1298 real estate outline

8/3/2019 1298 Real Estate Outline

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REAL ESTATE OUTLINE

Chapter 1:Opportunity costs: what you are foregoing by taking this routeSunk costs: will not get back; inspection

Out-of-pocket: lawyer

Chapter 2:Brokers v. LawyersUsually a broker reps the seller Brokers Duties to clients:

1. Fiduciary2. Loyalty

a. Obtaining best terms for client b. Self dealing is a no no

3. Full Disclosure

4. Confidentialitya. Dual representation:i. Full disclosure is needed

A. Commissiona. Traditional: when he procures a ready willing and able buyer acceptable to

seller b. New Rule: Sale must closec. Transaction fails because a condition in the K is not satisfied = no $

B. Brokers claims against buyer a. Lack of privity

b. Implied K theory

c. Tort theoryBrokers duty to non-clients1. no fraud, misrepresentation, etc

a. split on if liable for innocent misrep2. Trend: duty to investigate property and disclose defects reasonably

Brokers and Lawyers:1. Brokers can prepare standard K for sale

a. K v. conveyances test:i. No deeds or closing docs

b. Simple-complex testc. Incidental test:d. Public interest test

2. Lawyers acting as Brokersa. Regulation of brokers (licensing) has exemption for attorneys

i. Incidental testii. Total exemption


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Chapter 3: Preparing to Contract1. Precontract: initial investigation; offers/counteroffers2. Executory Contact: after K signing; completion and satisfaction of conditions and

obligations are worked towards3. Closing: $ for deed/conveyance. All conditions and obligations have been met.

4. Post-closing: Docs get recorded; closing lettersPrecontract Activities:A. Information gathering about market choices and risks and values

i. Latent defects should be disclosedB. Cost of information and Third party factors

Contract Formation: Negotiations to legally enforceable promises

1. Consideration2. offer 3. acceptance4. legal purpose

A. Statute of Fraudsa. ID parties, describe property, indicate intent to sell and buy, signed by party resisting enforcement, names price or other consideration

B. Writing v. K a. Part Performance

i. Oral K is enforceable when they can show substantial relianceon that K.

I. possession by the buyer II. change of position

a. buyer made repairs or improvements b. buyer paid all or part of $

ii. performance gives evidence to a K, suffers injury b. Equitable Estoppel

i. Focus on affirmative actions of the seller that misled the buyer C. Parole Evidence Rule

a. 4 corners b. Ambiguityc. Contradiction: not allowed unless there is ambiguityd. Timing

D. Integration ClausesE. Letters of Intent

a. Agreement to Agree: to give purchaser some type of assurance that adeal is likely to go through before expending additional time andmoney

b. Legal Effect: usually not bindingi. Binds parties to move forward in good faith and agree to each

others proposals of reasonable terms for the final agreementF. Options

a. Pay a negotiated price to obtain the option, getting solid right to buy ata specific time, but no obligation to actually buy


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i. Writing describes option price, how and when it is to beexercised, closing date, and other terms

Chapter 4: The Executory ContractI. As a risk management device

1. allocating executory period risk A. Conditions: excuses parties from completion when adescribed event fails to occur

B. Warranties: that something is as it was purported to bea. Party giving it takes on the risk

b. Party getting it has reduced risk C. Representations: express disclosures or statements

about important elements of the transaction. Stated inthe K to show materiality and relevance of the info.

a. Party making the rep takes on the risk D. Covenants and Negative Covenants: express the actions

or non actions the parties agree to take the risks of.a. Buyer agrees to apply for loan w/in 5 days b. Seller agrees to not remove anything from house

E. Remedies: states the consequences of particular eventsin advance

a. Includes failure of conditions, warranties, etc

3. Lawyers role in explaining K a. That it is enforceable and that all essential terms are in writing

b. That is reflects their clients interestsi. Duty to non-clients:

A. Notify them that you do not represent them and are not protecting their interest and just explain material terms

II. Contract Modifications:1. Subsequent Agreements: must it also be written. Some say yes and some allow

proof of parole modification b/c original K establishes a real agreement2. Waiver: Party can waive a condition by

a. word b. actionc. writing

3. Estoppel: Party can be estopped from enforcing a term if the other side hasreasonably and detrimentally relied on their action or inaction

III. Equitable Conversion:A. Split Title: Doctrine of Equitable Estoppel splits the title to the property

between the seller and buyer when the K is signed. Seller has legal and buyer acquires equitable title. Both have property rights and transfer their interests.

1. Legal Title: Seller has legal title only as Trustee as security for the payment to come2. Equitable Title: real owner of property prior to closing, just not right to

possession.


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B. Traditional Risk of Loss Rule: Buyer has the risk of loss from fire and othersfrom time the K is enforceable.C. Other Rules:

1. Control: who has control of the property at the time2. Uniform Vendor and Purchaser Risk Act: on seller until buyer takes

possession or legal title3. Implied Condition: On seller, b/c implied condition that house willremain goodprobable expectations

D. Contract Alocation: parties can expressly do it: usually on the one with controlE. Insurance: Both parties have an insurable interest.

III. Major Contract Conditions:A. Categories of Conditions:

1. Condition Precedent: avoid risks or duties under the K if condition notmet2. Condition Subsequent: relieved under K if expected event does nothappen

3. Simultaneous Condition: Perform at same time4. Inspection Condition:5. Mortgage Financing: must be able to get financing, list $ and interest

a. Seller financing

Chapter 5: Condition of the PropertyI. Quantity: in gross or by acreII. Quality:

A.Caveat Emptor: buyer bewareB. Pro Buyer doctrines:

1. Intentional/Negligent Misrepresentation2. Concealment3. Latent Dangerous Effects: affirmative duty to disclose4. Attorney Liability: provides false info and nonclient relies

C. Implied duty to disclose material defects: some states go further 1. Materiality: significant effect on market value2. Knowledge: seller knows about it

a. some even say should have known3. Residential v. Commercial: Mainly in home sales

D. Stigma and nondisclosure statutes: nonphysical1. material impact on value or emotional impact or psyiological defect

E. Statutory Duty to disclose: eliminates uncertainty1. Interstate land sales full disclosure Act: have to file a report on house

-for 25 or more lotsF. Implied Warranties for new housing: of habitability: can even include water accessG. Express Allocation of Risk of Quality:

1. Right of Inspection: buyer contracts for this and establish standard2. As is clause: all risk on buyer 3. Express Warranties: set forth in formal K


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a. Home Owner Warranties: can be purchased with the new homesIII. Lender Liability:

