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PROPERTY, POSSESSION, AND OWNERSHIP

CONCEPT OF PROPERTY
Private Property

Occupation theory occupation or possession of a thing justifies legal protection of that thing
Labor theory moral right to ownership and control things through labor
Contract theory private property is the result of a contract between individuals and the community
Natural rights theory natural law dictates the recognition of private property
Social utility theory law should promote maximum fulfillment of human needs and aspirations; legal
protection of private property better promotes this

Sunstein

Without substantial private property, cannot have democracy


More money in private sector center = weaker government
Stronger belief in private property = stronger disagreement with central government

Bundle of Rights

Bundle of rights or expectations in tangible or intangible things that are enforceable against third parties,
including the government

Right to Possess/Occupy

FSA mostly just applies to surface of the ground


Limits to FSA possession:
o Zoning ordinances
o Restrictive covenants aka private zoning

Right to Use

In CA, CC&Rs (covenants, conditions, and restrictions)


Zoning limits
Law of private nuisance (common law version of zoning)
o Person who owns RE cant use land in such a way as to unreasonably interfere with neighbors use
of RE

Right to Exclude

Limitations
o Police/health official warrants
o Businesses have to adhere to public accommodation and discrimination statutes

Jacques v. Steenberg Homes

SH trespasses on Js land
J brings action for trespass, wins because as possessor, he has the right to exclude

Right to Alienate/Transfer

See unreasonable restraints on alienation section

Right to Destroy

Cant destroy historical RE/national landmarks

Legal vs. Equitable Title


Legal Title

Legal relief = damages


Legal courts created new forms of specific relief so legal remedies would become an adequate remedy at
law

Equitable Title

Specific performance and injunctions


Only grant equitable relief when there is an inadequate remedy at law
Equity: debtors real interest (difference between value of the land and amount of mortgage against it)
Equitable title in a property is thought to be real title

ADVERSE POSSESSION

Elements of Adverse Possession


Statute of Limitations

CA is 5 years + must pay taxes


Some states are 20 years
Most states are 10 years

Actual Possession
Engage in acts associated w/ possession of RE
o Have to use land in reasonable manner compared to other land in the vicinity
Actual possession depends on the context
Open and Notorious
TO supposed to benefit from O&N because it puts TO on notice
If TO has actual notice, doesnt need O&N
TO must be able to notice that something prejudicial to his interest is going on if he was there
Chaplin v. Sanders
Sanders used part of Chaplins land for their trailer park
Sanders gave actual notice, so court didnt need to decide O&N but
o Court said O&N satisfied anyway because residents treated land as their own
Court also decided hostile/state of mind issue claimants subjective intent irrelevant

Exclusive

Sharing ownership w/ TO defeats exclusivity

Continuous

W/o significant interruptions


Various ways TO can interrupt continuity
o Bring ejectment action establish that AP is trespassing
o Action to quiet title remove cloud on TOs title
o Permission offered and accepted
Permission by TO means AP is on property under, by, or through TO and not in AP
Significant absence would interrupt continuity and cause the statute of limitations to start all over again

Hostile/Adverse

State of mind question


Claim of right/moral
o NELSON likes this one
o Good faith belief the land is yours
o Cant be a knowing thief
Immoral/Maine Doctrine
o Knowing wrongdoer
Amoral/Connecticut Doctrine
o Intent to possess property as ones own
o Good or bad faith motivation is irrelevant
Nonpermissive
o If permissive, no AP
o If non permissive in any way, AP
o Very few courts use this
Joseph v. Whitcombe
NY hippie case
Occupy house for 15 years
Whitcombes had no claim of right

Factors Affecting Adverse Possession Claims


Tacking

APs must be in privity with each other in order for predecessors possession to benefit the successors
possession
Privity:
o Written deed
o Intestate succession
o Wills
o Oral transfer
Very hard to prove
Depends on the context who the parties are and what their traditions are

Color of Title

Some sort of writing (doesnt have to be true or valid) that purports to say the holder has title
Debate over state of mind: if holder of title knows its false, its not a claim of right under the moral
position
If you have color of title, you can expand the area under which you can claim AP to more than what you
actually possess
Some states decrease the statute of limitations if AP has color of title

Legal Remedies

Ejectment
o Available to person who is out of possession and asserts a better right to possession than the
current possessor
o Owner records decree of ejectment to establish that current possessor is a trespasser
Trespass
o Another person enters upon owners land or otherwise disturbs owners possession of land w/o
permission or consent
o Successful claim entitles P to actual damages resulting from trespass and to injunctive relief
against future trespass
o Punitive damages may also be awarded

Justification and Notes


Two Versions

Whole hog AP
o tract of land with TO and AP
o AP possesses for long enough period of time so AP claims he owns the whole property as against
the TO
Boundary line disputes
o More common
o Two TOs with encroaching land

Future Interests

AP takes the land as he finds it so can only acquire title against those who have the current right of
possession
Mortgages are similar to future interests because if foreclosure occurs, the title passes to someone else

AP and Government

Cant claim AP against sovereign/government owned land


o Assume gov is incompetent and need to protect them against their own incompetence
o Hurts public/taxpayers
o Hard to satisfy O&N requirement when youre saying the gov land belongs to the whole public
o Small gov. entities in some states can lose land through AP
Government can obtain title against private landowner through AP

AP in California

Have to satisfy elements of AP AND pay taxes on the land in CA


o There are ways to get around the tax requirement
Tax Increase Theory
Encroacher gets property assessed and pays taxes on new value

Therefore, paying taxes on the encroached AP property


Easement by Prescription Theory
AP can get an easement to use the surface but you dont get FS title
AP not paying taxes, but uses land through an easement
Otay Water District
OWD builds dam, floods private property
OWD gets easement by prescription to use the surface of the flooded land
Cant get AP because they didnt pay taxes

AP of Chattels

Usually with regard to tangible chattels


O&N hard to satisfy
Passage of time more meaningful
Apply replevin statute
o Carries a statute of 4-6 years
o When does statute of limitations start
When chattel is taken is too pro-thief
Courts choose to start statute of limitations when location is known by TO who has been
engaged in due diligence trying to find it

LOST AND ABANDONED PROPERTY


Classifications

Abandoned
o Owner no longer wants to possess it and voluntarily gives up all right, title, and interest
o Belongs to finder of property against all others, including former owner
Lost
o Owner unintentionally and involuntarily parts with property and does not know where it is
o Typically use the Armory Rule to determine who it belongs to
Mislaid
o Owner voluntarily puts property in a certain place and then overlooks or forgets where the
property is
o Finder of mislaid property acquires no rights
o Right of possession belongs to owner of premises on which the property is found, against all
others but the TO
o Property found in the scope of employment goes to the employer
o Assumption that TO may eventually recall where he placed it and return for it
Treasure trove
o Coin or currency concealed by owner usually means buried
o Must be old
o Belongs to finder against all but the TO
o Policy arguments (NELSON thinks these are silly)
Wants to get coin back into circulation
o Dont want to give property to trespassers so most courts will try to find the property as mislaid

Unowned Property No TO Exists

Popov v. Hayashi
Ball = abandoned property
Ball bounced out of Ps glove
H got physical possession
Maybe P wins if you use some form of constructive possession
P had pre-possessory interest that compromised Hs claim of full possession
Court couldnt make up its mind so ordered the ball sold and the proceeds split evenly
NELSON thinks P got the shaft and no one got any justice
Pierson v. Post: First to Possession
Post in pursuit of fox fox goes up a tree
Pierson shoots the fox and takes physical possession
Actual v. constructive possession
o If its actual, Pierson clearly wins
o If its constructive, Post might be able to win
Court ruled that hot pursuit was not enough and gave it to Pierson
Policy Implications
Worried about slippery slope argument
Dont want to discourage active participation

Lost/Mislaid TO Exists
Armory Rule

Finder of lost property prevails as to all but the TO


Caveats
o Only applies to lost, not mislaid property
o Doesnt deal with questions of competing finders
Finder #1 loses it, Finder #2 finds it
Court says Finder #1 wins as against #2

Special Relationship Cases

Such as safety deposit boxes and banks, etc


Property should go to premises because there is a special relationship between the premises and the people
on them that makes it likely the TO will return

Finders Statutes

Encourages or requires finder to take object to some county office and deliver possession of the chattel to
the government
Government advertises finding of the chattel which theoretically gives TO notice
Typically 1-2 years of notice phase
o If TO never shows up, finder gets the property
o Cuts off title in TO
Incentive is to encourage disclosure: if the TO doesnt show up, finder gets to keep it; if TO does show up,
finder gets reward
Benjamin v. Lindner Aviation
Benjamin finds money in wing of airplane owned by bank through foreclosure sale
Court ignores finders statutes and gives the money to the bank as owner of the premises on which it
was found, in this case an airplane
Chappell Case (distinguishes from Benjamin)
US seizes car from drug dealers, finds money in it, takes the money, sells the car
Chappells buy it, mechanic fixing it up finds more money in it (doesnt belong to him because he is an
agent of the Chappells)
US says they own the money
Court rules the money is abandoned, not mislaid because drug dealers arent going to return for the car

First to possess owns abandoned property


o Chappells were first to possess because the US didnt even know about the money when they
had the car

Outlier Cases
Hannah v. Peele

Finder prevailed even though item was found in a residence


Owner had never used the house as a residence
Current tenant (British army) never used it as a residence

Farmer/landowner asks boys to clean chicken coop


Boys find gold coins in the ground
Farmer gives boys 5 and they get mad
Nelsons analysis
o Property is mislaid/embedded and found within the scope of employment
o Farmer is landowner so he should get the property even though hes a jerk
Courts analysis
o Used the Armory Rule finder of lost property prevails

Danielson Chicken Coop

Trespassers
Anderson v. Gouldberg

Anderson (trespasser) unlawfully cuts down trees, takes them to a saw mill
Gouldberg steals logs from a saw mill
A sues G for value of lumber
Two clear wrongdoers, court holds for A the first wrongdoer/possessor

Edwards burglarizes Hammels house and steals jewelry


E arrested, jewelry ends up with US gov
Not all the jewelry belongs to Hammel but the court awards him all the jewelry as last known possessor
Court cites A v. G slightly different because E was the only wrongdoer in this case

Virgin Islands Case

Law of Salvage
Maritime law
Salvor raises sunken vessel/takes goods off of it
Gives that person a lien on the vessel
o Court determines what the value is of the salvage operation
Salvor gets to collect that money by selling ship or goods at public auction
If lien is not paid by owner, lien will be foreclosed
If its unowned, courts apply common law of finders Armory Rule
If ship is not in open waters, ship being embedded in the land means government is a possessor and gov
wins a lot of those cases as being prior/first possessor

Public Policy Arguments


Encourage disclosure of a find so that TO is most likely to get it back
o Stronger the rights of the finder to prevail would encourage more disclosure
o Want to reach a result most likely that the TO will ultimately acquire the chattel
Pervasive policy to discourage trespassing
Ought to reward hard work and initiative
Want a result/analysis that creates clarity and predictability (want to know what the law is)
Want to avoid violence

Nelsons Helpful Adjectives


Goods or the Thing

Lost favors finder


Mislaid favors landowner, or whoever controls possession of the land
Hidden/buried favors landowner, another way of saying it might be mislaid
Embedded definitely favors landowner (even if he doesnt know its there)
o Courts are moving away from treasure trove designation
o Doesnt mesh with rules of fair play
o Invites trespasser
Abandoned automatically triggers first possessor (sometimes landowner, sometimes not)
Unowned triggers first to possess

