Real Estate Transactions - OUTLINE - Fall 2010

Real Estate – Fall, 2010 – OUTLINE

Chapter 1: Contracts for the Sale of Land

A. Real Estate Brokers:a. Drake v. Hosley

i. Reasoning: The court followed the reasoning in Ellsworth Dobbs, Inc. v. Johnson that a real estate broker does not normally earn a commission unless the contract of sale is performed. This is because it is understood that the money for the payment of a commission will normally come from the sale proceeds. However, the Dobbs court specifically held that the rule only applies in the absence of default by the seller. The court further rejected Drake's argument that the call to Hosley was a modification of the sales contract because Hosley was not employed by the buyers and had no power to act as their agent in a contract modification.

ii. Notes: 1. Under the Dobbs rule, the broker can recover from a breaching seller, but there is no provision to recover from a breaching buyer unless that condition is incorporated into the buyer's contract of sale. 2. An broker who contracts with the seller is the primary broker, and if another broker finds a buyer, then the two brokers split the seller's commission 50-50. However, since the broker who found the buyer has some fiduciary responsibility to both parties, it is a conflict of interest. 6. True "buyer's brokers" are faced with a problem in compensation. If the buyer won't agree to pay them a commission directly, then they may be screwed because the seller's broker has no duty to share his commission because the buyer's broker is not acting as his sub-agent.

B. The State of Frauds and Part Performancea. Johnson v. Curtis

i. It can be argued that the lack of certain terms in the original written agreement may render the contract unenforceable such as interest rate

ii. Why is there an enforceable modification? Court finds there was a meeting of the minds that the contract price was to be reduced as a ‘meeting of the minds’ requires only objective manifestations of mutual assent for the formation of a contract

iii. Part-Performance Doctrine takes the contract out of the statute of frauds - the Johnstons’ acts of taking possession of the property and paying a portion of the purchase price are sufficient to take the oral modification to the contract out of the statute of frauds

iv. Damages: the measure of damages is the difference between the contract price of the land and its market value at the time of the breach, leass the portion of the purchase price already paid

b. Rosenfeld v. Zernecki. plaintiff and defendant had discussed and had exchanged e-mails negotiating for

the sale of defendant’s home to plaintiff. Plaintiff interpreted the sum and substance of these messages, when taken together, as an agreement of all of the essential terms of the bargain and viewed this as a contract. Defendant disagreed and moved for summary judgment dismissing the complaint that sought specific performance of this alleged contract. Defendant argued that the e-mail messages were merely preliminary and were never intended to be the final agreement which, he argued, required further discussion. Accordingly, defendant claimed that this e-mail did not satisfy the Statute of Frauds. During their dealings, after viewing the property, plaintiffs informed the defendant that they "loved the house" and offered a $ 3,500,000 cash deal.

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ii. HOLDING: The Court went on to find that the correspondence between the parties did not sufficiently recite all of the essential terms of the agreement and on that basis ultimately dismissed plaintiff‟s claim.

iii. The ability for the court to determine an available remedy or whether there has been a breach = basic elements needed in contract formation

c. Notes on Part Performance Doctrinei. Three most often mentioned acts of part performance which allow for

enforcement of a contract lacking sufficient writing are:1. Payment of part or all of the purchase price2. Going into possession of the realty3. Making substantial improvements

ii. Most courts will require more than one of those acts be performed if they are to enforce the contract i.e. taking the contract out of the State of Frauds and permitting enforcement in equity despite the absence of suitable writing

iii. A contract is still, however, requirediv. Theories of Part Performance:

1. Reliance – as articulated in §129 of the Restatement “the party seeking enforcement has so changed his position that injustice can be avoided only by specific enforcement”

C. Remedies and Real Estate Contracts Remedies for breaches of RE contracts are damages and specific performance Damages: usually means the vendor will keep the property or will sell it SP: predicated on his conveying it to the contract purchaser who will pay the full

agreed price Loss of Bargain Damages: measured as the diff b/n the contract price and the market

value of the land on the date of breacha. Donovan v. Bachstadtb. Schwinder v. Austin Bank of Chicago

D. Equitable Conversion Doctrine holds that equitable title passes to the purchaser as soon as an enforceable

contract to sell land is formed eventhough legal title will remain with the seller until the closing and deliver of a deed

