instrument intended as a regular
mortgage, but which contains a defect will be treated as an
equitable mortgage. Example where court finds equitable mortgage to
protect creditor Example where court finds equitable mortgage to
protect Debtor Title Theory States - Adheres to view that mortgage
gives mortgagee some form of legal title to land. Lien Theory
States - View that mortgage is not really a conveyance of land, but
only a lien. Mortgagee has lien to secure the debt. Chapter 9
Slide 117
117Real Estate Law, 6th ed., by Siedel and Aalberts Financing
the Real Estate Purchase THE MORTGAGE TRANSACTION Application and
Commitment 1. Loan Application serves two purposes: a. Provides
information to lender so lender can determine whether to make loan.
b. Defines term of loan contract. 2. Commitment lender communicates
acceptance to loan applicant Mortgage Note Note - The promise or
agreement to repay debt in definite installments with interest.
Chief function of Note is to make Mortgagor personally liable for
payment of mortgage debt. Chapter 9
Slide 118
118Real Estate Law, 6th ed., by Siedel and Aalberts Financing
the Real Estate Purchase Cont. Mortgage Note Notes can be
negotiable or non-negotiable - Is negotiable when its holder, i.e.,
lender, may transfer his or her right to payment to third party by
assigning instrument over to third party. Meets requirements of
Section 3-104 of UCC. Three main provisions of a Note 1. Payment
Plans - Most payable monthly and payments computed by number of
different payment plans. 2. Interest - Charge for the use of money.
Generally, the interest portion of each payment covers charge for
using borrowed money during previous month. a. Usury b. Prepayment
3. Acceleration - Mortgage and Note usually provide that if B
defaults, the entire principal sum shall become immediately due and
payable -- acceleration clause. Chapter 9
Slide 119
119Real Estate Law, 6th ed., by Siedel and Aalberts Financing
the Real Estate Purchase Requirements of a Mortgage Note 1. Promise
to pay 2. Amount of debt (principal amount) 3. Interest Rate 4.
Time and amount of principal and interest payments 5. Reference to
the notes security 6. Mortgagors signature Due on Sale Clauses -
Prevents a future purchaser of property from being able to assume
old loan at old low rate of interest. Clause provides that upon the
sale of property by Borrower, lender has choice of either declaring
entire debt immediately due and owing or permitting a qualified
buyer to assume loan at current market rates. Enforceable under
Garn - St. Germain Depository Institutions Act of 1982. Chapter
9
Slide 120
120Real Estate Law, 6th ed., by Siedel and Aalberts Financing
the Real Estate Purchase The Mortgage - The conveyance of land
given as security for payment of debt Describing the Debt - Must be
defined with reasonable certainty to prevent subsequent purchasers
or creditors from acquiring rights superior to those of Mortgagee.
Parties must also be described with reasonable accuracy. Accurate
Description of Property Mortgage Sets Forth Duties and Obligations
of Mortgagee and Mortgagor Duties of Mortgagor 1. Pay debt in
accordance with terms of Note 2. Pay real estate taxes on property
given as security. 3. Maintain adequate insurance to protect lender
in event of casualty 4. Obtain lender's authorization in event of
major alterations to property 5. Maintain property in good repair
Chapter 9
Slide 121
121Real Estate Law, 6th ed., by Siedel and Aalberts Financing
the Real Estate Purchase Default Provisions 1. If Mortgagor fails
to meet any of his duties, generally causes default of mortgage.
