Property Notes.doc

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Property Outline, SP 2005Prof. G. Nelson

Keemin Ngiam

TYPES OF PROPERTY Five Theories of Private Property

1. occupation – occupation/possession justifies legal protection of occupier/possessor’s claim to thething

2. labor – person has a moral right to own and control the thing produced or acquired through hislabor

3. contract – private property is the result of a contract between individuals and the community. natural rights – natural law dictates the recognition of private property!. social utility – law should promote utility" and legal protection of #private$ property does promote

utility

“Bundle of Rights” theory of property

• “Property” consists of a bundle of rights or expectations in a tangible or intangible thing that

are enforceable against third parties, including the government. • %roperty is not a #thing$" but rather a #bundle of rights.$• &he larger the bundle is" the more valuable it is.• %roperty can be in land" chattel" intangibles.• 'and – real property (immovable property under civil law)• *hattels and intangibles – personal property (moveable property under civil law)• *onstruction changes personal property (materials) into real property (building).

Justification of private property

• +aving a personal sta,e in something may ma,e it more li,ely for people to be interested in protecting" preserving" developing it.

• &ragedy of the commons. -ould complete private ownership of property solve the problemorcing polluters to internali0e the costs of pollution

• Just desserts – if you’ve wor,ed for it" you deserve it. nd arguably (somehow) you earn theright to transfer it to your successors. r to spend it all" eploit the property to its maimum.

• Nelson believes that private property ownership is integral to a democratic society; i.e. you

cannot have a democratic society w/o private property ownership. Because private property is

a sustantial chec! on the po"ers of govern#ent$

Real Estate

• Fee Si#ple %solute$ &he greatest bundle of rights and highest form of ownership. 4nlimited induration and freely alienable.

• Fee Si#ple &efeasale$ -here subsequent events may deprive owner of ownership and hisrights (f.s.s.c.s.)

• Fee simples are marked by inheritability.• 'ife Estate$ %roperty belongs to the person during his/her lifetime. nd the person may collect

rent on it" and within limits" mine" or otherwise eploit the land. 4pon death" property no longer belongs to that person or person’s estate. 5ut property may be transferred before death. 6t canalso be subject to involuntary transfer – ban,ruptcy sei0ures" sei0ure by creditors" government

see,s to convert the land for public use. wnership of transferred property is only valid for aslong as the original person is alive – it becomes a life estate pur autre vie (by another life). 'ifeestates may be defeasible.

• 'easehold Estate – lessee rents the property from lessor. t end of lease" reversion to lessor.'ease may also be defeasable.

• Reversion 7 when the estate reverts to the owner (the grantor) in the future. 8.g. a leasehold. tthe end of the lease it reverts bac, to the landlord.

• Re#ainder – a remainder is in the third party" not in the grantor" or the grantee. 8.g. where theowner leases to the land for life" then gives the future interest (which we call the remainder) to5.

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• Possiility of reverter – future interest in a determinable estate• Right of entry – future interest in a estate on condition subsequent

%ersonal %roperty• .9.. is termed absolute ownership in the domain of personal property.• -e never see ee 9imple :efeasable in personal property.• life estate in personal property is possible. 8.g. a trust.• 'easehold estates are common in personal property. 8.g. car leases.• ;eversions and remainders can eist in personal property.

Fee Si#ple %solute

;ights under .9.. include<1. ight to possess or occupy. 4sually true ==> of the time. &here are some limitations. 8.g. 0oning

ordinances" local ordinances" restrictive covenants.2. ight to use as one sees fit . 4sually subject to numerous restrictions. ;estrictions are permissible

so long as some viable economic use to the land remains. 8ven if most of the fair mar,et value ofthe land is destroyed by the restrictions. &he government does not need to pay to restrict the landuse. &he law of private nuisance – a common law doctrine. defendant cannot use his real estate

in such a way as to unreasonably interfere with the plaintiff’s real estate. ;estrictive covenants –landowners agree among themselves upon limitations in the use of the land.

3. ight to exclude. ?ot absolute. 8mergency services" e.g. fire" police. 6f something on the land is ahealth or safety ha0ard. fficial health/safety inspectors have a right to enter the land" even ifsuch right is dependent upon a warrant. r a police search warrant. @ranting easements to third parties.&he right to eclude is at its strongest in dealing with residential property. 5ut it wea,ens whenthe property is commercial in nature. &he reasoning is that once you decide to open up to the public" you have to open up to all the public. Residential ho#eo"ners have a very strong right

to e(clude. -isconsin case – husband and wife refused to allow mobile home dealer to delivermobile home across their land. :ealer did so anyway. 'andowners sued for trespass and gotA1BB"BBB in punitives" despite lac, of physical damage. or violation of their right to eclude.

. ight to alienate. 4nder common law 7 unreasonable restraint on alienation doctrine. *ourt willdetermine if such restraint is reasonable. lienation includes selling inter vivos (while alive)" andselling incident to death. The sine !ua non of F$S$%$ is the right to deter#ine "here the

property goes upon death$ &ransfer upon death can be by< -ill (testamentary transfer)C jointtenancyC intestate successionC trusts. &here are restrictions on alienation and transfer. 8.g.<

a. lot7split ordinances. &o prevent the ecessive splitting of lots. b. 8minent domain. &he government could just compel you to alienate.c. +ousing discrimination. Dou cannot discriminate between potential buyers.

(discrimination in transfer at death is usually protected)d. :eath/8state taes. :epending on the level of taation. &he more confiscatory the ta" the

more it changes a person’s behavior in life.e. @ift taes. parent is limited in the amount of money they wish to give their child in

their lifetime< a ta is imposed if the amount eceeds a certain amount. *harities areentirely eempted.

f. *apital gains taes" e.g. from the sale of property" stoc,s" etc.g. 9ales taes" property value re7assessment.h. ssignment/subletting restrictions. -here the tenant is disallowed from subletting or

assigning w/o the landlord’s consent. 9ome courts have found this to be an unreasonablerestraint on alienation" unless the landlord’s denial was reasonable.

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Fee Si#ple &efeasiles

*onveying f.s.a. for an estate held in f.s.defeasible. requires holders of both present and future

interest to convey together. 'anguage must be clear" otherwise court will interpret as restrictive covenant" not f.s.d.

*ourts prefer land to be alienable and will read f.s.d.s as narrowly as possible – restrictive

covenants or even just precatory language.

:eterminable 8state (qualified fee" fee on special limitation" base fee" fee simple determinable) &he estate automatically reverts to grantor upon triggering condition being met.

uture interest associated with a f.s.d. is called a possibility of reverter.

%ossibility of reverter is automatic and cannot be waived.

*reated by using language of duration" #so long as"$ #until"$ #during the time that"$ and

specifically providing for automatic termination upon occurrence of stated contingency andrevestment in the grantor. (possibility of reverter)

9ome jurisdictions hold that .%. begins in a f.s.d. once triggering condition met.

nce condition met" grantor can also claim rent for trespass.

8state on *ondition 9ubsequent (fee on condition" 99*9" fee subject to a power of termination) 8state doesn’t automatically revert bac, upon triggering condition being met. 5ut triggering

condition gives grantor the power to terminate grantee’s estate" upon actual election and eerciseof that power.

uture interest associated with a f.s.s.c.s. is called a #right of entry$ or #power of termination.$

;ight of entry need not be eercised.

*reated by language of condition" #on condition that"$ #provided that"$ and epressly provides

for a right of entry upon breach of condition. -ords of condition alone may (usually are not) enoughE *ourts want to see epress reservation of

right of entry as well. 'anguage only declaring purpose of land or why it is granted does not amount to f.s.s.c.s.

-ords of condition alone may held to just be #precatory"$ words of intent" desire" wish" or

indicative of a #restrictive covenant"$ violation of which is grounds for an injunction or monetarydamages (depending on whether remedy is available at law or equity).

*ourts divided on .%.< some say triggering condition starts .%. (no diff. b/w f.s.d. and fs.s.c.s.)"

others say use is permissive absent notice to contrary. 6f not eercised in a reasonable period of time after ,nowledge of breach" grantor might be held

to have waived right to reenter by silence or failure to act.o @rantee or grantor may also claim action for estoppel – reliance on failure to eercise.

6f condition met but right not eercised" grantor cannot claim for rent.

ee 9imple 9ubject to an 8ecutory 'imitation (f.s.s.e.l.) @rantor uses language requiring transfer of estate to a third party upon triggering condition being

met. uture interest associated with a f.s.s.e.l. is an #eecutory interest.$

%olicy *oncerns re. :efeasible 8states

• possibility of reverter or right of entry upon land significantly detracts from its value.

• 6f condition or limitation concerns land use" then a potentially severe restriction is placed upon

the land.

• *ommon law had no limit to duration of these future interests. +ence" long7term restrictions and

unmar,etability disfavored current owners and perhaps even society as a whole.

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• &hus" statutes have been passed limiting the life of such future interests. t epiry of statute of

limitations" the defeasible fee becomes a f.s.a.

• lternative statute allows for disregarding of a condition which has become nominal" and is of no

actual or substantial benefit to those who were intended to benefit from it.

• r" third alternative (in lorida) is that after statute of limitations epires" the estate is converted

into a restrictive covenant.

"ood v. #oard of $ounty $ommissioners of %remont $ounty(c’ty tries to sell land granted for ahospital)

• The Court holds that there’s no f.s.d here due to the absence of f.s.d. language “so long as” or

“until.”

• Court also sees no language indicating a right of entry !hich !ould make it a f.s.s.c.s.

• Court holds that it’s not a defeasible fee estate at all "ust precatory language.

• Therefore land belongs to County and not #ood.

• #ood may have tried to sue for in"unction for specific performance or restrictive covenant.

"alton v. $ity of ed #luff (land in f.s.d. to city for library but f.s.d. changed by C$ statute)

• %and conveyed in f.s.d. to city for library but city changed use to meeting hall.

• C$ legislature passed statute& all f.s.d.s ' f.s.s.c.s. gave f.s.d.s years to register as f.s.s.c.s.

• %olicy< ma,e land more freely alienable.

• #alton filed late but not raised at trial so he got land back.

&n e .'' (cres of Property (govt gained land by $..*easier to get $.. under f.s.d than fsscs)

• #hen govt stopped using land for to!n hall title fle! back to grantor (f.s.d.)

• +ut grantor never e"ected government from land so govt gained land through $..

• ,f grantor had made title f.s.s.c.s. could have argued that he maintained right of entry and title

remained in govt until right !as e-ercised. $.. !ould not begin until that point.

• Court also held that $.. statute protected govt from losing land but did not prevent it from

gaining land.• #ut new line of cases hold that holder of right of entry must exercise right within a reasonable

time after he )nows or should have )nown that breach occurred. "aiver of right to assert one*s

right of entry. The reasonable time might (!ould probably) be correlated to $.. o% ore"ectment o%.

ee &ails

4sed to grant life estates to a line of descendants from grantee.

@rantee could not alienate land in f.s.a.

Stra"#an conveyance to F" and F bac, to " was an early disentailment device.

ee tails largely obsolete.

6n the 4.9." commonly interpreted as fee simple in the first grantee or devisee named in the deedor will. r a conditional fee – f.s.d. to until issue born" when it becomes f.s.a. and a vested remainder –

conveyable to ’s successor in interest.

r life estate to " and f.s.a. per stirpes to ’s surviving issue – a contingent remainder"

contingent upon having issue and issue surviving . So#e for#s that dis)entailing statutes ta!e<

) ny remainder that follows the fee tail is considered an eecutory interest in fee simple" thatwill become possessory upon demise of first ta,er w/o lineal descendants. 6f no reference toremainders" then acquires a f.s.a.




Keemin Ngiam

5) 'ife estate in first grantee or devisee named in the deed or will" and remainder in f.s.a. tolineal descendants of that first grantee/devisee. Gurisdictions divided on question of survival"if child or descendant of must survive to share in estate.

*) irst ta,er acquires a fee tail" and lineal descendants acquire a fee simple. ’s right toalienation limited to an estate for his own life.

:) :elaware" Haine" H and ;6 hold that tenant in tail can convey f.s.a. through a deed.

'ife Estates

@rantor to grantee for life" then reversion.

nly granted by deed (9o').

*an lead to conflicts of interest b/w present and future possessors.

@rantee possesses but cannot act li,e an owner would.

*annot eercise dominion< i.e. waste.

*an rent out property.

5ut grantee must ta,e into account the interests of future holders of the estate.

5ut any conveyed interests made by grantee only valid for grantee’s life.

:oes not halt .%. if .%. began before conveyance of life estate.

Future Estates

*ontemporary interest" future possession< 6nterest eists at the moment it is created by deed" but

possession only ta,es place in the future. 9omeone with a future interest can<

a) receive compensation for condemnation" b) alienate the interest"c) enjoin current possessor from wasting the property.

orms of *rantor+s uture 6nterests1. %ossibility of reverter (follows a f.s.d.)2. ;ight of entry (follows a f.s.s.c.s.)

3. ;eversion (future interest created in grantor" but not a possibility of reverter or right of entry).(e.g. limited duration interest" or a common law fee tail). 'eases" fee tails" life estates.

orms of Third Party+s uture 6nterests1. ;emainder. Hust comply with rules<

a. ;emainder must be created at same time" and by same document that creates priorestates.

b. ;emainder must follow freehold estate" but not a defeasible fee simple. ?o leases.8ffectively means remainders only follows life estates.

c. ;emainder must not be able to cut short prior estate.d. ?o built7in time gap b/w termination of prior estate and buyer’s ta,ing over of premises.

2. 8ecutory 6nterest. ny future interest" not in the grantor" that doesn’t satisfy the rules for a

remainder. 'easeholds.a. *reated in someone other than the grantor. b. :oesn’t follow the rules for remainder.

;ules of ;emainder +here are four rules to follow in creating a remainder. &f they are not followed, an executory interest is

created. ,p$ -./0

1. remainder must be created at the same time and by the same document that creates the priorestate or estates. therwise" only conveys the reversion" not the remainder (althoughsubstantively the same). #&o for life"$ followed by a second deed #’s interest to 5.$

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2. 6n order to be a remainder" it must follow either a life estate (==.=> of the time they do) or a feetail. 6t cannot follow a fee simple of any ,ind.

3. remainder must not have the capacity to cut short the prior estate(s). e.g. #to for life" andupon ’s death or divorce" to 5.$

. &here must be no built7in time gap between the termination of the prior estate and the remainder’sta,ing of possession. #to for life" and a month after ’s death" to 5.$

;ights of uture 6nterest +older &o enter land to inspect for waste

TR%1SFERR21* PROPERTY Restate#ent definition of “estate”3

%n interest in land "hich

,a0 is or #ay eco#e possessory4 and

,0 is o"nership #easured in ter#s of duration$

2nter vivos – usually requires a written document to avoid 9tatute of rauds" unless for lease less than ayear.

Testa#entary – upon death. 8ither via a will or intestate succession" or transfer via concurrent estates"trust" insurance or death ban, accounts.

2nvoluntary – ta,ing by the government. r mortgage foreclosure or judgment lien. 6n a governmentta,ing" government pays value into court and lets parties with interests in land dispute over their share.

Judg#ent lien – either recorded in county" or in some states" with a state office (sec. of state).5eirs – n heir is someone who would ta,e your property if you die without a will" someone who would

ta,e under intestate succession. &hose who ta,e under a will are called by a whole variety ofterms" but they are not heirs$ 6n testamentary language" now words of limitation" not words of purchase.

6onsanguinity – +aving the same blood" being related by blood. &his includes adoptees. dopted

children thus have full rights. But not stepchildren$6ollateral consanguinity – related by blood to you who are neither ascendants nor descendants. unts"

uncles" cousins" rothers" sisters. %eople" related by blood" who share acommon ancestor" but are neither ascendants nor descendants.

%ffinity – related other than blood" e.g. in7laws.Per stirpes – by representation. 6f dies leaving 5" * and :" then 5" *" : each ta,e a third. 6f 5 dies"

leaving 8 and " then 5’s share is split" on ’s death" b/w 8 and . 8 and ta,e per stirpes" by representation.

Per capita – each person gets an equal share. 9o if dies" leaving *" :" and 5’s children 8 and " theneach of them ta,e a quarter. %er capita ordinarily only considers those below you directly"i.e. if 5 was still alive" 8 and wouldn’t get anything.

&egrees of 6onsanguinity 7 8hy &o They 9atter: -hen you die w/o heirs" your estate escheats to the state. &he state determines the limits of

degree of consanguinity. 6n H" it is the =th degree. 5eyond that" the state would get the estate.

9ome states such as hio go out to the nth degree of consanguinity. thers go out to far less" e.g.

6' only goes out to the I th degree of consanguinity. 6n hio" stepchildren come after the n th degree.

+alf7blood relatives are considered as full7blood relatives.

+alf siblings are treated as whole" but step siblings don’t inherit b/c no blood relation.

doptees’ relations to their blood parents are cut7off as a matter of law.

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Revocation of 8ills

'atter of two wills govern but should include a revocation clause to revo,e first

will to ma,e things crystal clear. %hysical destruction – but could be multiple copies floating around

Harriage and :ivorce – revo,es in many states

' – child can ta,e a forced share in will if parents cut them out. %arents can cut

children out in all = states. Hany states have presumption that testator wants to include certain blood relatives. 6f you really don’t want to include them" use eplicit clause in will.

orced share – for 2 states< surviving spouse has right to forced share that’s equal to their share

through intestate succession.