Place/Location of the Find

Private v. public
The more private, the stronger the equities favor the landowner
The more public, the stronger the equities favor the finder
The more the land is open to the public in general, the weaker the landowners claim is
o Inviting people onto the landnot trespassers
o Expectation of owner who is opening land up to the publicreasonable owner wouldnt expect to
acquire an ownership interest
o Implicitly giving up property rights by inviting people in
Place where finder or TO has a special relationship to the owner of the premise

Claimant

TO
Prior possessor normally favors prior possessor (esp. if abandoned)
Loser (of the property) usually prevails if TO or PP
Landowner in possession owns FSA and in possession of the land
o Very strong position
o Still might lose
Tenant in possession
o Clearly mislaid, doesnt go to finder
o Depends on how long tenant has been there
Employer/employee
o Cant just use a but for argument focus on whether employee is in the scope of employment
Agent of the finder favors the finder
Trespasser almost always loses
o Might win in the states that have treasure trove doctrine
Invitee/licensee
o Cant use trespasser argument

ESTATES IN LAND
Estates vs. Non-Estates

Estates: interest in land that is or may become possessory


Non estates:
o Easement: interest in land that is non possessory
Right to use someones land but not to possess it
De facto possession
o Perpetual easement: gonna stay there pretty much forever

PRESENT ESTATES IN LAND (look at E&E again)


Name of Estate

Language Used to Create Name of Future

Who Gets Future How does Estate

Estate

Interest

Interest

Terminate

Fee Simple
Absolute (FSA)

to A and his heirs


to A (modern version)

none

n/a

cannot terminate;
duration is unlimited

Fee Simple
Determinable (FSD)

to A so long as
to A until...

possibility of
reverter

the grantor

automatically upon
occurrence of condition

Fee Simple on
to A on condition that
Condition
to A but grantor may
Subsequent (FS-CS) reenter if...

power of
the grantor
termination or right
of reentry

grantor must take


action after the
occurrence of the
condition

Fee Simple Subject to A so long asand then


to Executory
to B
Interest (FS-SEI)
to A untiland then to B

executory interest
(EI)

someone other
than grantor

automatically upon
occurrence of condition

Fee Tail

to A and the heirs of his


body
to A and the heirs of his
body, remainder B

Remainder if so
stated, otherwise
reversion

third party if so
by the death of the
granted,
holder of the fee tail
otherwise, grantor with no surviving
bodily heirs (lineal
descendants)

Life Estate

to A for life
remainder if so
to A for life, remainder to B stated, otherwise
to A for the life of X
reversion

third party if
remainder is
granted, otherwise
the grantor

death of the life tenant


(or of the measuring
life, if different than the
life tenant)

Fee Simple Absolute


Potentially infinite duration or uncertain duration
Freely alienable, devisable, inheritable
Conveyance may not contain any express language of defeasance
Fee Simple Presumption Statutes

Applies to fees of either infinite or uncertain duration


Unless language clearly indicates otherwise, a deed or conveyance creates FSA

Woods v. County

Woods granted land for memorial hospital and county stopped using it as a hospital
No FS-D was created because deed lacked limiting language and particular circumstances under which
FS-D might expire
No FS-SCS was created because deed did not clearly state an intent of the grantors to retain
discretionary power
Court goes through checklist of title options and decides FSA

Fee Simple Defeasible


Fee Simple Determinable

so long as, but if, until, or reverts to O


Language of duration and specific provision for automatic termination on occurrence of contingency
Rents and profits
o Original grantee becomes a trespasser and is liable for rents and profits if condition is met
o Liability accrues when condition is met

Fee Simple Subject to Condition Subsequent


O has future interest in the right of entry or power of termination
o Gives O discretion to exercise it
Language of condition and express provision for discretionary right of entry
No right to rents or profits until grantor exercises right of entry

Fee Simple Subject to Executory Interest

Typically not used much today because it violates Rule against Perpetuities
Future interest in third party that gives title automatically on occurrence of condition

Restrictive Covenants and Precatory Interests

Restrictive covenant
o Contract/promise with no effect on the title
o Could be an enforceable promise that could result in injunction or damages but doesnt affect title
Precatory interests
o Merely expresses a wish
o Not legally enforceable

Waiver of Right of Entry and Possibility of Reverter

Right of entry much easier to inadvertently waive by not doing anything in a reasonable amount of time
Most courts say possibility of reverter not capable of being waived because its automatic
Giving permission may waive possibility of reverter
Could convey possibility of reverter to present possessor to effectively give them full ownership

CA Statute on FS-DFS-SCS

Every FS-defeasible is an FS-SCS and there is no FS-D in CA


Any deed restriction that created a determinable estate is good for only 30 years
Grantor can renew it for another 30 years
Helps TO defeat AP

Red Bluffs Case

Last time CA courts enforced a determinable fee


Krafts granted land to Red Bluffs in FS-D and brought action for right of entry
Were actually outside SoL but no one brought that up so they got the property back

AP and Defeasible Fees

FS-D means AP SoL runs as soon as condition is met


FS-SCS means AP SoL runs when grantor exercises right of entry
Reason for CA statute

In re 88 Acres

Harringtons gave land to town in FS-D


Town used it wrong, Harringtons wanted it back
Waited too long, title came back to them automatically and so town had been in AP and it was theirs

Fee Tail/Fee Simple Conditional


Fee Simple Conditional/Fee Tail

OA and the heirs of his body


Basically the same thing in the US
Effectually a series of life estates
Not devisable or generally inheritable because property passes from one generation to the next under the
terms of the fee tail grant
Historically a way to keep the property in the family line and avoid conveying FSA
Courts have created disentailing devices
o Mechanisms where heirs could create FSA
o Basically uses a straw man

Fee Tail in US

No fee tail in CA so OA and heirs of his body is FSA


Some states recognize fee tail but also recognize disentailing devices
Some states use Fee Simple Conditional
MO, KS, and a few other states have hybrid fee tail
o Life estate in A and remainder in FSA in As surviving issue

o
o
o
o
o

Can never be sure there will be surviving issue of A until A dies


Still used in rural areas
Mechanism to keep property in the family for as long as possible
If A has no surviving heirs, reverts to O
No one gets FSA until A dies

Life Estate

LT has right to possess, to rents and profits, and to use and enjoyment
LT does not have power to exercise dominion (to treat land as if he is actually owner in FSA)
Conflicts of interest may occur between LT and future interest holder
Life estate pur autre vie is inheritable
People dont usually buy and sell life estates bc they would need to get a physical exam of the person who
owns the life estate to see if its worth their time and money
Sometimes life estates are transferred involuntarily via foreclosure and execution sale
o Buyer at execution sale will own life estate measured by first owners life
Life estate defeasibles exist where O would have future interest of reversion AND possibility of
reverter/right of entry

Leaseholds

See section on landlord-tenant relations

FUTURE ESTATES IN LAND (add info from E&E)


Future Interests in Grantor
Name of Interest

Characteristics

Example

possibility of reverter

follows FS-D or other determinable


estate

to A so long as the land is used as a


residence

right of entry/power of termination

follows FS-CS or other estate on CS

to A but if land is not used as residence, I


may reenter and retake possession

reversion

follows an present interest that is not D to A for life


or CS
to A for 10 years
to A and the heirs of her body (fee tail)

Possibility of Reverter

Follows FS-D or other determinable estate


Vests automatically

Right of Entry

Follows FS-SCS or other estate on CS


Grantor must take some action to retake possession

Reversion

Follows a present interest that is not D or CS


Follows natural termination of preceding estate
Catch all phrase and the most common

Name of Interest

Characteristics

Example

remainder

must comply with four rules of


remainders

to A for life, then to B

executory interest

does not comply with one or more of


the four rules of remainders

to A for life, and one month after As death, to


B
to A so long as the land is not subdivided, and
if it is, then to B
to A for life, but upon As death or divorce, to B
to B, to take possession upon Bs 21st birthday

Future Interests in Third Party

Remainder
Must comply with all four rules
o Must be created at same time and by same doc that creates prior estate(s)
o Must follow a freehold estate but cannot follow FS (usually life estate or term of years or fee tail)
o Must not have capacity to cut short a prior estate
Must take possession only on natural termination of prior estate
o Must be no built in time gap between termination of prior estate and taking of possession by
remainderman

May create an estate in any interest (FSA, FS, life estate, etc)
Executory Interest

Use the test for remainder


By process of elimination, if its not a remainder, its an executory interest
Typically follows interest in some form of FS-defeasible

Restraints On Alienation
Express Unlimited Restraints

Pretty much always bad


Disabling totally unenforceable; means the grantee cant transfer at all
Forfeiture grantor attempted to create a defeasible estate in grantee that is subject to right of entry on
condition of alienation
Promissory grantee covenants not to transfer

Express Limited Restraints

Valid if justified by legitimate interests of the parties


o Balance utility of purpose served by restraint against injurious consequences likely to flow from
its enforcement
Alby v. Banc One (prodigal niece and nephew)
Combines FS-D with restraints on alienation
Albys grant land to Brashers (niece and nephew)
o Automatic reverter limited to lifetime of Albys forfeiture restraint
o Did not prohibit FSA conveyance
Court decided their restraint was reasonable because it was limited in time and didnt completely restrict
transfers
Title flew back to Albys as soon as Brashers took out a mortgage
Banc One was negligent in not examining title

Restrictions on Life Estates

Courts generally uphold broad restrictions on life estates bc theyre limited in time
Disabling restraints are bad even on life estates; forfeiture restraints are ok

Restrictions on Leaseholds

Promissory/forfeiture restraints on leaseholds are ok


Not FS and only last as long as the lease term

PROTECTION OF FUTURE INTERESTS


Law Of Waste

Usually an interest in life estates when life tenant and future interest holder are at odds
Not seen as much in leaseholds bc there are already provisions in the lease regarding waste
Holder of present interest not supposed to unreasonably damage holder of future interest
Owner of defeasible fee only charged for waste in limited circumstances bc his interest may go on forever
Future interest holder may collect damages or issue an injunction

Voluntary Waste

Result of affirmative action by life tenant

Some types of acts permitted


o Cut down some trees
o Open mine doctrine
o Doctrine of emblements

Ameliorative Waste
Waste that will make the property more valuable
Brokaw v. Fairchild
Brokaw wants to tear down fathers residence and build profitable apt building
Fathers grant mentioned my residence multiple times
Future interest holders didnt want apt buildings
Court decided that grantors intent was for building to remain a residence so Brokaw couldnt tear it
down
Melms v. PBR
PBR believe they own the property next door in FSA, but they really have a life estate pur autre vie
Tear down big mansion next door bc everything around it is industrial
Melms sues PBR for damages for tearing the house down
PBR made rational mistake and has no liability for damages because tearing down the house made the
land more valuable

Permissive Waste

Failure to act when you have the duty to act


Default rule: life tenant should maintain property as he found it, by keeping it wind and water tight, less
reasonable wear and tear
Life tenant has obligation to preserve the principal
o Cap on how much life tenant has to spend reasonable or actual rental value of property
(whichever is greater)
Typically remainderman insures the property but life tenant can too
Life tenant must pay taxes on whole FSA
If there is preexisting mortgage, life tenant is obligated to pay interest on the mortgage (but not the
principal)
If grant includes w/o impeachment for waste
o Life tenant doesnt have normal obligations of repair
o Absolves life tenant from payments except in situations of outrageous conduct
Grantor can specify what life tenants obligations are and are not