2 Types of Contracts:o Long Term Installment Sale Contract: purchaser takes possession of the RE

immediately upon the execution of the contract, pays for it for a number of years and receives a deed only when the last payment is made

o Short Term Earnest Money Contract: short executory period, no installment payments but rather a single payment of the full price on the ‘closing date’ and usually no possession by the buyer until the closing has ocurred

a. Fulton v. Durob. Uniform Vendor and Purchase Risk Act:

i. Adopted by 11 states – changes the impact of equitable conversion on the risk of certain types of losses

E. Introduction to Mortgage Financing 3 most common forms of financing:

o A loan from a third party lender such as a bank to the buyero The ‘taking over’ by the buyer of the payments on an existing loan which the

seller or some former owner obtained from a third party lender; ando Financing provided by the seller himself in the form of a deferral or receipt

of some portion of the purchase price

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The obligation to pay is represented by a Promissory Note A mortgage deed or deed of trust is then issued to secure the collateral RE

a. Schrader v. BentonF. Conditions in Contracts

The provisions of a contract can be covenants or conditions or both:o Covenant is a promise – obligation to perform whereby failure to do so may

be subject to a suit for breach, with such remedies as damages, specific performance and rescission potentially available to the non-breaching party

o Condition is merely a statement that a party’s obligation to perform some covenant is dependent upon the happening of some event or occurrence

o There can also be optionsa. Barber v. Jacobs

CHAPTER 2: DEEDS AND TITLES

A. Deeds Deeds transfer legal title Statute of Frauds Elements of a Deed (pg. 139)

a. Introduction/Explanationb. Chase Federal Savings and Loan Association v. Screiber

B. Land Descriptionsa. Boundary Control and Legal Principles

C. Delivery and Escrows Delivery is mandatory and is what makes the deed operative – and undelivered deed

is deemed entirely void Delivery requires the coincident presence of two factors: an intent by the grantor to

pass title immediately and some act on the grantor’s part to evidence that intent such as the manual handing over of the deed to the grantee

a. Martinez v. Martinezb. Wiggill v. Cheney

D. Warranties of Quality Silence as to defects by the seller can be actionable if the matter not disclosed is

‘material’, is not obvious in a routine inspection and seller is aware of it eventhough the seller does nothing to mislead the buyer

Even stronger case for liability exists where the seller is shown to have taken active steps to hide the defects

a. Speigh v. Walters Developmenti. Suit for breach of implied warranty of workmanlike construction against the

builder of the homeE. Title Covenants in Deeds

Title assurance – the set of mechanisms which buyers of land use to learn in advance whether their sellers have and can convey the quality of title they claim and obtain recovery if the title turns out to not be as represented

Deed Covenant: whereby the deed itself gives the grantee rights against the grantor if the title is not as promised – lease effective

Additional mechanisms are the recording system, the title registration system and title insurance

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6 types of title covenants in deeds 3 present and 3 future (b/c of the application of the statute of limitations upon conveyance you need the future ones in case the defect is only discovered after conveyance):

o 1. Covenant of Seisino Right to Conveyo Against Encumbranceso Warranty and quiet enjoymento Further assurances

a. Brown v. Lober

CHAPTER 3: THE USE OF MORTGAGE SUBSTITUTES

A. The Absolute Deed, the Conditional Sale and Related Transactionsa. Notes

i. Clogging Doctrine: a mortgagor’s equity of redemption cannot be clogged and he cannot cut off or surrender his right to redeem

ii. An agreement allowing the mortgagee to keep any part of the mortgaged property, redemption being limited to the balance therefore fails. Nor is the mortgagee allowed to enter into an option or contract for the purchase of the mortgaged property – this is strongly adhered to by the courts

iii. The important thing to keep in mind is whether they intended the deed to stand as security for a debt. Where the parties cast their transaction in the form of an absolute conveyance instead of a mortgage, they do not intend to create the relationship of mortgagor and mortgagee but the right to redeem remains if it was intended as security

iv. Absolute Deed: parol evidence can be used to establish the deed was used not as a sale transaction but rather intended as security for the loan

v. Conditional Sale: sold subject to an option which upon compliance allows grantor to redeem the RE

b. Perry v. Queeni. Usually described as a conditional sale transaction – there was not only a deed to

the grantee but a second written document that normally purports to convfer on the grantor the obligation or option to purchase the real estate

ii. It is clear from the second writing the grantor has the right to reacquire the RE by virtue of complying with the terms of the option

c. Downs v. ZieglerB. The Installment Land Contract

A substitute to mortgage or deed of trust devices – the vendee normally goes into possession and agrees to make monthly installment payments of principal and interest until the principal balance is paid off. The vendor retains legal title until the final payment is made at which time he has a duty to execute a deed to the land