A. Lender acting like a developer: normally not liable for their appraisals or inspections, unless they exercise joint ventureB. Lenders Knowledge of Sellers Fraud: knows or should know the seller is

committing fraud, buyer can use as defense to not pay debt

Chapter 6: Closing the ContractA. The Closing Process: review performance

1. The exchange: instrument of conveyance must:a. Be in writing

b. Id the grantor and granteec. Adequately describe the propertyd. Intent to conveye. Actual or constructive delivery of the instrument ro the granteef. Grantee must accept the grant

i. Dont have to record; voluntary actB. Attorneys Role at Closing:1. Multiple Representation: duty of loyalty to client

a. full disclosure to all parties b. informed consent by all parties

i. Conflict and removal: lawyer must move in the event of litigation; he has confidential infor for each side and cannot

participate in and adversarial proceeding.ii. Seller and Buyer: Dual rep at closing is allowed, but must

withdraw if there is a dispute.iii. Payment of Fees: can be paid by source other than client as

long as there is consent and no impairment- attorney as adverse party: bad news

2. Duty to Nonclients: one party is not representeda. implied or informal representstion: dual rep may inadvertently occur b/cunrepresented party believes attorney is protecting him too.

i. hard to show b. Duty to not further clients wrongful conduct: if your client is bad you

have to warnC. Doctrine of Merger: Terms from the Executory K are merged into the deed at closing.

-risk is on buyer 1. Exceptions:

a. Collateral Matters: IF the parties intended a particular undertaking tosurvive merger, then it does not apply.

-colateral to closing2. Fraud: cant use merger to get out of liability3. Mutual Mistake: reformation is available despite the doctrine

- not unilateral mistakeC. Escrow:


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1. Loan Escrow: lenders use to collect and hold $ from debtor for paying annualreal prop taxes, insurance premiums.

a. wants to ensure payment of these items to not jepordize security b. earn interest

2. Closing Escrow: escrow agent gets deed, $, confirms steps, records

a. conditional deliveries done this way3. Contingency Escrow: used to resolve a problem that arises before or atclosingunperformed obligation of seller

a. Clearly id problem to be corrected b. sets a cost constraint on action to remedyc. time period to be done ind. standard for evidence of proof of compliancee. establish a right of inspectionf. how, when and to whom $ in escrow will be paidg. id escrow agent and his duties and obligations

Chapter 7: Contract RemediesI. Damages at Law: fungibilityA. Expectancy Damages: upon breach, give benefit of her bargain. K price-FMV

1. Resale by seller after buyer breach: traditionally seller is not entitled tocollect the difference between the K price and the new price. It is

at time of breach.B. Reliance Damages: Lost profits, out-of-pocket costs. Forseeable to breaching

partyC. FMV:

1. Fair: By the loss in property value2. Market: relevant to the type of property3. Value:

a. comparable sales b. replacement costs: cost of rebuilding or replacing buildingc. Income flow: net annual income

4. Time Value of $: discount future money for present value5. Time of Breach: prices change often.

D. Lost Profits: potential profits; burden to prove you would have earned itII. Equitable Remedies: only when damages are inadequate

A. Reformation: K has an eorror and fails to reflect intent; mutual mistake onlyB. Rescission: right to terminate K due to material default, misrep, or unfulfilled

conditionnot just mistakeC. Specific Performance: land is unique, must be ready willing and able to buy-mutuality of remedy: traditional-must show need for SP as well: modern view

1. With abatement, if reasonableD. Equitable Liens:

1. Vendor Liens: secures any amount owed the seller or vendor. If adter closing seller extended credit and fails to secure remaining


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purchase price. Vendor can bring an action for judicial forclosure and sell prop to satisfy debt.

2. Vendees Lien: obtain rescission, may have right to return of down payment of reliance damages. Can put lien on prop to get the $.

III. Liquidated Damages: prearranged K damages

A. Actual damages not easily ascertainable at time of contracting1. liquidity, FMV in futureB. Reasonable Amount: not a penalty

IV. Tort Remedies: non economic and punitive damagesA. Negligence: causes foreseeable harm you can sue on negligence and not K lawB. Strict Liability: not usuallyC. Emotional Distress:D. Punitive: for grossly negligent or purposeful conduct

V. Slander of Title and Lis Pendens:A. Slander of Title: tort action; protects value of property when character is

maligned. Person falsely disputes ownership.

B. Lis Pendens: is a notice filed in the public records for real estate that states thatlitigation if currently pending, the outcome of which may affect the status of the property.-can only be filed if the claim has a conncetion with the status of title

1. gives notice to any bona fide purchasersVI. Other Remedies: injunction, ejectment, declaratory judgment

Chapter 8: Allocating Risk by Contract and DeedI. Title Under the Real Estate Contract

A. Implied term of marketable title: condition and promise. Buyers obligation toclose is conditioned on of sellers title being marketable; he impliedly promisesthis.

1. Definition: Title that is food in fact, subject to no encumbrance notagreed upon by parties and free from reasonable doubt. No 3 rd

party claims2. Timing: at closing, not earlier. Must give seller reasonable time to cure3. Buyers Knowledge: can object at anytime, not when you 1 st find out

B. Record title compared to marketable title: must have it to be marketable1. Adverse Possession Title: not record title, may be a risk

-some courts say okfact specificC. Encumbrances: nonpossessory right in property held by a 3 rd party that reducesvalue, restricts use, or imposes obligation. To be marketable it should be free of encumbrances; except the following do not impair title usually:

1. De Minimis: does not have appreciable effect (common easement)2. Visible: buyer saw them (overhead cable lines)3. Superfluous: written and recorded, but doesnt impose obligations on

land owner in addition to those otherwise required by law4. Obsolete: time expires

D. Encroachments:1. Sellers improvements encroach: may go over boundary line and be

relocated or have to pay damages


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2. Neighbors: lose of title through AP or equity principles

E. Zoning and other public regulations: find out after closing; is it still marketable1. Narrow View of title: look at fee simple interest and encumbrances

like liens

2. Broad view: look at expectations concerning property useF. Express Contract Provisions:1. Contract Title: parties can replace judicial standard of marketable title2. Record Title: requires status of proof of title from deeds and other

instruments recorded.a. Seller required to furnish abstracts of title

i. summary of record of title3. Insurable Title: buyer must obtain

G. Buyers Remedies for Title Defect1. English Rule: not expectancy, but restitution

a. out of pocket, deposit, interest

i. unless in bad faith2. American Rule: full range of choices, even expectancyII. Formal Requirements for Deeds:

A. SOF1. ID parties, ID land, shoe intent to convey

B. Execution: signed by grantor C. Delivery: to granteeD. Acceptance: by granteeE. Acknowledgement and recordation: optional; effective upon delivery

III. Deed Constructional Rules: courts use these rules of interpretationA. Intent of Parties: get parties intent by looking at whole deedB. Conflict between parts of deeds:

1. construed against grantor b/c he drafts it2. priority given to certain clauses (granting clause)

C. Extrinsic evidence of real intent: ambiguity1. available for latent, but not patent ambiguity

D. Reformation: unambiguous deed has error, original party can bring reformation but it will not affect any BFP who is present

IV. Defective Deeds:A. Void Deeds: no legal effect at all

1. Forgery: can get damages against the forger 2. Lack of delivery: not valid ever

B. Voidable Deeds: duress or incapacity.1. grantor has right to rescind, but not against subsequent BFP

V. Deed Covenants of Title:A. Warranty Deeds:

1. General title warranties protect the grantee against any and all defectsthat may have arisen during the entire chain of title up to the time

of delivery.