Remedies and Time Value of Money

Damages (after the waste occurs)


o Determine what was fair market value in FSA before and after the waste
If court determines fair market value lost was 200k, has to consider time value of money
o Need to know As life expectancy and actuarial tables to determine what B (remainderman) gets in
the future
Contingent future interest holders can bring injunction actions unless possibility of their interest vesting is
very remote
Higher the interest ratelower ones obligation if payment is in future BUT lower the lump sum in the
present as well

CONCURRENT INTERESTS
CONCURRENT ESTATES
Joint Tenancy

Created by deed or will


Right of survivorship and not as TinC
Survivor owns property in FSA
JT is a will substitute a way to pass real estate without going through probate

o Cannot sever or change JT by the use of a will, no matter if its pre or post creation of JT
If OA, B, C as JT w/ right of survivorship and AR
o B and C are still JT to each other and R is TinC w/ 1/3 interest
o Right of survivorship effective between B and C
o When R dies, her 1/3 interest will go though her estate
In JT each person has an equal share and only natural humans can own in JT (not corporations)

Severing Joint Tenancy

Classic way to sever JT is a deed to a third party which converts interest to TinC
Deeding to third party can be secret, no notice needed to other JTs

The Four Unities

Traditionally, JT had to satisfy these but courts have been moving away bc theyre too formalistic
Some courts now look at intent to sever
If any unity is broken, JT severed
Time: JTs have to have gotten interest at the same time
o A cannot convey deed to himself and another in JT bc then they didnt get the interest at the same
time or by the same document
Title: JTs must have derived interest from the same doc/instrument
Interest: JTs must have same percentage of interest
Possession: JTs must have right to possess the whole thing

Buying and Selling Property

Execute an earnest money contract when buying property


Equitable conversion
o Seller signs contract, sellers interests converts to personal property in the right to receive the
purchase price as the major interest
o When buyer signs contract, buyer gets equitable title
o Sellers title converts to legal title when buyer signs
Buyer puts up 5% of purchase price to show they are earnest
Executory period occurs where buyer does diligence
Closing
o Buyer receives deed conveying all sellers interest to buyer so buyer gets legal and equitable title
o Seller gets paid in full
o Buyer gets financing from some lender and delivers mortgage to lender
When buyer or seller dies between contract and closing, its a big deal for severability
o Formulistic approach
Severs JT by signing earnest money contract
As interest is legal title, Bs interest is legal and equitable so it destroys unity of title and
time
o Intent approach
Reaches same result severs JT bc A clearly intended to get rid of his interest
Phillips v. Nyhus
Business partners owned property in JT and jointly enter earnest money contract to sell property
Phillips dies while in executory period
Formalistic approach says JT was not severed bc interests are still consistent with each other
Intent approach means you would need to know what they were going to do with the money
So Phillips interest from the sale went to Nyhus, not Phillips estate
Albro v. Allen
Carol and Helen are JTs w/ full right of survivorship (non severable JT in MI)
Carol enters unilateral earnest money contract to sell interest to Kinzer
Court says Carol has right to transfer property BUT Kinzer will only get a life estate measured by
Carols life + her right of survivorship

Porter v. Porter
Right of survivorship does not arise out of marriage relationship absent either an express intent to
sever or actions inconsistent with the continuation of JT, a divorce judgment alone will not sever JT
Formalistic approach: divorce created TinC, H gave up right to possession
Intent approach: intent is not to sever, agreement was only temporary

Tenancy in Common

Dont need equality of interests


o Fraction of interest is relevant when determining shares of rent
Each person has the right to possess all the property
No right of survivorship, interest passes by will or intestate and forms new TinC with other tenants
Alienable inter vivos and devisable/inheritable upon death
Unity of possession is the only applicable unity
If they cant get along, look at partition
Jones v. Shannon
W lives in house, H agrees to make mortgage payments
Property to be sold in reasonable manner and proceeds to be split evenly
H marries W2 and deeds half his interest to W2 before he dies
Courts use intent approach in divorce case to decide intent of divorce was to create a severance
W and H owned house in TinC after divorce so now W and W2 own house as TinC
W2 can seek partition in court ordered sale

Partition
Split of concurrent estate when parties cant get along
Can be in kind (physical split) or by sale (monetary split)
Ark Land v. Harper
A&B dont want to sell their land to ArkLand but the other co-Ts already did
ArkLand wants it bc theres coal under it
Presumption was partition in kind to overcome it, party who wants partition by sale (ArkLand) must
show:
o Property cannot be conveniently partitioned in kind
o Interests of one or more parties will be promoted by the sale
o Interests of the other parties will not be prejudiced by the sale
A&B will get more money for it if its a partition by sale
Economic value of property is not exclusive test for determining whether to partition in kind or by sale
o Court must consider that interest of all TinCs
Physical partitions dont work when you have improved real estate (house or building on the property)
because you cant split up a house
Partition by sale goes to the highest bidder
TinC with highest fraction of interest most likely to buy property bc he would owe less
Partition also available for JT
Restraints on Alienation and Promissory Restraints
Multiple co-Ts can put promissory restraint on partition
Promissory restraint on partition does not restrict alienation so not as severe as restraints on alienation
Each party can sell their own interest but they cant have a partition by sale and force the others out
Alienation would be if each party could alienate the entire property, but here each party can only alienate
their own interest
A restraint on alienation would be a promise not to transfer the property voluntarily or involuntarily (but it
might get upheld if its reasonable in terms of time)
Owelty and Allotment

Owelty
o Only relevant for partition in kind
o Hard to split land up equally in value
o Pay the party whose land is less valuable
Allotment
o No sale of the land at all
o Not partition by sale or in kind
o If court believes one co-T should end up owning the land, court will determine value of fractional
interest and give it all to the T they like and that T pays off all the others in their fractional
amounts
o Functions like a deed transfer

Tenancy by the Entirety (doesnt exist in CA)

Valid only between married couples and not severable


Has all four unities + unity of marriage
Protects H and W against debts and claims against an individual spouse
o Helps you shelter assets from creditors
H or W cant convey interest without the others consent
o No secret conveyances allowed
States with pure TbyE: MA, NY
o One T cannot act to bind the other
o Both H and W have to sign notes and mortgages
Crowther v. Mower
Traditional severable JT between Mr. and Mrs. C
Mrs. Cs lawyer sends Mower (her son) a letter with two deeds granting property to Mower
Two issues
o If Mrs. C dies before Mr. C, Mower should record the deeds ASAP
Dont want Mr. C to get Mrs. Cs interest by right of survivorship
o If Mr. C dies first, contract the lawyer
Suggesting they would hide the deeds so theres no public record of severance of JT
That way Mr. Cs interest goes to Mrs. C by right of survivorship
Delivery of deed severs JT anyway (dont even need to record it) so Mower gets Mrs. Cs interest by will
However, in CA, deed must be recorded (see below)
CA Statute on Secret Conveyances
Can sever JT by deed or other written doc
Might not want to use deed if you dont want to give any interest to third party, youre just looking to cut
off right of survivorship
Requires that you record deed before death in CA to sever JT
Deathbed exception:
o Dont have to record deed or written instrument before death if deed is written no earlier than 3
days before death and third party records it no more than 7 days after death
Soap Opera Deathbed Case
Doc says Kenneth and Diane are H and W in JT
They break up, K keeps the house and gets new gf, Donna
K delivers deed to G (granting his interest to Donna and severing JT) 7 days before his death
On the day of Ks death, G goes to record but doesnt get it done in time before K dies
Death bed exception doesnt apply and Diane owns the whole house bc recording was too late and JT
was never severed

Coraccio v. Lowell (MA)


H and W own property in TbyE
H takes out unilateral mortgage and bank forecloses; W says mortgage invalid
Court holds its a valid mortgage that can proceed to sale BUT
o Court suggests purchaser at sale doesnt get current possessory rights
o Purchaser would get contingent right of survivorship
Similar to NonSeverable JT in Some States
Some states treat TbyE like nonseverable JT (like in Albro v. Allen)
Each T could act unilaterally to give mortgage or deed or sell his interest to a third party
Creditor can get judgment against unilateral debt and have execution sale
H can destroy his ownership but not Ws
Third party would only get Hs interest
o Life estate pur autre vie and right or survivorship

Mortgages

Mortgage provides security for a loan (see real estate sale section)

Title Theory
Lender gets legal title until loan is paid off
Mortgagor keeps equitable title
Ruins unity of title, so JT severed under formalistic approach
Lien Theory
Most states are lien theory states (including CA)
Legal and equitable title remains with debtor
One JT getting a mortgage does not sever JT bc he still has legal title
Brant v. Hargrove (AZ)
AZ is lien theory state
Court decides deed of trust falls under lien theory just like mortgages do so unilateral mortgage by one
cotenant did not sever JT
N&A own as JT and both sign mortgage to Brants
All mortgage transferred to Brants was a lien so N&A did not sever unity of title
As interest goes to N on As death so Brant can get mortgage settled on full value of the property bc
court decides As signature was forged and it was a unilateral mortgage

Deed of Trust

Debtor (O)trustee who holds for benefit oflender/beneficiary


Leads to non-judicial foreclosure so its easier to foreclose than a mortgage

Intra-Tenant Disputes
Remedies

Accounting (equitable remedy)


o Cause of action by out-T against in-T
o Out-T is not in possession but wants to get what hes owed (like if in-T is renting it or something)
Contribution (equitable remedy)
o Cause of action by in-T to get out-T to pay his share of (taxes, mortgage, etc)
Partition

Rental
In in-T collecting rents, out-T has right to rent or fair market value
If in-T is splitting rent and out-T isnt contributing, in-T can get contribution against out-T
Improvements
In-T cant get contribution for improvement to which out-T did not consent
Court will allow improving in-The benefit of that improvement in partition sale

Commercial Real Estate


If in-T is operating business and not a landlord and not paying anything to out-T then out-T has right to
the fair market rental value as if it were being rented out
Esteves v. Esteves
Parents have , son has as TinC
Son moves out and they agree to sell the house, but disagree on how to split up the proceeds
Parents made mortgage and tax payments + lived in the house for 18 years
Son gets fair rental value but also needs to pay contribution
Carr v. Deking
J and G own as co-T
G signs lease with D; J not happy and sues D to have lease declared invalid
Court declares lease valid and the proper remedy would be partition, not ejectment
If partition:
o Lease could be wiped out
o Lease could stand and reversion would be partitioned
Formalistic approach: JT severed bc J has FSA and G has reversion once G enters lease
Intent approach: would need to know what happens when lease comes to an end
Wright v. Wright
Party who asserts claim of title by AP against co-T has burden of proving not only the usual elements of
prescription, but also at least one of the elements of OCGA there may be no AP against a co-T until
AP effects an actual ouster, retains exclusive possession after demand, or gives co-T express notice of
AP
Strong presumption against AP when its intra-family
o Presumption that son was in possession by permission (unless ouster is shown)