Default by vendee may result in the following remedies (and may chose only one):o Suit for the installments which are due w. interesto Specific performanceo Damages for the breach: measured by the difference b/n the contract balance

and the FMV of the property as of the date of the breacho Foreclosure on vendee’s rightso Quiet title or rescission

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Forfeiture Clause: included in all ILC whereby the vendor has the option to declare the contract terminated, retake possession and retain all payments under the contract as liquidated damages

a. Russell v. Richardsb. Petersen v. Hartellc. Sebastian v. Floydd. Summit House Co. v. Gershman

C. The Negative Covenant as a Mortgagea. Equitable Trust Co. v. Imbesi

CHAPTER 4: RIGHTS AND DUTIES OF THE PARTIES PRIOR TO FORECLOSURE

A. Theories of Title: Possession, Rents and Related Considerations Title Theory: as legal titleholder the mortgagee has a right to immediate possession

against the mortgage absent any agreement to the contraryo Limitations on the theory are that the mortgagor is recognized as the owner

of the land and the mortgagee only the legal holder for security purposeso Also, some statutes and/or standard mortgage instruments give the mortgagor

the right to possession until default Lien Theory: accepted by the majority, the mortgagee acquires only a ‘lien’ on the

RE and the mortgagor retians both legal and equitable title and the right to possession until foreclosure or a deed in lieu of foreclosure

Receiverships: b/c of the possible liabilities to a mortgagee in possession arising from the duty to maintain and preserve the property, some mortgagees instead appoint receivers in order to tap into the rents and/or benefits of the real estate without exposing themselves to liability

a. Restatementb. Dover Mobile Estates v. Fiber Form Products, Inc.

i. Commercial lease setting dealing with the priorities of leases prior to mortgage Varying Priorities by Agreement used to readjust the rights and responsibilities of the

mortgagee and lessee in the commercial lease context:o Subordination Agreement: the lease and all its rights and privileges of tenant

are unconditionally subjected to and subordinated to the lien of the mortgage instrument

o Nondisturbance agreement: the mortgagee holding a senior lien agrees that in the event of a foreclosure the purchaser will permit the lease to continue

o Attornment: tenant agrees that if the interests of the landlord shall be transferred by reason of foreclosure tenant shall be bound to the purchaser under all the terms and conditions of the lease with the same force and effect as if the purchaser were the original landlord.

c. In the Matter of Milletted. Coleman v. Hoffman

B. Receiverships Judicial appointment of a third party to take possession of the mortgaged property, to

repair or preserve the property and to collect rents Mortgagee avoids someo f the strict accounting responsibilities A receiver can take possession and attempt to reestablish a cash flow from the RE Requirements:

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o There must be shown some distinct equitable ground such as danger of loss, waste, destruction or serious impairment of the property to warrant the appointment of a receiver

o Restatement §4.3: mortgagee is entitled to receiver if: The mortgagor is in default under the mortgage The value of the RE is inadequate to satisfy the mortgage; and The mortgagor is committing waste

a. Dart v. Western Savings & Loanb. Trustco Bank v. Eakin

C. Mortgage Liability for Environmental Problemsa. Edwards v. First National Bank of North East

i. E owners of residential property next to a gas station – they had a deep well put into their house to accommodate their daycare facility

ii. Bank foreclosing on gas station removed and replaced underground gas tanksiii. E began smelling gasoline in their water – they had it tested and it came back

with high levels of gasoline in their water - E sues bankiv. Action pleads cases of action for negligence, nuisance, trespass and strict liabilityv. Bank argues that according to statute it left the premises within the stipulated 180

days and thus should not be responsible.vi. Court:

1. Reading the applicable subsection of statute so broadly was not the intent of the legislation and thus cannot be applied, the statute, together with a different section and the remainder of the text, are instructed to be read specifically

2. The statute does not therefore preempt these kinds of common law causes of action such as negligence, nuisance, trespass and strict liability

vii. GENERAL RULE: mortgagees remain liable to adjoining landowners for environmental contamination on a variety of common law theories

