January 24th, 2021

MODULE 01: Real Estate Issues

Video 01: Real Estate Contact Issues

Module 1, Unit 1
Real estate contract issues: statute of frauds, risk of loss, nondisclosure

Statute of frauds
 Basic concept—real estate contracts for sale of land (and also long-term leases) must be
in writing.
 Thus, oral contract for sale not enforceable (subject to exception discussed below)
 Nor is written contract that isn’t signed, does not describe real estate at issue or say
something about price.

First major exception: estoppel

 Statute of frauds inapplicable if (1) party seeking to enforce contract reasonably relied on
contract and (2) it would be unjust not to enforce oral contract.
 Example: In Hickey v. Green court found buyer relied on selling house and finance was
reasonable because neither party contemplated written contract. (why does this matter? If
no other agreement contemplated seller could expect buyer to rely).

Part performance exception

 If buyer acted in way “unequivocally referable” to contract—that is, does the sort of
things you would expect if there was written contract. (Examples: possession or
improvements on house’ part payment alone NOT enough)
 Example—money plus something more, renovation plus something more
 Courts are going to look at the parties conduct

Issue between contract and closing

- We assume there is a valid contract
- Normally when there is a valid contract and no SOF problem, the contract is enforceable,
and the seller and buyer cannot get out of the contract
- BUT there are a couple of EXCEPTIONS:
o Warranty of marketable title
o Risk of loss
o Nondisclosure

Warranty of marketable title

 Basic rule: if title is not marketable, buyer can rescind contract between contract and
closing.
 Title must be reasonably free from doubt, does not have to be perfect title.
 The concept of what violates the warranty of marketable title is not limited to title that is
truly defective, it isn’t limited to a situation where it looks like the seller doesn’t own
what they are selling. Certainly, that would violate the warranty of marketable title, but it
 would not be the only possible violation. Really any problem creating a significant threat
of ligation would violate the warranty of marketable title.
 See Lohmeyer v. Bower—we see a few examples of violations to the warranty of
marketable title.
1) One is, that the property, as is, violates the zoning code or restrictive covenants,
then that is such as risk that violates the warranty of marketable title. That is, if
the buyer is buying property that violates the zoning or that violates restrictive
covenants, that means that there is a fairly high risk that someone could sue them
for those violations.
o Ex. zoning code says you have to be 30 feet from the street, well
obviously then the house would violate the zoning, and, in that situation,
the buyer can get out of the contract.
o If, however the buyer wants to do something with the property that
violates the zoning codes or restrictive covenants, that would not create a
warranty of marketable title. Ex. if the zoning code says that every house
has to be one story and the buyer wants to add a second story, that is not a
violation of the warranty of marketable title because the property at that
point does not, as of the time of closing, violate the zoning code.
2) If the property is just effected by restrictive covenant, that too is violates the
warranty of marketable title. That is to say, if the restrictive covenant is limiting
what the buyer can do with the property, saying that that buyer cannot do this,
cannot do that, even that creates enough risks that the courts have said that it
violates the warranty of marketable title. Rule no longer has practice importance
because this restriction can be waived by contract. often contracts waive right to
object to restrictive covenant.

 Something like a legal defect not a physical defect

 What violates WMT? NOT just truly defective title, but only problem creating significant
risk of litigation:
o Property as is violates zoning code or restrictive covenant (property in its existing
form violates zoning) BUT (will not be a violation if zoning would be a problem
if future plan)
o Property is affected by restrictive covenant that is not waived in contract

Warranty of marketable title

Policy issues
 Why does doctrine exist? Basic fairness—buyer should not have to pay for what they
cannot own.
 Why is there this distinction between zoning and covenant?
o If property violates the existing zoning, then that violates the warranty of
marketable title
o If the property does not violate the existing zoning, then it does not violate the
warranty of marketable title
 o For covenants, if there is no waiver, it does not matter whether it violates the
covenant or not, just the existence of the covenant violates the warranty of
marketable title
o Whereas just the existence of zoning does not violate the warranty of marketable
title unless the property violates the zoning

 Why does zoning violate warranty if violated, but covenant violate only if it even exists?
Almost all urban/suburban land covered by zoning, so applying covenant rule to zoning
would make everything a violation.
 Why does marketable title mean “free from reasonable doubt” instead of “free from all
doubt”? Latter standard hard to enforce because chains of title go back centuries.