Policy Behind 2ntestate Succession Statutes

• &he 'egislature is trying to thin, li,e the hypothetical" ordinary" reasonable" decedent. -hat

would that person want" in terms of where their property would go upon their death

• ;educing costs of probate" finding people.

• :etermining when the state would get the money.

• :o you favor spouses over children &he state especially wants to favor minor children"

otherwise the state would have to pay for them – they become wards of the state. 9omeone has tosupport the children.

• *hanging cultural morays – how long a person has been married. 9ame se partners. 9erial

marriages – how long the marriage lasted" the current spouse. :omestic partners.

Statutory presu#ption3 any conveyance “to %” is presu#ed to pass the entire estate of the grantor

unless the contrary intent is e(pressed in the docu#ent ,f$s$a$0$

-ayburn v. 9mith< *onveyance said #to and her heirs and assigns forever$ and was controllingover conveyor’s intent to grant a life estate.

Practical &ifferences ;" <ested and 6ontingent Re#ainders

9omeone with a vested remainder has a greater interest in the land than someone with a contingent

remainder.5ecause the condition upon which the contingent remainder depends may never be met. 9uch acontingent remainder is tenuous and thus the interest in the land is only potential. vested remainder is not tenuousC it is certain. 6t will happen someday. nd thus the interest in the land isgreater than just potential.

Restraints on %lienation

6ndirect<

• *o7tenancies (harder to alienate entire property because all owners must agree)

• 9erial interests in land (need all interest holders to agree to alienation)

• Hortgage due7on7sale clauses

• 4se restrictions (fee simple defeasibles" restrictive covenants)

:irect<

• &isaling restraints on alienation – when a clause ma,es any subsequent transfer void w/o

some condition being met (usually original grantor’s permission).

• Forfeiture restraint – #to and her heirs" but if attempts to transfer said estate without the

prior consent of the @rantor" it shall immediately revert to the @rantor.$o not enforced on f.s.a.

o occasionally enforced on life estates

o sublease approval provisions in leases. 4sually but not always enforceable.

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• 6ontract;pro#issory restraint – #&o and her heirs" but covenants for herself" her heirs and

assigns that no transfer of said estate shall be made without the @rantor’s prior consent.$ &hey areviewed with suspicion as disabling or forfeiture restraints" but they are not. t most they triggerdamages or right to injunctive relief" but do not give the @rantor a right of entry" nor is it li,e af.s.d.

o 8nforceable in leaseholds

'%8 OF 8%STE &efinition

-aste is unreasonable use of the property by the owner of the possessory estate which reduces the

value of a future estate. 'a" of 8aste3 %ossessor of a limited estate’s use of estate (less than f.s.a.) is limited by future

estate holder’s interests in estate. ;estrictions involve a determination of the e-tent to !hich holder of future estate may protect

value of that estate by limiting diminution of the estate that possessor may cause.

'oss of <alue

:oes not always need to be proved.

ctual removal of the #substance of the soil$ is per se waste. :amages awarded will be based on

value of what is removed" not just determining value of land before and after the removal.1ature of Future Estate

5ears on the etent of limitations on current use" and the remedy available.

+older of a vested future estate (e.g. when current possessor only has a life estate) has more at

sta,e than the contingent holder of a future estate (e.g. when possessor has a f.s.s.c.s. or f.s.d.estate).

'ife tenants

llowed to use the property" so long as use does not unreasonably reduce value of future

estate. 'ife tenant is entitled to #income$" but cannot encroach on #principal.$

&he #principal"$ the corpus" is owned by the owner of the future estate" who has a right to

receive it intact.

'ife tenant not liale 6f property is destroyed or substantially damaged by fire or other casualty" e.g. flood" natural

disaster" etc. or decrease in value from ordinary wear and tear" ecept for what could be prevented by

reasonable maintenance.%cts of 8aste

<oluntary 8aste< positive acts which will decrease the value of the future estate.

Per#issive 8aste3 failure to commit repairs that a reasonable person would perform to maintain

the property – failure to fulfill legal duty :estruction of building is almost always an act of waste.

Fiduciary Oligation and 6o##ingling of 9oney

'ife tenant thus has a fiduciary obligation to the future owner of the estate. &his can affectdecisions in areas other than actions for waste. 6f the life tenant mies her own money with the principal sum" court may raise presumption that

she spent her own money first" before spending principal. r that losses incurred" are losses of her own money and not of principal" etc.

Per#issile %dverse =se

*ertain doctrines allow life tenant to diminish the value of the future estate.

8stovers – life tenant can cut timber on property needed for reasonable use of premises" e.g. for

fires" repairs.

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pen mines policy – life tenant allowed to continue removing minerals from mines that are

already open. 'umber7producing forest – 6f only reasonable use of land is as a lumber7producing forest" life

tenant may be entitled to harvest timber for profit (acting in accordance with approved industry practices).

E#le#ents

'ife tenant plants a crop but passes away.

9urvivors of life tenant are entitled to that harvest" on the policy basis of<

1. compensation for the labor and epense of growing the crop2. encouraging good husbandry" which is a public benefit by virtue of increasing provisions for

people. @ood public policy to protect good husbandry.&efeasile Estates

wners of a defeasible estate" whose possession is contingent and maybe remote" have less of an

interest and ability to enjoin/recover damages from current possessor for waste.

Hust show<

1. &he possessor’s conduct is #unconscionable$C2. reasonable probability that the future interest will become a present interest.

Re#edies

2ndefeasile Estate ,present estate is life or leasehold03

:amages for injuries sustained (possibly multiple damages according to various statutory

schemes). %rohibitory injunction (against voluntary waste).

Handatory injunction (against permissive waste).

orfeiture – in etreme cases of waste" e.g. where it is #wanton$ or defendant fails to pay

damages awarded.

&efeasile Estate3

8njoin waste.

:amages are unli,ely to be awarded" unless the estate will clearly pass to future estate holder. %ossible that court may collect damages and impound them" until future estate owner is

determined.

#-ithout impeachment for waste.$ 8culpates life tenant from normal obligations of a possessor

of real estate" i.e. maintenance and such. 5ut even here" 5 can have the court enjoin foroutrageous acts of waste" e.g. demolishing the house.

''7& has different rules of waste< depends on who assumes responsibility for up,eep" L

provisions" statutory warranties.

9ome states have statutes awarding treble damages for willful or wanton waste.

ther states have statutes forfeiting the present interest to the future interest for wanton waste.

if building torn down by third party tortfeasor" court might use replacement cost" or diminution of

value of the whole property. or future interest holders" court will not speculate about the future value of the land. 6t will ma,e

calculations based on the present value of land" and compute damages based on the ti#e value of

#oney. +olders of contingent interest unli,ely to prevail on action for damages. :epends on li,elihood of

their interest vesting. *ourt may have their damages paid into court" to be given to successor in interest.

*ourt more li,ely to grant injunctive relief to both vested and contingent interest holders.

'iability or %ermissive -aste

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1. *ap on liability is the greater of< the rent being paid" or the fair rental value.a. ?o need to repair in ecess of rent or fair rental value. uture interest cannot force

present interest to spend more than property’s rent is worth.2. %roperty ta,en as it is found. :uty is only to preserve the principal" ordinary wear and tear

accepted.3. #ree$ ordinary wear and tear – no need to compensate for it.

. #wind and water7tight.$ 8ntitled to reasonable wear and tear" but at the minimum must ma,e surethe roof is on and sound" that windows are put on it" etc. 5ecause failure to do these things mightlead to the principal being diminished by wind" water" etc.

!. life tenant is liable for paying the property ta. uture interest might end up paying the taes – just to ma,e sure that the taes are getting paid and to prevent the possibility of the governmentsei0ing the land for a ta foreclosure.

These are the default rules$

ver the years" courts have held that there’s no obligation to insure. 8.g. if the property burns

down or is destroyed" current interest has no liability unless responsible.

%erson who owns the remainder" should underta,e to insure the property.

#ro)aw v. %airchild (/0C land divided up b*! relatives)

1rantor built mansion on part of land parcel. Conveyed to “my son and his eldest surviving

child but if no child survives him to my daughters.” on could not maintain house so !anted to demolish it and build apartments.

Tearing do!n the building !ould increase the value of the land 2 make it possible to build

apartments on it (ameliorative !aste).

laintiff’s daughter !as 3. Contingent interest 4 depended on her surviving plaintiff.

5efendants’ chances of getting the property depended on daughter dying before plaintiff.

,f the daughter had a f.s.a. the court !ould probably appoint a guardian ad litem "ust to

safeguard her interest. $ + and C are opposed to the sale because&

o they are concerned about the impact of an apartment building on their o!n properties

and homes.o selling off ,saac’s portion of the property !ould mean that the area of the parcel !ould

be diminished 2 thus the !hole value of the land !ould diminish (they could sell theentire thing for more later).

Court rules that +roka! cannot demolish the house.

They look at testator’s intent& “my home” implies that he !ants his son to live in the house.

+roka! cited elms v. Pebst #rewery as support for his position.

ebst o!ned a house ne-t to his bre!ery but had bought it from someone !ho only had a

life estate. Tore do!n house to e-pand bre!ery.

6!ner of the remainder then sued ebst for !aste.

ebst argued tearing house do!n improved value 4 rest of neighborhood !as commercial

real estate.

Court agreed and held that the future interest !as not harmed but enhanced.

ebst !as a controversial case. /0 %egislature later passed a la! stating that if the life

tenant had a life e-pectancy of at least five years and the demolition !ouldn’t financiallyharm the future interest and the action by the life tenant is something that a rational

reasonable person !ould other!ise do it cannot be !aste.

(meliorative "aste - #aste that adds value to the property. ebst is one although arguably an

anomaly 2 it !as post facto.

laintiff in +roka! may not have succeeded even if court approved& difficult to get mortgage

financing 4 !hoever bought mortgage !ould be buying a bet on daughter’s life.

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7ven if +roka! built it !ith his o!n money he !ould still be taking a risk 2 if his daughter died

all his investment !ould then go to $ + and C.

,f +roka! had more children (say or 8) the court might say to $ + and C that their standing is

so slim their chances of inheriting so small that they had no right to raise their complaint.

Partition

%artition< *ourt may allow for concurrent partition" but less li,ely to partition serially held land.

4nless waste is occurring" or present holder cannot afford to up,eep land" pay taes.

9ome states partition of serial interest only if #in best interest of all the parties$ – usually means

person with greatest interests will win.

#a)er v. "eedon (the old !oman the high!ay the lost family)

“to $nna for life then to $nna’s issue and if she dies !ithout issue to my grandchildren per

capita.” tate condemns land for high!ay "oins all parties to condemnation action.

arties split proceeds amicably and $nna allo!ed to live on part of land.

$nna later petitions to have land partitioned and sold as she needs money.

6ther family claim !aste as they believe land !ill be !orth more in future.

Court finds that part of land should be sold and interest from land given to $nna but principal

kept for future interest holders.

#each v. #each (daughter asks parents to come live !ith her and dad later dies)

parents put up the money and build an addition to the house.

,n return they get a life estate on the addition and the land under the addition and remainder to

the daughter.

$fter father dies mother !ants to sell addition and daughter ob"ects.

Court denies mother’s re9uest to partition land& statute not e-plicit enough to allo! that.

5aughter !ould have had to endure loss of privacy of her o!n home and loss of her o!n home’s

value.

6r had to buy the addition back herself. 6r if court held that entire property had to be sold

daughter !ould have to buy back her o!n property. /o unreasonable restriction on alienation here because mother only had a life estate.

Present <alue of 9oney

&able on p. 3B2 -hen r/i low M ta,e lump sum now" not periodic payments.

-hen r/i high M ta,e periodic payments.

-hen the interest rate is higher" the present value of money is lower. (uture interest holder will

want to litigate for a lower r/i" and present interest holder will want to litigate for a higher r/i). &he holder of a life estate will always argue for a higher interest rate (because that would reduce

the present value of money for the holder of the remainder). &his will give the owner of the lifeestate more money today. -hich can then be invested for greater profit" etc.

ma,es more sense for a holder of a life estate to see, a partition of the land as soon as possible.

5ecause then he gets part of the money into his poc,et" which he can pass on to his successors"unli,e the actual property itself. %lus he can invest it now" and in 2B years (or whatever his lifeepectancy is supposed to be)" his estate will have more than the holder of the remainder’s estate.

uture estate holder gets present value of the price for the property.

*urrent estate holder gets the difference between price of property today and present value of

money for that price.

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%&<ERSE POSSESS2O1 :efinition< &he nonpermissive occupation of another’s land" which if continued for the period of the

statute of limitations on actions to recover land" will give the occupier the estate owned bythe person then legally entitled to possession.

• “"hole hog” adverse possession clai#< -hen both parties lay claim to the whole piece of realestate (relatively rare).

• 9ore co##on 7 oundary disputes$ 8.g. when someone builds a fence ten feet over his boundary into his neighbor’s land. &he newly enveloped land becomes the contested piece ofadversely possessed property.

• &o defeat .%." owner just needs to give permission – convert into a lease" license" or easement.'icense is most preferred – may be terminated at any time.

%dverse possession consists of3

,>0 The statute of li#itations on actions to recover land4

,-0 The ?udicial doctrine of adverse possession$

Judicial &octrine of %dverse Possession

&o be adverse" possession must be<>$ actual

-$ open and notorious open – visible. ?otorious – ,nown.@$ hostile (not matter of subjective intent).$ e(clusive3 8hether %$P$ shared use no #ore than nor#al in circu#stances for an o"ner$

A$ continuous

*ourts occasionally add the following phrases<$ under claim of right (really just an aspect of hostility). &his phrase creates problems having to do

with the state of mind" or #intent"$ of the disseisor. 5ut .%. usually has nothing to do withsubjective intent.

C$ in good faith (should not be included at all" just causes trouble).

5ostility>$ #6 thought the land was mine.$ mista,en claim of right" an innocent state of mind. So#e

?urisdictions insist %$P$ can only e granted "hen a #ista!e has een #ade3 an atte#pt to

punish !no"ing "rongdoing$

-$ #6 ,new it was not mine" but 6 too, it anyway.$ Dno"ing thief . 9ome jurisdictions insist on this being the way to show adverseness or hostility – the Haine doctrine.

%olicy ;easons 5ehind the Haine :octrine

• Haine doctrine rewards possessor who premeditates and predesigns sei0ure of another’s

lands" an intentional wrongdoer. nd it punishes an honest" mista,en errant.

• &o discourage boundary line disputes 9o that transfer of title isn’t effected in such

situations. (seems rather silly. &here would be easier ways to do it" i.e. just outright banapplication of .%. to boundary line disputes)

@$ “2ntent to clai# as one+s o"n$” 7 6T &octrine e#erging vie"$ .%. has intent to claim as hisor her own" upon entry and use of the land" regardless of subjective belief.. #&he very nature ofthe act Nentry and possessionO is an assertion of his own title.$

.$ #6 did not have permission.$ nly permission" license" or lease defeats the #hostile$ element of.%. State of #ind and intent is irrelevant$

Policy Reasons ehind “6lai# of Right” Reuire#ent

.%. is the eception and not the rule" should only e allo"ed "hen %$P$ is acting innocently$

9tates that have a lot of land and few people" generally have a presumption that when a non7title

holder uses the land" it is done with permission.

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These elementsoften overlap.




Keemin Ngiam

*onversely" there is a presumption of adverse use in heavily populated states.

6n general" harder to get title by .%. in sparse rural states such as -yoming" than in densely

populated states such as ?G. 5ecause owners are less li,ely to ,now of .%. in sparse rural areas.

8cept in a few instances" we want to rely on record title. 6t is predictable" safe and establishedC

gives less room for dispute. ?D epressly denies the #,nowing thieves$ the possibility of .%.< have to show you are there

innocently" that you made a mista,e as to .%." thin,ing that you owned the land.

Other Reuire#ents of %$P$ ,vary fro# state)to)state0

• 6n *" .%. requires paying taes on the land during period establishing .%.• 6n other states" paying taes shortens statute of limitations required for establishing .%.<

paying taes reduces requisite time from 1! to J years.• 6n some states" #color of title$ also shortens the statute of limitations.

• *olor of title< when the .%. claims possession based on a written document" even if writtendocument is defective and conveys nothing.

• 9ome claim that when a recipient ,nows that the deed is fraudulent" we should not givethe grantee the benefit of color of title.

• Hajority approach argues that to follow that approach would be time7consuming becauseit would involve an inquiry into subjective intent. Gust easier to grant color of title whenever itappears" instead of inquiring into the adverse possessor’s intent.