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2. Special or limited warranties protect against defects arising whilegrantor owned the property, not prior to.

B. Quitclaim Deeds: no covenants of title. Grantee bears all risk associated withquality of title

C. Types of Covenants: must be express, none are implied at common law

-now statutory form for deeds creates statutory implied title covenants1. Present Covenants: do not run with land; only breached at delivery of deed and then SOL runsa. covenant of seisin: grantor promises he is seized of the estate thedeed purports to convey

b. Right to convey: grantor promises he has this legal rightc. Covenant against encumbrances: promises there are none

2. Future Covenants: run subsequent to grantees, provided not breached attime of transfer of title to subsequent grantee. Breached by actual

or constructive eviction of the grantee.a. Quiet enjoyment: grantor promises grantee may posses and

quietly enjoy landi. breached if grantor or agent of him evicts grantee b. Covenant of Warrant: same scope as abovec. Further assurances: promises to give whatever further assurancesmay be requires to vest in the future to grantee

i. cure title by getting releases from 3 rd parties3. Remedies for breach of deed covenants: usually limited to purchase

price received plus statutory interest from date of breach1. Further assurances gets specific relief

VI. Relationships Between Title under Contract and Deed Covenants:A. Doctrine of merger says executory Ks are extinguished when deed isdelivered. Deed covenants now take over.B. Quitclaim Deed and Marketable Title: If k calls for delivery of quitclaim deed

and is otherwise silent, purchaser may raise title objection prior to closing based on implied right to marketable title.

Chapter 9: Land Description1. Meets and Bounds: describes each boundary line by length and direction2. Government Survey System: sections and townships and grids therein3. Subdivision plats:Surveyor: locate boundary lines

Liability: by certificate, negiligenceRecovery: privity

Legal Adequacy of Description: formalism v. intent1. Stricter in quality of land descriptions for deeds than other Ks

Interpretation: to grantee, incorporation is ok, specifc language controls general, naturalmonuments beat artificial, monuments beat callsSOF: need ot have a legal description to be validBuyer should obtain the survey


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Chapter 10: The Public Land RecordsI. Common Law Priority Rules:

A. Delivery: first in time, first in right. Date of signing does not matter B. Exception for Prior Equitable Interest: if subsequent purchaser acquires legaltitle with notice of the prior equity

C. Most statutes change these, but if not then common law rulesII. Functions of Recording System:A. Title Assurance: can go and find itB. Priority Ranking:

III. Title Search Process:A. Construct Chain of Title:B. Check for Adverse Recorded Transfers: by present owner and all previousowners of the propertyC. Study Recorded Instruments:D. Check Other Records: judgment liens, tax liens, bankruptcy

IV. Types of Recording Acts:

A. Race Statute: a subsequent purchaser who records first wins. 3 states onlyB. Notice Statute: a subsequent purchaser who takes without notice wins. 1/2C. Race-Notice Statute: a subsequent purchaser who takes without notice andrecords first wins. states

V. Bona Fide Purchaser Status: in notice or race-notice state there are 2 requirementsA. Purchaser: must pay value for the interest. Includes loan.B. Without Notice:

1. Actual Notice: state of mind test2. Constructive Notice: of all recorded instruments a proper search shows3. Inquiry Notice: suggestive facts lead to a duty to inquire

i. Parties in possession of the actual land is a duty to inquireVI. Off-Record Risks:

A. Inquiry Notice: purchaser takes all risk of unrecorded interestsB. Unrecorded Interest: recording acts protect BFD only against off record

interest that is capable of being recorded. Some are not1. Interests unable to be created by an instrument: AP, prescriptive

easements, marital property rights2. Instruments not eligible for recording: short-term leases

VII. BFD Shelter Rule: once a BFD cuts off a prior unrecorded interest, he can transfer good title to any grantee that does not have to qualify as a BFD. He has shelter from BFD

A. Except when the BFD transfers title to the person who earlier created the prior unrecorded interest.

VIII. Recorded Interests that are Difficult or Impossible to Find:A. Name Indexes:

1. Wild Deeds: deed into grantor is a missing link that was never recorded2. Late Recorded Deeds: gap between delivery and recording where in

between another transfer happened3. Early Recorded: transfer before actually have title. Once get title, the

doctrine of estoppel by deed operates to transfer it back to the prior grantee


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4. Effect of late and early recorded deeds: split on if impart constructivenotice

B. Tract Indexes: Easier C. Defective Recorded Instruments

1. Non-delivered deeds: void

2. Forged: void3. Improper Acknowledgment: all states limit recordation to properly onesa. latent v. patent defect: most say all fail to impart constructive

notice, but some divide saying latent does.D. Mis-indexed Deed: Split

Chapter 11: Title ProductsI. Title Abstracts: a summary of all deeds and other instruments for a tract of land found

by searching public records.A. Types of Abstracts

1. Complete: chain of title back to sovereign

2. Partial: customary of 50-60 years; statute3. Updated: Once issued, they are kept by owner who bought it. They cannow only search from the end of the last one; continuation abstract

B. Standard for Liability: based on negligenceC. Who may rely on abstracts:

1. Those in privity: most expand to 3 rd party Beny2. Subsequent land buyers: negligent misrep theory

II. Attorneys Title Opinions and Certificates: states as a professional, his opinion to thestatus and marketability of the title. Usually not a guarantee

A. Standard of Liability: negligence and common norms1. Marketable title standard: duty to disclose items of cloud2. representation of scope of work: should be included

B. Who may rely: same as aboveIII. Title Insurance: Owners and Lenders Policies: alternative to abstracts or opinion.

A. Primary Functions:1. Search and Disclosure:2. Rick Spreading:

B. Process of issuing title insurance:1. Title search2. title commitment3. title policy

a. exceptions: easements, real covenants, servitudes, mortgagesC. Absolute Liability: covered by the policy; no need to prove fault or negligenceD. Policy Exclusions: zoning, AP, etcE. Off-record Risks: usually covered