Generally, grace period provided before lender exercises right to
foreclose. 2. Note: Use of acceleration clause - which allows
lender to accelerate maturity of debt -- to declare entire debt due
and owing. 3. Also, if Mortgagor fails to maintain property, pay
taxes or pay insurance premiums, generally Mortgagee has right to
maintain or make necessary payments. 4. Finally, some Mortgages
provide that in addition to foreclosure remedies of 1) power of
sale or 2) judicial foreclosure, Mortgagee may appoint receiver to
take care of property. Chapter 9
Slide 122
122Real Estate Law, 6th ed., by Siedel and Aalberts Federal
Laws Governing Real Estate Lending Fair Lending Laws 1. Fair
Housing Act See notes in section regarding Brokers 2. Equal Credit
Opportunity Act - prohibits lenders from discriminating against
credit applicants on basis of race, color, religion, national
origin, sex, marital status, age or dependence on public
assistance. State laws and local ordinances may increase the number
of protected classes. a. Lender must notify loan applicant with 30
days of credit decision. b. Lender must provide notice of right to
receive copy of appraisal. c. Special rules regarding collecting
information about principals or borrowers spouse. 3. Community
Reinvestment Act Attempt to eliminate redlining. Redlining is a
practice of refusing to make mortgage loans or issue insurance
policies in certain areas without regard to economic qualifications
of applicant. Chapter 9
Slide 123
123Real Estate Law, 6th ed., by Siedel and Aalberts Federal
Laws Governing Real Estate Lending 4. Home Mortgage Disclosure Act
(HMDA) Requires lender to report statistical information to the
federal government regarding applications and loans to purchase or
refinance a home. Information is collected for multi-family and
single- family residences. 5. Home Ownership and Equity Protection
Act (HOEPA) Created to protect borrowers from predatory lending
practices. Chapter 9
Slide 124
124Real Estate Law, 6th ed., by Siedel and Aalberts Federal
Laws Governing Real Estate Lending Disclosure of Loan Terms and
Procedures Truth in Lending Act - Enacted in 1969. Object of law
was to require credit institutions to inform borrowers of true cost
of obtaining credit. 1. Regulation Z issued by FRB to implement
Truth in Lending. 2. All residential real estate transactions are
protected by Act. 3. Additionally, credit transactions with
individuals are covered for personal, family, household and
agricultural uses NOT exceeding $25K. 4. Regulation Z does NOT
apply to business or commercial loans. Chapter 9
Slide 125
125Real Estate Law, 6th ed., by Siedel and Aalberts Federal
Laws Governing Real Estate Lending Real Estate Settlement
Procedures Act 1. Enacted: (a) to ensure that both Buyer and Seller
in residential real estate transactions have knowledge of all
settlement costs; (b) eliminate kickbacks or referral fees that
tend to increase certain settlement services; and (c) reduce amount
needed to place in escrow account 2. RESPA applies to all purchases
financed by a federally related mortgage loan; loan secured by
first or subordinate lien on residential property; and residential
property contains 1 to 4 family structure. Chapter 9
Slide 126
126Real Estate Law, 6th ed., by Siedel and Aalberts Federal
Laws Governing Real Estate Lending 3. REQUIREMENTS OF RESPA a.
Lender must provide copy of HUD book, "Settlement Costs and You" to
every person making loan application within three days. (General
information regarding settlement costs.) b. Lender must provide
Borrower with good faith estimate of settlement costs within three
business days after submission of loan application. Amounts stated
as dollar amount or dollar range. c. Loan closing information must
be prepared on special HUD form which details transaction --
Itemizes all charges imposed by lender. d. Borrower permitted to
review settlement statement one day prior to closing. e. Prohibits
kickbacks (i.e., when insurance company pays lender for referring
one of lender's customers to agency.) f. Limits amount Borrower
required to pay into escrow account at closing. Chapter 9
Slide 127
127Real Estate Law, 6th ed., by Siedel and Aalberts Termination
of Mortgage Relationship Payment of Entire Mortgage debt. Generally
made when property is sold or refinanced. MORTGAGE DOES NOT HAVE TO
BE TERMINATED IF PROPERTY CONVEYED TO THIRD PARTY. IT CAN SURVIVE
CONVEYANCE -- Sale "Subject to" Mtg. and Mtg. Assumption Sale
Subject to Existing Mortgage. Describes conveyance where third
party accepts property "subject to" existing Mortgage. Third party
takes property subject to mortgage lien, but has no personal
responsibility to pay obligation. Mortgage Assumption. Grantee
takes land encumbered by Mortgage and becomes personally liable for
Mortgage debt. NOTE -- When a third party has assumed a Mortgage,
the Mortgagor is still liable -- Mortgagor remains a surety -- a
person equally liable with third party. Novation -- A release which
Mortgagor can obtain from Mortgagee when he conveys property to
third party. It prevents Mortgagee from going after Mortgagor for
deficiency Chapter 9
Slide 128
128Real Estate Law, 6th ed., by Siedel and Aalberts Termination
of Mortgage Relationship Foreclosure - Legal process by which
property pledged as security in mortgage or trust deed is sold to
satisfy the debt. TWO TYPES OF FORECLOSURE Judicial Foreclosure -
Property pledged as security, sold by court order after Mortgagee
gives sufficient public notice. Process: 1. Mortgagor defaults. 2.