Between contract and closing

Risk of loss
 Risk of loss is on the buyer which means the buyer cannot back out of the contract
 But can contract out of it
 The problem: what if something happens to land (e.g. fire) between contract and closing?
 General rule: risk of loss on buyer, so buyer cannot back out (“equitable conversion”)
 Exception 1: if loss caused by seller’s negligence
 Exception 2: rule can be and usually is contracted out of—that is, risk of loss shifted by
contract to seller. (example: “owner responsible for said property until deed delivered”)
(Bryant v. Willison)
 Remedy for buyer if exceptions apply—buyer can get down payment back

Issues occurs before closing or after closing

Fraud, nondisclosure etc.
 Obviously, buyer has a claim if contract obtained through fraud
 Or if seller affirmatively conceals details
 But what if seller merely fails to disclose problem?
 Common rule: caveat emptor (i.e. no liability for nondisclosure)
 Logic—encourages buyers to be prudent

Modern limit to caveat emptor

 Buyer has claim for nondisclosure if
(1) Material defect
(2) Seller knows of material defects
(3) Material defect “latent”—that is, buyer could not reasonably know of it
 Does as is clause bar nondisclosure liability? Probably not if other elements met.
 But more specific disclaimer might.

Readings: pgs. 551-554, 568-581, 581-592

Chapter 8—The Land Transaction

Hickey v. Green
 ESTOPPEL
 FACTS: (P) The Hickeys sold their house in reliance on an oral agreement with the
owner of Lost S, Mrs. Green (D). Mrs. Green rescinded the agreement.
 BLACK LETTER RULE: When there is a clear oral promise, partial payment, plus an act
made in reliance, a land transfer is sufficient to overcome the Statute of Frauds
requirement that contracts for the sale of land must be in writing.
 Facts: Defendant owned a lot and advertised it for sale. Plaintiffs discussed purchasing it
and orally agreed to so do for $15,000. Defendant accepted a $500 deposit check,
although the recipient had been left blank because plaintiff did not know who to make it
out to. Defendant kept the check but did not fill in the payee's name, endorse it, or cash.
Plaintiff told defendant that he intended to sell his home and build on defendant's lot.
Relying on the arrangements with defendant, plaintiffs advertised and agreed to sell their
house and took a $500 deposit check. Defendant then told plaintiff that she no longer
intended to sell her property to him—instead selling it to another for $16,000. Plaintiff
explained that he already sold his house and offered to pay $16,000, but she refused.
Plaintiffs then sued seeking specific performance.
 Procedural History: Trial judge granted specific performance.
 Issue: Was the agreement binding due to reliance despite the statute of frauds's writing
requirement?
 Rule: A contract for the transfer of an interest in land may be specifically enforced
notwithstanding failure to comply with the Statute of Frauds if it is established that the
party seeking enforcement, in reasonable reliance on the contract and on the continuing
assent of the party against whom enforcement is sought, has so changed his position that
injustice can be avoided only by specific enforcement"
 Reasoning: Defendant knew that plaintiffs were planning to sell their home in reliance
on defendant. They did so quickly without obtaining an adequate memorandum for
buying defendant's lot, but they did give an acceptable writing in their own sale.
Defendant did promptly repudiate it, but not promptly enough.
 Holding: If plaintiffs are obligated to sell their house, defendant is obligated to sell
hers? Remanded to amend.