1. except things that would be found by survey onlyF. Who may rely: owner of the policy

1. Warrantors coverage: if insured owner conveys by warranty deed, the policy usually protects the grantor if a title defect results in a claim

against


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G. Recovery on policy: actual loss and amount in policyH. Tort Liability: usually as they are written

1. unless really bad searching. Courts are split as to whether they have aduty to a reasonable search before issuing a policy

I. Ethical Problems:

1. Conflicts of Interest: attorney serves as agent of title co. and reps a party2. Confidentiality: he learns of problem not known to co.3. Good faith and fair dealing:

Chapter 12: Improving Efficiency of the Title SystemI. Title Standards: bar-approved consensus of what defects are significant enough toaffect marketable title

A. Minor Variations in names: unlikelyB. Period of Search: 50 yearsC. Legal Effect: they do not have force of law in court decision, but persuasiveD. Parties incorporation of standards:

II. Adverse Possession:A. Title-Clearing Function: defeats stale interests in propertyB. Modification of Boundary: undercuts recording system by preferring parties

actual possession over legal description.III. Title Curative Acts: for defective instruments; certain defects are conclusively

presumed valid after the passage of a certain number of years after recordationA. Types of Defects: missing/defect acknowledgment, failure to pay recording

fee, lack of deliveryB. Period of Time: depends 3-12 yearsC. Legal Effect: state leg and binds court

IV. Marketable Title Acts:A. Goals: limit time span of searched and render more marketable titlesB. Root of Title: Extinguishes interests in 1 st deed over 30 years oldC. Function: interest created prior to root of title no longer affects title

1. Preserving old interests: can rerecordD. Exceptions: railroads, US government, etc., other statutory exceptions

V. TORRENS SYSTEM: Title Registration: government issues certificate of ownershipfor each tract of land. Non-fee ownership like mortgages are shown as memorials

A. Not really in use because:B. indemnity funds, voluntary nature, exceptions to conclusiveness of ownership

Chapter 13: Housing Markets and ProductsI. Single Family Homes:

1. Affected by Land use controls, zoning, covenants and restrictions, planned unitdevelopments and owner associations

II. Condos: common elements, legal structure determines property ownership1. Affected by Declaration of condo statute, owner association2. Ownership Interest in common elements, limited common elements, the unit

III. Co-Op:IV. Time Share Housing


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Chapter 15: Residential Mortgage Markets and ProductsEach loan is an investment opportunity for a lender.

A. Security for the loan: Credit based on estimated future income1. Unsecured: just a promise to pay by the borrower

i. Lender hopes he can get to other assets in default2. Secured: borrower signs promissory note and puts up specific collaterali. Lender can take the property the mortgage was used for

-recording the mortgage gives priority of claimII. Primary Mortgage Market: interplay between savers and borrowers.

A. Savers give to banks and they lend that to borrowers that willgive them a good return on investment

III. Secondary Mortgage Market: Basically it is more risky, but allows more loansIV. Mortgage Products:

A. point (up front fees)

Chapter 14: Possession and Use of Mortgaged PropertyI. Mortgage TheoriesA. Title: signing of mortgage transfers title to borrower from lender for durationof mortgage

1. conveyance of title to mortgageea. defeasible: mortgagor has future interest. Pay debt by law day

and get possession, if not then mortgagee gets fee simple b. FSA w/ promise to reconvey: if payments resume

2. Gives mortgagee right to posses, but most have clause that mortgagor has right until default

B. Lien Theory: majority; mortgagee has only right to a lien until foreclosure1. Mortgagor has legal and equitable title, but mortgagee has foreclosure.

C. Intermediate Theory: hybrid; mortgagor has title until default, then mortgageeII. Equity of Redemption:

A. Hardship at Law: English common law is harshB. Intervention of equity court: right to pay late became equity of redemptionC. Anti-Clogging Rule: stuck down mortgage clauses that waived equity of

redemptionD. Late Payment and Foreclosure: puts cloud on mortgagees title

1. Strict Foreclosure: fail to file redemption by judicial dateIII. Deed of Trust: like a mortgage

A. Power of Sale: adds a 3 rd party (Trustee) to the loan transaction. If borrower defaults, the Trustee is authorized to foreclose and conduct a

private saleB. Trustees role: neutral personbut not really

IV. Possession by Mortgagor:A. Doctrine of Waste: protects mortgagee; duty not to destroy by permissive

waste1. Balance: preserve economic value of property

i. voluntary or permissive waste


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ii. duty to repair and avoid legal risk(failure to pay taxes on it)C. Relationship of Waste to Underlying Debt:

1. based on tort theory so even a non-personally liable loan holder may be liable here

a. discharge in bankruptcy

2. Non-recourse: not liable under permissive waste, but liable for bad faithV. Possession by Mortgagee:A. Fiduciary Duties:

1. Standard Care: reasonable prudent and careful manner 2. Duty to Account: collect rents and stuff 3. 3 rd parties: not usually in privity

VI. Assignment of Rents: Lender usually had clause that he gets them.A. Express assignment of specific lease: usually in separate documentB. Types of assignments of rents:

1. Collateral: creates a lien or security interest in the rent. Bargains for this right in case of default. Must take action to invoke it

-must take possession or get a receiver 2. Absolute: passes title to the rents to the lender. Can get themimmediately or conditioned on specific events

3. Presumption of collateral assignmentC. Effect on leases of mortgagee taking possession:

1. Senior lease, junior mortgage: tenants rights are not affected. Givenright notice, now performs to lender.

2. Junior lease, senior mortgage: depends on mortgage theory of statea. Title and intermediate: upon default, lender has immediate

right to posses even leased premesis and can evict a junior tenant.

b. Lien: does not have this right, but has a valid lien on the rentsand can act on these after default and prior to foreclosure or can get a judicial receiver. Lender is bound by prepayments

VII. Receivers: person who takes possession of the mortgaged property for lender.A. Judicial Appointment: mortgagee asks court to appoint one and is available in

all states as an incident to foreclosure,B. Scope of Power: managerial usually. Courts decideC. Advantages of receiver for lender: protect from misbehavior of mortgagor

1. Getting possession fast: foreclosure takes longer 2. getting income from non-rental property: receiver can do that3. Getting preforeclosure protection in lien-theory states: since they

would normally lack right to posses until foreclosure, this is their only protection from waste