Proving Ouster

In most cases, ouster is not a physical act but a co-T who is in exclusive possession and by words or acts
evidences a claim of separate ownership
Acts that can give rise to ousters
o Possessors did more than simply make improvements and pay property taxes
o Possessors took unequivocal steps which were inconsistent with and exclusive of the rights of coTs not in possession
Rented premises to different people
Cutting and selling timber
o Acts were open and public to make occupation so visible, hostile, and notorious as to presume
notice to the non-possessor

Fiduciary Duty

Hypo:
o A and B are co-T and taxes dont get paid
o B purchases property at foreclosure sale; kicks A off
o Majority rule says co-Ts have fiduciary duty to each other so each co-T had the duty to pay taxes
o A can give B of what he paid at the sale to restore As ownership
Fiduciary duty limited to when title is derived from one document and co-Ts are related
If the debt has nothing to do with the real estate (like its for credit cards) then no fiduciary duty exists

COMMUNITY PROPERTY

CA and WI by adoption of Marriage Act


Money earned by either spouse during the marriage

Wills

Cant cut a spouse out of your will

Spouses cant elect against a will


Spouse can will all of separate and half of community property to whoever he wants

Intestate Succession

Surviving spouse gets all com prop and a percentage of separate property (or all of it if there are no kids)

Divorce
Com prop split 50/50, each spouse keeps their separate property
Control
Most states give joint control of all com prop
o Personal property: either spouse may act with respect to outside world on behalf of the couple
o Real estate: one spouse can act unilaterally and convey it to a third party
But third party should always get signatures bc they dont know for sure whether its
separate property or not

Rights of Creditors

Debts incurred prior to marriagesome states let you take 1/2


com prop and all sep prop
Obligations that arise against a single spouse during the marriage
o If incurred for community or family purposecreditors can recover from all sep and all com prop

Uniform Marriage and Divorce Act

Version One: divide marital property into proportions the court deems just
Version Two: equitable apportion of all the property, com or sep

LANDLORD TENANT
NATURE AND CREATION OF LEASEHOLDS
Lease

Conveyance of land (deed) AND promise + obligation (contract)


Not revocable at any time
Self help not permitted

Residential Leases
IWH means L has almost all the duty of repair/maintenance
Governed by URLTA and common law
Commercial Leases

No IWH
T bears all obligation of ownership under net lease
Governed by common law

License

Less than a lease


Its a contract, but not an estate in land
Privilege to use someone elses land but not to possess it
Revocable at any time
Shorter length of staylicensee
Self help permitted for L to take back premises from licensee

Statute of Frauds

Oral lease cannot be enforced unless its for less than a year
Minimum elements lease has to contain to not be oral:
o Name of parties
o Rent price
o Specify property description
o Term (length) of lease
o Must be signed by party to be charged

Part Performance Doctrine

Where parties operate under contract/lease that is unenforceable under SoF, if either party has engaged in
significant detrimental reliance, court might be inclined to take down the bar of SoF

Tenancy

Doesnt create a contract but says that now the party that wants to enforce can use the oral terms to try to do
so
Creation

Termination

Fixed Term measured in years (or


multiples/divisions thereof)
fixed beginning and end
date

depending on duration, may need to be in


writing according to Statute of Frauds
oral leases are typically ok for 1-3 year
duration

terminates automatically
upon expiration of the
specified term
no notice necessary to
terminate
premature death of T or L
has no impact (their estates
are liable to carry out their
duties)

Periodic
Tenancy

may be oral if less than required by Statute


of Frauds
if rent is to be paid periodically (first of the
month), without specifying a definite end
date, courts infer the creation of a periodic
tenancy

typical rule is 30 days


notice to terminate month
to month
most states say 60 days
advance notice to terminate
year to year
used to be 6 months under
common law

Tenancy at
Will

Duration

indefinite for a fixed period


that automatically renews
until one party terminates
the tenancy by giving
notice to the other party

continues only so long


as both the L and T
refrain from taking any
action inconsistent with
its continuation
no fixed term and no
successive periods
during which Ts right
to exclusive possession
of leased premises is
assured

taking possession with consent of


owner but without any agreement as to
fixed term, rental period, or a pattern of
periodic rental payments created
tenancy at will

Tenancy at T has held over and


preexisting T wrongfully remains in
Sufferance remains in possession after possession after term of lease has expired
the lease has expired
endures until L elects to
renew Ts lease or evicts T

any party may


terminate tenancy
effective immediately
without providing
advance notice
Ls demand for
possession sufficient to
end Ts right to
possession
T is given reasonable
time to vacate
premises
death of L or T
terminates
L given reasonable time to
elect between renewal and
eviction

David Properties v. Selk


Old man Selk enters contract to sell land to DP
DP puts down 5k at closing on 50k contract w/ mortgage for 45k
DP stops paying, Selk commences foreclosure
DP says rent that Selk owed for living on the land should be set off against remaining 9k
DP has legal and equitable title
Selk originally TatWill for a 2.5 month lease, but now he is holdover TatSuff
When T holds over unlawfully, L can treat T as trespasser and file claim for ejectment or treat him as
periodic T
o When T receives demand for increased rent and continues in possession w/o protest, implied
agreement to pay rent is created
Selk cant foreclose bc the 9k has been paid as rent by allowing him to live there

LANDLORDS WARRANTY OF TITLE, POSSESSION, AND HABITABILITY


Covenant of Quiet Enjoyment

L promises not to interfere with Ts lawful possession


More important for commercial leases bc they dont have IWH
Implied CQE is in every lease and every eviction is a violation of CQE
Breach of CQE releases T from any obligation to pay rent
T has two options
o Stay in leased premises and sue for damages
o Vacate premises and treat breach as constructive eviction

Barash
Lawyer rents building and air flow sucks
B sues L
B wants to stay in building and pay no rent until its fixed
o Standard remedy under partial eviction
L not required to provide 24 hour ventilation bc its not in lease
B cant be deprived of something he was never entitled to in the first place so its only constructive
eviction BUT he didnt abandon the premises so he gets nothing
Inequitable for B to claim interference with use and enjoyment of premises while he still remained
on the premises
Adrian
Old T holding over, but new T has right to possession
Damages: can get difference between FMV and contract rent during that time
P wants to sue for lost profits
Court follows English Rule
o Implied that L will make the premises open to Ts entry, legally and actually, when the time
for possession of the lease arrives
American Rule
o Obligation to deliver legal right to possession but not actual physical property

Actual Eviction

Total actual eviction: L excludes or locks T out of premises


Wrongful actual eviction breaches CQE and T can sue for damages

Partial Actual Eviction

L takes over part of premises and denies T the use of a portion of the premises crucial to the use of the
whole
Traditional common law rule is that lease terminates and T doesnt have to pay rent even if T remains in
possession of part of the leased premises
Sometimes T is completely relieved of rent obligation and sometimes only partially relieved
Useful to commercial T, not residential

Constructive Eviction

L so substantially interferes w/ Ts use and enjoyment or causes or allows inhospitable conditions to persist
that T is justified in vacating premises
T must prove:
o Ls wrongful conduct
Common law duties giving rise to wrongful conduct are very limited
Cant make fraudulent representations
Must disclose hidden physical defects
Duty to maintain common areas
Wrongful conduct usually arises out of not following terms in lease
o Caused a substantial interference with Ts use and enjoyment of leased premises
o T gave notice to L and allowed reasonable time for L to cure the defect

o T vacated property within a reasonable time after giving notice and L failed to cure the problem
Ls failure to maintain basic services to premises often serves as basis for constructive eviction
T can sue for difference between contract rent and suitable market rent OR difference between FMV of
other premise and suitable market rent

Implied Warranty of Habitability

No IWH for commercial leases


At common law, L had no implied obligation to make the residence habitable, only obligated to provide the
space
Housing codes changed 60 years ago and spelled out Ls obligation to provide habitable premises
Remedy for when constructive eviction is difficult (like for poor Ts with nowhere to go)
L promises that premises are fit for human habitation and will remain so throughout the term of the lease
Cannot be negated or waived
Only applies to physical conditions
Makes Ts covenant to pay rent and Ls duty to repair uninhabitable conditions into dependent covenants
L cannot evict T who pursues damages or withholds rent based on breach of IWH
Hilder v. St. Peter
H signed fixed term lease and provided security deposit
Sued L for violating IWH (didnt exist in VT at the time)
Court holds IWH now exists in VT
To bring cause of action, T must show she notified L of defect not known to L and allowed a
reasonable time for its correction
Could have left premises under existing common law doctrine of constructive eviction
o L violated CQE
o BUT this wasnt available bc she didnt vacate the premises and continued to pay rent

Remedies for Breach of IWH


Since a lease is a contract, standard remedies for breach of contract apply
Damages
o T continues to pay rent but sues L to collect it back
o Court needs to figure out how much T is owed by measuring damages
Difference between contract rent v. actual value of premises
Difference between what premises would have been worth if they had been fully

habitable and their actual condition


Withholding rent
o Not necessary to abandon the premises
o T must show that
L had notice of previously unknown defect and failed to repair it AND
Defect that affected habitability existed during the time for which rent was withheld
Punitive damages
o Available in cases where breach is of such willful and wanton or fraudulent behavior

COMMERCIAL TENANTS DUTY TO REPAIR


Waste

T has duty not to injure the value of Ls reversion with two exceptions
o T may make changes as are reasonably necessary to use the premises in the way contemplated by
the parties to the lease
o L not liable for damages resulting from normal wear and tear
L can waive Ts liability without impeachment from waste
Remedies and damages
o L can receive compensation equal to loss or value OR cost to return premises to prior condition

Duty to Repair
At common law, T took premises with all defects and had to live with it

o
o
o

T had duty to repair and to maintain premises in current state


No duty to rebuild in case of destruction
No duty to restore from effects of wear and tear
L has some duties
o Responsible for common areas
o Responsible for areas under Ls exclusive domain (furnace room, etc)
o May be liable to repair known latent defects
Repair clause: T agrees to keep premises in good repair
Redelivery clause: T agrees to return premises to L in the same condition
Obviously T wants a clause excepting normal wear and tear

Destruction of Premises
Termination of Lease
Under common law, T not released from obligations under lease
Most states now put risk of sudden destruction of premises on L
In case of improvements, T has option to terminate the lease
Duty to Rebuild
At common law, L had no obligation to rebuild after sudden casualty loss
Now different jurisdictions deal with it differently

Chambers v. River North Line


T rented wharf
Ice came down river and destroyed it
Repair and delivery clause in lease so T had to repair
Amoco Oil v. Jones
Service station burns down, L sues T
Court says intent approach (interpret lease according to its plain language to ascertain parties intent)
means the language in the clause does not mandate T to rebuild unless theyre at fault
Hadian v. Schwartz
All else being equal, L should want a triple net lease
o Net lease = all obligation to repair etc is on T
o Triple net lease = T responsible for all repairs, pay taxes, carry insurance with L as beneficiary
Decided opposite in Brown v. Green
o Held T liable to pay for asbestos removal (most cases make L pay for it)
o Ts actions were reason asbestos flaked off, had long time left in lease, lease way more
expensive than removal, and parties had discussed it
L says T has to pay for earthquake retrofitting
T says retrofitting doesnt affect the use of the premises as a cabaret so they dont have to pay
Court says its ambiguous whether or not the parties agreed that the lessee assumed certain risks, despite
the use of unqualified language so theyre going to apply the six factor test
o Relationship of cost of curative action to the rent reserved
o Term for which the rent was made
o Relationship of benefit to lessee to that of reversioner
o Whether curative action is structural or nonstructural
o Degree to which lessees enjoyment or premises will be interfered with while curative action is
being undertaken
o Likelihood that parties contemplated the application of the particular law or order involved