• @overnment land cannot be lost to .%.• 2f there is a “Torrens” title syste# there is no %$P$ if there is a clai# of right

reuire#ent$

Policy Justification for %$P$

:. %eople should not #sleep on their rights.$ 5ut why not r whya. n estoppel reliance theory. 5ecause if people sleep on their rights" an innocent third7

party might mista,enly thin, it is the true owner" and ma,e improvements to the land" totheir detriment when the true owner claims the property for their own. %s a policy

estoppel reliance should only apply to innocent %$P$ ;. -e want to reward diligent adverse possessors (wea, argument" a,in to rewarding good thieves"

finders ,eepers).<. -e wish to encourage develop#ent and use of the land. &hus we wish to encourage adverse

possession when it leads to development and productive use of the land.3. Efficiency. .%. ma,es it relatively easy to determine boundary line disputes. 9ettled by loo,ing

at what’s on the ground" if it’s been in eistence for long enough.a. *ounter7argument is that it’s just as easy to loo! at the actual records to see where the

original boundary lines were supposed to fall. b. .%. is actually less efficient because of court costs" time" etc.c. Hore efficient to have land surveyed and determine where original boundaries were.

. 6t is a doctrine of repose. &hat boundaries not remain uncertain indefinitely. %eople" includingthird persons e.g. mortgage lenders" come to rely on apparent ownership for various purposes"e.g. ta assessment" issuance of credit.

8. “The mystical connection bet!een possession and title is !orth something= possession is the

source of original title; it is evidence of title.”

%$P$ and Future 2nterests

• uture interests are protected from .%." because future interest holder" at the current time" lac!s

legal standing to bring a cause of action to prevent the .%.

• %$P$ can only acuire the present interest$

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Keemin Ngiam

• urthermore future interest holder does not have the same level of responsibility to ta,e care ofthe real estate as the current interest holder.

• &he .%. ta,es the land as she finds it. 6f future interest is created after .%. begins to use the land"future interest can be wiped out" if .%. succeeds. n .%. can also wipe out a mortgage on theland.

• &isaility3 6f owner is under a disability at the time .%. begins" the cloc, doesn’t run. 5ut if

disability occurs after .%. begins" cloc, continues to run.• 6f a minor inherits the land" the cloc, continues to tic, and is not reset" unless the minor did not

have a future interest in the land at the time that .%. began. 2n general the cloc! is not reset

"hen the #inor inherits$

6onstructive %$P$

• 6f there is a large piece of land" only a part of which is actually possessed" only the part can be.%." absent color of title.

• 6f there’s color of title" then the whole piece can be adversely possessed. &his is constructive .%.• constructive possession is li#ited to an area that ears a reasonale relationship to the area

actually possessed$

• &heory< that possession #under color of title$ ma,es clear to the #true owner$ the etent of the

disseisor’s claim" and puts the disseisee on notice that failure to bring an action will result inetinguishment of title to the whole tract.

The Prole# of Tac!ing

• -hen two or more persons are in successive .%. of the land" neither for the full period of thestatute of limitations.

• *an length of their .%. be combined to meet statute of limitations• nly if they passed possession continuously" i.e. grantor M grantee.

Type of Title *ained Through %dverse Possession

• %$P$ only gains the estate to "hich o"ner "as entitled.

• Statute of li#itations does not run against the o"ner of a future estate. 6f future owner wasnot entitled to the estate at the time of adverse possession" he had no cause of action.

• 9imilarly adverse possession does not etinguish a mortgage in states where the mortgagee hasno right to possession.

5o" &oes the 1e" O"ner *et Title:

• &he new title is an original one" not derived from the disseised former owner.• &he former owner’s title is etinguished (&his is unusual. &he common law legal system

generally holds that interests in land may not be destroyed" although they can be transferred"shaped and re7shaped).

• ne suggestion is that .%. wor,s through the doctrine of abandonment by operation of law"analogous to the doctrine of abandonment of chattels (abandoned things are added to the store of

the world’s unowned things" available to the new ownership of whoever comes to possess themwith intent to own).

• 5ut abandonment theory is problematic because our legal system does not recogni0e unownedlandC all land is owned by someone. nd .%. does not ma,e the land available to anyone whocomes upon it" but only to a certain person – unli,e abandonment of personalty.

Role of Statutes of 'i#itations

• 4sually provides just the time period for acquiring title.• 5ut some legislatures have enacted special .%. statutes that add substantive elements" e.g. for

certain classes of cases.

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• &hese elements can" and usually do" reduce the disseisor’s ability to obtain title.• merican statutes usually allow tolling – suspension of the limitations period while the disseisee

is under some #disability.$ 8.g. if a minor" or insane" imprisoned" citi0en of a country at war withthe 4.9." absent from the state.

• 9tatute of limitations does not apply against government< government is immune from .%."ecept in certain cases involving municipalities.

%olicy 5ehind 9o'• prevents the ma,ing of illegal claims on the property after evidence necessary to defeat such a

claim is lost (deterioration of evidence)

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onroe v. awlings (hunters thought they o!ned land and used it)

• Case turned on !hether actual possession re9uired continuous possession.• $.. e-ists if acts of o!nership openly and publicly indicate an assumed control or use>

consistent with the character of the premises in !uestion.o ? built cabin

o ? granted logging rights to part of land

o ? paid ta-es on land

• %and need not be fenced buildings not necessary.• ufficient if disseisor openly and notoriously claimed or used land in the only !ay it could be

used.

• Neither actual occupancy, cultivation nor residence is necessary to constitute actual possession

of the land.

• ufficient if $.. used land as a reasonable o!ner !ould.

• ? had constructive $.. of all the land because ? had color of title via ta- sale.• +ut not legal title 2 no service to actual o!ner after ta- sale.

Nome v. %agerstrom (/ argued no $.. 2 native $laskans 4 diff. concept property)

$.. only contested for :@AA before F built cabin on land.

6pen B notorious& actual use of land.

Continuous& / contests :*: of $.. duration

7-clusive& / claims F had different sub"ective belief about o!nership& /ative $laskan

ste!ardship concept. /ot “adverse” or “hostile.” Court re"ects& sub"ective state of mind of $.. irrelevant only ob"ective& !hether there !as

permission license or lease.

9uatters get no $..

,n contrast !ith Donroe F did not get all the land& not all of it !as $.. used continuously.

0oseph v. "hitcombe (house in the +ron-)

/0 is “claim of right” "urisdiction 2 $.. must have a claim of right sub"ective belief in

o!nership of property. ,f # !ent in !*o belief in o!nership of property but believed to be at o!ner’s mercy then # !as

s9uatter or e-pectant licensee not $..

# only paid electric bill& passed gas and ta- bills on to a friend !ho purported to pass it to real

o!ner.

E may have been able to claim back rent sub"ect to o% improvements on property sale of rights

to rent at foreclosure sale.

,nefficient to in9uire into sub"ective intent& re9uires courts to do more !ork.

annillo v. 1ors)i (boundary dispute over :”)

Court engages in a balancing test .

!here the encroachment is small i.e. boundary disputes no presumption of kno!ledge applies

(no constructive notice) unless o!ner has received actual notice. 2pen and notorious re!uires

actual )nowledge of encroachment when encroachment is small.

no !ay for o!ner to kno! of encroachment short of having a professional survey undertaken

!henever any sort of improvement is conducted near the boundary. $ourt distinguishes “open”

from “notorious.”

,n practice most courts collapse open and notorious into a single element.

Court re"ects D7 doctrine and adopts CT doctrine& sufficient that $.. claimed land as his

regardless of sub"ective intent. ,n boundary disputes !here encroachment is built usually real o!ner !ill convey land to adverse

possessor for FD if improvement cannot be removed easily.

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,f no $.. and deliberate court may grant in"unction for removal of encroachment. To strengthen

plaintiff’s hand at settlement.

,f no $.. and not deliberate court may "ust grant an easement or order conveyance for value.

"right v. "right ($.. bet!een co4tenants hard to establish but possible via constructive ouster)

• $.. against a cotenant re9uires one of the follo!ing&

:. $ctual ouster ;. ?etention of e-clusive possession after demand <. 7-press notice of $..

resumption of permission& that a cotenant holds the land for the benefit of other cotenants

resumption is rebuttable by une9uivocal acts such as selling or leasing the premises or part

thereof “bringing it home” to cotenants.

7-press notice of $.. satisfied by either actual notice to cotenant or une9uivocal acts that are

open and public and make the possession visible hostile e-clusive notorious (constructive

ouster). Conveying a “fee simple” interest in the property is prima facie evidence of ouster.

/ot sharing rent or profits from sale of property is also evidence of ouster.

6uster does not re9uire physical removal. ufficient if claimant is in e-clusive possession of landand by !ords or acts evinces a claim of separate o!nership.

Courts often re9uire strong evidence of ouster in cotenancy cases 2 policy reason of discouraging

$.. among relatives. (policy favoring integrity of families healthy family lifeG)

Court here found $.. ,f no $.. then !ould have ordered partition action accounting for all

previous rents profits etc.

Porter v. Posey (Transfer of $.. from one $.. to ne-t)

laintiff’s predecessor in interest built upon land thinking they o!ned it.

Duch later defendant tried to stop plaintiff from using land.

$rgued that since land !as not included in !ritten deed granted to plaintiff they could not claim

$.. Court found that !here plaintiff predecessor in interest had intended to convey all their property

to plaintiff there !as a transfer of interest in the $.. land.

/o need for land to be in !ritten deed since they did not have deed to the land any!ay.

Tacking b*! adverse possessors re9uires privity b*! them. Courts have found privity in& transfer

of a deed= testamentary transfer (!ill)= intestate succession.

Court less likely to find oral transfer sufficient in cases of “!hole hog” $..

$.. not defeated although defendant had occasionally used land& e-clusivity e-isted so long as

$.. did not share use more than normal for an o!ner.

9%R2T%' EST%TES

#8state$ will cover both property owned at death" and gifts made to defraud the marital estate.

:ower and *urtesy :ower and curtesy – dangerous for conveyances. 9urviving widow could always ta,e land bac,"

unless widow consented to conveyance. Gurisdictions that retain dower limit it to lands possessed by decedent at death.

ractions for curtesy and dower have been equali0ed.

9ome states where they have been retained" now convey a f.s.a. by dower or curtesy" not just a

life estate.

6f a state ma,es both dower and intestate share available" widow/er may have to elect.

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Fraud on 9arital Rights

*onveyances that defraud the spouse are barred" even if property given to children.

#raud on marital rights$ loo,s at all gifts made over the course of the marriage.

@ifts will count for the spouse (if they were given to other parties to defraud the spouse)

but not against the spouse (gifts previously given to the spouse will be counted as part of her

share). &he latter is only in states that have augmentation.

%ug#entation

9tates that have adopted the 4niform %robate *ode do not have fraud on marital rights" they have

#aug#entation.$ raud on marital rights enlarges the pot for surviving spouse.

But aug#entation can e used to reduce the share of the surviving spouse$

6n Hissouri" they have fraud on marital rights to help a surviving spouse" but they also enacted an

augmentation statute to count against a surviving spouse. %ug#entation and fraud of #arital rights does not create a right for children to receive

t"o)thirds$ 2t only creates a right for the spouse to receive a third$

Election %gainst the 8ill

9tatutory provision made by legislatures.

6f spouse elects against the will" spouse will get either half (if not lineal descendants of surviving

spouse) or a third (if they are lineal descendants of surviving spouse).

Prole#s 8ith Early 9odern Election %gainst the 8ill

'eft open two possibilities<1. widow/er could still be disinherited. 4se of #will substitutes$ could deplete the estate and render

#forced heirship$ valueless. 8.g. use of trusts" insurance policies with third party beneficiaries" joint tenancies" etc.

2. -idow/er could still gain more than prescribed and intended share. 6f well provided for by intervivos transfer" could gain even more through forced heirship.

=nifor# Proate 6ode Solution

9tatutes have created concept of aug#ented estate and gave surviving spouse the right to one7

third of augmented estate" the #fair share.$ (adopted in at least fifteen states" but not all" partly dueto comple statutory provisions needed to implement it)

%ug#ented Estate includes<

a) the property owned by decedent at death b) value of property which the decedent has disposed of during his lifetime through #will

substitutes.$ 6ncluding revocable trusts" gifts to children" transfers to decedent and anothercreating joint tenancy" power of appointment" etc.

c) 8cludes transfers for value (sale)" and transfers to which the surviving spouse had consentedin writing.

ugmented estate also precluded over7recognition. #air share$ had to include

property of the surviving spouse’s that had been derived from decedent in course of the marriage"e.g. trusts.

9urviving spouse may ta,e the elective share w/o ta,ing against the will< when the

will gives less than she is entitled to under the statute" she can ta,e what is provided for in thewill and the balance that is due to her.

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&he statute would effectively reduce the number of elections< probate attorneys and

estate planners would counsel testators against disinheriting their spouses" and widow/ers would be less able to claim a share due to inter vivos transfers to them. 5ut it would also protect againstdisinheritance.

5o#estead Rights

9ome states have constitutional or statutory provisions guaranteeing surviving spouse a roof overtheir heads – ho#estead rights.

%rotects property from creditors’ claims during spouse’s lifetime" and from alienation by owner

w/o consent of spouse.

ssures a home during lifetime of owner and spouse.

;equirements1. that owner has a family2. homestead usually consists of a home and land that it is situated upon.3. homestead rights usually limited to a stated value" area" or both (protection against creditors). +omestead rights are a life estate.

9ome states will etend rights to protect minor children until age of their majority.

+omestead rights cannot be defeated by decedent’s will. 9ome states as, surviving spouse to ma,e an election b/w provisions of the will and the

homestead rights.

6o##unity Property

• 5asic premise< +usband and wife are equals and form a marital partnership.

• 8ssentially li,e &i*.

• *ommunity property – +P- each own an undivided one7half interest as tenants in common.

• 8ach may own individual #separate$ property.

• 5ut they will also jointly own #co##unity$ property.

• *haracteri0ation of the property as separate or community is the first step in determining the legal

relationships.

• 9eparate property is what you owned before the marriage.

• %resumption that it’s community property absent clear evidence of separate ownership.

• %roperty received as gift or by probate after marriage is also considered separate property.

• 6ncome (rents and interest) from separate property also remain separate property.

• 'argest item of community property is personal services income – income earned from your

employment. 6t is split !B7!B.

• 9ome debate about whether income from separate property should be treated as separate.

• 9eems intuitively unfair to treat it as community.

o 6nterest helps compensate the owner for inflation.

o 5y ma,ing it community property" value of principle reduced by a little each year. &he

benefit of it goes to the other spouse.

• *ontract or tort liabilities are also classified as either separate or community.

• 9eparate property is owned and treated as each spouse’s" as if that person was unmarried.

• K or = states have community property. &hey are almost all in the -est. 8cept for -isconsin"

which adopted it in the mid71=KBs along with the 4niform Harital %roperty ct.

'aw of -ills

• 9urviving spouse has no right to elect against the will.

• &heory is that the surviving spouse has the right to half of the community property.

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Keemin Ngiam

• 5ut she has no right to elect against her husband’s disposition of his half of community property

and his separate property.

6ntestate succession

• 6f husband dies w/o a will" surviving spouse gets all of the community property and intestate

share of husband’s separate property.

:ivorce

• *ommunity property is usually split !B7!B" spouses ,eep own separate property.

*ontrol during marriage

• 5oth spouses have control of community property" individual control of own separate property.

• -ith respect to personal community property" each spouse can deal "ith third parties and ind

the other spouse$

• -ith respect to real estate" ?oint action of oth spouses is reuired in dealing "ith third

parties.

• olicy ?eason& urchasers don’t kno! if the property is separate or community property. 7ven iftitle is only in one party’s name it might still be community property if community funds !ereused to purchase it.

• Dou want to get a signature even for separate property" because there might be a fraud of marital

rights" or augmentation.

;ights of creditors

• Gudgment can be collected against all of community property.

amily purpose doctrine (a,a community purpose doctrine)

• 6f individual debt is for community purpose" then community property can be used to satisfy debt.

• 5ut if not for community purpose" then only separate property may be used to satisfy that debt.

• amily purpose is a broad doctrine that reaches most debts" but not all hypotheticals.

• presumption that debts incurred are for a family purpose.

&ransmutation

• %roperty can be transferred from separate property to community property or to other party’s

separate property.

• &here is a presumption unless evidence clearly indicates otherwise that resulting property is

community property.

• 6f transmutating from community property to separate property" evidence must be absolutely clear

as to that transfer.

• raudulent transfers under transmutation are not permitted.

o 9uch transfers would be set aside" if there has been a judgment rendered.o &he further bac, transfer occurred" less li,ely to be set aside.

%olicy 5ehind *ommunity %roperty

• 6t may be more efficient – less effort to divide property" simplifies division.

• ;ecogni0es equality of earning power in many homes< changing times.

• @iven increased rate of divorce" ma,es sense< ma,es divorces easier" does not disadvantage either

party substantially.

*ontracting ut of *ommunity %roperty

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• 5y the use of pre7nuptial agreements. greements that stipulate what is separate and what is

community. 5ut they can be annulled if they are unfair.

• *reditors may be able to challenge pre7nuptials" but then again it would ta,e away a lot of the

effectiveness of the agreements.

=nifor# 9arriage and &ivorce %ct

• &he early version (bottom of p. 3=1)" instituted a community property regime for the purpose of

divorce. 8ven though they are common law property states for every other purpose.

• 4ses the term #marital property.$ 6n large measure that is synonymous with community property.

• &he statute doesn’t" however" state !B7!B division. 5y and large though" the property was split !B7

!B" unless other factors played in.

6o##on 'a"

• 6n common law states" no traditional common law approach of letting title.

• or purposes of divorce" the courts can loo, at '' the property" however title was acquired and

whomever it was acquired by" and ma,e an equitable division ta,ing into consideration variousfactors as enumerated in the statutes.