4. Avoiding fiduciary duties: liabilities now on receiver D. Disadvantages:

1. Paying receiver fees2. going to court3. losing control to the receiver


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E. Standard for appointment: in equity, borrower has committed a seriousdefault, actually need a receiver or harm will happen

-must be a default and one other risky factor (ie borrower insolvency)1. Receivership clauses: some mortgage docs have this

-courts are split

Chapter 16: Mortgage ObligationsI. Form of Obligation: secures payment for performance of an obligation

1. usually a debt owed to mortgagee2. normally a promissory note is separate from the mortgage for evidence and hasall the details about the obligation to makes payments of principle and interest3. mortgage just secures the debt; makes the real property serve as collateral incase the debtor does not pay

II. Usury: limits amount of interest a lender can charge a borrower.1. Traditional Fixed Limit: 10-12% no matter what2. Compounding of Interest: how often interest is calculated

A. Simple interest: annuallyB. Market Customs: Installment loans, usually interest is wheninstallment is due

3. Spreading interest over the loan term: not usually equally distributed-normally paid after it accruesA. Prepaid interest: sometimes you pay these points up frontB. Adjustable interest rate: if it goes to high, courts may apply equalspreading of the interest if it goes above the max rate

i. usury savings clause: if subject to fixed limita. Generic Clause: parties do not intend to violate and

borrower will not pay over the max-usually against PP b/c buts risk on borrower to findout the interest rate

b. Interest cap rate: states the legal % and puts a life-of-the-loan max rate equal to it

4. Time-Price Rule: seller of real estate extends financing to a buyer he usuallytakes back a promissory not secured by a purchase money mortgage.

A. some states apply usuryB. most have a time-price or credit-sale rule

i. can give a cash price and a higher credit pricea. but the difference in price will not be construed as

interest5. Remedies for usury violations: at minimum, the lender forfeits the interest thatexceeds the usury limit

A. Statutory Damages: damages 2 or 3x the amount of excess interestB. No interest: can collect only the principleC. No further payments: relieved of duty to pay loan

6. Lender Defenses: Very difficult7. Federal Preemption on single family homes, apt., coop, etc

A. preempts only 1 st lien mortgages, not junior mortgage loans


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-not businessesIII. Late Payment: mortgagor is owed compensation depending on terms of the mortgage.It is usually also secured by the mortgage.

A. Interest on Unpaid Sum: on the period of tardiness. Only remedy unless not provides otherwise. Usually specify a rate of interest

B. Late Payment Charge: expressly provide for a fixed amount to be chargedC. State Statutory Limits:D. Federal Regulations: 15 days equal to 4% of installmentE. Liquidated Damages: is what a late payment charge is kinda like; must be

reasonable1. Amount of Charge2. Difficulty of measuring actual damages

F. State Usury laws: cant be higher interest too high or borrower will havedefense

G. Effect of statutes and regulations on common law liquidated damages rules

and usury rule: usually if it complies with the law the courts will say its ok.IV. Prepayment:A. Total Prepayment: promissory note is cancelled and mortgage is releasedB. Partial Prepayment:C. Voluntary Prepayment: borrower does on own accordD. Involuntary: lender compels it due to default or other event specified in K

1. due on sale clause if transfer propertyE. Borrowers right to prepay: usually have it in K, but if not

1. Perfect tender in time: traditional implied rule and majority says thereis not a right to prepay unless there was an agreement not to.

a. should comply with K terms b. Effect on Mortgage: lender has right to reject prepayment

then also has general right to insist the property remain assecurity for the debt. May restrict borrowers property rights

2. Implied right to Prepay: minority or by judicial decision to go this way3. Express Prepayment provisions: parties can specify this in the K

a. prepayment penalty: compensate lender for loss of bargain b. enforceability: usually, parties choose allocations of risks

V. Nondebt Obligations:A. Debt is obligation to pay a fixed amount of money

1. Collateral promises: mortgagor usually makes other promisesa. when debt is paid, obligation is gone

i. promise to insure your storeB. Primary Obligation is not a debt: requirements of the mortgage:

1. Written description of obligation: expressly state what is secures2. Definitely ascertainable amount:

a. supplier of materials and labor: may secure purchase price or wages by getting and express mortgage


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3. Support Mortgage: promises to provide financial support for theremainder of their life. Not quantified in $, but judicially as

reasonable support

Chapter 17: Transfers by Borrowers and Lenders

I. Transfers of Mortgaged Property: Either the debt is paid and the mortgage is released tono longer affect the title or it remains existing and the grantee will either assume or taketitle subject to the mortgage.

A. Assumption of Mortgage Obligation: Buyer promises the seller that he will payall the debt in accordance with the terms. 3 parties are now involved (BSM)

1. Buyers Position: Buyer is personally liable to pay the debt. Mortgageemay sue if he fails to do so.

2. Sellers Position:a. Primary Liability to pay the debt is now with the buyer. This is

the intent of assumption. b. Seller is Surety: remains liable as the maker of the promissor

note, but because the buyer is primarily liable, the seller issecondarily liable. He is a suretyc. Suretys Rights: If mortgagee sues the seller on the promissory

note without foreclosing or threatens this, the seller can:i. pay the debt: and through subrogation he now obtains the

mortgagees rights to enforce the note against the buyer and to foreclose on the property.

ii. Sue the buyer: in most states for breach of the promise toassume.

3. Further Transfer and Assumption: if the assuming buyer sells with her new buyer assuming the debt, the original seller becomes a

subsurety.c. 1 st buyer is to bear the entire risk and cost of the 2 nd buyers

default4. Express release of liability: When the seller is personally liable on the

mortgage debt, the seller can avoid continuingliability as a surety only if the lender agrees.

Need an express release of liability. Courts will not findan implied release or waiver or estoppel if the lender knew

and consented to the assumption.5. Mortgagees Position: The assuming buyer is personally liable now.

a. direct contact between buyer and mortgagee: sometimesthese 2 will have a K

i. When there is no K between them, 2 rationales justify themortgagees right to enforce the buyers assumption

-3rd party beneficiary: consider the mortgagee to be3rd party beny of the K between buyer and

seller


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-Derivative Rights: against the assuming buyer. Bysubrogation, it steps into sellers shoes and

enforces the promise to pay the debtB. Taking Subject to the Mortgage Obligation: The buyer does not promise to paythe debt, but agrees that the mortgage is permitted as an exception to good title

and that the seller is not responsible for paying the debt1. Nonrecourse Financing: Buyer has no personal liability to pay the debt, but usually does so he will not loose the property to the mortgagee

C. Modification and Extension of Mortgage Debt: When the mortgagor coveys property to a 3 rd party who assumes or takes subject to the debt and subsequently themortgagee and buyer modify or extend the debt w/o including the seller in the agreement,is the seller still personally liable? Depends on what the buyer does:

1. Assumption: Discharge of Surety: when a debt is modified or extended,the surety is discharged unless he agreed to the new terms.a. because this new term adds to the suretys risk

2. Negotiable instruments with the UCC: when these are assumed there are

different rules3. Taking subject to Debt: 3 approachesa. Total Discharge: like assumptions

b. No Discharge: she remains fully liable for the unpaid portion of the original debt

c. Partial Discharge: to the extent of the value of the real propertyat the time the mortgagee grants an extension or price

change to the non-assuming buyer 4. Reservation of rights clause: Promissory notes and mortgages often

have these saying a mortgagee and a successor owner may extendor modify the debt without discharging the mortgagor.

a. enforced, but strictly construedD. Restrictions on transfer by Mortgagor:

1. General rule is that mortgage has free alienability no matter what.2. Due-on-sale clause: parties can K to restrict the alienability; this one

says that is you sell without lender approval, they have the optionto accelerate the loan

3. Garn-St. Germain Act: preempts state laws that protects mortgagorsfrom lenders enforcing due on sale clauses. Makes the clause

automatically enforceable4. Prior State Law Approaches:

a. automatic enforceability b. Impairment test: lender act reasonably in exercise of rights

i. only if it impaired his security-new guy not creditworthy-likely to commit waste

E. Garn-St. Germain Act:1. Automatic Enforceability: lender has complete discretion2. Lenders conditions to transfers: lender can voluntarily withhold

consent and impose any condition on the proposed transfer


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3. Borrower can bargain to have an express standard for the lender to useto be put in as a clause and it is enforceable

4. Scope: applies ot every real property loan mortgage, loan, advance,credit sale secured by a lien.whether for real or personal

property

5. Office of Thrift Supervision: has authority to issue rules about the act.1. very broad view2, due on sale clause definition: gives the option

6. Automatic Clause: ruled by state law b/c OTS says Act doesnt cover it7. Exemption for residential borrowers: nonsubstantive transfers

a. shorter leases, transfers by joint tenancy, trust, familyetc b. this preempts any state rules about these transfers

F. Seller-buyer avoidance of Due on Sale Clause: Silent Sale1. Sellers risk: potential liability to lender for breach of K and can

accelerate whenever they like. (some states say they must notify)The can also sue and get expectation damages.

a. difference in yield of interest rates at K time and transfer time2. Buyers risk: liable for interference with lenders K rights.3. Lawyers risk: ethics, but are allowed to do this if it is not a crime4. Fraud: some instances5. Confidentiality: lawyer cannot reveal w/out consent

II. Transfer of Mortgage DebtA. Assignment: transfer of a mortgage loan. Lender sells entire interest in a loan

1. Assignment: lender executes and delivers a written Assignment of the Note and Mortgage. (second one is recordable)

2. Endorsement: Lender endorses the original promissory note3. Delivery: lender delivers the original promissory note and mortgage to

assignee4. Recordation: Assignee records assignment of mortgage

B. Mortgage follows obligation: must have noteC. Failure to Record assignment of mortgage:

1. If original mortgage is recorded, the priority starts at that date andtransferor steps into shoes of transferee

2. if not, then must record to have any priorityD. Types of assignments:

1. Outright Sale: whole interest in promissory note and mortgage2. Security Interest: mortgagee can pledge the promissory note

a. borrow money and grant to that lender a security interest in thenote and mortgagei. To perfect the security in the note you must give notice

E. Negotiable Instruments: writings that evidence a mortgage1. Assignee of nonnegotiable debt: takes subject to any defense the

mortgagor has against mortgagee2. Assignee of negotiable debt: risk is reduce when they have a negotiable

instrument and the assignee is a holder in due course b/c takes freeof personal defenses. (fraud in the inducement, no consideration, etc)


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a. but still takes to real defenses asserted by mortgagor -incapacity, duress, fraud in face

3. Negotiation of Mortgage: when negotiable instrument is assigned to aholder in due course no personal defenses are allowed when he

sues for payment, but what if he tries to foreclose mortgage, is it

also negotiable a. Majority view is that the mortgage follows the instrumenti. no personal defenses

b. minority view is that mortgages are not negotiable4. To be negotiable the maker must have an unconditional obligation to

pay a fixed amount of $, and the note cannot contain additionalundertakings of the maker.

5. Who is a holder in due course: assignee of negotiable instrumenta. must have possession of the instrument

b. transfer must be by negotiationc. assignee must pay value for the instrument

d. holder must that the instrument in good faith, w/out notice of any defenses or claims that the instrument is overdue/dishonored6. Laws sometime protect mortgagor from the normal consequences of

assignments of negotiable instruments to holders in due coursea. Most states limit in consumer mortgage loans: UCCC

i. consumer credit sale: prohibits the sale of an interest inland when price is 12%-take subject to all defense

b. Consumer loan: mortgage loan under 25k and 12%. Lender makes consumer loan to enable a consumer to buy property

or services is sometime subject to real defenses. Lender takessubject to them if lender

i. knows seller arranges for extension of credit by lender for a feeii. lender is related to seller iii. seller guarantees the loan or assumes risk of loss by

lender upon the loaniv. ..

b. Federal Trade Commission Regulation:i. consumer purchases: includes for acquiring goods and

services for personal, family and household use-non-negotiable

ii. mandatory notice of the intent to sale must be given to theconsumer

Chapter 18: Default and AccelerationI. Default Clauses:

A. Purposes: allow the mortgagee to exercise one or more remedies provided for by the mortgage, including foreclosure

1. Usually set forth in promissory note and mortgage instrument


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a. or refer to a collateral instrument; cross-defaultB. Lenders Decision: try and evaluate behavior to decide:

1. Foreclosure: move quickly if intentional default, threatens value of security, no realistic hope of payment

2. Workout Potential: hardship, willing to pay, good prospect

C. Interpretation of Default Clauses: promissory note mortgage, and other instruments almost always have them. Standard principle of K law1. Payment is made upon actual receipt of by the lender.

a. mailbox rule does not applyII. Acceleration: entire principle balance of loan, with all accrued interest is madeimmediately due and payable.