CHAPTER 5: TRANSFER AND DISCHARGE

A. Transfer of Mortgagor’s Interest Take Over of Mortgage: title to the land is transferred to the purchaser but the

existing mortgage is not paid off or satisfied instead it remains on the land. The purchaser is generally given credit toward the purchase price in an amount equal to the outstanding balance of the loan being taken over and may either pay the remainder of the price with that or finance all of it by other means such as a second mortgage. TWO distinct methods:

o Assumption: a promise by the purchaser to make the payments of the mortgage in place and perform the other covenants in the note and mortgage – the promise need not be written but should be

o Taking subject to Surety Relationship and recourse by Mortgagor:

o Surety exists when upon lack of assumption the real estate becomes liable notwithstanding its owner, etc.

o Surety Defenses (Pg. 460)a. Middleton v. Hancock

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i. No express ‘assumption agreement’ but M argues that H’s assumption is expressed in the contract of sake and the deed

ii. Pertinent language of the contract refers only to the fact the purchaser agress to take over payments on the existing loan… is that equivalent to a promise to pay them?

iii. Case law shows that the term take over, standing alone, constutites an assumption but court DISAGREES

b. First Federal Savings & Loan Association v. ArenaB. Transfer of the Mortgagee’s Interest

Transactions in which one lender sells or assigns the note and mortgage to another lender are known as secondary sales

Secondary Market Transactions generally fall into four categories:o Outright sale to an investor who will hold the mortgage in its portfolioo Partial Assignments (participations) sold to multiple investorso Sale of mortgage-backed pass-through securitieso Sale of multiclass mortgage backed securitieso Collateral or Security transfer of ntoes and mortgages

a. In Re AppOnline.com, Inc.b. In re Kang Jin Hwang

i. MERS issueii. Summary of the rules governing the transfer and enforcement of negotiable notes

c. Perfection of Security Interests in Mortgage Notes and MortgagesC. Discharge of the Debt and Mortgage

Once a mortgage is paid off the mortgagee is required to issue a release of mortgage to be recorded on the land records

A partial release can also be issued in instances of multiple lots whereby one gets paid off but not the loan as a whole

a. Westmark Commercial Mortgage v. teenform Associates LPi. Prepayment of a commercial loan

ii. Prepayment premiums are designed to protect a lender against potential losses it may incur if a loan is paid earlier than contracted to

iii. Restatement agrees with permitting collection of prepayment fees in case of acceleration as does the court

iv. Court finds prepayment premium clause enforceableb. Devlin v. Wiener

i. Devlin agreed to sell land to Pine Orchard for 86K in cash – Devlin would in turn payoff its mortgage – the deal to sell was with conditions on what could be done with the property

ii. Issue: is the transaction foreclosable as a mortgageiii. Holding: yes, b/c although there was not actual amount specified in the mortgage

instrument it could be reasonably ascertained and the mortgage incorporated the contract by reference thereto and the amount could therefore be determined

iv. If the contract did not state the amount it could not be determined the value of the encumbrance

D. Merger, Deed in Lieu of Foreclosure and Related Problems Merger: when a mortgagee’s interest and a fee title coincide and meet in the same

person the lesser estate (the mortgage) merges into the greater (the fee) and is extinguished – dependant on the intent of the parties

Merger Doctrine can be used either as a defense to the mortgage debt or as an argument that the mortgage no longer exists

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Deeds in Lieu: when foreclosure is impending the borrower may offer to deed the property to the lender in lieu of foreclosure – easy option to both parties

a. Mid Kansas Federal Savings and Loan v. Dynamic Development Corporation Applicability of anti-deficiency statute: IT WOULD APPLY B/C THE

PROPERTY IS A DWELLING MAIN PRINCIPLE: When a party holds a first and a second mortgage and

forecloses on the second, he cannot sue on the balance of the loan. Facts: Mid Kansas Fed’l S&L loaned certain sums to Dynamic Development to

finance certain construction; The loan was secured by first and second deeds of trust; The loan fell into arrears; Mid Kansas eventually exercised its sale powers under the second deed of trust; Mid Kansas then sued for the difference between the sale amount and the amount of the note; The trial court awarded damages in this amount; Dynamic appealed

Issue: When a party holds a first and second mortgage and forecloses on the second, can he sue for the balance of the loan? NO. The doctrine of merger and extinguishment applies.