TRANSFER BY LANDLORD AND TENANT


Privity of Contract vs. Privity of Estate
Privity of contract: R that exists between both parties L and T are in privity of contract with respect to

leased premises
Privity of estate: both L and T have mutual, immediate, and simultaneous interests in the leased property

o
o
o

T has right of possession for the term


L has reversion after the term
Allows L to collect rent from Ts assignee even without a direct contract
T1 assigns to T2
o L and T2 are in privity of estate but not contract
T1 subleases to T2
o L and T2 not in privity of contract or estate
o If L violates lease, nothing T2 can do about it
o L has no direct rights against T2
T2 assumes main lease
o T2 liable to L for every provision in lease and vice versa
o L and T2 in privity of contract and estate
o Neither L or T2 are liable on personal promises vis a vis T1 even though the promises were
enforceable in the main lease
In all these situations, T1 remains liable for every promise in the lease unless L releases him

Real vs. Personal Covenants


Real Covenants
Certain promises in the lease run with the land to bind or burden successors in interest
Successors have the right to enforce benefits of the covenant
Touch and concern promises:
o T pay rent
o
o
o
o
o

T pay taxes
T or L repair premises
L provide basic services
T not to assign or sublet (or not to do so w/o consent of L)
L to renew lease or convey reversion to T

Personal Covenants

Only binds promisor and not any successor

Abbot v. Bobs U-Drive


L leases to Thompson who operates two businesses on the same premise
Thompson formally assigns premises to BUD and court says thats valid
Thompson also transfers premises to Continental w/ no formal writing
Issue: arbitration clause and running with the land
o Only occurs if transfer is an assignment
o If transfer is sublease, issue goes away bc there is no privity between Continental and L so L
cant enforce promise against Continental as sublessee
o Two important tests
Is promise intimately bound up with the land?
Would a reasonable person in the assignees shoes believe that the promise bound
and benefited him?
Court decides promise to arbitrate touches and concerns the land bc its a promise to arbitrate over rent
disputes and rent touches and concerns the land
Burton
L leases warehouse to T who leases to T2
T agrees to insure the building, make L beneficiary
L sues T2 for damages when building is destroyed and the premium hadnt been paid
Court decides promise to insure does not T&C the land so T2 not liable
Promise in main lease would have to have said that the money from the insurance proceeds could only
be used to rebuild on the land in order for it to T&C
Gerber v. Pecht
Gerber (L) leases store premises to Pecht (T) for 5 years
T assigns premises to T2 who assigns to T3
L sues T when T2 and T3 dont pay rent
T is in privity of contract with L still so T can be sued for the rent that T2 and T3 didnt pay
Original T stays in privity unless expressly released by L
If T2 had assumed the lease, that would be a personal promise to T to pay rent and T2 would be liable
Riverside Case
L leases to T for 60 years
T assigns to T2 to T3 to T4 to T5
T5 doesnt pay and L sues T4 for rent
T4 liable for all promises in main lease that T&C the land, but only for the violations that occurred
while he was renting
o Liability does not go backwards or forwards
o If T4 had assumed the lease, liability would extend backwards and forwards

Transfer of Tenants Interest


Assignments
Transfer of the whole of the unexpired term
Doesnt need to be the whole premises
Privity of estate exists between L and T2
Ls recovery is against assignee but T is secondarily liable as surety (judgment and satisfaction for rent)
Surety: person bound to perform an obligation when person who is primarily liable to do so does not
Subleases

Transfer of less than the remaining full term


Subletting T retains some interest
T2 not bound by covenants in original lease
Ls recovery is against original T (judgment and satisfaction for rent)

Landlords Consent to Assignments and Subleases

Restrictions on Ts alienation seen as reasonable protection of Ls interest and income

Forfeiture restraints ok: generic clause that if T violates any provisions, L has right to terminate by reentry
Once L consents to first assignment, he has waived his right to object to future assignments
Assignments can still be effective without consent bc they still take place
Ls recovery is damages for breach of contract

Landlords Consent Provisions

Growing number of jurisdictions require L to have commercially reasonable basis for withholding consent
to transfer
Reasons to restrict
o L wants to know who is on the premises and if that person is credit-worthy
o Wants to prevent T from selling land at higher price (allows L to capture bonus value)
Rent recapture provisions: gives L the right to collect all or part of any appreciation in the rent charged to
T2
ACS v. Newman
T permitted to sublease w/o Ls consent but not assign
T enters sublease that ends two days before main lease
Court says any length of reversion = sublease
Kendall v. Pestana
Perlitch gets 40 year lease and enters 25 year lease with Bixler
Perlitch conveys remainder to Pestana
Bixler wants to transfer his interest to Kendall
Pestana says no bc Pestana is now Bixlers L
L did not have commercially reasonable objection
This case has something to do with capturing bonus value as well
Tippecanoe
Cant put another grocery store in
Tippecanoe wins bc promise not to lease to other grocery store T&Cs the land so it would violate the
lease covenant

Transfer of Landlords Interest

Subject to outstanding leases


o Grantor cannot convey more than he has
o Transferee does not have immediate right to possession
New owner in privity of estate with T
Former Ls privity of contract with T still exists
Former L remains liable on personal covenants and secondarily liable on real covenants

TERMINATION OF LEASES
Landlords Eviction of Tenant in Default
Self-Help
L evicts T for defaulting w/o using judicial process not allowed to use excessive force
Majority rule allows self-help if:
o L has right to repossess leased premises
o Ls exercise of remedy is peaceable
Courts tending to restrict self help
Wofford v. Vavreck
SH not a legal form of action in PA so L has to go through legal process
Policy: SH increases potential of violence
o Judicial obligation to examine leasehold forfeiture best served by judiciary
o Undermines protections inherent in IWH
If L breaches IWH, T is released from obligation to pay rent, BUT L could
use threat of SH to make him pay rent
Harkins
H paying rent by the week to cheap hotel, then stops paying

Hotel uses self-help and court upholds it bc H is licensee

Ejectment

Oust defaulting/holdover T
Can be a long time before final judgment

Summary Possession Statutes

Benefits L
Unlawful detainer/rent and possession
Gives L a prompt hearing to evict defaulting Ts
L gives notice to T to cure defect or vacate
If T does not cure, L can pursue summary eviction

Tenants Abandonment and Surrender


Surrender

Transfers lease back to L (and L accepts)


Subject to SoF but court will find surrender by operation of law if no writing and L acts as if he intends to
treat the lease as surrendered
If L does not accept surrender, should send letter saying the surrender is rejected

Abandonment

T abandons without notifying L OR L refuses to accept surrender


L can treat lease as continuing and do nothing
o L sues T on covenant to pay rent
o T cannot unilaterally terminate the lease
Courts are imposing duty to mitigate, so its not likely that L will do nothing
L can treat abandonment as an offer of surrender
Acceleration clause
o When T stops paying rent and abandons, L may accelerate all rent due under lease
o If no acceleration clause, L might take advantage of anticipatory repudiation
Drost v. Hookey
PL and DT live together as bf/gf
PL wants DT out
Court holds shes a licensee, not T, so L only needs to give 10 days notice
o DT was not granted exclusive dominion and control
The more you can show that DT was paying rent, the more likely it is that shes a T
Consideration would make it look more like a lease

Anticipatory Repudiation
One party to a contract is in such substantial default that court assumes he will never perform
P can treat breach as if its anticipatory repudiation of the whole lease
Makes present value of all rent due now, assuming no duty to mitigate
L collects present value but T stays in possession
Hawkinson v. Johnson
Applies anticipatory repudiation to L-T (at least for 8th Cir.)
Limited damages to 10 years, not the full 67 left on the lease
Court decided damages should not extend so far into the future so as to be speculative

Mitigation

L can relet on Ts behalf


o T remains liable for differences between rent
o L shouldnt modify the premises or let them for longer than the original term to avoid accidentally
terminating the lease
L can accept surrender and relet on Ls account
o Should change the terms of the lease slightly so it looks more like a new lease
Not required to give preference to Ts space if there are other available units
L only has to treat the space like he would treat any other space
T has to pay for advertising

Hill Country v. Palisades


L used anticipatory repudiation to seek damages from T for all future rent installments
In TX, L has duty to mitigate
Breaching party has duty to show that L failed to mitigate
o L must make reasonable efforts

SECURITY DEPOSITS

Promise to return security deposit at the end of the lease does not T&C the land so as to burden a successor
L unless main lease says that L is required to use the security deposit to cure damages
Garcia v. Thong
NM is very pro-T
So much damage that it exceeded the security deposit so it didnt seem worth it to L to send the itemized
letter of damages to T
If owner fails to provide itemized list
o Owner forfeits right to hold deposit
o Forfeits right to assert counterclaim
o Liable to T for court costs and attny fees
o Forfeit right to assert independent action for damages

CA Statute
2 months rent max
Used to compensate L for default, used to cover cleaning costs
If L goes bankrupt, Ts claim to security deposit will be prior to any creditors

EASEMENTS
Easement vs. Estate vs. License

Easement: non possessory interest that gives you the right to use someone elses land
o Irrevocable
o Specially enforceable by injunction
o Generally transferable and capable of being abandoned
Estate equivalents
o Perpetual easement = FSA
o Easement for life = life estate
o Easement for years = term for years
o License = TatWill or TatSuff
License: does not imply interest in land
o Mere personal privilege to commit some act on the land without possessing it
o Terminable at will of landowner
o No writing or consideration needed
o Can become irrevocable through estoppel
o Express easement that fails for some reason becomes a license
Millbrook Hunt v. Smith
Hunt got right to hunt foxes on part of the land
Smith tries to say its a revocable license bc landowner kept absolute right to develop the land and
movethe trails
o Obviously not a lease bc its not dealing with a specified space
Hunt says its for a specified period of time which speaks to an easement but also there is a permanent
structure on the land with a lease for 75 years
75 year lease was like consideration for the easement

Definitions
Appurtenant easement
o Benefits the dominant estate

o
o
o
o

When dominant estate is transferred, easement trails along with it


Attempting to separate easement from dominant estate destroys the easement
Has the potential to continue indefinitely
Constructional preference by courts
Easement in gross
o No dominant estate, only servient estates
o Benefits a person
o Ends at owners death
o Cannot pas with title to any land, must be done by an independent act of transfer of the easement
itself
o Must be clear from express grant or surrounding circumstances bc courts dont like these very
much
Affirmative easement
o Gives the holder the right to go onto the servient estate for a specific purpose
Negative easement
o Gives the holder the right to prevent the possessor of the servient estate from doing some act
o US doesnt like these
Profit
o Right to remove products from the soil
o Appurtenant profit: only in connection with dominant estate
o Most are profits in gross
Express grant
o Usually created by deed
o Grantor sells part of her property and grants purchaser an easement over sellers retained land
Reservation
o Grantor sells part of her property and retains easement over part of purchasers land
o May not be reserved in favor of third party

NATURE, TYPES, AND CREATION


Transferability
Almost always transferable
Appurtenant transfers with dominant estate
Most states say an easement in gross is freely transferable
Hagan v. Delaware Club
Grantor conveyed title to lake and surrounding land to D
Grantor retained right to fish in the lake
Successors sought to enforce the right to fish in the lake
Court held that the right to fish was a personal profit in gross that did not benefit Ds successors