• The courts have carte lanche "ith regards to divorce division of property.

=nifor# 9arital Property %ct

• dvocated that all states adopt community property principles. &hus far" only -isconsin has

adopted it.

• s originally drafted" judgment against an individual spouse may be collected against that

spouse’s separate property" and all of the community property.

• ?egative policy< 6n the case of marital infidelity" if the husband ta,es a loan to support a mistress

and defaults" the wife would be punished for her husband’s infidelity. 9he finances the dalliance.

6O16=RRE1T EST%TES 6o)Tenancy &isputes

• *o7tenant disputes usually handled by L law< co7tenants usually have epress oral or written

contracts to handle such disputes.

• 6n7tenant< the tenant who is collecting rent" managing the property" the one in possession.

• ut7tenant< the one who is not in possession" who is not running the show.

• Host disputes handled by default rules. Host of these rules can be changed by L" ecept for some

dealing with alienation of the land.

• 9ubstance of law is governed by remedy being sought. ;ights of the parties depend on the cause

of action that is brought.

• &hree ,inds of actions (all created by equity courts)<

(1) %ccounting – typically brought by out7tenant" to have an accounting for rents and costs.(2) 6ontriution – typically brought by in7tenant" to have out7tenant contribute to up,eep.(3) Partition – it is to concurrent interests what divorce is to marriage.

• 6n partition actions" the courts are most fleible in doing justice.

• 5ut courts much more restrained when action is for accounting or contribution.

&efault Rules

• or residences" concurrent tenant who lives on property does not owe rent to out7

tenant" unless there is ouster.

• -hen there is ouster" the out7tenant can claim rent.

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Keemin Ngiam

• uster may be actual< telling cotenant to never return" or constructive< changing

loc,s.

• uster may create .%." if it goes on long enough.

• *ourt may require more evidence of ouster to prove .%." than just rental liability.

• -hen there’s ouster" in7tenant becomes liable to out7tenant for half the rent.

•*arrying costs< what is put into property – taes" repairs" etc.

• 8hen action for contriution is rought out)tenant can see! rent as

defensive offset fro# carrying costs$ For euity$ #ne who see,s equity must do equity.$ffsets should be granted to both parties (these are all actions in equity).

• But in accounting action no rent due out)tenant for in)tenant occupancy ";o

ouster$

• 6f in7tenant rents out property" can only ta,e fair share of rent< ecess must go to

out7tenant (9tatute of nne).

• -hen in7tenant operates business" courts unli,ely to grant out7tenant share of

profits" just half of rental value.

• ut7tenant may not be liable for mortgage payments" depends on who too,

mortgage and purpose of mortgage.

• %olicy< *reates dis7incentive to sue" encourages settlement outside of courts.

6mprovements and ;epairs

• ut7tenant is not liable for contribution on improvements made w/o out7tenant consent.

• 2n)tenant cannot i#prove out)tenant out of o"nership$

• 6mprovements are ta,en into account when partition is made.

• 6ncrease or decrease in value caused by an improvement is given to the one who bore the cost of

ma,ing the improvement.

• 6n accounting action" change in rent due to improvement is credited to one who made

improvement.

• 6n7tenant cannot see, contribution for repairs. 5ut in accounting action or partition" will be given

credit for repairs.

• 6ncreased taes by way of improvements can indirectly improve out7tenant out of possession. 5ut

court would probably limit this and do equity" ma,e in7tenant liable.

;estrictions on %artitions

• &hey are not restrictions on alienation< interests may be sold.

• 4sually cannot be for longer than allowed under ;ule of %erpetuities< can’t be perpetual.

• rare area where courts will uphold disabling restraints – #F has no power toQ$

• 9ometimes upheld if partition would defeat purpose of grantor/creator.

• 9ome statutes prohibit judicial partition if creator of estate forbids it.

• *ondominiums statutorily are allowed to have perpetual restrictions on partition over common

areas.

9urder and 6o)Tenancy

• ne should not profit from one’s own wrong.

Goint &enancy and &enancy by the 8ntirety

• ;ight of survivorship severed when ,illing is #willful and unlawful$ or #feloniously and

intentionally.$

• 4%* severs right of survivorship – decedent’s interest will pass by probate. 6f ,iller would

benefit" we assume ,iller died before decedent.

• r ,iller may forfeit all interest.

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Keemin Ngiam

• r court may give ,iller life estate" and reversion to decedent’s estate – if ,iller is released" no

need for state support. r if ,iller must pay for own incarceration. +ybrid approach.

• 9tatute of limitations might bar division of estate if charges only brought later.

• 6f no criminal conviction" probate court may re7assess evidence under preponderance standard.

&enancy in *ommon

?o change – interests are separate to begin with. Liller ,eeps estate" and decedent’s interest goesto decedent’s estate. Liller will not be allowed to inherit – 4%*.

3a)atos v. 4state of #illotti (HB# o!n as E*Ts and H kills # conveys to mother mother to stra! party back to H and mother)

# C rules that statute does cover E*T. $nd H is presumed to have predeceased # so interest

passes to #’s estate.

Joint Tenancy

t common law" joint tenancy was created simply by conveying #to and 5.$

&oday" by virtue of presumption statutes in most states" such a conveyance only creates a tenancyin common.

9ost i#portant differentiating factor ;" ?oint tenancy and tenancy in co##on is the right

of survivorship$ (joint tenancy has it" tenancy in common doesn’t" vis7R7vis the other cotenants) G/& may be for life or defeasible" not just f.s.a.

our 4nities1. Ti#e – Goint tenants must acquire their interest at the same time.2. Title – Goint tenants must also acquire their interest by the same instrument/document.3. 2nterest – Goint tenants must have equality of interest – equal shares.. Possession – 8ach joint tenant must have same right to possess every part of the property.

orm of strict formalism that governed when the right of survivorship eisted.

&wo schools of thought< we govern by the for#s" or by the intents of the grantor or grantee(if grantor’s intent not available).

6ntents school now predominates.

9traw Han ;equirement 7S and as joint tenants. &his violated two of the four unities if done directly. 9o would convey to F (straw man)" who

would in turn convey bac, to and as joint tenants. t common law" one could not convey to oneself. 9o even if conveyed the land" he would only

convey to a half7interest. 5ut he could not convey land to himself. 9o there would be no unityof time or title.

F had to be a single person – to avoid fraud on marital rights.

Host states have since enacted legislation to eradicate the straw man requirement. nd allowed

the direct creation of joint tenancy even w/o the four unities.

:estroying G/& ;ight of 9urvivorship 5y deeding your interest to someone else" giving or selling your interest away. 6t destroys joint

tenancy by destroying the unities of time and title. Host states allow the severance of joint tenancy surreptitiously" w/o telling anyone else. &here is

no obligation to disclose. Right of survivorship is severed y deeding a"ay any part of one+s interest$ So even if %lice

only gives a"ay half of her interest it suffices to sever ?oint tenancy$

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Keemin Ngiam

% "ill cannot sever ?oint tenancy$ Because a "ill only eco#es effective upon death$

6f 3 G/&s" and 1 gives away interest" G/& still eists b/w other 2. 5ut b/w other 2 shares and share

given away" only &7i7*. 8ven if share given away is held by one of the 2 G/&s. oreclosure sale on a mortgage or personal debt of one of the G/&s.

%artition will also destroy G/&" whether physical or by sale.

6n *9tatute concerning severance by written instruments requires deed severing G/& to be recorded beforedeath.6f deed is eecuted at deathbed or death is unepected" deed must be eecuted no more than 3 days before death" and recorded no later than J days after.

$rowther v. ower (mom remarries sends son deed tells him not to record until she’s dead)

,f recorded it !ill be easier to discover to be found out.

+ut if not recorded and Cro!ther dies first /ellie gets it all and in turn Do!er can get it all.

$nd Cro!ther’s < children !ould be shut out.

Cro!ther argues there is no severance unless deed is recorded.

Court rules that conveyance sho!s intent to sever !as there and so E*T severed.

Patience v. 5nyder (deed not recorded in time because they had to pay recording fee first)

• ,n C$ ?ecording $ct states that deed is only effective against third parties from time of

recording.

• Ienneth e-ecutes deed to 5onna’s mom before he dies.

• +ut deed not recorded before he dies.

• o e-4girlfriend*!ife 5iana gets everything.

Phillips v. Nyhus (E*T business partners !ho sell land but one dies before closing)

• ,n some states under ,ntent approach there !as intent to sever and so E*T severed before

closing& money from sale !ill be split.

• +ut in most states sale by both parties does not sho! intent to sever absent further evidence e.g.

money to be paid into separate bank a*c.

• Jnder formalistic approach no disruption of unities so no severance.

• #*o evidence of intent to divide up cash /yhus gets it all. 79uity of situation 9uestionable&

business partner gets it all but family doesn’t.

(lbro v. (llen

• Carol and Helen as "oint tenants !ith “full right of survivorship.”

• ,n D, this is an inseverable "oint4tenancy.

• Carol sells her half in the land to IinKer and signs an earnest money contract.

• Helen seeks an in"unction to bar Carol from selling.

• D, upreme Court says that life estates are fully alienable but measured by transferor’s life&

Carol cannot be stopped from selling a life estate to IinKer.

• #hat IinKer is buying is a present half4interest in the rents but beyond that he’s "ust buying a

risky chance to get the !hole property.

• ,f Carol dies IinKer is !iped out he sees nothing for his investment and Helen gets all.

• ,f Helen dies first IinKer !ould get it all.

• ,f this !ere a regular "oint4tenancy then IinKer !ould get a full half4interest and be tenants4in4

common !ith Helen. Jnity of interest !ould be broken.

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Keemin Ngiam

• $n inseverable "oint tenancy becomes stronger than a tenancy by the entireties& it can’t be broken

at all. ave using a “stra! person.” 6r death.

• %olicy< ;espects ’s wishes and allows to ensure that the estate is not divided up" short of

mutual consent. 5ut it is a very strong restraint on alienation.

Porter v. Porter (divorce 2 remarry 2 husband dies. 5oes ;nd !ife get share of : st houseG)

• Court holds that divorce does not automatically sever 6oint tenancy - ma6ority rule.

• arties must e-pressly provide for severance if they !ant to sever.

• ?ationale& because "oint tenancy is not tied to marriage per se. Eoint tenancy is not inherently

spousal and thus !e shouldn’t engage in any unnecessary presumptions of severance.

• This does seem rather counter4intuitive. Dost people !ho get divorced probably (empirically) do

!ant to divide their interests in land.

• +ut many other states hold that divorce does sever "oint tenancy.

• ;nd !ife argued that e-clusive occupancy of house by : st !ife e9ualed e-clusive possession& unity

of interest b*! husband and : st !ife severed and so no E*T.

• +ut Court holds occupancy is not same as possession and so no upset of interest.

ann v. #radleis (E*T b*! husband and !ife= divorce= house to be sold on her remarrying youngestchild ;: mutual agreement)

• #ife dies !*o remarrying youngest child turning ;:.

• Husband seeks repossession arguing that there !as no severance of E*T

• Court holds severance occurred !ith the divorce& intent to sever 2 parties contemplated

permanent dissolution a definite ending to concurrent tenancy (provisios for split).

#rant v. 7argrove (: E*T mortgages land later other E*T dies 2 !as there severanceG)

• $L Court holds $L is lien theory state 2 no upsetting of unity of interest therefore no severance.

• +rants can therefore collect debt against !hole property.

• ,f title theory state +rants !ould gain legal title to land by mortgage upsetting unity of interest →

severance.• Jnder intents approach mortgage does not mean intent to sever → no severance.

• ,f mortgagor had died first in lien theory state t!o approaches&

:. anti4lender& no severance so survivor gets all and mortgage e-tinguished= debt is personal debt on Hargrove’s estate.

;. partial severance& survivor gets all but mortgage is still on half the land and satisfactoryon that half.

• ,f mortgagor dies first in title theory state severance and mortgage valid on half the land.

Tenancy 2n 6o##on

?ow preferred by the law over G/&. 5y statute" #to and 5$ now has presumption of &i*" not G/&.

?o right of survivorship.

8ach person has an interest in 5lac,acre" even if the interest is different< undivided share.

There is only unity of possession$

Hay be partitioned.

reely alienable and inheritable.

-hen more than one heir survives decedent" all heirs become &i* to property.

4steves v. 4steves

• arents and son as co4tenants parents !ere in4tenants.

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Keemin Ngiam

• #hen commonly o!ned property is sold o!ner !ho’s paid less than his pro4rata share of

operation and maintenance e-penses must account to o!ner !ho paid more than his pro4rata share. 7ven if former o!ner !as out of possession and latter !as in possession of the property.

• $ll tenants in common have a right to occupy all of the property and if one chooses not to

he has no right to impose an “occupancy” charge on the other.

• /ot!ithstanding above ; rules !hen the property is sold tenant !ho !as in sole possession

of the property must give credit to the co4o!ner for the value of sole occupancy of the premises.

?e"ection of such credit !ould be patently unfair.

• arty seeking such “sole occupancy” credit has the burden of proving the “actual rental

value” of the property en"oyed by the occupying co4tenant.

• Court held that in partition although no ouster parents should have to account for rental

value of their occupancy since son !as liable for carrying costs& matter of e9uity.

$arr v. 8e)ing (father B son cotenants father leased to third party !*o son’s approval)

• on argues lease invalid !*o both cotenants’ agreement.

• Father died and son tried to e"ect lessee.

• Court holds son cannot e"ect lessee.

• %ease valid& TiC has undivided right to use all the land sub"ect to e9ual rights of other tenants.Therefore can assign o!n interest !*o consent of other tenants.

• /on4signing tenant not bound by the lease terms but cannot profit either.

• +ut can get benefit of lease (rent and no payment of fertiliKer costs) if he opts in or seek

partition.

• Can demand to be let into co4possession but cannot e-clude lessee.

• %essee of a TiC interest becomes a TiC !ith other cotenants for duration of lease.

• artition !ould be physical.

• ?elson’s alternative solution< lease not binding on non7signing co7tenant until cotenant accepted

share of rent – sign of consent.

assey v. Prothero (brother tries to doublecross the !hole family)• Ta-es on family land lapse and land is sold at ta- sale.

• +rother buys land !*o telling rest of family. %ater tries to e-clude them and claim sole o!nership.

• Court holds that their interest in the land never lapsed.

• #hen %e!is bought title at ta- sale he !as acting on behalf of all of them& had fiduciary

relationship and duty. Can’t gain a greater interest in the land than them.o ,n keeping !ith good faith that should accompany cotenancy.

o $ll tenants have duty to pay ta-es& one cotenant shouldn’t be able to benefit at e-pense of

others by neglecting this duty (then buying at ta- sale).

o pouses barred as !ell.

• Ta- title statute of limitations does not apply& not meant to protect his fraud operate against

cotenants.• %e!is did not “bring it home” until he threatened to have sister arrested for trespass 2 no $..

• This is an easy case because they are all related family members and they all obtained their

interest from the same instrument.

• +he strongest case is when they are all blood relatives and they all obtained their interest from

the same instrument.

• The !eakest case is !hen you have non4blood relatives and one of them obtained interest from a

previous tenant !ho !as a blood relative etc.

• The further you get from the core the less likely the court is to find an agency

relationship*fiduciary relationship bet!een the tenants.

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Keemin Ngiam

• ,f third party bought at ta- sale and title bought back cotenancy e-tinguished. 7-cept !hen

there is fraud.

• ,f ta-es assessed separately and ta-es lapse lapsed interest may be bought by other cotenant and

e-tinguish cotenancy (because no shared interest).

• ,f there is no fiduciary relationship (e.g. personal debt or obligation not tied to land) then no

presumption of buying for all cotenants.

8elfino v. 9ealencis (partition of land in kind or by sale)

• artition by sale only if&

:. partition in kind not practical. $ presumption in favor of partition in kind unless landis uni9ue and can’t be partitioned. (+ut presumption does not hold !ell today)

;. ,t is in the best interest of all the parties.

Tenancy y the Entirety

:oes not eist in *.

ffered by H" H" &?" among others.

vailable only to husband and wife.

6t is a legal reflection of the unity of husband and wife.

*reated when there is a conveyance to both parties.

#&o + and -$ alone may suffice to create a tenancy by the entirety. r conveyance may ma,e it

eplicit (more common and safer). &enancy by the 8ntirety has five unities< the four covered under joint tenancy" plus the unity of

marriage. &enancy by the 8ntirety is inviolable" unless both parties act together. 8ither party acting alone

cannot violate or end or sever tenancy by the entirety.

:ivorce changes &bt8 into G/& or &i*" depending on state.

6f couple not married" &bt8 is really just G/& or &i*" depending on state.

-hoever accepts conveyance from just one party accepts nothing. Both husand and "ife #ust

consent$

*reditors must obtain both signatures. %roperty that is held in tenancy by the entirety" is utterly

protected.

Only ?oint det is collectale against property held in tenancy y the entirety$ The property

cannot e used to repay det held y ?ust one of the#$

6f the wife declared ban,ruptcy" the property still could not be touched. nce she eits

ban,ruptcy" they can sell the property and ,eep all the proceeds. 9ome states have homestead eemptions – the homestead is protected from all debt collectors"

ecept for mortgage lenders.