Analysis: o When a party holds a first and second mortgage and forecloses on the second, he

cannot sue for the balance of the loan. (WOULD BE UNJUST ENRICHMENT)o When a property is bid upon at a foreclosure or trustee’s sale on a second mortgage

or trust deed, the property is acquired subject to the first encumbrance, and it is assumed that the bidders deducted the value of the first encumbrance insetting their bid amounts

o Consequently, when the successful bidder at a sale on a second encumbrance also holds a first encumbrance, to permit him to sue the debtor on the note secured by that encumbrance would result in unjust enrichment

o This is because the lienor/bidder obtains the property at a discount equal to the amount of the first encumbrance

o To allow him to recover on the note secured by the first would constitute double recovery

o Here, Mid Kansas did obtain the encumbered property at a sale on the second encumbrance

o As holder of the first trust deed, it cannot recover on the first. o Court refuses to allow merger doctrine to apply if doing so would be a detriment to a

party in whom the two interests are united. Rules: o Generally, when one person obtains a greater and a lesser interest in the same

property and no intermediate interest exists in another person, a merger occurs and the lesser interest is extinguished.

o If one holding both junior and senior mortgages forecloses the junior and purchases the property at the foreclosure sale, the long-standing rule is that, absent contrary agreement, the mortgagor’s personal liability for the debt secured by the first mortgage is extinguished.

o The basis of the merger of rights doctrine is that the purchaser at a foreclosure sale of a junior lien takes subject to all senior liens.

o Although the purchaser does not become personally liable on the senior debt, the purchaser must pay it to avoid the risk of losing his newly acquired land to foreclosure by the senior lienholder

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o The land becomes the primary fund for the senior debt, and the purchaser is presumed to have deducted the amount of the senior liens from the amount he bids for the land.

o The merger of rights doctrine holds that the senior lien is merged into – or extinguished by – the title acquired by the lienholder when he acquires the mortgagor’s equity of redemption under a sale on the junior lien.

NOTESo What do we have when someone acquires property without assuming the debt? Transferee acquired property “subject to” the existing mortgage Original promisor is still liable on the note THE LAND is primarily liable – the land is the primary fund; When MK acquired property subject to land, THE LAND itself was the primary fund

for repayment If allow MK to collect on note, it would be an injustice o Extensions of Mid-Kansas Principle The merger principle was applied to prevent the lender from recovering after

foreclosure the pre-foreclosure profits earned by a receiver of property

CHAPTER 6: FORECLOSURE

A. Accelleration and Marshalinga. Graf v. Hope Building Corp.b. Federal Home Loan Mortgage v. Taylorc. Matter of Estate of Hansend. Inverse Order of Alienation Rule

B. Miscellaneous Foreclosure Methodsa. Notes

i. Strict Foreclosure: foreclosure in court but no judicial sale – instead the mortgagor is given a period of time to pay the debt and if not the mortgaged property will simply vest in the mortgagor without sale

C. Judicial Foreclosurea. Notes

i. Prevailing method of foreclosureii. Foreclosure should terminate the rights of all interest parties who are ‘subject to’

the mortgage being foreclosed to give the foreclosure sale purchaser the title to the land as it stood at the time of the time of the execution of the mortgage

iii. Judicial foreclosure does not terminate the rights of senior lienors to the foreclosing party nor does it terminate unjoined junior interests

b. The Ommitted Party Problemi. When any party having the right to redeem is omitted from a foreclosure action

his interest is not terminated by that action. The foreclosure is void as to that party and his rights of redemption remain the same as before. The purchaser at the foreclosure sale succeeds to the rights of the mortgagee even though the sale is void as to an omitted party and also succeeds to the rights of all owners of interest in the property subject to the mortgage who were joinged in the foreclosure

ii. 2 remedies afforded omitted junior lienors: foreclosure and redemptioniii. 3 remedies afforded purchaser: redemption, re-foreclosure and strict foreclosure

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c. Citicorp Mortgage v. Pessind. Portland Mortgage Co. v. Creditors Protective Associatione. Land Associates v. Becker