Easement by Estoppel and Irrevocable Licenses

When owner of servient estate otherwise authorizes owner of dominant estate to use burdened property for
specific purpose, a license has basically been created
Sometimes courts will enforce the license as an easement by estoppel or irrevocable license
Three elements must be present
o Owner of servient estate consents to dominant estate holders use of servient estate
o Servient estate owner knows or should know the dominant estate owner will materially change his
position, believing the permissive use will not be revoked
o Dominant estate holder, reasonably believing permission will continue, substantially changes his
position by investing in improvements
If courts dont recognize easement by estoppel bc theyre strictly adhering to SoF reqs, courts will find
irrevocable license

Estoppel to revoke a license assumes original grantor granted permission of use by revocable license and
that over the years, party has invested and relied to his detriment on it
Easement by estoppel lasts forever
Estoppel to revoke a license ends when the use ends
Ricenbaw
No express written doc, at most an oral agreement in 1901 for a drain from Ricenbaws land over
Krauss land
Kraus wants the drain off his land
Irrevocable easement created by estoppel applies
o Ricenbaw has relied on, repaired, and maintained the drain to his detriment

Insufficient Writings and SoF


Governed by SoF so must be in writing
Together with easement over this location
SoF violated if you have a writing but it doesnt contain all the elements
If youve got part performance, you can put people on the stand to say where they want the easement to go
Maier v. Giske
3 parcels of land
Giske owns west, Maier owns east, Giske cares for parcel south of Maiers
Ms driveway goes over their property and Gs property
G builds barricade
G and son claim easement violates SoF bc it does not describe its location specifically enough
o Claim language together with is not sufficiently clear
Court says its clear bc a registered surveyor could figure it out

Floating Easement

SoF does not require description of easements exact location as long as it can be located on a specific
servient estate
Floating easement does not specify precise location on servient estate which creates title problems
If it truly floats and someone builds on the property, easement holder can put it anywhere
If use of easement is visible, court will determine location based on that
Underlying owner can go to court to force easement holder to locate it
Boyd v. BellSouth
BS owned big lot of land and severed it
Boyds got one piece of land and wanted to use the driveway to the loading dock
BS blocked it
Court determined there was an implied easement
o Unity of title existed
o BS used the road and it was visible
Stinking Sewer Case (Otero v. Pacheco)
Pacheco owns lots and builds houses on them
Conveys one lot to Oteros but had a sewage line running from his house across their house so the houses
used the same pipe and it backed up
Court found that Pacheco had easement by implied reservation as a result of a reasonable necessity that
continues to exist and most people should realize plumbing is hooked up to something so it was visible
and apparent (Nelson disagrees)

CREATION BY IMPLICATION

Nothing oral or written about the easement and parties havent agreed to anything

Implied from Prior Use (Quasi-Easement)

Implied grant: claim by grantee


Implied reservation: claim by grantor
Quasi bc you cant create an easement in your own property but thats essentially what this is

Use was in place at the time the single parcel of land was severed or divided into adjoining parcels, leaving
one parcel benefitting the other in some way
Emphasizes the parties likely intent at the time of severance
Must show these elements:
o Unity of ownership is severed
o Use was in place before severance
o Use was visible or apparent at time of severance
o Easement is necessary for the enjoyment of the dominant estate

Implied by Strict Necessity


Refers to landlocked land
Necessity has to be absolute
Created when common ownership over two lots is severed
Easement ends when necessity ends
Hurlocker
Common owner conveys two parcels of land to two different grantees (Medina and Hurlocker)
H wants easement by strict necessity over Medinas land
Changed the rule so its ok to get easement by strict necessity as long as grantor was the same, not
necessarily a single lot of land divided into two
Implication will not be made if its shown to be contrary to the parties intentions
o Nelson thinks it should be the intent of the grantor and the burdened party

CREATION BY PRESCRIPTION
Elements

Actual use physical presence required


Adverse use/state of mind
o If jurisdictions didnt like easements by prescription they would use claim of right (must believe
you had the right to use the land)
o If jurisdictions didnt care, they would say any non permissive use is adverse
O&N/actual notice
Continuous and uninterrupted
Doesnt have to be exclusive of TO or other third parties
SOL is same as for AP
Tacking is allowed

Presumptions

Presumption of adverse use


o Puts burden on D to show that use was permissive and not adverse
o Policy: maintains the status quo
o In a city, TO has burden of proof to prove permissive use
Presumption of permissive use
o Puts burden on P to show that use was adverse and not permissive
o Open, unenclosed, rural property
Using the land doesnt mean you acquire anything
Policy: owner of such land is not in a position to detect or prevent others from crossing
over it and might not object bc it doesnt really affect him
o Presumption of permission when adverse user is related by blood or marriage to landowner

Prescriptive Easements Appurtenant


Prescriptive Easements in Gross
Alternate Theory: Easements by Implied Dedication

Public uses roadway over rural area for years and years and landowner says nothing
Landowner has implicitly dedicated the road to the public by allowing use to continue for a long time

Feloney v. Baye
F claims he has the right to use the driveway by prescription
Hes only used it for 6 years and SOL is 10
Court determines there was a presumption of permission for using your neighbors land to turn around
Policy: prescriptive easements not favored bc they reward trespassers
Swope (AK Case)
Swopes put sign on trail telling people to keep out
Trails Coalition brings action to have trail deemed as public easement by prescription
Trails Coalition represents the public it doesnt have to be continuous use by that organization
Court finds easement by prescription exists
Not adverse use, just an indication of intent by landowner to dedicate the road to the public
Gion v. City of Santa Cruz
Public goes across Gions land to get to the ocean and Gion didnt do anything about it
Government paid for a parking lot over part of it
Court held that Gion, by watching and not doing anything, implicitly dedicated easement in the property
to the public
CA Statutes negate Gion cant have an implied dedication unless you make it express

SCOPE AND INTERPRETATION

Delineates the extent of use an easement holder may make of servient estate
Surcharge occurs if scope of easement is violated in any way
Any easement is capable of being expanded by prescription

Location

Must be identified and described at its inception


Must remain within located easement or its a trespass
Expressly located terms of grant or reservation control
Implied from prior use/prescription location fixed by use made at severance of start of prescription
period
Implied by necessity must be physically located after easement is recognized

Intensity of Use

Easement holder can use easement as long as use is reasonably necessary and does not overburden servient
estate
Stresses the original parties intent
Evolves to accommodate reasonably foreseeable changes

Express Appurtenant

First look to the language of the easement


Evolutionary change (horsetrailercar) not a surcharge bc court presumes there will be a change in the
use of the dominant estate over the years
o Unless you can show it will be revolutionary/substantial change then you have to deal with it
Glom on rule
o Easement granted for one purpose for a dominant estate cannot be used for an additional purpose
or estate
Brown v. Voss
P had easement over Ds land Lot A to their Lot B
P bought Lot C and decided to build a house over B and C
D freaked out and said they couldnt use the easement
P violated the glom on rule but court said it was ok
P didnt change the purpose of the estate and D waited a long time to bring suit

Cameron v. Barton
Two issues
o Use of easement changed with tech
o Use of dominant estate changed
Passway is very general term so parties should have foreseen tech changes
Unless easement expressly said no one foresees a change, etc etc

Implied Appurtenant
No written document and not very likely to occur
Frisco Case
Court assumes implied easement
Looks at how it was used in the past and whether new use will create surcharge

Easements by Prescription

No writing unless someone has gone to court to establish prescription in the past
Two issues
o Try to get testimony looking back about how the easement was used when it might have come into
being by prescription
o Does the current use surcharge it?
MA Case
Pool family had prescriptive easement connecting them to main roadway
Started increasing use of the roadway
Court determines how Pools originally used it, assumed it was a valid easement by prescription, and
looked at all the changes
If revolutionary change goes on long enough, it can expand the easement by prescription

VIOLATIONS (in gross)


Assignability

Easement can be gifted, sold, devised, or otherwise conveyed


Easements appurtenant run with the land
o Person conveying dominant estate loses easement right to grantee
o Servient estate remains burdened no matter who owns the servient estate
o Implicitly assigned with dominant estate regardless of whether or not the deed mentioned it
Commercial easements in gross are always assignable
Personal easements in gross are not assignable (unless circumstances or the doc creating the easement
expressly say it is assignable)

Divisibility and Apportionment


Original easement holder transfers some rights to third party
Look at substantial increase in overall burden
Exclusive easements: easement holder has sole right to use easement and sole power to authorize others to
use it

May permit others to use the easement as long as the total burden on the servient estate does not
amount to surcharge or misuse of easement
Nonexclusive easements: easement holder has right to use easement but servient owner can authorize
others to use it
o Servient owner retains power to decide how many persons can use the easement
Pasadena Case
Pasadena installed water pipes in their easement
Fee owner grants easement in the same space to D
Court holds Ds pipes can go in because its nonexclusive so grantor had the right to devise
Landowner may make any use of the land which does not interfere unreasonably with easement

MPM v. Dwyer
Unless expressly denied by the terms of the easement, servient owner can go to court to force relocation as
long as such relocation would not materially increase the cost or inconvenience the easement holders use
Goes against majority rule

TERMINATING EASEMENTS
Merging
Two separate owners of Lot 1 and Lot 2 (with easement from 1 to 2) both convey land to A
A has merged the land so the easement disappears
If A conveys Lot 1 to B with no mention of easement, B gets no easement
If A conveys Lot 1 to B and mentions the easement, B gets an easement bc its renewed
If A conveys Lot 2 and doesnt reserve the easement for himself, would have to show implied easement by
reservation (which is hard)
William Bros v. Peck
D owned Lot 1, S owned Lot 2 (express easement over S for cranberry bog) and both deeded land to
Edgewood
Edgewood has no easement bc you cant have an easement in your own land
Edgewood conveys S Lot to WB and D lot to Peck
Peck gets torrens certificate of title that says Peck owns land in FSA together with the easement
WB not subject to easement bc merger destroyed the easement before Peck got title
Torrens office shouldnt have recognized the easement bc the merger doctrine trumps everything

Abandonment

Nonuse + affirmative action + some sort of intent

Estoppel to Assert

Ricenbaw = estoppel to revoke


S owner blocks easement and relies on D owners failure to act or statement of approval to his detriment
D owner may or may not have intent to abandon but court might say D is estopped to assert the easement
Doesnt necessarily destroy the easement (but as a practical matter it does)

Easement by Prescription
Hickerson v. Bender
H had appurtenant easement over Bs land
B claims Hs predecessors abandoned but they could only prove nonuse which wasnt enough
BUT Hs predecessors failed to object to obstruction so its clearly conduct thats inconsistent with use
of the easement
Court says doing nothing is conduct AND there was AP so easement was terminated

Railbanking and Rails to Trails

RR giving up their right of way easements


Landowners say RR abandoned easement and cant convey it
Rails to Trails Act
o Interim use as hiking trails not to be treated as abandonment of the easement for RR purposes
o Federal statute takes away a state property right the landowner otherwise would have had
o Constitutes a taking under the 5th A for which there must be just compensation
When servient land comes under eminent domain (like for RR use) and is then used for an inconsistent
purpose, the easement is terminated
Nordhus Family Trust
Union Pacific gave up easement then conveyed interest to Trails people
Underlying landowners wanted compensation
Court determines the possible reactivation of RR use is not enough to constitute RR use within the scope
of the easement