Lohmeyer v. Bower
 FACTS: Prior to transfer of property, a little search showed that the property, a title
search showed that the property in question had two encumbrances upon it, both of which
were being violated.
 BLACK LETTER RULE: Marketable title to real estate is title that does not expose the
buyer to litigation.
Facts:
Plaintiff entered into a contract to purchase a lot, but then discovered that the house
thereon was closer to the boundary than city ordinances permitted and that it was a one-
story house when only a two-story house was permitted on the lot by a dedication
declaration. Plaintiff sued to rescind the contract, which guaranteed that the title would be
merchantable but subject to all restrictions and easements off record and giving defendants
time to correct the defects.
Issue:
Was the property subject to encumbrances making the title unmerchantable and if so were
they excepted?
Rules:
 Municipal restrictions do not render a title unmerchantable, but private restrictions
on what may be built on land do.
"To render the title to real estate unmarketable, the defect of which the purchaser
complains must be of a substantial character and one from which he may suffer
injury. Mere immaterial defects which do not diminish in quantity, quality or value
the property contracted for, constitute no ground upon which the purchaser may
reject the title. Facts must be known at the time which fairly raise a reasonable
doubt as to the title; a mere possibility or conjecture that such a state of facts may be
developed at some future time is not sufficient." 
Reasoning:
While the existence of the restrictions does not make the property unmarketable, the
violations of both the city ordinances and the dedication declaration encumber the title and
make it unmarketable. His knowledge of the restrictions does not stop him from rescinding
the contract upon discovering that the house was in violation thereof. To hold otherwise
would force plaintiff to buy a lawsuit.
Defendants may be able to remedy their violation of the city ordinance by buying
additional ground, but they could not remedy the dedication declaration without making
the house something that plaintiff did not buy.
Holding:
The violations of the restrictions made the title unmerchantable without
exception. Reversed.

Bryant v. Willison Real Estate

 Rule of law: When a contract for sale of real property does not contain a provision
allocating the risk of loss and the property is damaged by fire or some other cause not due
to the fault or neglect of the seller, the doctrine of equitable conversion places the risk of
loss on the purchaser.
 Facts: Bryant (plaintiff) contracted to purchase a building from Willison Real Estate Co.
(defendant) on January 4, 1980. On that day, Bryant made a $10,000 down payment. The
balance was to be paid upon the delivery of the deed. On February 18, before the deed
was delivered, a water line in the building broke, causing damage to that building and to
two adjacent buildings. Willison paid to repair the damage to the adjacent buildings. The
damage would delay Bryant’s planned use of the building for over a month. Bryant asked
Willison Real Estate to agree to rescind the contract. Willison Real Estate denied the
request, and sold the building to another purchaser in July. Bryant then filed suit seeking
rescission of the contract and return of his down payment. The trial court, applying the
doctrine of equitable conversion, held that Bryant must bear the risk of loss due to the
water damage as well as the costs of damage to the adjacent buildings. Bryant appealed,
arguing that the trial court had improperly disregarded provisions in the contract of sale
regarding risk of loss.
  When a contract for sale of real property contains a provision allocating the risk of loss to
the seller, the doctrine of equitable conversion does not place the risk of loss on the
purchaser. Equitable conversion applies when there is no contractual provision allocating
the risk of loss. Under equitable conversion, the risk of loss from damage caused by fire
or some other cause not due to the fault or neglect of the vendor lies with the purchaser,
not the seller. Equitable conversion assumes that the seller had good title to the property.
When the parties have contracted to allocate the risk of loss to the purchaser, the doctrine
of equitable conversion does not apply. In this case, there was an unambiguous
contractual provision allocating the risk of loss to the seller. The trial court erred when it
applied the doctrine of equitable conversion. Additionally, the purchasers have the right
to the return of the down payment because the seller refused to abate the purchase price
due to the water damage and sold the property to a third party. Finally, the sellers are not
entitled to be reimbursed by the purchasers for the cost of repairing the water damage to
the adjacent buildings. The only basis for this ruling by the trial court was equitable
conversion, which is inapplicable to this case. Accordingly, the judgment of the trial
court is reversed and the case is remanded for further proceedings consistent with this
opinion.