A. Types of Acceleration Clauses:1. Automatic: when certain events happen2. Optional:

a. advantages: more flexibility and controlB. Lack of Acceleration Clause:

1. No acceleration is what most courts say2. Anticipatory Repudiation: few accept idea that failure to pay a series of installments justifies their request for asking for full payment

C. Procedure for acceleration:1. Automatic: just tell the borrower acceleration has occurred2. Optional: must tale some affirmative action that demonstrates intent to

accelerate.a. Lenders notice to borrower of intent to accelerate followed by

an act evidencing acceleration is often required b. before the borrower cures or tenders to cure the default

D. Defenses to Acceleration1. History of Late Payments: Waiver or estoppel

a. anti-waiver clause: acceptance of 1 or more late payments is nota waiver; takes away the defense.i. some courts accept it and some say that by accepting late

payments, the lender waives the anti-waive clause b. Lender can reinstate a duty to make punctual payments

i. notify borrower of this intent2. Materiality of Default: most courts safeguard borrowers if it is a

a. technical default, b. not material or substantial,c. has not impaired security,d. equity principles permit ite. accepting late payments in the past

3. Borrowers Statutory rights to cure default:a. Prior to Acceleration: must give notice and give reasonable time

b. After Acceleration: allowed to pay arrearages and reinstate theinstallment loan

E. Amount Payable upon Acceleration: principle


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1. Prepayment Premiums: usually one or the other and not both b/c hedecided to accelerate and it is not the mortgagors voluntary

decision to end the loan transaction by prepaying the debta. Except when the default is intentional, some courts say ok

i. if clause if broadly worded

2. Late Payment Charges: Acceleration means entire debt is due, so thereis no obligation to pay installments on certain dates, so there isreally no late payments

a. Lenders drafting of docs: can change this

Chapter 19: ForeclosureI. Strict Foreclosure: Action brought by motrgagee after mortgagor has defaulted. Forces

payment or cuts off mortgagors equity in redemption. Court orders the debt to be paid bya certain date and if they fail the mortgagees title becomes absolute.

A. Only 2 states use this as primary foreclosureB. Specialized Application: if foreclosure omits a 3 rd party, this can cut off their

interestII. Key Concepts:A. Action on the Debt: ME sues to get a judgment for damages that are equal tothe principal, interest, and other mortgage charges.B. Foreclosure Action: ME seeks to change ownership of the property by erasingmortgagors equity of redemption. Action in equity. W/ power of sale itsextrajudicialC. Deficiency: value of prop is less than debt. Usually seek judgment for theshortfall; deficiency judgment by bringing an actionD. Surplus: value is more, the mortgagor has equity.

1. Paid to mortgagor if no other parties have better claim to it.a. if others are shut out by foreclosure they are entitled to the $

before the mortgagor ranked by priorityE. Election of Remedies: can elect to bring an action on the debt or foreclose

1. Action on debt can be brought 1 st without foreclosing.a. can bring subsequent foreclosure if J not satisfied

2. Foreclosure First: w/out seeking judgment on debt.a. if deficiency, then can bring an action

3. Simultaneous: can do thisIII. Judicial Foreclosure: gives purchaser same title the mortgagor had

A. Necessary Parties: Junior interest holders are necessary parties and must be joined as defendants to really transfer the title.

1. If they are omitted from the foreclosure action, they are not bound by ita. Junior Rights: still has property rights. If a junior liener

i. foreclose the junior lien. Revives 1 st mortgage, which isnow held by foreclosure purchaser

ii. Redeem the property: by paying the forclosure purchaser the amount of the 1 st mortgage debt

- purchase transaction


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- junior gains fee title in exchange for price of thefirst debt

b. Foreclose Purchaser Rights: that finds there is an omitted Junior i. Re-foreclose the senior mortgage: and join the other

party

ii. Redeem the property: pay off the junior lien-priority over Junior lien rights and can buy themout 1st

iii. Use strict foreclosure: in some jurisdictions he can bringan action of strict foreclosure against junior lienor, forcing

them to redeemC. Proper Parties: person who has rights or duties to property, but not a necessary

party. Can be joined w/out consentV. Power of Sale Foreclosure: same as Judicial Foreclosure

-mortgage instrument must authorize this power and state must have a stature thatregulates the procedure.

A. Cheap and Fast: states have it; more protection for debtor and junior 1. Notice to junior interest: is not necessary unless they have K withmortgagee that states so

B. Statutory Procedure: specify notice, sale procedures, and formalities1. Strict Compliance: protect mortgagors from risks that no unbiased 3 rd

party is supervising the foreclosure process (ie a judge)2. Harm presumed from statutory violation: set aside the nonjudicial sale.

-no injury need be shownC. Title Risk:

1. Judicial Foreclosure: once decree is issued and time for appeal passesthe title is safe

2. Nonjudicial Foreclosures: people can sue at any time= weaker titleVI. Priority of Mortgage that Refinances Prior Mortgage:

A. Equitable Subrogation: lender that pays mortgage of another and takes a newmortgage as security is subrogated to the rights of the 1 st mortgagee as against anyintervening lienholder.

-doctrine of equitable subrogation protects refinancing mortgagee who did notknow of the junior claims at the time of refinancing

1. Amount of Debt: ES protects only to the extent of the senior mortgage that wasrepaid with funds of the refinancing mortgage, not excess if the new loan takenwas bigger 2. Form Relief: given to the refinancing mortgagee

a. Refinancing mortgagee has right to Re-foreclosure the senior mortgage b. Priority to New mortgage: when the refinancing mortgagee purports to

foreclose its mortgage the court may give it priorityc. Revival of Senior Debt: when refinancing mortgagee purports to

foreclose its mortgage, the courts may revive the senior debtB. Record Priority Prevails: few states

VII. Deed in Lieu of Foreclosure: after default, the borrower voluntarily conveys the property to the lender


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A. Advantages for Borrower: lender cancels all or part of debt; avoids forclosureB. Risks for Borrower: has substantial equity it is lost and underpricingC. Advantages for Lender: gets title now and avoids proceedingsD. Risks for Lender

1. Clogging Equity of Redemption: mortgagor can try this

2. Inadequate Consideration or Unconscionability: bargaining positions3. Title Risks: deed in lieu does not cut of Juniors4. Risk of Mortgagors insolvency or bankruptcy: w/in 90 days, the

transfer may be set aside and creditors may attack the deed if itwas for less than < market valueVIII. Economics of Foreclosure:

A. Usually less that ordinary salesB. Low price does not invalidate sale.C. Courts may refuse to confirm foreclosures when there if a grossly inadequate

price coupled with a mistake (even if good faith)1. clerical mistake means lender missed sale

D. May also refuse if there is an Inadequate price coupled with irregularityIX. Statutory Mortgagor Protections:A. One-action rule: some states limits mortgagee to a single action of forecloseand deficiency judgmentB. Statutory Redemption: right to redeem property for a period of time after completion of foreclosure sale: 33 states

1. Existence of right to redeem: some allow for it under both judicial and power of sale. Almost all states say waiver to redeem is invalid

2. Time period: varies from a few months to 18 months after date of sale3. Redemption Price: usually foreclosure price, plus interest and costs

-few say he must pay the mortgagee the debt + interest4. Right to Possession: during the statutory period

-few say he must bond not to commit waste5. Who can Redeem?