D. Power of Sale Foreclosurea. Notes

i. Used mainly in instances where there is a Deed of Trustii. After notice the property is sold at public sale usually by a trustee (extent of

notice required varies)iii. Elected for its comparable efficiency to judicial foreclosure without the expenses

and burdens b. Defects in the Exercise of Power

i. Baskurt v. Bealii. In Re Edry

iii. Glidden v. Municipal Autority of Tacomac. Constitutional Problems with Power of Sale

i. Ricker v. US1. 5th amendment Due Process Clause

ii. Warren v. Government National Mortgage Associationd. The Uniform Nonjudicial Foreclosure Act

i. Attempt an uniformity in the real estate foreclosure cotexii. Provides for 3 methods of foreclosure:

1. Auction and sale2. Foreclosure by negotiated sale3. Foreclosure by appraisal

E. Disbursement of Foreclosure Sale Proceedsa. Notes

i. Where a foreclosure sale produces a surplus the liens and interests previously attached to the real estate will now attach to the equity surplus, be paid from said surplus and the remainder refunded to the previous owner

b. Bank of America v. BA mortgagei. Enforcement of surplus rule

F. Reaquisition of Title By Mortgagor a. Old Republic Insurance v. Currie

i. If the mortgagor is the purchaser or subsequently reacquires the property thre is authority that the junior mortgages revive as liens on the property

ii. Reaquisition is held to revive on 3 distinct theories:1. Payment theory2. Covenant to defend title theory3. Warranty of title theory

G. Statutory Redemption the equitable right of redemption ends once a valid foreclosure has taken place

unless there is statutory redemption which provides an additional time period for mortgagors and even junior lienors to pay to redeem title

a redeeming junior lienor will obtain the same title as the purchaser at foreclosure under statutory redemption the redemption amount is is normally tied to the

foreclosure sale price rather than the mortgage debt a. US v. Stadium Apartmentsb. Farmers Production Credit Association v. McFarland

H. Anti-Deficiency Legislation and Related Problems

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The traditional approach and the Restatement agree that upon default and accedleration the mortgagee has two options. It may either (1) obtain judmgnet on the personal obligations and enforce it by levying upon any of the mortgagor’s property and, thereafter, if insuffient, foreclose on the property; or (2) foreclose on the real estate first and if the proceeds are insufficient obtain a deficiency judgment after

Deficiency is calculated by subtracting the foreclosure sale price from the mortgage obligation

If the foreclosure is by power of sale however the mortgagee obtains a deficiency judgment by filing a separate judicial action

Majority of states limit the mortgagee’s right to a deficiency judgment such as strict notice and time requirements

a. DeBerard Properties v. Limi. Virtually all post-default waivers of §580b (in CA) are unenforceable

b. Talbott v. Hustwitc. Bowen v. Yniguezd. Mid Kansas Federal Savings & Loan v. Dynamic Development Corp.

I. The Servicemembers Civil Relief ActJ. Bankruptcy

a. Introductory Concepts i. The trustee has a legitimate interest in mortgaged real estate only if the debtor

has ‘equity’ in the property. Absent equity the trustee should abandon the RE to the mortgagee who can then proceed to foreclose

ii. If equity exists the RE will be sold by the trustee either subject to the existing mortgages and other liens or free and clear of them

iii. Trustee’s Avoidance Powers: the trustee in bankruptcy seeks to enlarge the asset pool available to satisfy the claims. As a representative of the debtor she can avail herself of any defense available to the debtor against the mortgagee even if waived by the debtor after bankruptcy

b. The Chapter 11 Reorganizationi. Notes

1. The debtor under a Ch. 11 remains in possession and can avail itself of any avoidance powers of a Ch. 7 Trustee

2. §362 of the Code allows for a stay to be lifted (1) for cause, including the lack of adequate protection of an interest in property; or (2) with respect to a stay of an act against property if the mortgagor does not have an equity in such property and such property is not necessary for an effective reorganization

ii. In Re Gunnison Center Apartmentsc. Setting Aside Pre-Bankruptcy Foreclosures

i. Notes1. Not only may a trustee set aside a transfer by a debtor within 2 years of

bankruptcy that was intended to defraud, hinder or delay present or future creditors, she may also avoid such a transfer irrespective of debtor intent if the debtor received less than a reasonably equivalent value in exchange for such transfer and was insolvent on the date of such transfer

ii. In Re Ehringd. Rents in Bankruptcye. Installment Land Contracts in Bankruptcy

i. In RE Heward Brothers

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CHAPTER 7: SOME PRIORITY PROBLEMS