Stambovsky v. Ackley, 572 N.Y.S.2d 672 (1991).

 haunted house
 Nondisclosure
 Lack of notice, nondisclosure is material, laden defect not readily discoverable—if
all 3—then there is a duty to disclose
 If seller creates a condition that materially impairs the value of a contract and is within
the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising
due care, does nondisclosure of the condition constitute a basis for recission of the
contract?
 Yes.
 Doctrine of caveat emptor—a buyer must act prudently to assess the fitness and value of
property that is the object of a transaction, or the buyer who fails to exercise due care will
be barred from seeking the equitable remedy of rescission.
 HOWEVER, if the seller creates a condition that materially impairs the value of a
contract and that is within the knowledge of the seller or unlikely to be discovered by a
prudent purchaser exercising due care, then nondisclosure of the condition is a basis for
rescinding the contract.
 Ackley created and perpetuated the notion to the public that her home was haunted which
greatly impaired the value of the home and its resale potential.
 Stambovsky inspected the premises and conducted the appropriate title-record searches,
but he was unaware of the home's reputation and was unlikely to inquire about whether
the house was possessed. Furthermore, even the most thorough home inspection or title
search would not uncover the presence of ghosts or the home's reputation in Nyack.
Ackley should not be able to take advantage of Stambovsky's ignorance by failing to
disclose the condition. Accordingly, rescission of the contract is an appropriate remedy.
The lower court is ordered to reinstate Stambovsky's action.

Johnson v. Davis, 480 So.2d 625 (1985).

  Caveat emptor
 Where a seller of property knows of facts materially affecting the value or desirability of
the property that are not observable or known to the buyer, the seller has the duty to
disclose them to the buyer.
 Johnson (D) agreed to sell his house to the Davises (P) but did not tell them what he
knew about the poor structure of the roof. The Davises brought suit alleging breach of
contract and fraudulent misrepresentation.
 The homebuyer is entitled to a refund of the deposit when the seller knew of but failed to
disclose significant leakage problems in the house’s roof.
 Johnson knew about the leakage problems with the roof and not only failed to disclose
them, but actually lied about them to Mrs. Davis. Because a leaky roof is a material
defect, Johnson is liable to the Davises and must return the deposit.

Dunant v. Wilmock Inc., 335 S.E.2d 162 (1985).

 1980 purchased home constructed by seller
 Noticed during periods of wet weather, waste water tended to back up into the house
from the septic tank system
 Learned this was a common problem in the portion of subdivision where home was
located
 Purchased home from Steven Gantt who purchased it from seller two years earlier
 Builder not liable
 took no part in the planning or construction of the septic tank system and had no
knowledge of the existence of any defects therein, having left this aspect of the
construction entirely to the subcontractor who installed it. It further appears without
dispute that, based on an engineering report previously submitted on behalf of the
developer of the subdivision, the county health department had approved the installation
of a septic tank system on the property, had issued a permit therefore, specifying the type
and size of the system to be installed, and had inspected and approved the work after its
completion. Under such circumstances, it has been held that any negligence by the
subcontractor in installing the system is not imputable to the builder and that the builder
is entitled to summary judgment on the issue of negligence

January 31, 2021

MODULE 02: Deeds and Mortgages
Readings: 592-605, Lockhart v. Parker, 611-12, Herron v. underwood, 617-622, Cutler Estate,
Nutter & Co. v. Estate of Neifer, Kentucky legal Systems Corp. v. Dunn, 630-633, Barkley v.
Olympia

Video 02: DEEDS

Deed
 convey or transfer property or rights by legal deed
 purpose is to transfer a title
 a title is a legal document proving ownership of a property
 - problems that occur before or after contract but before closing that gets litigated
later.