Mortgagee accelerates due date of all remaining monthly payments.
3. Mortgagee's atty. files suit to foreclose lien. 4. Court orders
property to be sold. 5. Public sale is advertised and held. Real
estate sold to highest bidder. 6. Third party who purchases
property, purchases it free and clear of the Mortgage and all
junior liens filed subsequent to Mortgage. 7. Junior liens are
extinguished by foreclosure. Chapter 9
Slide 129
129Real Estate Law, 6th ed., by Siedel and Aalberts Termination
of Mortgage Relationship Power of Sale - Foreclosure by
Advertisement. Can only be utilized when loan document contains a
power of sale clause. Mortgagee authorizes Mortgagor to sell
property after default at a public sale without court proceedings.
Notice Requirements. To foreclose, Mortgagee simply records notice
of default in county register of deeds to give public notice of
intended sale AND publishes advertisements in local newspapers
which state total amount due and date of public sale. Sometimes,
notices must also be posted on property in a conspicuous location.
Chapter 9
Slide 130
130Real Estate Law, 6th ed., by Siedel and Aalberts Termination
of Mortgage Relationship Principles of Equitable and Statutory
Redemption Equitable Redemption Time between event of default and
foreclosure. Permits Borrower or any other person with interest in
real estate to pay lender the amount due, plus costs, and debt will
be reinstated. Statutory Redemption Time period after the
foreclosure sale whereby Borrower can pay back debt plus costs to
reinstate debt. Only permitted in some states. Statutory redemption
occurs by payment made to public officer who held sale or another
person designated by law of amount of foreclosure sale plus
interest. Mortgagor then holds land free and clear of mortgage and
foreclosure sale AND any junior liens. If NO redemption made,
purchaser owns property free and clear. Chapter 9
Slide 131
131Real Estate Law, 6th ed., by Siedel and Aalberts Termination
of Mortgage Relationship POST SALE PROCEDURES 1. Deed executed by
public official conducting sale, BUT deed is subject to any rights
of redemption. 2. If sale price exceeds debt, Mortgagor or junior
Mortgagees, if any, receive excess after expenses of sale are paid.
3. If sale price is less than debt, Mortgagee may recover
deficiency from Mortgagor. Remember, this is only recoverable if
Mortgagor signed a promissory note. 4. Sheriff's Deed - Delivered
to Purchaser after foreclosure sale. All liens recorded before
Mortgage are not affected. All liens recorded after Mortgage are
extinguished, except special notice required for federal tax liens.
Chapter 9
Slide 132
132Real Estate Law, 6th ed., by Siedel and Aalberts Land
Contracts or Installment Contracts Definition Contract between
Seller and Purchaser whereby Seller agrees to convey title to P
when P has paid the purchase price and has performed other
obligations specified in the contract. Similar to a Purchase
Agreement in that S agrees to convey title at a later point after
satisfying certain conditions and similar to a Mortgage since it
includes specific financing terms and imposes obligations on P
which are similar to those imposed on a mortgagor. Usually paid
over a number of years. Peculiarities 1. Title to real estate
remains in Seller's name during term of Contract. 2. Purchaser does
NOT receive deed until entire purchase price has been paid AND
terms of contract fully complied with. Seller retains fee ownership
legal title. 3. Purchaser takes possession when contract is signed,
generally pays property taxes, insurance premiums and maintains
property. Purchaser has possession, therefore, equitable interest
in property. Chapter 9
Slide 133
133Real Estate Law, 6th ed., by Siedel and Aalberts Land
Contracts or Installment Contracts WHY USE A LAND CONTRACT?