Three %pproaches to 6onveyance of TtE Property

Pure< ny attempt to convey or affect the interest in the land" must be underta,en by both parties.

ny lien or debt sought to be collected on the land" must be a lien or debt of both parties. 6n its purest form" tenancy by the entirety only eists in five or si states.

9%3 6ther than homestead property 7 cotenant is free to convey his interest" either by mortgage"

deed" or involuntarily" when a debt is levied against cotenant’s interest (i.e. other cotenant notliable on the judgment). 5ut all that is conveyed" is the right of survivorship – Coraccio. ;entsand other proceeds of the land are untouchable. *reditor only gains if other cotenant dies beforedebtor.

• Homestead property 7 Judg#ent creditors cannot get any interest in the ho#estead

property. @rantees of a deed" conveyance" or mortgage" can be given the contingent rightof survivorship.

2J




Keemin Ngiam

1Y 1J3 +P- have interest equivalent to co7tenancy for life" remainder to surviving spouse.

Hay be conveyed" but only life estate plus right of survivorship. ;ents are conveyable" for theduration of the life of the conveyor. 5ut the rest of it is contingent on the survival of theconveyor. The right of survivorship is non)severale$

$oraccio v. 3owell %ive $ents 5avings #an) (Tbt7 b*! hB!= H takes mortgage and defaults 2

foreclosure 2 she tries to have foreclosure annulled)

• ,n a “pure” "urisdiction she !ould !in.

• Court holds that the mortgage is valid even if it is unilateral.

• +ut it’s a little pyrrhic 2 he can only convey his interest.

• $nd his interest is only the right of survivorship. o foreclosure only if she dies.

• ,f H conveyed to third party and died third party has the right of survivorship. +ut no right to

rents or anything until # dies. o if third party dies first too bad # gets it all.

'%1&'OR& TE1%1T • 'aw combines L and %roperty law.

• &raditionally '' would deed 1B7year leasehold to tenant.

• & would pay full lump sum of money upfront" and then go into possession.

• '' would only have a reversion" and & would have possession.

• 8ssentially li,e a temporally defined life estate.

• rigin< 4sury laws held that it was immoral to charge interest.

• 'eases thus sought to get around the usury laws.

• & would #lend$ '' money and get interest" by offering !B, for land valued at J!,.

• &oday" leases are an amalgam of property law and contract law. 8.g. '' has duty to mitigate

damages when & breaches the lease contract. &his amalgamation ma,es sense today.

9odern 'ease'' has (1) ;ight to rents (interest) T (2) ;eversion (principal)& has (1) ;ental obligation T (2) ;ight to possess

Bonus value3 -hen the value of the property rises" but the rents stay the same.

• 5onus value only reali0ed when & has right to alienate.

• %s a default rule the tenant has a right to alienate$

• ;esidential &s enjoy more protection than commercial &s< differences in bargaining power.

• Rent is li#ited y D So'$ &heoretically '' cannot :d rent for longer than L 9o'.

6alculation of Rents• Retail leases usually percentage leases.

o *ombination of fied rent plus percentage rent.

o &he percentage rent is tied to gross sales" not profit.

o %rotects the '' against inflation. s the costs of the goods go up" so does the rent.

o 6n effect" the '' is a business partner of sorts with the tenant.

• Residential leases usually fi(ed a#ounts.

• “1et lease” – 4sually in commercial contet.

o t *'" leases were all net leases< & too, on all responsibilities.

2K




Keemin Ngiam

o '' has no obligations" just the right to collect rent.

o & is obligated to ma,e all the repairs" pay all the taes on the property" pay all the

utilities" insure the property.

o '' wants to put all the obligation on the &.

o Host common today are #triple net leases.$

single net lease is where & has obligation to repair.

:ouble is repair plus taes.

&riple is repair" taes" insurance.

o s a result of obligations being put on &" rent is lower.

o 1et leases are not allo"ed in residential conte(ts$

;esidential &s not allowed to waive implied warranty of habitability.

*round 'ease

• & leases raw land from '' and builds on it" rents it out or uses it" may have renewal options.

• t end of lease" '' gets bac, land and buildings.

• 6f rent is not paid" '' can terminate lease and claim building before the end of the lease.

• Hortgagee financing & ta,es mortgage on =B year ground lease" not f.s.a.

• Hortgage only applies to the leasehold interest.

• 'ender therefore tries to ensure that it is informed if the rent is not paid.

• 6t will then pay the rent in order to protect the mortgage.

• ;ationale behind a ground lease is that it is much cheaper to build.

• +omeowners disli,e this setup towards the end of the lease< they will lose their homes.

• 6n +awaii" they petitioned their 'egislature" and the 'egislature granted them the power of

eminent domain" to condemn the land their houses were on.

• 9o they managed to ,eep the land and their homes after all.

• 9upreme *ourt held that condemning the land in this case was a public purpose.

• 'aw of waste applies in the contet of ground leases too – & cannot decrease the value of the

land.

• ground lease is usually a commercial venture. ?o restrictions on freedom to L.

'ease 'icense Ease#ent

'ease – most rights – revocation is breach of L. %ossessory. & can get specific performance. 9ecuritydeposit.

Ease#ent – second most – cannot be revo,ed. 6ncorporeal" not possessory. Gust right to use. 9pecific performance possible.

'icense – the least. ;evocable at will. ?o security deposit. nly remedy is damages" not specific performance.

%riend v. 1em (1em grants !hat it thinks is license court holds it’s lease slip and fall 1em sued)

•

1em’s defense& as an employee of +iederman only has licensee privileges not T.• 1em’s standard of care in D6 is lo!er if it is a licensor than if it !ere a %%.

• $rgument for license&

o lack of a demarcated boundary

o right to move +iederman around at !ill

o 1em’s employees enter +iederman’s space to clean and count the day’s earnings

o agreement bet!een them also calls it a “license.”

• Court re"ects 1em’s argument&

o boundary lines demarcating +iederman’s space from rest of store e-isted

o There !as a specific space that !as understood to be +iederman’s.

2=




Keemin Ngiam

o 7veryone kne! !here the +iederman section began and ended.

Ter#ination of 'easeholds

&ermination must be in "riting.

&ermination must be specifically directed either to '' or & (depending on which party is see,ing

to terminate). &ermination notice must be signed by person see,ing termination.

&ermination notice must include clear evidence of intent to ter#inate" e.g. #elect to terminate.$

?otice must specify the effective date of ter#ination. 4sually the last day of the month" in a

month7to7month tenancy. 4sually must be at least 3B days (see :avidson v. Lenney).

8ffective date of a termination must be at the end of a rental period. ?ormally in a month7to7

month this will be the end of the month. ?otice of termination must be received by the party outside of the notice period" i.e. received

efore the rental period i##ediately preceding ter#ination.

8asiest way to effect notice is to serve notice personally. 9hort of that" registered or certified mail

would be best. Ter#ination is never effective "ithout notice.

8avidson v. :enney (notice of termination not given in time and possession la!ful till T left) ,f lease !as terminated validly 5avidsons can bring unla!ful detainer action and get double

rent.

,f invalid termination lease !as valid until Ienney left.

Theoretically 5avidsons could argue that Ienney never terminated lease and so rent is still

o!ed.

/otices of termination are construed strictly against %%& because of harsh double rent penalty.

a6ority ule& ,f notice insufficient must send ne! notice for ne-t period.

estatement & if notice insufficient for termination date specified in notice termination becomes

effective at end of ne-t period.

Termination can only take place at end of lease period at end of the month.

Eviction of T

• t *'" self7help could be used to evict &" or see, judicial ejectment action.

• 'egislatures passed summary proceeding/unlawful detainer/rent and possession statutes –

summary eviction proceedings.

• *ourts then banned self7help as public policy< adequate remedy available through unlawful

detainer actions.

• 9ome states allow self7help if peacable – changing loc,s.

• 9tates that ban self7help render it a tort – forcible entry.

7ar)ins v. "in $orp. (hotel guest& licensee or tenantG $rrears hotel changed locks)actors Hilitating for +ar,ins 5eing a 'icensee

• The hotel !ould come in clean the room change his linens. They provided the furniture.• His payments !ere made !eekly. eems to indicate a licensee status.

• ,n C$ once you’ve stayed for over < days you’re a tenant. The statute carves out an e-ception

for regular hotels and lu-ury hotels.

• 7conomic reasoning& ,f the %% seeks a "udicial action then until the case is heard the T gets

“free rent.” They !on’t have to pay for the 8 to @ days until the case is heard. The rent accruesbut you can’t s9ueeKe blood out of a turnip. ,n cases like this some %%s !ill pay the T to leave.

Su##ary Proceedings to Evict Tenant

&raditionally '' could use self7help. 'ater barred for policy reasons.

3B




Keemin Ngiam

6f & holds over" '' can bring summary proceedings (unlawful detainer) action against &.

'' might also just offer to pay & to leave (less costly than court action).

6n theory if '' does everything properly and the & does nothing to contest" a & can be evicted in

1I days. 5ut in practice" average time to judgment of eviction is K days.

&ime to actual eviction of the & is anywhere from =B to 1BK days.

9ystem de facto builds in a 2 to 3 month period during which the & gets free rent" if the & is

judgment7proof (i.e. bac, rent can’t be collected from the &). &raditionally when the issue goes to trial" the defendant & had very little ability to assert a defense

or counter7claim. &raditionally it was just a matter of whether or not & had paid the rent. 5uttoday there are more possible defenses<

1. implied warranty of habitability2. implied covenant of quiet enjoyment

&he limit of the judgment is usually around A2!,.

4nlawful detainer actions can also be brought against commercial

tenants. 5ut if recovery sought is in ecess of A2!," then the action should be brought in 9uperior *ourt and not municipal court.

jury trial can be given" but is usually waived.

&he number of judgments entered in favor of &s" in general" was 1>.

5ut if the & was represented by a lawyer" the > went up to 2B>.

8ither way" &s still lost in the majority of cases.

'' can see, enforcement by as,ing court marshall to enforce order.

Gudgment against & will also adversely affect credit rating.

& might offer to leave if '' does not report" and get it in writing.

''s may have collection agencies collect on judgment. Lnowing that '' will see, them out until

death might be an incentive against &s defaulting.

ppeals 6n most states" as a condition precedent to appeal" the & is required to post a bond" to guarantee

the '' that even if & loses on appeal" there will be money available to pay for the rent. &he bondis ,nown as a #stay bond.$ 5ut once bond is posted" the & can stay till the appeal is heard.

'indsey states that requiring a bond of two months of rent is unconstitutional.

2n 6% once ?udg#ent is entered in an action for eviction there is a right to appeal to a

three)?udge #unicipal court panel$ But there is no right to stay in the apart#ent pending

the appeal even y posting a ond e(cept in e(tre#ely rare circu#stances$

o %olicy< 9eems more efficient" given that most cases are won by ''s" to require

burden to be shifted to &. 6t would consume less resources.

3indsey v. Normet (summary proceedings held to be constitutional) Fact that it’s a summary proceeding does not violate due process.

Fact that limited defenses are available to the T does not violate due process.

%indsey stands for the proposition that !here summary proceedings are a legislative action to

deal !ith the slo!ness of "udicial eviction action and to avoid self4help they are not a violationof due process.

ummary proceedings are constitutional.

9elf7+elp 6t’s permitted in about 2B> of the states. %eaceable self7help of course.

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Keemin Ngiam

6n such states" '' uses self7help to get rid of &.

& can then sue '' in court.

& can be compensated by getting free attorney’s fees or judgment" if & prevails.

9elf7help permitted when repossession is of chattel" not property. 5ut must be peaceable.

-hy the difference b/w chattels and property

1. %roperty is more substantial and arguably more important than chattel.2. 6t puts the burden on evicted & to prove that eviction was unlawful.3. +ard for it to be peaceable. %eople have greater sta,e in their home. ll their belongings are

there" etc. %erson will be more li,ely to engage in violence to defend home.. +omelessness< legislatures rule out self7help to cut down on homelessness @ive tenants a

chance" a few months to get their act together and stay off the street. &he '' usually won’t absorb the cost of the free rent< it’s usually just passed on to other &s in the

form of higher rent.

voiding &ermination''s can<1. screen &s more effectively.

2. ;equire higher security deposit.3. ;equire more rent upfront.

-aiver 4nlawful detainers are not waivable as a matter of public policy.

%andon#ent and Surrender

''+s Options

1. ccept the abandonment. 5ut the '' only wants to do this intentionally. 6t may" however" be heldto have occurred when the '' had no such intent. &urns on what the '' actually does.

2. ;efuse to accept the abandonment as an offer of surrender" and ,eep the lease in effect. &his isincreasingly being abandoned as an option by courts" although there’s still a significant amount of states that allow it. '' then has no duty to mitigate.

3. ct as &’s #agent$ and find a substitute tenant. & liable for damages but lease no longer in effect.'' can see, damages for rent differential and cost of finding new &.

:amages U (riginal ;ent ;emainder of riginal 'ease) – (?ew ;ent ;emainder of riginal

'ease) :iscount for %resent Value

bandonment is considered an offer of surrender. nce both parties accept" that ends the lease.

4nder option 2" sometimes the '' will just wait until the end of the lease to sue. nd they will

sue for the accrued rent (the judgment amount would be greater). Hitigation will always be subtracted from recovery< '' has duty to mitigate damages if ''

accepts abandonment.

cceptance of 9urrender

'' must be careful when he is considering option (1) in response to abandonment.

*ourts have held that when & abandons the premises" it is an offer of surrender.

nd by entering the premises to re7model" '' is accepting the offer of surrender" unless ''

epresses to the & in writing that the re7entry is not an acceptance of the offer" and that the re7entry is done to mitigate the &’s damages" not the ''’s. This is the #inority rule.

6n jurisdictions that impose a duty to mitigate" the ''’s re7entry is not an acceptance of surrender.

6t would be perverse to cause the '' to lose any right to recover damages because he is performing his duty.

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Keemin Ngiam

-hat 6f the & Ha,es an ctual ffer of 9urrender &he '' can choose not to accept the offer.

4nless it’s a jurisdiction that imposes a duty to mitigate.

&hen '' may have to accept offer" but ma,e it clear that in doing so" the '' is mitigating for the

&’s benefit" and not his own. &hat he is choosing (3) and not (1).

%cceleration clause

6f & abandons" '' has the right to collect all the rent under the lease presently due and payable.

*ourt will usually require the amount to be reduced to present day value" and won’t let the ''

collect it all. +ence the property will still be the &’s. Dou can’t let the '' collect both rent and the property bac,.

4sed quite frequently by ''s.

%nticipatory Repudiation

5y abandoning premises" & has signaled to the world that he is not going to perform.

*ourts may interpret this as an anticipatory repudiation.

;esult is the same as with acceleration clause – '' gets present value of the accruing rent. 5ut premises must then be available to the &.

4nder both acceleration clause and anticipatory repudiation" the & retains control of the property.

+ence '' cannot re7enter. 6f '' does re7enter" then & could sue.

9itigation

6f '' has multiple vacancies" '' must treat abandoned apartment just li,e one of the others.

6f & pays all rent upfront" court might impose duty to mitigate in order to discourage the

inefficient use of land. 6n *" security deposit cannot be used to mitigate< would turn it into liquidated damages.

%olicy ;easons for ;equiring Hitigation<

nti7social to have unused real estate" especially housing" when housing is a relatively preciouscommodity.

,2n 6alifornia0

%enalty for ailure to Hitigate1. *ourt will subtract from L rent damages what reasonable mitigation would have yielded. 6t is

relatively inefficient – a lot of discovery and investigation needed. &his is by far the mostcommon. r<

2. '' will lose right to bring an action. ?o reasonable attempt at mitigation U & is off the hoo,. fcourse" litigation is needed to establish if '' made a reasonable attempt at mitigation.

(c) '' has burden of showing mitigation.

(d) 5ecause '' is in an easier position to prove mitigation.(e) & would have to engage in tremendous amounts of discovery to determine mitigation.

;easonable ttempt at Hitigation 4sually it is & who attempts mitigation by finding sublessee or assignee.

Hinimum duty to mitigate requires '' to accept any substitute & found by breaching &" provided

that substitute & is solvent and creditworthy.

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Keemin Ngiam

'ength of new lease doesn’t have to be identical to the original lease" but must be a reasonable

equivalent. ;ent does not have to be for same amount. '' can recover for cost of re7letting and for rent

differential.

-aiving :uty to Hitigate 6n residential contet" public policy is against recogni0ing such waiver.

a. 6nequality of bargaining power. b. -ould encourage inefficient use of land.

6n commercial contet" court may be willing to accept such waiver.

c. 5argaining power more equal.d. 6nefficient use of land argument not as strong< commercial land more available than

residential.

Hitigation of *ommercial > ;ent 'ease ?o mitigation unless there is a duty to operate.

9ome courts might grant an injunction to compel operation. & can get out of lease by buying the

injunction< settling lease termination on ''’s terms. *ourts might award damages.

*ourt will have to decide if there is a duty to mitigate.*ourt will have to determine what the > rent might be. (9peculative)

6f & attempts to mitigate and rents to third party on > lease" L rent and the mitigation amount will

need to be determined. warding damages is thus a messy business" requiring a lot of calculation" etc.