SALE AND FINANCING OF REAL ESTATE


CONTRACT OF SALE
Statute of Frauds
Writing

Only needs to include essential terms


o ID of parties
o Description of land to be sold
o Words indicating that sale is intended
o Price should be stated (spell out financing agreement)
o Assume price will be paid in cash if no evidence to the contrary
o Assume closing is in reasonable amount of time
o Description of land can be tricky
Street addresses are usually fine but they can be ambiguous
Dont need
o Date and place of closing
o Provisions for apportionment of property taxes
o Statement of the type of deed
o Notarized acknowledgement
o Signature of witnesses

Oral Contract/Partially Written Contract

Once you close on an earnest money contract that violates SoF, you cant undo the whole transaction- its
over
If earnest money contract is entirely oral, its not enforceable BUT
Buyer can get his money back (restitution) so to that extent the law recognizes that there is a contract

Part Performance
Can allow enforcement with no writing
Payment of all or part of purchase price
Going into possession of the realty
Making substantial improvements
Some courts say acts must point unequivocally to contracts for the sale of land
Burns v. McCormick
Come live with me on the farm, take care of me till I die, the land will be yours
Purchase price = care until death
Purchaser seeks specific performance
Seller defends via SoF didnt unequivocally refer to sale of land
Burns tried to show that he relied to his detriment on the agreement
Johnston v. Curtis
Valid earnest money contract in writing to sell a house
Problem is that modification to contract has to be in writing also
Parties agreed to oral modification of purchase price after appraisal
Part performance:
o Buyer moved in
o Made a payment to the seller
Buyer can recover 10k difference in sales price with J and what it actually sold for

USE OF DEEDS
Bryant v. Clark
15 annual installments as balanced at 6%
Court says it violates SoF bc it doesnt specify when and the amount of each installment so its
unenforceable

Types of Deeds

Consideration required for enforceable earnest money contract


Consideration not required for valid deed bc deed is conveyance, not contract

Warranty Deeds

Most common
Puts grantors personal liability on the line
Warrants the deed for himself and all his predecessors
Provides the most protection for grantees (assuming grantor has money)
Conveys and warrants or grants, conveys, and warrants
Can list encumbrances as exceptions the warranties do not cover

Limited Warranty Deed

Grant deed in CA (only contains present covenants)


Bargains, sells, and conveys
Free from encumbrances done or suffered by grantor
o Only warranting that grantor hasnt screwed up title
o Grantor only liable for things he did
o Warranty doesnt extend backwards

Quitclaim Deed
Grantor conveying to grantee everything he has but doesnt warrant anything
Government always uses quitclaim deeds
Chase Federal v. Schreiber
Old lady conveys deed to conman
o Consideration = love and affection
Heirs argue there was no consideration so its not valid
o Love and affection is only valid consideration between two related parties
This case changes the law to say you dont need consideration at all for a deed
Good for charities bc they get land conveyed as gifts all the time

USE OF ESCROWS
Earnest Money Contract

Contract in interim period (30-90 days) before closing


Preliminary title report: if deal closes, this is the state of title that buyer will get
Provision for financing
o Closing contingent on buyer being able to acquire certain type of financing
o Buyer can waive financing contingency but if you wind up not getting financing then youve
breached the contract and you lose your earnest money
At closing, right of possession and legal title passes to the buyer and the deed is delivered

Escrow

Parties agree to turn over all docs to escrow company


Delivery of deed by grantor to independent third party with instructions that it be delivered to the grantee
upon the occurrence of certain stated conditions
At closing, escrow company handles payments, delivery of deeds, recording of deeds
Grantee pays escrow agent remainder of cash purchase price
Escrow agent distributes funds appropriately
Policy
o Places person with expertise in the role of carrying out all the necessary sale functions
o Avoids inconveniences of face to face closing
o Easy way to make sure sellers title remains clear
Escrow can have relation back feature
o Ultimate delivery to grantee can relate back to date grantor places the deed in escrow
o Will be valid regardless of grantors intervening death or incompetence

SoF considerations presence of escrow may make the contract enforceable

REMEDIES AND REAL ESTATE CONTRACTS

Restitution: return innocent party to status before contract was executed


Compensatory: recompense the injured claimant for losses due to breach
Performance: effect a result, essentially other than in terms of monetary reparation, so that the innocent
party is placed in the position of having had the contract performed
Abatement: buyer asks court to force seller to convey property for less money if property doesnt have
marketable title over part of it

Remedies for Buyer

Seller fails to provide marketable title


Damages: loss of bargain rule
o Difference between contract price and actual FMV as of the date of breach
o Determining FMV
If seller has agreed to sell to someone else, that price is evidence of FMV
Buyer wants to prove property is worth more than contract price
o Traditionally courts measure market value as of the date of the breach
Specific performance: seeking order from the court to perform under the contract
o Court can sign deed for nonperforming party that refuses
o Equitable remedy bc courts believe that every piece of land is unique/special so remedy at law is
inadequate
Donovan v. Bachstadt
Split of authority for when seller is unable to convey marketable title (innocent seller)
English Rule: seller not liable for loss of bargain damages
o Buyer is only entitled to return of earnest money
American (majority) Rule: seller liable for loss of bargain damages
o Not the buyers fault the title was bad
Here the court holds buyer will get loss of bargain damages difference between contract price and FMV
Schwinder v. Austin Bank
P was entitled to specific performance bc remedy at law was inadequate
P showed they were ready, willing, and able to close the contract but D prevented them from doing so

Remedies for Seller

Earnest money
o Assuming valid earnest money contract, seller is allowed to take earnest money but cannot also
sue for damages
o Buyer sometimes adds language to EMC saying it is in lieu of all other remedies for seller
o Buyer basically owns an option and can walk away and only lose EMC
Loss of bargain rule for damages
o Difference between contract price and FMV at the time of breach
o Problematic bc seller needs to prove their house is worth less than the contract price to get
damages
Specific performance
o Pretty much just amounts to payment of the purchase price

CONCEPT OF MARKETABLE TITLE

Defects

Every state has recording office to help buyers determine if they are getting good title
Seller promises that title is marketable aka free from reasonable doubt
Marketability of title is implied in every contract unless parties expressly provide for otherwise
If title is not marketable, its a breach by seller and buyer can either get EM back with certain add ons or
sue for damages or specific performance with abatement for value of defect
Marketability is main protection buyer has before deal closes
Once deal is closed, buyer loses ability to assert title as not marketable (bc hes accepted it)

Break in the chain of title


o US->JonesGoodwinLaneNelson
o No deed from Jones to Goodwin so nothing to be conveyed to Nelson bc nothing was ever
conveyed from Goodwin to Lane
o Goodwin or Lane could establish possession by AP
o Most states say break in the chain cannot be cured by AP UNLESS you bring everyone into court
to make them a party to the action
Unmarketable titles can still be good title
o In most breaks in the chain, title is still good, its just missing a deed somewhere
o Deed still existed, so you just have to prove it
Marketable titles can be bad if any deed was forged
Encumbrances rendering title unmarketable
o Easement
o Unsatisfied/existing mortgage or deed of trust
o Restrictive covenants (third party claim against the land)
o Unpaid taxes (gives sovereign a lien)
o Judgment lien
o Physical encroachment on (neighboring) land
Buyer cant get out of contract simply bc he found encumbrances if seller is capable of curing or paying
encumbrances before closing OR at closing with money from the sale
Presence of zoning does not render title unmarketable unless there is a current violation of the zoning law
Haisfield v. Lape
H buying land from L
Day before closing, H finds that there is restrictive covenant on the land
H claims that makes the title unmarketable and wants L to cure the defect
Court holds that title is unmarketable and L is in breach

INTRO TO MORTGAGE FINANCING


Transfer by debtor/mortgagor to creditor/mortgagee of a real estate interest, to be held as security for the
performance of an obligation which normally is the payment of a debt evidenced by a promissory note

History/Types
Balloon Mortgage

Short term mortgage with MR only making interest payments until loan came due
If MR could not pay off entire principal, MR had to ask lender to renew the loan or attempt to refinance
with another lender
Due on sale clauses: if MR transfers interest, lender can accelerate mortgage so its all due

Amortized Mortgage

Allows MR to repay loans over many years by making monthly principal and interest payments
Monthly payment is set so that only a portion is needed to cover the interest that has accrued since the last
preceding payment
Remainder of each monthly payment applied toward outstanding principal balance
Interest that accrues each month will be less than the interest in the preceding month

Adjustable Rate Mortgage

Permits modification of interest rate during the life of the loan


Connects interest rate to external index

Different Actors

Originators
o Deals with borrower
o Banks
o Thrifts
o Mortgage broker takes your financial info and finds you a lender
o Mortgage banker borrows a lot of money short term from banks

Secondary markets
o Quasi-governmental
o Fannie Mae and Freddie Mac
o Preferential rates when borrowing from federal reserve
o Securitizers
Insurers

Foreclosure
Strict Foreclosure

No public sale of real estate


If you pay off the mortgage, you keep your house
If you dont, you lose it
Lenders put in a clause saying borrower waives right to equity of redemption/right to foreclosure
But foreclosure is debtors right so these clauses were invalid clogs
CT and VT are the only states that use strict foreclosure
o You have a right to be foreclosed but when the court sets a due date and the borrower doesnt
come up with the money, there is no saving them

Foreclosure by Sale

MR gives mortgage to E1 (Chase) for 300k


Secured by promissory note/obligation + written mortgage documents
Every mortgage contains an acceleration clause
o If borrower misses X number of payments, lender has a right to accelerate the debt so the full
amount becomes due
o Under common law, debtor has to tender full accelerated amount to avoid foreclosure
Chase forecloses by sale
Highest bidder at purchase sale is 225k (shouldnt bid more than FMV if he wants to get his moneys
worth)
MR still owes Chase 75k
o Chase can sue MR for deficiency judgment of the last 75k if MR is good for it and is personally
liable
In CA, for 1-4 family dwelling with purchase money mortgages (non recourse aka no personal liability),
MR can walk away if property goes underwater bc there is no personal liability - but it will hurt their credit
rating
If purchaser had paid 325k, surplus would go to debtor

Judicial Foreclosure by Sale


Valid in every state, but only active in about 40%
Risk is that it could end up in full blown litigation which could take a while and debtor could continue to
live in house without having to pay for anything

CA says you cant get deficiency judgments unless you foreclose judicially
Power of Sale Foreclosure

Active in about 60% of states


In CA, also applies to deed of trust
o MRtrusteelender
Lenders like this bc there is no right to judicial foreclosure so its much shorter from default to sale (6
months or so)

Junior Mortgages

Purchaser gets property free of junior mortgages bc valid foreclosure of senior mortgage will wipe out
junior mortgages
Junior lenders require higher interest rates bc it is a riskier investment on their part
MR gives 300k mortgage to E1 (Chase) which foreclosed and P bought
MR also gave E2 a 75k loan
Two purposes of foreclosure:

o Get debt paid


o Put purchaser into shoes of MR as of the period before foreclosure was executed
P shouldnt pay more than FMV without mortgages
If its a purchase money loan, E2 cant get a deficiency judgment
BUT if its not a purchase money loan and the loan has to do with something other than the purchase of
property, there is recourse E2 can sue debtor
If E2 forecloses first
o Want to put P in shoes of MR before foreclosed mortgage was created
o E1 mortgage was already on property so P should not pay more than FMV less the amount of the
senior mortgage
Senior lender has advantage over other Ps at sale bc all other Ps have to be cash buyer
o Lenders can be full credit bidders bc they already came up with the cash when they gave the
mortgage
Junior lenders have a claim on surplus from sale of senior lenders