Implied Warranty of Quality

- limited to claims against builders (unlike nondisclosure)
 Nondisclosure involved claims against the seller
 Whereas implied warranty of quality
 if house physically defective homeowner has a claim against builder
 it relates to physical problems in the property
 example: defective septic tank (Dunant)
 key issue dividing courts: privity
 privity—contractual relationship between a buyer and seller
 majority rule—is that only first buyer has claim against the builder
 rationale: otherwise, intermediate buyers may have caused problems or passage
of time involved natural wear and tear

Remedies for breach of contract

 Specific performance—perform contract as written (usually preferred by seller, buyer
might prefer to walk away
 Damages—usually expectation damages (difference between contract price and market
price at the time of breach
- Seller retains deposit
- Buyer gets money back

Once ownership is full transferred

The Deed
 AT CLOSING, seller gives buyer a deed
 Covered by statute of frauds must be in writing and must identify land, grantor, grantee
(not consideration)
 i.e. deed does not have to mention the price of the property unlike a contract under the
SOF
 Deed does NOT have to be signed by grantee (“deed poll” doctrine—only grantor signs
yet deed is valid)

***Deed is evidence of title, deed is proof of title

Types of Deeds
(deeds are categorized based on the type of title warranties provided by the grantor)
MAY RECOVER DAMAGES FOR VIOLATION
 General warranty deed
 Special warranty deed
 Quitclaim deed

General Warranty Deed

 Provides greatest conveyance and protection to the grantee/ or buyer
 It includes warranties or covenants that the seller conveys with the title
 There are specific words that make a deed a general warranty deed
 Generally, covers the warranty of good title and encumbrance
 Contains a variety of assurance
 If assurances are violated grantee can recover damages from grantor
 Assurances are covenants
 There are 6 covenants

6 covenants: (2 types)
 Present covenants
o If violated at all, they are violated at the minute of closing
o Thus, statute of limitations starts to run from then
o Do not run with the land which means only first grantee can
sue based on their violation
o Example: you probably cannot sue on a present covenant 20 years
later

Covenant of right to convey—grantor actually owned what it was

conveying (i.e. you own what you are selling) covenant violated
only when there is a real ownership problem

Covenant of seisin—generally the same

If one or the other is violated, the other is violated as well. (seisin

and right to convey)
Covenant against encumbrances—
 Something that makes the property less useful
 there are no rights in a 3rd person that can diminish value of
land but don’t eliminate title
 (ex: liens, easements, restrictive covenants)
 Similar to things that violate the warranty of marketable
title

 Violation of government regulations

 Those are rights that the government has rather than
rights that an individual has
 Do those violate the covenant against encumbrances?
 Sometimes
 Violation of government regulation like zoning of violate
the covenant against encumbrances if the grantor has
some reason to believe they exist
 In other words, if the grantor could not have known (i.e. a
latent violations) that this broke the law than there is no
encumbrance
  On the other hand,

 not violation of covenant against encumbrances unless

grantor had no actual or constructive notice of them
(“latent violations”)
 Frimberger v. Anzellotti: Instant Facts: After
purchasing property, Frimberger (P) discovered that the
home on the property violated state environmental
protection statutes. Black Letter Rule: A latent violation
of a restrictive land use statute does not constitute a
violation of the warranty against encumbrances. Latent
violation is something the seller did not know about. If
seller could not know about it, they are not liable. Held
that the concept of encumbrances cannot be expanded to
include latent conditions on property that are in violation
of statutes or government regulations. 
 (what could the buyer have done to protect themselves?
—the buyer could have put a provision in the contract.)—
buyer could add an indemnification clause.

 Future covenants
o Not violated until many years later
o Not violated until someone threatens to evict the grantee based on
a title problem
o That can be 100s of years later
o Future covenants run with the land
o They are not limited to the first grantee
o Statute of limitations does not run until eviction threatened
o Runs with land (unlike present covenants)

Covenant of quiet enjoyment—seller must indemnify buyer (the

seller has to be damages) if latter evicted by someone with future
(better) title

Covenant of general warranty—pretty much the same

Covenant of further assurances—rarely litigated (seller must try

to make title good after fact if possible)

Deed covenants v. warranty of marketable title

 Both allows grantees to recover from title defects
 How are they different?
o Warranty of marketable title is BEFORE closing and ends at closing
o Warranty of marketable title is IMPLIED by law, not in contract or deed
o Deed covenants only exist after closing
 o Deed covenants only exist in deed
o Deed covenants more lenient to seller—for example, where there is a zoning
violation always violates warranty of marketable title, might not violate
covenant against encumbrances
o Why not? Damages against seller (post-closing remedy) harsher penalty than
merely requiring seller to back out of deal.