SellerPurchaser 1. To offer attractive financing terms to 1. Lower
down payment. sell property.2. More flexibility 2. More
flexible.3.Can purchase home even if poor credit risk. 3.Not
subject to as many regulations and policies regarding mortgages. 4.
More alternatives in event of Purchaser's default. 5. Retains
interest in land -- greater control over use of land Chapter 9
Slide 134
134Real Estate Law, 6th ed., by Siedel and Aalberts Land
Contracts or Installment Contracts DEFAULT - Two remedies
Forfeiture - (Most popular) - Terminates contract. Seller sometimes
retains all payments made and evicts Purchaser. Payments already
made to S are kept by S as either liquidated damages or as
reasonable rental value of premises for time P in possession.
Foreclosure Similar to foreclosure of mortgage. Chapter 9
Slide 135
135Real Estate Law, 6th ed., by Siedel and Aalberts Monetary
Encumbrances Liens Real Estate Taxes Mortgages Mechanics Liens
Judgments Environmental Super Liens Nonmonetary Encumbrances
Encroachments Licenses Deed Restrictions/Covenants Easements 1.
Appurtenant 2. In Gross 3. By Necessity 4. By Prescription
Encumbrances Chapter 9
Slide 136
136Real Estate Law, 6th ed., by Siedel and Aalberts Encumbrance
= charge or burden on property that may diminish its value or
obstruct use of property, BUT does not necessarily prevent transfer
of title. Two Types of Encumbrances 1. Monetary encumbrances or
liens -- affect title 2. Non-monetary encumbrances -- affect
physical condition and use of property Encumbrances Chapter 9
Slide 137
137Real Estate Law, 6th ed., by Siedel and Aalberts Statutory
Liens Lien = right of creditor to have Debtor's property sold and
be paid from proceeds. Allows creditor to force sale of property.
Example: ABC Stereo Comp. sells Tom a $1,000 stereo. Tom only has
$200, he finances remaining $800 with ABC Stereo Comp. Tom fails to
make final payment. ABC Stereo Comp., which has a lien on stereo
can repossess and sell to recoup loss. Voluntary -- most common is
mortgage where owner of property agrees to use title to real estate
as security for a debt. Liens also arise by operation of contract.
(i.e., Contract with electrician to perform work on home) OR
Involuntary - by operation of law. (i.e., tax lien, judgment liens,
Super liens - environmental) Chapter 9
Slide 138
138Real Estate Law, 6th ed., by Siedel and Aalberts Mechanics
Liens When does owner subject real property to lien? Contract
states -- lien claimant must show he was hired by landowner or his
agent to furnish labor or materials. Consent states -- sufficient
for lien claimant to show owner had knowledge of and consented to
doing work, even if work ordered by person other than Owner, i.e.,
Tenant. (Courts recognize that Landlord is often powerless to
prevent Tenants from improving, therefore need affirmative consent
of Landlord. (i.e., provision in lease permitting additions.)
Chapter 9
Slide 139
139Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Mechanics Liens Who is entitled to lien? Driven by state statute --
Generally, both contractor and subcontractor can recover, anyone
who furnishes labor or materials to improve real estate. In some
states, the landowner is responsible for making sure subcontractor
is paid even when landowner has paid general contractor in full and
general contractor has NOT paid subs. Always best for landowners to
get lien waivers from general contractor before making any payment.
Chapter 9
Slide 140
140Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Mechanics Liens What type of work is covered ? Mechanics' liens
only available for work which results in permanent improvements.
(i.e., if contractor installs removable shelving in home which
could be removed without serious damage to home, no lien could
attach since shelving did not constitute permanent improvement.)
Chapter 9
Slide 141
141Real Estate Law, 6th ed., by Siedel and Aalberts Cont.
Mechanics Liens What's the procedure for claiming a lien? Every
lien claimant MUST record lien statement with register of deeds
specifying amount due and nature of improvement within certain time
after work completed. This appears on title work. Then claimant
must commence an action to enforce lien within a limited time
period after work is completed. If court decides lien is valid --
property is sold to satisfy debt. Chapter 9