5ut awarding an injunction" compelling specific performance is easier. nd it lets the parties

essentially settle the matter with minimum efforts to calculate how much is due" etc. Horeefficient.

6f & +as ?o :uty to perate

'iuidated &a#ages 6lause$ sliding scale liquidated damages provision would help avoidinterpretation that it is a penalty.

5ecause it’s not a fied or flat amount – it will vary over time" and with the set > of profits for

the > lease.

Tenant+s Fi(tures

-hen chattel attached to real estate in a relatively permanent way" that chattel becomes part of

the real estate.

*ommon in commercial leases.

:efault rule< '' can !eep the i#prove#ents. lso holds if lease stipulates that & can build

improvements but is silent about what will happen at the end of the lease.

6f improvements decrease value of land" & may be liable for tearing them down.

& has right to remove trade fitures so long as & does not damage the structure/property in doing

so" or repairs any damage done to the structure/property.

:efault rule is that T cannot see! contriution for the i#prove#ents.

E#inent &o#ain 7 6onde#nations

• Wuic, &a,e – government pays money into court" and within a matter of wee,s" the owner has to

leave the property.

• 6n ma,ing its offer" government has an incentive to ma,e an offer closer to HV – otherwise it

goes to a jury trial" where jury will li,ely give more than HV.

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Keemin Ngiam

• &he courts generally don’t want to have to determine who has what interests in the land. 6n most

states" there is one judgment for the HV of the land. ll parties with interests in the land thenhave to litigate to get their share.

• minority of jurisdictions will determine how much each party should get. :anger of doing this

is that the sum of the parts might be more than the whole. lso results in more wor, – lessefficient. -ill frequently be subject to litigation as well.

• -hen leased land is condemned" the lease is terminated. &he & has no more obligation to pay

rent. 5ut the leasehold is also wiped out.

• 'essee may get part of condemnation award when there is onus value< &’s

leasehold is worth more than his obligation.

• & will get the discounted present value of the bonus value for the remainder of the lease.

• &his amount will be paid out of the HV of the land.

• &he court would also li,ely account for &’s options to etend the lease.

• 5ut & can only recover for what bonus value at present is< future appreciation of land is

disregarded.

• &ype of lease will matter as well – the longer and harder to terminate" the more li,ely the & is to

be able to get some of the condemnation award.

Four Tenancies

1) Fi(ed)ter# 'eases.a. &here is an identifiable ending date. &he lease terminates on its own" no notification of

intent to terminate is required.2) Periodic 'ease.

a. *ould last forever. Host common is month to month. b. 4nless one of the parties ta,es some action" the lease is perpetual.c. &ermination is by notice. t c/l" used to be I months for a year to year tenancy.

?owadays more often it’s 3B days.3) Tenancy at 8ill$

a. %eople seldom epressly create tenancies at will.

b. &hey usually result from implication.c. &ermination by either party without any notice is possible.d. 4sually" however" when the '' terminates" the & has a reasonable amount of time to

leave. 9ome legislatures require 3B days notice by statute" even for tenancies at will(questionable if it’s still a tenancy at will).

e. *ourts usually call a tenancy a tenancy at will when they can’t otherwise describe it.) Tenancy at Sufferance$

a. *reated when a & holds over under another type of lease. b. %arties don’t consciously create tenancies at sufferance.c. 6t is a protection against .%.d. Ha,es the occupancy by" through" and under the ''.e. &hey could have done the same by ma,ing the possession a #license.$

Statute of Frauds

• Ls concerning land to be in writing if over a year.

• ral L not enforceable if longer than a year.

• -ritten Ls not enforceable if ,ey terms not included.

• ;enders defective L unenforceable.

• :oes not void the lease" just ma,es it unenforceable.

• 6f L is defective" when & goes into possession" & becomes a tenant y "ill. & is not a trespasser

or licensee.

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Keemin Ngiam

• & can become a periodic tenant by paying rent and having the '' accept it.

• &he lease can be ta,en out of the statute of frauds by part perfor#ance$

a. nce & or '' engages in significant detrimental reliance" bar of the statute comes down. b. 8videntiary rule is lowered" and parties can prove their oral L by testimony and the use

of etrinsic documents (we no longer need a written L).c. & paying periodic rent alone may not be enough to qualify for part performance.d. 5ut if & made significant improvements to the property" it will usually be enough to get

part performance in most states.e. '' can li,ely do the same thing. 6f '' ma,es business judgments on the basis of the

lease.

• @iving up chances to rent for a higher price to other &s in order to obtain a

longer lease from the &.

• '' could testify as to the length of the lease" and if believed by the *ourt" it

will be enforceable.

'andlord+s options "hen tenant holds over ,and eco#es a tenancy y sufferance0

1. treat tenant as trespasser and sue for eviction (judicial actions are only ones allowed – no self7

help possible). &respasser is then liable for reasonable rental value and a penalty for holding over(either stipulated by statute or in the lease – 2/3 lease" or 2 to 3 times rent).2. treat tenant as a periodic tenant at a rent specified in written notice to the tenant (see :avid v.

9el,). 9o long as rent specified is reasonable" we will hold the holdover tenant to a new periodictenancy" month to month.

3. r if the parties do nothing" and the tenant ,eeps ma,ing monthly rental payments" court willhold that the tenant has become a periodic tenant ased on pay#ent and acceptance of rent.

8avid Properties v. 5el) (5 buys land from gives a mortgage for payments and lets live onland holds over and refuses to leave 5 stops paying mortgage)

• #hen deed delivered to 5 both legal and e9uitable title passed to 5 (F% is a lien theory state).

Hence for all purposes 5avid is an o!ner in f.s.a. sub"ect to the lien on the land.

• +ut after the closing doesn’t leave the property and instead stays on.

• 5 doesn’t make last fe! mortgage payments and sues for "udicial foreclosure.

• 5avid’s defense is that elk did not pay rent. They !ished to offset M88 !orth of rent i.e. 5avid

only o!es M;3 to defeat the foreclosure.

• +ut this isn’t a tenancy by sufferance. elk isn’t a prior T. He’s a prior o!ner !ho didn’t leave the

land. To prevent $.. he could either be made a T or a licensee.

• elk !as not a trespasser 2 he testified that the president of 5avid allo!ed him to stay as long as

he !ished.

• #hen 5avid !anted the property back they negotiated and agreed to sign a !ritten agreement

making elk a tenant till the end of the year.

• elk stayed over beyond that.5 in response sends him a letter informing him that rent !ill be

M< a month.• doesn’t pay and 5 refuses to pay the last installment.

• #hen didn’t pay after the period e-pired he became a tenancy at sufferance.

• Court holds that by the t!o letters 5 offered a month to month tenancy.

• $nd accepted by keeping silent.

• 5el) wants to be a trespasser. #ecause the damages at common law are only reasonable mar)et

value.

• %etter said it !as not a lease 2 court could have found that rent demanded !as really damages

and !as a trespasser.

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Keemin Ngiam

• tatutes !ill often allo! the %% to collect t!o or three times rent as penalty. Courts !ill also

uphold provisions in the lease that allo! the same thing.

• Court treats the T as a periodic tenant at a rent specified by the %%. $nd silence on the T’s part is

considered acceptance. ,f the %% deducts the holdover rent from the previous rental deposit theCourt !ill likely hold that a ne! lease has been created.

'' T 8arranties and &uties

Breaches3 D or Property 'a":

4nder pure L law" & can get out of the lease upon ''’s breach of material term/covenant and sue

for damages. Haterial covenants mutually dependent. 4nder pure %roperty law" & can sue '' for damages from breach" but cannot avoid obligations to

pay rent. *ovenants are independent. rguably" we are moving more and more towards a L understanding of leases" even if we are not

yet at a pure L law understanding of leases.

'' can protect against independent (L) understanding of covenants by inserting a clause< '' has

right to terminate lease for a breach of any terms of lease. r parties could agree on termination of lease and suit upon breach of any terms.

8nforcement of such clauses would depend on residential or commercial contet" bargaining power of parties.

2#plied 6ovenant of Guiet En?oy#ent

,>0 'andlord has oligation to deliver possession4 and during ter# of lease

,-0 landlord "ill not personally or y an agent "rongfully interfere "ith tenant+s sole right of

possession4

,@0 no third person "ho has a etter right of possession than the tenant "ill distur the tenant+s

possession$

6n most states" lessor implies quiet enjoyment in the lease. &his is y far the default in most

states.

(6n some states" no implied duty on the lessor unless contract states otherwise. By far the

minority rule.) &his does not cover wrongful trespass. nly covers third parties who have a better right of

possession" e.g. mortgagees.

6f '' breaches 6*W8" & has no obligation to pay rent.

6*W8 only protects against actions #by through or under ''$. ?ot third parties.

%rimarily a protection against eviction by ''.

6*W8 cannot be waived in residential leases" and waiver possible but improbable in commercial

contet. 26GE covers actual partial actual and constructive evictions$

Partial eviction3 T can "ithhold all rent and is not liale for any rent at all during the

period of the partial actual eviction$

o &o not reuire an apportion#ent of har#$

o "e do not allo" the "rongdoer to apportion his "rong$

6onstructive eviction3 action or inaction by '' that substantially interferes with &’s use and

enjoyment of premises. (failure to maintain premises)o 6t is strict liability –if '' ma,es reasonable efforts but the interference remains" & can

still claim constructive eviction.o But T #ust pro#ptly leave the pre#ises and ring an action$ 1o constructive

eviction until T leaves$

#arash v. Pennsylvania +erminal eal 4state (%% turns off a*c T la!yer claims constructiveeviction)

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Keemin Ngiam

ral agreement to provide fresh air after hours" but breach" lawyer could not wor, after hours.

*ourt denies claim< no physical eviction" instead interferes with use and enjoyment – constructive

eviction. 5ut constructive eviction cannot apply because the tenant did not leave promptly.

Violation of epress agreement in L is usually not considered a violation of 6*W8.

8viction must be complete – abandonment of the property includes removing all personal

property.o %olicy< bandonment is evidence that the interference is substantial enough. therwise

anything might become constructive eviction.

&oes 'andlord 5ave &uty to Provide %ctual and 'egal or Just 'egal Possession:

%#erican rule< the lessee is entitled to legal right of possession" but no implied covenant to protectlessee from wrongful acts of strangers.

English rule< (modern rule in 4.9.) where the term is to commence in futuro" there is an impliedunderta,ing by the lessor that the property will be ready for the lessee’s actual and legal possession. '' has a duty to put T in actual and legal possession at start of the lease$ %uts the co##on intention of the parties into effect

• ?o policy justification for having the lessee assume the burden of ousting a wrongful tenant or

trespasser" and not the lessor.

• 'essee is also not in the best possession to determine who has what interest in the land.

• %eople who sign a lease epect to get actual possession" and epect the landlord to deliver it" not

to do it themselves.

(drian v. abinowit (%% did not deliver actual possession)

• T is the in"ured party in this case 2 no reason to make him bear burden of evicting trespasser

bear cost of the delay and still pay rent.

• %%’s breach of this duty thus triggers lessee’s right to collect damages.

• %% is better able to kno! !ho has a right to the land !ho has !hat interests. 1enerally speaking

the %% is in a better position to kno! and to deal !ith the problem prevent it from happening.

• 8efault rule< =nless stipulated in the lease, burden is on lessor to ensure actual and physical

possession.

• $ sought to recover lost profits. Court ackno!ledges that lost profits are a valid item of damages

if reasonably foreseeable. +ut reversed in this case because damages !ere too uncertain&

insufficient evidence proving amount of lost profits.

Heasure of :amages

•

-hat is fairly and reasonably within contemplation of parties to the L as being probableconsequences of the breach. *ourt will only award damages that are reasonably certain andforeseeable.

• :ifference between HV and lease rent for period & not in possession.

• :amages usually insufficient" as difference b/w lease rent and HV will be slim or none.

• & is li,ely to want to recover #special$ damages" e.g. lost profits and such.

• &enant will not have to pay rent for the period in question.

Hinority Gurisdictions

• 6f & has obligation to eject holdover &" & also has right to collect rent from holdover &.

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Keemin Ngiam

• & inherits all rights to the land" as long as he’s paying rent on it.

• -hen '' assigns legal possession to &" he also assigns legal rights to control the land"

eject the holdover tenant" etc.

• 5ut & cannot collect ejectment costs from the '' (not equitable).

6o##ercial 'eases %nchor Ts• -hen '' is in superior bargaining position" will want to include covenant to operate premises in

specified retail purpose" to trigger > rentals (when sales reach a target).

• 6t is to ''’s detriment if anchor & closes shop but ,eeps paying rent.

o :efeats > rents in anchor lease" but also affects > rents of other &s.

o Ha,es it more difficult to rent space to other &s in comple (no anchor &).

• 6n percentage rental Ls" general rule is<

o obligation to perform in specific manner must arise from presumed intention of the

parties as gathered from the language of the written instrument" or it must appear fromthe contract as a whole that the obligation is indispensable if the intention of the parties isto be given effectC

o obligation must have been so clearly within contemplation of the parties that they deemed

it unnecessary to epress it.o 6f minimum rental is nominal" or there is no minimum rental" a covenant may be implied.

• *ourts will not address inequality of bargaining power b/w commercial parties unless etremely

egregious (5V& 'ebanon v. -al7Hart).

• '' will usually see, court order compelling specific performance to obtain > rent.

• *ourts traditionally reluctant to issue because of difficulties in overseeing orders.

• *ounter7argument is that & will not want to tarnish name by operating in lac,luster way.

• *ourts might say only equitable remedy (specific performance) possible" because damages are

hard to calculate.o 6nability to ascertain damages as to other percentage rentals affected by &’s non7

performance.

o lso inability to ascertain effect on fied rentals. :amages just too speculative.• 5ut specific performance may discourage efficient breach.

• 6f specific performance undesirable" & can always buy out the injunction (but possibly for more

than damages worth).

• & has no duty w/o eplicit promise to occupy premises or use premises for particular activity (but

& always liable for rent and other promises made).

• &s in outlet malls often do agree to operate in specific ways (economically lucrative to do so).

• 6f & fails" '' should get injunctions to compel performance – temporary restraining order"

preliminary short7term" permanent long7term.

ercury &nvestment v. "oolworth (# drafted lease D, sued because N rents never triggered)• # !as anchor T.

• %ease !as for a minimum fi-ed rent per month plus percentage of profits if sales e-ceeded a

certain amount.

• ales never e-ceeded that amount. D sued # for breach of an implied covenant to operate its

business in such a !ay as to generate percentage rentals and attract customers to the mall for the

benefit of the other Ts.

• #ool!orth’s defense& (a) claim relied on inadmissible parol evidence= (b) action barred by

statute of limitations.

• I clause e-plicitly stated that #ool!orth !ould not guarantee any volume of sales.

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Keemin Ngiam

• erger clause e-cluded all prior !ritten or oral negotiations and released T from “performance

of any obligations> e-cept those e-pressly included in the lease.”

• : also allowed " to vacate premises at will if it paid stated rental for remainder of term< fixed

rent plus > of profits based on past sales.

• +he parties contemplated " moving out, and agreed to li!uidate damages - balance of fixed

rent and a third of additional > rent ?if any @.• Court found there !as no implied covenant by # to operate in such a !ay as to generate N rent

unless fi-ed rent !as nominal or Kero (court assumes that parties intended rent to come from Nrentals).

• $lso difficult to articulate standard that # !ould have to meet& too amorphous. ( covenant

calling for a performance the parties themselves cannot define in clear and certain terms will

not be implied.

5ervice 2il $o. v. "hite (gas station lease but distance from pumps to side!alk not up to std)

• #hite had conveyed a!ay part of property making pumps too close to side!alk

• 8efault rule< No implied covenant in a commercial lease that the premises are suitable for

their intended purposes.

• arties presumed to I !.r.t. present la! provisions of !hich !ill be read into and become part of the I by implication e-cept !here contrary intention is manifested.

• ,n commercial leases lessor has less of a duty but courts are eroding caveat emptor. < or 3 states

have an implied !arranty of suitability for intended use. +ut !arranty may be !aived in some

states.

• ervice 6il prevailed on basis of fraud and reckless misrepresentation.

o #hite kno!ingly concealed facts 2 he kne! about the evidence and he kne! he had

conveyed a!ay ten feet and he had failed to disclose.

o This alone isn’t fraud.

o +ut !hen !hat !as concealed !as not discoverable by the other party through the

e-ercise of reasonable diligence then that becomes fraud.

•

"here lessor has )nowledge of a defect in property which is not within fair and reasonablereach of the lessee and which lessee could not discover by exercise of reasonable diligence,

silence and failure of lessor to disclose defect constitutes actionable fraudulent concealment.

• ervice 6il and #hite are both assumed to kno! the e-isting statutes and ordinances covering

the contract and terms of lease. +ut lessee is not assumed to )now all the defects with the land,

only those that could be uncovered by reasonable inspection.

• ervice 6il’s damages !ere the cost of moving the pumps. /o punitives !ere a!arded in this

case. $lthough punitives may have been possible.

• +o extent that lessor has )nowledge of defect and does not disclose, and due diligence by lessee

would not have discovered it, there is fraud.

• %essee and buyer have different standards of due diligence. %ength of lease also matters.

&uty to Repair

• *ommercial '' has no duty to repair absent specific L provisions.