Estoppel by deed
 Grantor is conveying land that they do not own
 But then they do the right thing and get title to the land
 Who owns the land—grantee
 Grantee as a matter of fairness
 Grantor is estopped from claiming he owns it

Delivery of deeds
 Grant of deed must be validly delivered to the grantee
 If it isn’t the grant is not valid
 How do we know when a deed is validly delivered?
 INTENT
 Intent—not purely subjective, manifested by objective facts such as physical transfer
 What if grantor gives deed to 3rd person (e.g. atty) to give to grantee?
 Rule: valid delivery if grantor surrenders all control” rather than intending to retain
control (example: in Herron, grantor gave to sister with no conditions, and clear intent to
transfer so there was intent by grantor to surrender control)

Herron v. Underwood: (problems with delivery) has to be delivery of the deed. When he gave it
to his sister was he surrendering all control. Yes. clear intent to transfer. So valid delivery. What
matters is the grantor’s intent. Grantor gives deed to 3rd person, then delivery is valid.

Special Warranty Deed

 Contains similar assurances but buyer has a claim for violation only if violation
caused by grantor’s own acts

Quitclaim Deed
 Contains no assurances of title
 Pro-seller
 Like an “as is” clause
 A.k.a. non-warranty deed
 Offers grantee the least amount of protection
 The deed conveys whatever interest the grantor currently has in the property
 No warranties or promises regarding the quality of the title are made
 IF the grantor has good title the quitclaim deed is as effective as a general
warranty deed
 IF the title contains a defect the grantee has no legal recourse against the grantor
under the deed
  Contains no assurances, so if grantor did not own what he was selling, grantee has
no claim against grantor

Video 02: Mortgages

Basic ideas
 Buyer typically cannot afford to purchase house with cash
 So borrows from bank/ mortgage company, signing over a document called a mortgage to
lender
 Mortgage gives lender right to take over (or “foreclose”) property if debt is not timely
paid
 Lender then sells property through foreclosure sale
 If sale does not get enough money to pay off debt lender collects deficiency through
deficiency judgment against borrower

Mortgages and the law of future interests

 What happens if the mortgaged property has life tenant and remainder person?
 General rule—the person with the life estate, the life tenant pays interest and carrying
charges, remainder person pays principal.
 Can be varied by grantor INTENT
 Exception—if the person making the interest, the grantor intended otherwise, then there
wish can supersede the general rule. This rule may be varied if grantor intended
otherwise (e.g. local custom of life tenant paying principal, pattern of life tenant doing
so)

What if debtor conveys property to grantee?

What happened when the debtor sells their interest?
- You buy a house subject to a mortgage and you sell it to someone else
- You are still typically liable for the mortgage
- but what are the grantees’ obligations on the original debtor’s mortgage?
- The key issue is, if there is a foreclosure and the forecourse sale does not yield enough
revenue, is the grantee from the original debtor liable for paying a deficiency just as the
debtor would be liable for paying a deficiency judgment?
- In other words, must grantee pay deficiency if foreclosure sale yields insufficient
revenue?
 IT DEPENDS on what the agreement between the first debtor and guarantee from the
debtor are.
 If grantee’s agreement says that the grantee personally assumes the mortgage, then
the guarantee cannot only have part of their property foreclosed but can also be
liable for deficiency judgment if a foreclosure does not yield enough money to pay
the debt.
 On the other hand…
 If grantee merely takes subject to the mortgage then the property can still be
foreclosed, that is, lender can still take over the house, but a deficiency judgment
can only be made against the first debtor not against someone who buys from the
debtor.
  Normally court presumes latter (they presume the grantee takes subject to the mortgage)
in absence of contrary intent.