Post Foreclosure Remedy for Debtor

Available for 6-12 months after foreclosure in about half the states
Mortgage foreclosed, borrower still in possession
Borrower can tender to P what P paid at the sale plus accruing interest and taxes

Mechanics Lien

Anyone who works on real estate to improve it and is not paid has the right to file a mechanics lien in the
recorders office
Payment to general contractor not deemed to be payment to subs
o So if GC doesnt pay subs, homeowner wouldnt know
o Homeowner should insist the GC supply lien waivers from all subs
Mechanic has from the date of last work to 3-6 months to file the claim
Lien claimant still has time to file claim if you close on a house within the time frame above
Becomes problematic when youre purchasing a new development

RECORDING ACTS

Recording is unnecessary as to the validity of the deed (and mortgage)


Deed is effective on delivery to grantee, whether filed in public records or not
If you dont record, SP could take title to it
SP must pay present value to have protection of recording acts
Present value is somewhere between a gift and FMV

Race Recording Statutes

NC, LA, DE
Whoever records first, wins
Very efficient, less to litigate
SP just has to pay value and record first

Notice Statutes

Focus on fairness/morality it should make a difference what SPs state of mind is


Leads to more litigation
For SP to win, must be BFP for value
o Must pay value and take without notice of prior taker
A is unrecorded, B is BFP (paid value and did not constructively or actually know about A)
B wins even if he never records and A eventually does
B should record though, so the same thing doesnt happen to him

Paying Value

Excludes mere donees of gifts


Recipient of land must give something up in return
Value ought to be paid contemporaneously or subsequent to conveyance

Timing of payment can be important


o Must have no notice of prior unrecorded instrument at the time the value is paid
o More complicated with installment contract sale

Notice

Actual knowledge of prior taker


Constructive notice sometimes applies
There are some prior unrecorded interests that cannot be defeated by the recording acts (protected classes)
SP is deemed to know about protected classes whether or not they really did know
Adverse possessors
o Never record, dont have to record in order to be protected against SP
o If they are in the process of satisfying the elements of AP, that puts SP on notice
There are interests in land that are recognized by law but dont require written documents
o Possible for AP to complete possession, vacate the land (so theres no notice) and still prevail over
BFP SP
o Easements by prescription
Puts TO and SP on notice
Doesnt need to record and can still be used against SP
o Implied easements
Needs to be apparent at the time of the split (but see Otero)
o Mechanics liens
Mechanic just has to record a lien claim and doesnt have to go to court

Notice-Race Statutes (CA)

Focus on fairness/morality it should make a difference what SPs state of mind is


Leads to more litigation
For SP to win, must be BFP
If A records before B, B loses even if he is BFP

Mortgage Hypo

MR gives mortgage to E1 and its unrecorded


MR borrows 50k from E2
To trump E1 in CA, E2 has to pay present value (and it has, by advancing 50k)
o No actual or constructive notice of E1
o And E2 records so now E2 is E1
When E2 took delivery of its interest, it had no notice of E1

Judgment Lien Creditor

States split evenly over whether judgment lien creditor is protected by recording acts
When judgment is recorded in any county where debtor has real estate, it becomes a lien on that real estate
at the time its recorded
MR gives 300k to E1 thats unrecorded
MR gives 40k to JL
50% states hold that JL did not pay present value
If there is an execution sale and P is BFP (paid present value) it cuts off E1 if he hasnt recorded before the
sale or if P doesnt know about E1
In CA, JL gets benefit of recording acts if they record it (deemed to have present value even though its an
antecedent debt)

DEED COVENANTS

Come into play when real estate transaction has closed and the deed is delivered but the title is determined
to be deficient after closing
Eviction can be constructive or actual

Future and Present Covenants


Present Covenants

CA present covenant SOL is 6 years from the date of the delivery of deed

Only Ps immediate grantor can be sued


Covenant of seisin: promise by grantor that he owns the land although not necessarily free from
encumbrances
Right to convey: usually overlaps with covenant of seisin
Covenant against encumbrances: promise that title is passing free of mortgages, liens, easements, future
interests in others, covenants running with the land
Breach of covenant occurs, if at all, at the time the deed is delivered
SOL commences at the time of delivery

Future Covenants

Any predecessor in title can be sued


Warranty and quiet enjoyment: promise by grantor to compensate grantee if title turns out to be defective or
subject to an encumbrance and the grantee thereby suffers an eviction
Further assurances: promise by grantor to execute such future docs as may be needed to perfect grantees
title
Future covenants run with the land
o Can only be breached by an eviction
o Eviction can be constructive or actual

Hypos

One
o
o
o
o

A gives warranty deed to B, B gives warranty deed to C


C loses title to part of the land through AP or easement or something that renders title defective
Under present covenant, C has no recovery against A, only against B
If given the choice, should sue deeper pockets

o
o
o
o
o
o
o

A conveys by warranty deed to B for 100k


B conveys by quitclaim to C for 150k
C conveys to D for 200k
D properly evicted
D cannot sue B bc B has no liability for the title
D can sue A (remote grantor) on future covenants
Purchase price of As deed is the most that can be recovered from A even though the value
increased
D can recover attorneys fees on future covenants

Two

o
Brown v. Lober
Lober conveys warranty deed to Brown
Brown enters contract with coal company but it turns out he only owns 1/3 of the coal
Brown sues Lober on the covenant of seisin (Lober didnt have good title to 2/3 of the coal)
10 year SOL on present covenant had already run so Brown was SOL
Then Brown wanted to sue on covenant of warranty or quiet enjoyment bc SOL wouldnt run until there
had been an eviction (and hes arguing constructive eviction)
The court says thats BS, theres no eviction

TORRENS SYSTEM AND TITLE INSURANCE


Torrens System

MA, IL, CO, MN, and others


Purchaser could rely on government for soundness of title
Master torrens certificate stays in recorders office
Nonconsensual liens can be put on the certificate of title without owners involvement
o Mechanics lien
o Judgment lien
Mortgage is a consensual lien so both docs go to the torrens office and the torrens office makes a note on
the master certificate

Title Insurance

TIs policy is insurers promise that, if the title is not in the condition described by the policy on its
effective date, the insurer will attempt to fix the problem or will indemnify the insured for the resulting loss
Secondary market wont purchase titles without TI, even in torrens system
So a lot of properties are torrens + TI (which gets expensive)
Lenders always require title insurance
If sold on the secondary market, TI goes along with the sale
Involved in every land transaction in CA

Owners Policies

Not issued as frequently


May be paid for by buyer or by seller (more common in West)
Generally not assignable

Lenders Policies

More significant economically


Secondary markets of financial institutions and mortgage securitizers insist on TI
Provides a standardized nationwide means of assuring title
Borrower pays premium for policy
Fewer exceptions and encompasses broader range of risks
Required when buyer will have outside financing
Insure everything in the owners policy PLUS the priority of the lien
Assures the lender that the mortgage it is receiving will have senior status
Purchasers on secondary market have the benefit of the lenders policy
Generally assignable

Exceptions

General exclusions tend to be put in every policy


Schedule B exceptions
o Contained in prelim title report and based on TIs individual examination of title that the purchaser
is about to acquire
o If no one objects, theyll be in Schedule B
o Depends on specific property in question
CC&Rs (restrictive covenants)
o Most people dont object to title based on CC&Rs because theyre expected
o Have to go through them to see if theres anything special in there that would make you not want
to purchase the property
Objections always go through escrow

TI Obligations

TI company has the option to cure the defect once theyre sued
If youre displaced from your real estate, they pay you the full policy amount
Most common defects
o Mechanics liens bc if they insure against them but the lien is recorded after the policy is issued,
that sucks
o Plant search errors
o Forgeries
o Missing property taxes

New Additions
Lost Grant Theory for Prescriptive Easements
V unpopular
Can compare PE to AP or can use lost grant theory
Creates a legal fiction

Assumes that in theory, in the past, the person using the land had a writing that gave him the right
to use the land but now the writing is gone
If underlying owner protests to use bc the writing is gone, it just enhances the notion that use is
adverse
Evidentiary Theory and Estoppel by Reliance Theory of Part Performance
Evidentiary theory
o Need to provide evidence for the 3 acts of part performance (payment, possession,
improvements)
o Some courts need 2/3 some need all 3
o Either party can use acts of performance to their advantage
o If SOF is meant to serve as needing writing to evidence the contract, then other forms of
evidence should suffice
Estoppel by reliance theory
o Acts of detrimental reliance carried out by party seeking enforcement
o Acts of detrimental reliance by seller
Moved out of house and bought another one
Unique modifications to satisfy buyer
o Broad range of actions could constitute reasonable reliance
Presumption of Permission courts find EbyE or Irrevocable License
Presumption of Hostility courts find AP
Disabling Restraints and Forfeiture Restraints in Leases
Disabling: lease is void or terminated if assignment/sublet occurs without permission
Not being void or terminated and being limited in scope (like only for assignment, not sublease)
indicate forfeiture restraint
Court interprets in favor of alienability
Acceleration Clause and Anticipatory Repudiation
Under acceleration clause, premises have to be left open for T
o Can sue for all damages/rental value that T owes up front
If not, rely on AR
o Repudiation of lease implies T not going to comply with lease terms
Duty to Mitigate
Cant make sweetheart deals (renting out to friends and family for a reduced price)
Cant treat the property negatively
Penalties for not mitigating
o Might not be able to recover at all
o Court awards difference in what reasonable mitigation WOULD have brought vs. what
they got
If L does nothing,
o Must leave premises as is
o May not lease it out
If L rents it out for same price or higher:
o Sues T for unpaid rent until new T found
If L sues out for less than original rent
o Sue T for difference in rent + unpaid rent
Surrender
Used if L not going to bring an action to recover against T
Rejecting surrender

o Send letter to T stating surrender is rejected and that any action taken is on Ts behalf
o Send to last known address to put T on notice
If L enters premise and changes them in any way without sending letter, it would look like an
acceptance of surrender
Abandonment of Easement
Can be express or implied
Implied abandonment requires unequivocal acts which show an intent to abandon
Silence + any number of acts (blocking the easement, establishing another easement elsewhere,
failing to maintain the easement) can evidence abandonment
Abandoned easement returns to the SO
Easement Surcharge
Look at purpose and quantity
Easement by Estoppel or Irrevocable License
With reliance and consistent use, party can acquire easement or license that is essentially
irrevocable
Doctrine of Equitable Conversion
Buying and Selling Property

Execute an earnest money contract when buying property


Equitable conversion
o Seller signs contract, sellers interests converts to personal property in the right to receive the
purchase price as the major interest
o When buyer signs contract, buyer gets equitable title
o Sellers title converts to legal title when buyer signs
Buyer puts up 5% of purchase price to show they are earnest
Executory period occurs where buyer does diligence
Closing
o Buyer receives deed conveying all sellers interest to buyer so buyer gets legal and equitable title
o Seller gets paid in full
o Buyer gets financing from some lender and delivers mortgage to lender