• *ommercial & must at least ,eep property wind and water tight" cannot engage in waste.

• %cts of *od< when acts of @od" & has no duty to rebuild building. 5ut & may still be liable on

rent – depends on jurisdiction.

• 6ncreasingly & has no obligation to pay rent after act of @od – land was traditionally regarded as

part of lease not just the building.

• 6ourt "ill try to deter#ine parties+ intents y D language and other evidence$

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Keemin Ngiam

• *ommercial leases often have standard repair clauses – & to ma,e reasonable repair.

o @eneral repair clause – & will maintain property in good repair or same condition as

when received.

o ;edelivery clause – & covenants to return property in good or same condition as it was

received.

o 5oth clauses will usually include eception for reasonable wear and tear.

o *lauses should also ecuse #casualty loss not the fault of &$.

o Hodern courts more willing to distinguish #repair$ from #rebuild$

o ?o fied default rules in repair clauses< court will determine parties’ intents.

$hambers v. North iver 3ine

T leases !harf from %% !harf floats a!ay in storm court holds T has general

repair obligation to %% to rebuild !harf.

+ecause general repair clause !as un9ualified no e-ceptions.

7adian v. 5chwart (retrofitting leased bar on unset for earth9uake protection) ?et lease – & only responsible for repairs" not insurance or taes.

*ourt says '' should bear the burden of the retrofit" since L did not place it on &.

*ourt decides to interpret the intents of the parties" not just loo, at epress terms of lease.

;eason for the retrofit (earthqua,es" or the city ordinance) were not a result of &’s operation" prior

use" elements" etc." as according to L.

9i actors in llocating *ost for ;etrofit1. *ost of retrofit v. lease. (in +ro!n" the cost was small compared to lease. &he & had also caused

the need for repair).2. 'ength of lease.3. 5enefit to lessee v. that of lessor . -hether repair is structural/non7structural.!. degree of interference with lessee’s operation of premises during repairs.

I. li,elihood that parties contemplated application of particular law or order involved.

s result of I factors" ''s now insert as many contingency clauses as possible.

&’s response is to get lower rent as consideration for more ris,

&his is an allocation of ris," encourages parties to be careful.

;is, and cost might be put on least cost avoider as alternative.

-hen retrofit is tailored more specifically to &’s use of property" court will more li,ely place the

burden on the &.

6nsurance might be considered intention to assume liability. 5ut policy might militate against it< it

would discourage people to ta,e insurance.

1et 'ease Policy

?et leases encourage entrepreneurship. 5y lowering cost of entry into business.

lso help apportion ris,s.

8arranty of 5aitaility

Violations of -arranty of +abitability1. a substantial violation of the housing code. &his is a prima facie case.2. but this alone is not enough – there are places where there are no housing codes. +ence the courts

use terms li,e #fit for habitation$C housing code y analogy.3. Violation must be substantial interference with inhabitation and use of premises. Hust show

specific facts" specific violations.

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Keemin Ngiam

. 6f it interferes with health or safety of &.!. -arranty of habitability is not violated y ad aesthetics$

-arranty cannot be waived ( Hilder ).

8ven though covenant cannot be waived" the obligation to some etent may be shifted to the &.

8ception for &s who want to fi up the place. 'ower rent in echange for services rendered.

5ut if & moves in before he fies it up" he’s still living in substandard conditions and

getting around the purposes of the legislature.

7ilder v. 5t. Peter (%% never kept up property 2 really egregious facts)

?ot violation of 6*W8 because & never left.

& does not need to leave to prove claim.

*ourt recogni0es implied warranty of habitability.

1. 'egislature has already passed statutes covering certain requirements for residential leases. ?ot ma,ing new substantive law. +ousing codes already impose on ''s an obligation toma,e premises fit for human habitation.

2. *ourt is just giving a different group of people" the &s" standing to bring action" enforceeisting law. %olicy< recognition of the implied warranty of habitability promotes enforcement of

substantive law by allowing &s to bring their own independent actions.

+istorically once courts began recogni0ing implied warranty" legislatures passed

statutes. Recognition of the i#portance of the "arranties. But also cains in the

doctrine and li#its "hat the courts can do$

*ourt allows

8arranty covers oth latent and patent defects3 T cannot assu#e the ris!$

%arties cannot waive the implied warranty of habitability. %rotection for &s.

i. 8ven if they wish to waive to get lower rent.ii. -aiver allows people to live in conditions that the legislature has decreed to be

sub7standard" allowing people to get around the law.iii. re violations of the housing code necessarily badiv. 9ometimes it’s all people can afford – immigrants" etc.v. %ublic health considerations 9preading diseases" etc.

vi. rguments pro and con.vii. Haybe the uniform act tries to recogni0e that and allow for some leeway –

allowing shifting of obligations to the &.&a#ages

Heasured by difference in value of dwelling as warranted (HV" but can use rent as gauge for

judicial efficiency) and as it eistedC or value measured by rent and actual value :iscomfort and annoyance arising from breach

-ithholding payment of future rent (to cause '' to sue)

6f & repairs" can claim costs bac,. %unitive damages if breach is willful" wanton" fraudulent. 6f '' fails to repair facility essential to

&’s health and safety after being notified.

0ac) 5pring v. 3ittle (court holds that ,#6H and rent are mutually dependent)

6n the XJBs" courts began allowing 6-+ to be raised as a defense in unlawful detainer

proceedings/summary proceedings. 6f not" 6-+ wouldn’t matter much to low income &s" who are most affected by it.

Gac, 9pring is one of the landmar, cases in this regard.

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Keemin Ngiam

6n Gac, 9pring" the 6' court held that the &’s obligation to pay rent is dependent on the 6-+.

Hutually dependent obligations.

5o" 8arranty of 5aitaility 8or!s

1. &’s lease ends and & is out of possession6n Hilder " she no longer had possession" and the lease had run out. 9he had left the premises" and only

sued the '' after leaving" and having paid all her rent. &he court can deal with the case easily – just applythe rule and add damages for %P9" punitives.

2. & vacates during the lease6n this situation" if the 6-+ is not held to have been violated" the & is held to be in violation of the leaseand is liable for all the rent. therwise" the '' is liable. 6n which case<

%re7Vacation< &he court will calculate difference b/w rent and actual value" or HV and actual value.%ost7Vacation< bonus value. 6f the & had cut a good deal. ormula< difference b/w what the premiseswould have been worth if they had been as warranted" and the actual L rent. 6f the figure is positive" the &has bonus value. & can also get the other damages" i.e. punitive" %P9" etc.

3. & stops paying rent" but stays on the premises6t comes into court when the '' brings a summary proceeding against the &.&he & will then raise the 6-+ as a defense.6f court determines that there was no violation of 6-+ or it was too small" then judgment for the '' andthe & is evicted. nd judgment for past due rent will usually also be rendered.

5ut if there was a violation" court will calculate damages.s to the past" the court will award past damages according to the rule chosen. &hese damages will then be used to offset the past rent that was not paid. 5ut if the damages don’t equal the rent" then there willstill be rent that the & must pay – past arrears.s to the future<1. court may issue an injunction ordering the '' to ma,e the repairs (depends on whether court has the

authority to do that).2. nother thing that may happen is that the rent due will be paid into the court" and the court will releasethe rent" less damages" once the repairs are made and the property is brought up to code. 5ut the rent stillneeds to be paid each month.3. third option is that the court will say that the & has no rental obligation until the repairs are made.nly thing is that if rent is not paid" '' may not have money to ma,e the repairsE &he rent that the & hasto pay will be lowered to account for the fact that the property is not up to code.

;eceivership 9tatute&s get together and file a civil action to have the property placed in receivership.6f the court declares that the premises are in substantial violation of the housing code" it has severaloptions<

i. order '' to #a!e the repairs. 4ntil repairs are made" rent paid into court. -hen repairs aremade the '' will get the rent" w/o interest.

ii. but if that doesn’t wor, or the court doesn’t thin, the '' will ma,e the repairs" court willappoint a third)party receiver to ta,e over management of the building from the ''" andrents are paid to the receiver. ;eceiver also has authority to borrow money to fi the building" but any lender would require a mortgage. urthermore there would probably be an eistingmortgage on the building anyway. 9o bringing the building up to code would have to yieldenough rent to cover all three mortgages (the receivership is a mortgage too – for the benefitof the &s).

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Keemin Ngiam

;eceivership wor,s well in middle7income buildings" where there’s still value in the building" and the&s pay rent. ?ot as well in low7income buildings" where there’s little value in the building (nomortgage or not much to mortgage)" and the &s don’t pay rent. 6n the latter case" the '' might justabandon the building.

Security &eposits

6mportant questions to bear in mind<>$ ho" #uch does the statute authoriHe the '' to as! for as a security deposit:

:epends on state. * is up to two months’ rent.-$ 8hat does the deposit cover: 8hat is it security for:

4sually damages caused by & and bac, rent.@$ "hat is the penalty i#posed on '' if '' either3 ,a0 fails to provide "ritten accounting of the

deposit4 ,0 "hat penalty is i#posed if deposit is "rongfully "ithheld$

6n *" up to twice security deposit plus actual deposit" but no attorney’s fees..$ 8hat if '' goes an!rupt efore end of tenancy: &oes T+s clai# to the deposit tru#p other

creditors of the '':

*al.*iv.*ode Y1=!B.! (d)

@ives & priority to the security against any other creditor.

:oubtful that it trumps secured creditors of the ''" or against the 6;9 for federal taes. 5ut if the security deposit is construed as being &’s money held in trust by '' for &’s benefit"

then &’s claim to the security would trump everyone" including secured creditors and the 6;9.A$ 8hat if the '' sells the uilding during the ter# of the lease: 2s cause of action for return

of deposit against original '' ne" '' or are they oth JIS liale:

-hen '' sells the property" '' has two options<

1. transfer deposit to new ''2. return deposit to the &

-hen either one of these things is done" '' is no longer liable.

5ut if '' does neither" then both predecessor '' and successor in interest are jointly and

severally liable for the return of the deposit.$ 2s T entitled to interest on the security deposit:

Host courts held in the XJBs and XKBs that unless statute required it or ''s agreed to it" no

interest necessary. 5ut some states (H?) now require" by statute" that interest be paid.

''s may owe &s interest on their deposits even where statute did not require it. rgument

was that the deposit was money held in trust for the ''" and the & should stand to benefitfrom the income.

C$ 8ho pays attorney+s fees:

4sually '' has no obligation to< & must pay own attorney’s fees.

ne way to get security deposit bac, is not to pay the last month’s rent.

5ut '' can report you to the credit bureau and screw up your credit rating.

1arcia v. +hong (%% sues T for damages but loses because she failed to follo! the la!)

'' never accounts for how the damage deposit is spent.

5y not giving an accounting of the deposit" she forfeited all her right to assert an action against

the &. nd had to pay his attorney’s fees

nd had to refund the deposit.

nd cannot assert any counterclaim in an action to recover the deposit.

6al$ Statute Regarding Residential Security &eposits




Keemin Ngiam

(b) 9ecurity deposit can be used to<1. compensate '' for default in rent payment2. repair damages" eclusive of wear and tear" caused by &3. cleaning of premises upon termination of tenancy (in ’B3" amended to the state of cleanliness it

was in when & moved in). remedy defaults by & regarding personal property

(c) '' can only require up to two months rent plus rent for first month (for unfurnished apartment)" orthree months (for furnished). mount of security deposit is function of how long they thin, it will ta,e &to leave on time.

(6s the second para just drafted badly Haybe to allow people to reduce rent payment if they pay Imonths upfront)

(d) claim of & to security deposit is prior to the claim of any creditor of the ''. (but may not trump 6;9)

%ssign#ent and Transfer of 'ease; 'andlordship

Privities

1. %rivity of L< when L duties and obligations eist b/w each other.2. %rivity of 8state< when possession of estate abuts each other.

-hen property is first leased" '' and & have privity of L and privity of estate.

-hen & assigns to &2" &2 does not have privity of L with ''. 5ut &2 will have privity of estate

with ''. &2 becomes liable for and gets benefit of the vast majority of the provisions of the lease – (those that deal with the estate directly).

ssignee essentially becomes a substitute for &.

5ut & still remains in privity of L. 6n the absence of epress provisions to the contrary. 5ut & is

no longer in privity of estate. %rivity of L or privity of estate can ma,e & liable to ''.

6f & only has privity of estate and assigns interest to &3" & has no more liability to ''.

%ssu#ption creates oth privity of D and privity of estate$

Vertical privity – only if full estate or interest is transferred< only if there’s an assignment" not a

sublease.

%ssign#ent

& transfers all that & hasC &’s entire interest in the property.

& may transfer without any consideration given for the transfer (no benefit to &).

nce assignment is made" assignee ma,es payment to '' directly.

5ut & could also get bonus value for the property from &2" above and beyond ''’s rent.

& may request for present value of the bonus value of the lease – lump sum payment.

8ven if & assigns away all interest in the land" & will normally retain a right of reentry.

5ecause & remains personally liable for that lease. 9hould assignee default" & retains right of reentry to reclaim property.

o minority of courts hold that this right of reentry defeats assignment< retention of right

of reentry ma,es it a sublease" and not an assignment.o 9a?ority rule holds the right of reentry insufficient to ma,e it a sublease" defeat

assignment.

&his matters because if it’s a sublease" then '' has no obligations to sublessee.

-ith assignment" & retains privity of L with ''" but no privity of estate.

T> enters into privity of estate "ith '' ut not privity of D$

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Keemin Ngiam

2f you are an assigned person once you get rid of the property via a good faith assign#ent

you are no longer liale$

Sulease

& retains a reversion in the estate.

;elatively few obligations b/w &1 and ''.

& retains privity of L and privity of estate with ''.

& has privity of L and estate with &1 as well.

&1 has neither privity of L nor estate with ''.

o adding up '' and &1’s interests in the property do not add up to a f.s.a.

o & retains some interest in the property (reversion of period b/w end of sublease and end

of lease) &1 has limited rights against ''" especially in commercial lease. Hay sue for breach of warranty

of habitability.

'' has no rights against sublessee" but can sue for waste as a tort.

&1 pays rent to &" not ''.

& is liable for paying rent to ''.

6f & doesn’t pay rent" '' retains right to clear premises and evict &1.

(merican $ommunity 5tores v. Newman (T B T : modify assignment to become sublease)

T B T : re9uest permission to create assignment.

%% refuses consent.

%ease gives ; days for T to cure a default.

T B T : amend agreement to be a sublease. +ecause consent is not re9uired for a sublease. (this is

a rarity. +ut supermarkets often sublet portions of the property to third parties& banks fast foodoperators coffee chains etc. ,n this conte-t such a clause !ould make sense)

T : assigns its sublease to T ;.

%% ob"ects that sublease is really an assignment and the lease is substantively if not technically

violated. Court re"ects argument. 7ven ; days short of the entire term 9ualifies it as a sublease.

+ retained a right of reentry, which is sufficient interest to defeat an assignment (minority

rule).

lternative school of thoughtn eamination of intent and not technical terms.5ut less efficient< requires putting people on the stand" inquiry into subjective intent.ormalistic approach has benefit of clarity. 6t ma,es it easier for court to decide the issues.

'' 6onsent 6lauses

'' wants to retain control over lease and tenants. :oes so by using consent clauses.1. financial considerations. 6t doesn’t want a deadbeat assignee to occupy the premises and failto pay rent. 5ecause then '' will have to pursue judicial action to recover rent.

2. undesirale use. 8.g. -algreen’s assigns to an adult theater. &he use of the premiseschanges. r to an assignee that '' doesn’t li,e (e.g. an abortion clinic).

3. Bonus value. '' will want to be able to capture the bonus value of the property. %redicatingconsent on an increase in rent" or some other way of giving them bonus value. (Lendall7%estana)

&hese are permissible forfeiture restrictions on alienation because they are of definite duration.

mbiguity is interpreted in favor of transferability.

I




Keemin Ngiam

6f clause calls for ambiguity to be interpreted in favor of ''" court may not enforce it as public

policy" especially in residential contet. Hay be more willing in commercial. &s should see, a #consent will not be unreasonably withheld$ clause.

''s should resist such a clause< implied reasonableness is minority rule.

9a?ority rule3 '' can refuse consent for any reason ecept banned discrimination.

9inority rule< ''’s refusal must be reasonable.

6orporations< 6f corporation is a &" no transfer clause can be avoided by transferring ownership

of corporation" and not ownership of property. Hany Ls stipulate that transfer of more than 2B>ownership of corporation is effectively a transfer of property.

2nvoluntary transfer< 4nless barred by epress language of transfer clause" allowed. 8ither by

death and probate/will" or by judgment creditors. Even "ithout consent a transfer is still a transfer and is not auto#atically void$ 6t might

violate and trigger right to terminate lease" but it’s not a nullity< transferee cannot be ejected fortrespass.

8press L provision that any transfer w/o consent is void – a disabling restraint – is li,ely to be

judicially disfavored.

:endall v. 4rnest Pestana (T refused consent to T : sublease in order to capture bonus value) *ourt rules %estana can’t refuse in order to capture the bonus value.

6f value of property had dropped" %estana would not have sought to capture the negative bonus

value. airness dictates that 5iler be allowed to suffer both the benefits and disadvantages of changes

in the rental value" whether negative or positive.