A. Purchase Money Mortgages A mortgage that the mortgagor grants to enable the mortgagor to acquire

ownership of the mortgaged land Has a special priority over all other recorded liens and judgment When a portion of the loan is used for construction on the property that portion

would be considered a purchase money mortgage and as such the law provides the whole encumbrance will be treated as a PMM

a. Kentucky Legal Systems Corp v. DunnB. The After-Acquired Property Clause and the Dragnet Clause

Sometimes creditors may wish to take as security future inventory – in order to do so there must be an ‘after acquired property clause’ or a security agreement everytime new property is acquired

A Dragnet Clause states that the RE covered by the mortgage will stand as security not only for the loan now being made but also for any other debt for which the borrower is already liabile to the lender or for which the borrower may become liable to the lender in the future, until the mortgage is satisfied

a. Hickson Lumber Co. v. Gay Lumber Co.b. First Sec. Bank of Utah v. Shiew

i. To be secured under a Dragnet Clause “the advances must be made in a transaction similar in character to the mortgage transaction, unless (1) the mortgage describes with reasonable specificity the additional type or types of transactions in which advances will be secured; or (2) the parties specifically agree that the mortgage will secure them

CHAPTER 9: SUBDIVISIONS AND DETACHED HOUSE DEVELOPMENTS

A. Lien Prioritya. Subordination of Purchase Money Mortgage

i. Can be done either by incorporation of subordination language in the document or by order of recording

ii. Absent clear indication to subordinate the PMM the courts will presume it is senior in priority

b. Mechanic’s Liensi. Filed on the property by the contractor and by the workers and material suppliers

if the developer fails to pay themc. Optional and Obligatory Loan Advances

CHAPTER 10: COMMON INTEREST OWNERSHIP

A. Types of Common Interest Ownership

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a. Condominiumsi. Unity ownership – ownership of a specific portion of a larger parcel or structure

ii. A condominium is created by the execution and recording of a ‘declaration’

b. Cooperativesi. People join together as buyers or sellers creating a group which will have greater

power in the marketplace than any individual ii. Generally under blanket mortgage which precludes flexible financing and

increased inter-dependence amidst the membersc. Planned Communities

i. A blend of subdivision with the concept of shared ownership of common facilities

ii. Ownership is generally vested in an incorporated homeowner’s association and residents retain fee simple ownership in their individual units

d. Modern Law Reform: Synthesizing Common Interest OwnershipB. Conflicts between Developer and Unit Purchasers

a. Tara Manatee, Inc. v. Fairway Gardensi. Developer Guarantee Provision (in FL) developer should be excused from

payment assessments on its units during the initial sales phase when its units are typically unsold and thus not consuming the services of the association but the developer must guaranty the assessments against nondeveloper unit owners will not exceed a stated dolar amount and agree to fund any deficit incurred

b. Condominium and Cooperative Abuse Relief Act of 1980c. State Savings & Loan v. Kauaian Developmentd. Glenview State Bank v. Syman

C. Operating the Common Interest Communitya. Financing Community Operations

i. Will v. Mill Condo Owners Associationii. Evergreen Highlands Association v. West

b. Management of Community Life and Affairs i. Board of Directors of Homeowners Ass’n v. Hinojosa

ii. Committee for a Better Twin rivers v. Twin Rivers Homeowner’s Ass’niii. Aquarian Foundation v. Sholom House

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December, 2009

QUESTION I

A. Vera has no interest; in some states the buyer has no interest before the closing; in other states there are issues as to notice. Lenden probably had notice of Bob’s interest and, if so, Bob had and has priority. Nellie is acquired interest after Linden’s mortgage so her interest is gone unless protected by a mortgage provision in the declaration.

B. (1) Dave sold to Trudy ‘subject to’ thus creating a surety/land. Since the FMV decreased to 300K and the indebtedness is 300K Dave is liable for 50K. There was probably no loss from the extension and there was probably no liability for the increase in interest rate.(2) Trudy assumes: David can sue her choosing subrogation, reimbursement or … / Dave can foreclose against the property under subrogation to bank …

C. Amos files BR petition. 1. Billy asks that Amos assume: if the court treats the contract as a mortgage she will lose.

Under liberal application of Countryman, the contract is executed under BR 365 and if the court applies the facts

QUESTION II

A. **B. **C. **

QUESTION III

December, 2008

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Documents

Real Estate Transactions - OUTLINE - Fall 2010