Nutter & Co. v. Estate of Neifer: assuming mortgage or taking property subject to the mortgage.
If you assume the mortgage the lender can get both foreclosure and deficiency judgment. But if
only subject, can foreclose but no deficiency judgment. Did not want to assume mortgage. No
evidence of assuming mortgage so default, they subject to the mortgage. Still get to foreclose.
Deficiency only if you explicitly assume the mortgage.

Priorities
 Let’s say you have multiple lenders or multiple people with a claim just the debtor’s
property, who gets what?
 General rule—if property is foreclosed on than senior mortgage beats junior
mortgage. (i.e. the first mortgage collects first)
 Mortgage v. judgment lien—ordinarily judgment lien wins if recorded first, but NOT true
if mortgage a “purchase money mortgage” (PMM). If later mortgage to the judgment lien
is PMM, then mortgage takes priority. PMM prevails even if lender on notice of prior
judgment liens
 Policy reason—encourages financing, seller relied on right to be repaid out of specific
real estate at issue, unlike lienholder
 What is PMM? One in which mortgage given as part of sale transaction (i.e. the mortgage
is part of the sale by the debtor)—can be by seller, but need not be. If mortgage a year
after sell—that is not a money mortgage. Reason court gives preference to PMM? To
encourage financing. Lien holder did not really rely on anything whereas, PMM lender
did.
 However, if I do not bother to get mortgage until a year after the sale, that is NOT a
PMM.

Kentucky legal system v. Dunn: (PMM) seller or bank (3rd party) lends the money. Money is for
the purchase not something else. 3rd party purchase money lender. Lender is something other
than seller. Lender relied on the ability to foreclose.

Prepayment
 Common clause in mortgage—prepayment premium (if grantee pays mortgage before it
is due, it gets penalized)
 Is this valid? Yes
 Why? Lender bargained for mortgage so it could make money through interest payments,
so should be able to get that.

Lockhart v. Parker: claim breach general warranty and encumbrance. Mortgage is an

encumbrance therefore breach against encumbrances. Court does not agree. Mortgages do not
run with the land. Present covenant, only warranty against first buyer. Present covenants not
relevant. Future covenant does run with the land. It can be enforced by people later in the chain
of commerce. Foreclosure is not violation. And eviction is necessary. Then future covenants are
violation. To assert claim for violation of future covenant, must wait until threat of eviction or
eviction.
Rockafellor v. Gray: Instant Facts: Rockafellor (P) purchases land and agrees to assume
mortgage to Gray (D). Gray (D) forecloses on the mortgage. Black Letter Rule: The covenant
of seisin does run with the land, and is broken the moment the conveyance is delivered,
becoming a chose in action held by the covenantee.

Module 03:
Pg. 682-85, 686-91, 663-73, 702-05, 719-20, Nastasi v. Suffolk County

Video 7: Recording Statutes

Basic ideas
 What happens if grantor gives property interest to two separate grantees? Who has
property? For example, what if O mortgages to A and then sells to B, or vice versa?
o If no recording statute relevant, first come first served.
o If recording statute involved, later buyer may win by recording first and or
lacking notice of first transaction
o Loser in recording statute case still has a remedy against grantor for violating
deed covenants (if she has a general warranty deed or special deed but if
quitclaim, they are out of luck).

Types of recording statutes

(1) Race—whoever records first wins
 Advantage:
o 1. Easy to figure out who wins, just check dates
o 2. Encourages both parties to record
(2) Notice—second buyer wins if a “bona fide purchaser” (BFP)—1) must be a purchaser
and pay a decent value and not a dollar. 2) They have to be bona fide—must lack actual
or constructive notice (they should have known) of the first transaction. That is, lacks
notice of first transaction and paid value. (advantage—fairness to innocent buyer)
- Buyer two wins if bona fide purchaser
- If neither party records in a notice state
(3) Race-notice: second buyer wins only if BOTH recorded first AND a BFP (advantage-
reduces unfairness to BFP BUT ALSO encourages BFP to record)

When is deed validly recorded?