-some states only mortgagor; - others say Juniors too6. Competing Redemptioners:

a. Priority Approach: mortgagor has 1 st right, if he fails-each liener has 5 days in priority

b. Scramble Approach: anyone at any time in period-once mortgagor does, the process ends

7. Compliance with Statutory Requirments: substantial is usually ok.-minor flaws do not disqualify-statutes read liberally

C. Limits on Deficiency Judgments: under certain circumstances1, Certain loans protected: purchase money mortgages made by seller

-certain property2. Methods of Foreclosure: some bar if done by power of sale3. FMV: allow deficiency judgments to the extent that the debt exceeds

the fair value of the property


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a. fair value: based on ordinary arms-length sales. Ignores thatforeclosures are usually depressed

Robert has a 1 st mortgage on Blackacre, granted by Joe, and securing a 40k debt. After granting the mortgage, Joe hurts Karen who wins 20k in damages, she got a judgmentlien on all joes real property. Joe defaults on mortgage, Robert forecloses. Robert fails to

join Karen as a party to the foreclosure. At court ordered sale, Starr buys property for 35k.Karen is an omitted necessary party: still owns judgement

1. go to court and seek to foreclose her judgment lien-Starr is a necessary party in her foreclosure action. To protect her interest she

must-pay Karen the 20k plus costs to get the lien cancelled

2. Karen may seek to exercise her right as a junior lien holder to redeem the property

-tenders 40k (amount of 1 st mortgage) to Starr -Starr gets title

-Karen now owns free and clear of all liens-Starr may have cause of action against Robert (depends on deed)Starr can:

1. Starr can re-foreclose the senior mortgage that Robert had owned, securing the40k debt

-will join Karen, who is a necessary party2. Starr may redeem the property by paying 20k to Karen

-results in a release of the judgment lien-Starrs redemption right has priority over Karens right b/c Starr

owns fee simple-if Karen tenders the 35 to Starr and Starr tenders the 20,

Starr wins3. Starr is some states can bring an action of strict foreclosure against Karen.Gives Karen a court-set deadline to exercise redemption by paying Starr 35k inexchange for title, otherwise her lien is extinguished. Starr will use it only if willing to sell to Karen if she comes up with the $.

Refinanced loans=equitable subrogation

Starr is a fee simple subject to Karens lienChapter 20: Mortgage Substitutes:I. The use of Mortgage Substitutes: sometimes used in credit transactions where amortgage could have been used. Why?

A. Mortgages limit freedom of contract1. Anti-clogging rule for equity in redemption2. Foreclosure Procedures cannot be waived

B. Types of Mortgage Substitutes- absolute deed intended as security, lease w/ option to purchase,

installment land K, sale-leaseback C. Does mortgage law not apply just b/c of as title:


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-Some courts look to substance of the K and other say freedom of K II. Disguised Mortgages: for lender risk reduction

A. Equitable Mortgage: different term1. courts use this for disguised mortgages

a. also when there was a mortgage intended, but technical diff.

III. Absolute Deed Intended as Security: party advances $ to landowner, taking a regular warranty deed. If dispute develops, owner claims parties agreed that owner could regaintitle by paying back $ + extra. Grantee often refutes if no written evidence.

A. written evidence of owners right to regain title: says owner can repurchase.-he says it is a mortgage, grantee says its a BF sale w/ purchase option

B. Parole Evidence: is admissible to show it was an absolute loan, not secure loanC. Factors: that point towards a deed intended as a security:

1. Prior loan between parties: once a mortgage always a mortgage2. Unequal bargaining power: grantor has great financial need3. Price is less than FMV: suggests debt, not sale.4. Fiduciary Relationship Between Parties: owes grantor special

relationship5. Grantor retains possession: true sales=grantee takes position6. Existence of a Debt: maybe

IV. Negative Pledge: Negative covenant, borrower promises the lender not to convey or encumber specified property before the loan is repaid

A. Status as equitable mortgage: both sides argue this in different circumstancesC. Factors whether a negative pledge = an equitable mortgage

1. Subjective Intent: if they believed it was, court maybut partiesusually disagree

2. Appropriateness of Remedies: if buyer breaches, court may gomortgage if foreclosure is the remedy

3. Construction against institutional lender: if they select the formambiguity goes against them

D. Parties Motivation: in default the lender wants a mortgage b/c wantssame priority it has when not in default. May go other way othertimes

though1. Avoiding restrictions on Borrowers Mortgage of Property:

a. marital property b. prior loan w/ due on sale clause for 2 nd mortgage

V. Installment Land ContractA. or contract for deed, is an executory K under which purchaser pays price in

installments over a lengthy period of time1. Possession: buyer goes into possession right when K is signed2. Title Retention and Deed: K is executory, but seller retains title and

promises to deliver a deed when the last payment is made.Sometimes it is signed and held in escrow

B. Market uses of installment land K: for seller financing in 2 market situations.1. Poor Mans Mortgage: person who does not qualify for institutional

financing b/c no down payment/bad credit


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a. Vendor does this banking on idea that is they default, K termination and repossession will be cheap and easy-also that home has the value of the debt or more

2. Vacation/Resort Sales: on lotsC. Vendors Remedies for Purchasers Default

1. Forfeit Clause: most have these. Expressly provides for forfeiture as aremedy for purchaser breach. K rights and right to possession areforfeited. Vendor has option to declare it. Courts apply K

analysisa. Traditional: enforceable as written, absent K defenses

b. Modern: treated as a penalty-not enforceable if causes great hardship-or gives borrower restitution for excess payments over the

damage amount2. Expectancy Damages: instead of declaring forfeiture, may terminate K

and sue for expectancy

3. Restitution: vendor rescinds K and wants to be put in pre-K positiona. get value from possession to rescission and gives payments back 4. Purchasers Right of Redemption: in some states, after default has right

to pay vendor the unpaid K balance and receive titlea. if paid substantial part of the price already

5. Foreclosure as a Mortgage: Vendor does so as an equitable mortgage;sale under standard judicial foreclosure proceduresa. All Installment Contracts: in a few states is an EM. Foreclosure

is only means to terminate K and regain right to possessioni. practical effect: seller should never use

b. Substantial Payment: some states say this is no longer available,must foreclose and an equitable mortgage

D. Transfers by Purchaser 1. General Rule: freely alienable2. Express Restrictions: due on sale clause

1298 real estate outline

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