 Messersmith—to be validly recorded, deed must be validly acknowledged by seller
(usually in front of notary)—otherwise its not counted as recorded for purposes of law.
 Also deed that is recorded must be the deed that is acknowledged, not some other deed.

What does it mean to be a BFP?

 Must be purchaser—that is, pay value rather than gain through inheritance or gift or
nominal consideration.
 No actual or constructive notice of earlier transaction
 Luthi—1st deed must be specific about property’s location to put future grantees on
constructive notice. Thus, reference to “all my property in county X” not good enough.
  Possession of property is constructive notice
 Recording of 1st deed is constructive notice
 Harper—if 1st deed not recorded but mentioned in recorded instruments that’s enough for
inquiry notice

Pg. 682-85, 686-91, 663-73, 702-05, 719-20, Nastasi v. Suffolk County

Types of Recording Acts

3 types of recording acts:
 Race statute
 Notice statute
 Race-notice statute

Race statute
o Earliest type of recording act
o Between successive purchasers of property, the person who wins the race to
record prevails
o Whether the subsequent purchaser has actual knowledge of the prior purchaser’s
claim is irrelevant
o Example: O, owner of Blackacre, conveys Blackacre to A, who does not record
the deed. O subsequently conveys Blackacre to B for a valuable
consideration. B actually knows of the deed to A. B records the deed from O to B.
Under a race statute, B prevails over A, and B owns Blackacre.
o Protects a subsequent purchaser only if the subsequent purchaser records
first

Notice Statute
o Developed from judicial decisions interpreting race statutes
o Some courts held that if a subsequent purchaser had notice of a prior unrecorded
instrument, the purchaser could not prevail over the prior grantee, for such would
work a fraud on the prior grantee.
o Notice statute protects a subsequent purchaser against prior unrecorded
instruments even though the subsequent purchaser fails to record
o Example: O, owner of Blackacre, conveys Blackacre to A, who does not record
the deed. O subsequently conveys Blackacre to B for a valuable
consideration. B actually knows of the deed to A. B records the deed from O to B.
If B has notice of a prior grantee, a notice statute would be applicable. Therefore,
B would not prevail over A because B would have notice of A’s prior deed.
o protects subsequent purchasers without notice
o protects a subsequent purchaser against prior unrecorded instruments even though
the subsequent purchaser fails to record
o Example: O, owner of Blackacre, conveys Blackacre to A, who does not record
the deed. O subsequently conveys Blackacre to B for a valuable
consideration. B has no knowledge of A’s deed. Under a notice statute, B prevails
over A even though B does not record the deed from O to B.
 o Virtue of a notice statute is its fairness as between two conflicting claimants
o Whether the subsequent purchaser has notice depends on facts not on record
o Notice statutes are less efficient than race statutes
o Example 3, for instance, suppose that, after the conveyance to B and before B
records, A records his deed. Thereafter C desires to purchase from B. C, searching
title, would find A’s deed on record, and C then would have to ascertain from
facts off the record whether B had notice of A’s deed. If B did not have notice, B
prevails over A, and C can buy from B and then, standing in B’s shoes, prevail
over A.

Race-notice statute
o A subsequent purchaser is protected against prior unrecorded instruments only if
the subsequent purchaser (1) is without notice of the prior instrument and (2)
records before the prior instrument is record.
o Incorporates feature of both a notice statute and a race statute
o Example 4. O, owner of Blackacre, conveys Blackacre to A, who does not record
the deed. O subsequently conveys Blackacre to B, who does not know of A’s
deed. Then A records. Then B records. A prevails over B because, even though B
had no notice of A’s deed, B did not record before A did.
o Tends to eliminate lawsuits turning on extrinsic evidence about which deed was
delivered first
o race-notice statute is preferable because, by punishing nonrecording, it provides
motivation to record, making the public records complete.