*ourt cites to #ellenkamp v. +ank of $merica. 5o used due7on7sale clause to try to prevent

transfer of mortgage interest to reali0e value from higher interest rates. +eld to be restraint on alienation" enforceable only if 5o had a reasonable reason to do so"

e.g. if grantee had a bad credit rating" was insolvent" etc. (6n response to #ellenkamp" *ongress passed a statute declaring that due7on7sale clauses

were enforceable for any reason or no reason at all.) 6ourt "ill enforce clause if '' has valid reason to refuse consent to the transfer$

6n response to Iendall * 'egislature passes law< only if #no standard for giving or withholding

consent$ is included" must '' not unreasonably withhold consent.

6f lease contains specific language saying so" '' is entitled to capture bonus value.

6f Iendall had remained good law" leases "ould have gotten shorter – ''s would be less

willing to offer long7term leases because that means there’s bonus value that remainsuncaptureable. r they would tie the rent to some sort of inflation inde" or mar,et value inde.&s would not li,e this – because it means that they cannot accurately predict what rent will be. 9oeffect might be shorter leases.

Transfers and '')T &uties and Rights

ssignment< & transfers most duties and rights (touch and concern the land) to &1.

T> "ho receives y assign#ent only liale if duty touches and concerns the land$

%ssu#ption puts T> in privity of D "ith T$

%ssu#ption ma,es &1 liable for every promise of the lease" both #touch and concern$ and

personal. ssumption ma,es &1 liable for all past and future breaches of lease L until lease ends.

o &1 can limit liability by having '' ma,e an estoppel statement that there is no hidden past

liability – promissory estoppel.o &1 can also limit assumption to certain duties – freedom of L.

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Keemin Ngiam

ssumptions are common 7 because '' would probably only give consent if the new transfer had

#assumed.$ ;egardless of transfer" always want an estoppel statement< to ,now what controversies are on the

land. 8ven after assignment or assumption" & still liable (privity of L) to ''" absent '' release.

6n sublease" &2 only has ''7& relationship with &1.

&2 cannot get damages from ''" and vice7versa< '' cannot sue &2 for violations of &1’s covenant.

5ut '' can terminate lease if &1’s covenants not performed" and evict &2.

&2 therefore has interest in performing covenants" ma,ing sure covenants are performed.

Hajority rule< ;eservation of right of entry does not change assignment into sublease. &oo

insubstantial an interest. 6f assignment contains variations in main lease" may be a sublease instead of assignment.

6f & transfers entire interest" but only to part of property" it is still held to be an assignment (but

opinions divided). ?ew approach< intent should govern in determining rights and duties of parties.

5ut evidentiary issue" and parties often don’t have specific intents regarding rights P duties.

&raditional approach has certainty on its side (merican *ommunity 9tores v. ?ewman).

9ubleases can epressly grant certain rights and duties that would normally be under anassignment and not a sublease.

6mplied covenants (quiet enjoyment" habitability) always run.

5ut equitable remedies may be available to '' and sublessee< specific performance.

Wuestionable if could as, court for injunction to pay past rent.

6f &2 gives &1 bonus value in echange for sublease" &2 can get bac, some of bonus value if main

lease terminates early. :ebatable if this is possible in assignment< bonus value may just beconsideration for the assignment.

&ouches and *oncerns 9tandard 4se decades of case law – precedent.

&hree tests<o Bigelo" test 7 6f enforceable promise made '' or &’s interest in the land more valuable"

it touched or concerned the land. +ad test. eople !ould never litigate over a promise

unless they thought it made their interest in the lease more valuable.o 6lar! test 7 6f a promise is intimately bound up with the land.

o -ould reasonable assignee believe" e- ante" that he or she was bound by the promise

+hompson v. #ob*s =A8rive (T is getting around restrictive use covenant on O of cars) Continental has no assignment from J45rive. Day be a licensee or sublessee.

+ut if licensee or sublessee no privity of I or estate !ith %% and so no obligation to obey

covenants including arbitration (one in issue).

%% argues there is an implied assignment. (but such an assignment !ould violate the tatute of

Frauds and be void 2 court ignores this issue) Court holds that Continental !as a co4assignee “prior to the !ritten assignment of the lease.

#hen a person other than lessee is in possession of leased premises paying rent to the lessor

there is a presumption that the lease has been assigned to the person in possession.”

$n implied assignment. Deans that any burden on the land !ill also be on Continental if it

touches and concerns the land. $rbitration touches and concerns the land 2it’s about rent.

Court finds that reasonable assignee !ould believe that covenant bound them (third test).

Court seems to think if Continental not bound to arbitrate o!ner not liable. #ut #ob is liable for

every provision of the lease.

K




Keemin Ngiam

6riginal lessee T cannot escape liability even if Continental !as not bound by the lease.

+ who assigns leasehold does not escape liability on the lease covenants.

$lternative& call Continental a licensee and hold +ob on the hook.

+ut going after Continental is a good !ay of making sure that you can get "udgment 2 +ob might

have transferred his assets and been "udgment4proof.

#urton v. $hesapea)e #ox B 3umber (T assigns to Ches !ith duty to insure Ches doesn’t building

burns do!n %% sues Ches) Court says promise to insure does not touch and concern.

+ecause %% had no obligation to rebuild the building !ith the money.

hort of such obligation the promise does not touch and concern the land.

uch a holding today !ould undermine the effect of a triple4net lease.

%% probably didn’t sue T because T !as "udgment4proof. T !ould have been liable to %%.

Security &eposits 8hen '' %ssigns to ''>

9ecurity deposit agreement does not touch or concern the land"

o unless '' is obligated to use security deposit to ma,e repairs"

o and it is specified in the lease. t *'" & could still sue '' for the deposit. 5ut '' might be judgment7proof.

1erber v. Pecht (T < fails to pay rent %% sues T to recover)

• % (1erber) T (echt) for years Dosko!itK (assignment !ith assumption) Christensen

(assignment !ithout consent)

• 6riginal tenant remains in rivity of I !ith %%

?emains liable for the rent for the duration of the lease.

Jnless %% releases T (possible if T : is financially stronger than T)

• T is rincipal 5ebtor (Dosko!itK)’s urety.

• urety only applies in assignments 2 no surety in sublease.

• %% remains able to sue either surety or principal debtor& anyone !ho !as assigned. echt can get reimbursement from Dosko!itK because of assumption

• #*o assumption Dosko!itK not liable to echt for Christensen’s rentG

/o. Dosko!itK not liable for future failure to pay rent.

$ssignee only liable for promises that “touch and concern” the land for the

duration of his !atch Dostko!itK not liable for the Christensens’ default.

Christensens liable to echt because defaults occurred !hile they had duties.

• echt can get off the hook& #here %% and subse9uent transferee change terms of the deal to the

detriment or pre"udice of original T the urety.

7.g. raising the rent e-tending lease.

The slightest pre"udice gets T off the hook but only detriments. #hat if %% inserts provisions keeping T on the hookG /ot sure if court !ould

enforce it.

Neal v. $raig #rown, &nc. (dry4cleaning T subleases to T : T : assigns to T ; T goes bust T ; tries torene! option fails)

• #hen T goes bust no indication that it surrendered or terminated lease.

• o T retained reversion and T ; remains sublessee only has T :’s sublease terms

• T ; cannot e-ercise T’s option.

• o T ; only sublessee and %% can terminate T ;’s lease and evict T ;.

=




Keemin Ngiam

• /eal could have relied on action in reliance part performance to take oral I out of statute of

frauds. $ctions over :< year period.

!B




Keemin Ngiam

E%SE9E1TS :efinition< ?on7possessory (#incorporeal$) interest in real estate.

n easement falls b/w a license and a fee simple (leaseholds" life estate" f.s.a.).

9ome licenses can be interpreted as leaseholds – a long7term boarder/lodger in a hotel room.

Lios,s or retail space in a mall.

'anguage of conveyance is crucial in determining if f.s.a. or an easement is created.o 6f deed is for a #strip of land$ then it is a litigable f.s.a.

o 5ut if it clearly says #right of way$ or #easement$ li,ely to be held an easement.

Ease#ents are often valuale assets$ 8.g. a pipeline over 2BBB miles cross7country. Hay just be

an easement" but it can be very valuable. %ppurtenant easements are those on the servient land that are conveyed with the dominant

estate. &he dominant land does not need to abut" or literally touch" the servient land or easement.

Ease#ent in *ross 7 ne that is not for the benefit of any land.

Profit in *ross – 8asement that grants the right to go on a piece of land and to ta,e profit from

the land – oil" minerals" timber" etc.

%rofits might be argued to be appurtenant" if they are adjacent to a fied piece of land. 5ut usually

they are just profits in gross" not for the benefit of any other land.

illbroo) 7unt &nc. v. 5mith (6 allo!ed hunters to use land ne! buyer mith doesn’t !ant to)

9mith argues it’s a license" revocable at any time.

6f it is a license" it is also not transferable. ttempt to transfer would ,ill the license.

Hillbroo, argues it’s an easement" and not revocable.

*ourt concludes that it is a J!7year easement.

o &ime period was defined" more in ,eeping with easement than license.

o 9mith could not eclude Hillbroo, +unt from property.

o 8ven though 9mith could move trails or develop property" insufficient to ma,e it a

license.

Ease#ents and &uration

6f we compare non7possessory interests and possessory interests in terms of duration<

&uration 1on)Possessory Possessory

“Forever” %erpetual ee 9imple bsolute

“For 'ife” 8asement for 'ife 'ife 8state

“For years” 8asement for years 'easehold

“Revocale at any ti#e” 'icense &enancy at -ill" tenancy atsufferance

6reation of Ease#ents

8asements are interests in land" and they are almost always longer than a year.

&herefore" easements must normally be in writing and have certain ,ey elements (governed bythe statute of frauds).

==> of the time" easements are created by a deed.

8asements may however be inadvertently created in other ways<

(1) oral(2) written but defective (part7performance doctrine ta,es the easement out of the statute of

frauds)(3) by implication() by prescription (adverse use" analogous to adverse possession)

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Keemin Ngiam

6reation of E(press Ease#ents Ease#ents y &eed

t bare minimum" epress easement must<

a. identify two adjacent pieces of land b. identify the servient and dominant estates" describe both

8asement can also be incorporated into a deed for the dominant or servient land (e.g. a fee

simple deed). 8asement by reservation will use the word #reserving$ in reference to an easement. -hen

grantor see,s to ,eep an easement for himself. -ithout the word #reserving"$ grantor is warrantying that property has no easement< court is

unli,ely to allow grantor to breach his own warranty. court will normally interpret an easement as being perpetual" short of language that ties it to

a specific time period. *ourts will tend to engage in some judicial activism to update antiquated language (e.g. an

easement for horse carts will be interpreted as allowing technological advances in transportation"and thus allowing truc,s" cars" etc.)

&he use of the easement will usually be stipulated< no servient landowner would grant an

unlimited easement.

icenbaw v. :raus (drainage tiles across servient land use granted orally) art performance in building drainage lo!ered bar to tatute of Frauds.

ome interpretations of the case say that the court does not consider this to be an “irrevocable

easement” but “estoppel to revoke a license.” The difference is in the permanence of the thing at

issue.

5ifference b*! it being a license or easement& compensation. %icenseholders get no

compensation in the case of a government condemnation but easement holders !ould.

Typical condemnation a!ard is based on the value of the land (the dominant land) before and

after the easement. +ut if it’s "ust a license the court could hold that the license does not rise tothe level of dignity of an interest in land.

#ith estoppel to revoke a license the court might hold that the estoppel has to end 2 the estoppel

does not go on forever. #ould be tied to as long as the actual tile drains e-isted= !e essentiallyallo! Hannah to amortiKe the cost of his investment over the life of its years.

The troubling aspect of this case is that the court seems to be influenced by long use.

/ot all courts take the approach of irrevocable easements*estoppel to revoke a license.

The bootstrapping of the license into an easement could have been avoided by language in the

grant saying that it !as revocable at any time for any reason or no reason !hatsoever.

,f court found there !as no easement could have had Iraus repay ?icenba! for reliance.

#erg v. +ing (easement improperly recorded location not specified part performance insufficient) &he title report to the &ings did not mention the easement" nor did the final title insurance

report (the title insurance company screwed up).

5ecause the easement deed’s descriptions did not match up with the actual description of the

plat. 'ocation not definite enough for easement deed to be valid" failed 9tatute of rauds.

?ot a floating easement either< the descriptions just didn’t match up.

%art performance was insufficient too" where they only forbore their opposition.

Floating Ease#ent

ne that describes the easement" but not its precise location.

% floating ease#ent renders the title un#ar!etale$ 5ecause it could trump any attempt to

develop the land.

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Keemin Ngiam

Host floating easements don’t end up proving to be an insurmountable problem. Dou could

negotiate with the easement holder to affi a location. r you could just go down" loo, at thesite" and just figure out where the easement is (i.e. where the power lines were" etc.).

nce a prior floating easement is physically located" a court will force the easement holder to

release its claim from the rest of the land" and be content with the actual physical land theyhave. &he easement holder will then grant a quit claim deed relinquishing all claim to the landsave for the actual land their easement occupies.

1ever let a client give a floating ease#ent$

Dou can compel someone to locate a floating easement. Dou do it in such a way" balancing

your needs" as to do the least harm to the servient tenement.

Part Perfor#ance and the Statute of Frauds

irst arose in the contet of earnest money Ls in an oral setting" or a writing that lac,s some or all

of the required elements.

8videntiary theory of part performance. 6f person see,ing enforcement of the L can show

sufficient acts of part performance that point towards the eistence of a L" the bar on the statuteof frauds comes down and the proponent will be permitted to put on the oral evidence. 5asic 3

elements<(1) delivery and assumption of actual and eclusive possessionC(2) payment or tender of considerationC(3) ma,ing of permanent" substantial and valuable improvements".

%resence of factors indicate that there was some ,ind of contract dealing with land.

6n 5erg" no possession because it’s an easement" a non7possessory interest. *ourt holds that all

we have is just the tender of consideration" which alone is insufficient. 8stoppel7;eliance &heory of %art %erformance. *ourt will not loo, for discrete acts. 6nstead the

court cares whether someone has relied so much to their detriment on the eistence of something"that it would be unjust not to allow them to show what they had relied upon. 6n this case" the5ergs withdrew their opposition to the subdivision and it would be unjust to not grant them theeasement.

&he court uses evidentiary theory and rejects the estoppel7reliance theory" so 5ergs lose.

2#plied 6reation of Ease#ents

-hen the parties intend to create an easement but do not.

&he surrounding circumstances point towards or create a compelling argument that the parties

intended an easement either by reservation or by grant.

1. 8asement 6mplied from Wuasi7easement a,a easement implied from prior use.

e.g. when a property is split in two. 6f the original property had access to something (e.g. a road)

that a part of the new divided property did not. &he original owner would grant with the newdeed.

&he requirements is that the land before the split had to be held in co##on o"nership. nd the uasi)ease#ent has to e(ist prior to the split (6t’s a quasi7easement because the

original owner can’t grant an easement to himself/herself). Guasi)ease#ent had to e “apparent” efore the split.

Guasi)ease#ent has to e reasonaly necessary to the en?oy#ent of the “do#inant” lot.

6f these requirements are met" the court will supply the language of easement that the actual title

or deed lac,ed.

6n the case of reservation" courts are less willing to find implied easements. 5ecause it violates

grantor’s own warranty. 9ome states apply a higher #strictly necessary$ standard for reservations.

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Keemin Ngiam

Host just use same #reasonably necessary$ standard.

%n ease#ent i#plied fro# a uasi)ease#ent endures forever$

%pparency

+elps to determine the intent of the parties.

6f it was apparent" the easement was probably intended to go along with the conveyance.

$ampbell v. 1reat iami (erie No. CD (the motel restaurant and septic tank)

/o 9uestion that a 9uasi4easement e-isted at the time of the split.

septic tank easement arguably is reasonably necessary to the en"oyment of the property.

The issue in Campbell is “apparency.”

&n underground easements, the courts often fail to distinguish b/w two points in time< time at

split and time of action.

o $pparency at the time of the split goes to the 9uestion of !hether an implied

easement ever came into e-istence.

o $pparency at the time of action matters to the concept of the bona fide purchaser.

,mplied grant or reservationG Hard to tell. #e don’t kno! !hich property !as conveyed out first. ,f the restaurant !as conveyed

out first then it’s an implied grant. ,f the motel !as conveyed out first it !as an implied

reservation. $pparency

$pparency may have been met at the time of the split 2 the se!age line could have been visible at

the time of the split. +ut perhaps after construction !as completed the line !as obscured.

ince line !as not apparent Campbell asserts the +F doctrine.

o 6ne !ho pays value and takes !*o notice of the outstanding interest. 0ou cannot

assert +F regarding anything that is recorded on the title (in !riting). 6ne is alsoon constructive notice and cannot assert +F regarding anything that a reasonable

inspection of the premises !ould reveal.

$ +F can cut off the operation of an implied easement as long as +F did not kno! about itand had no constructive notice.

Ct holds that Campbell !as not put on notice because a reasonable inspection !ould not disclose

the septic tank. rescription

7agles might argue an easement by prescription.

roblem there is !hether the easement !as “open and notorious.” ame as apparency.

2tero v. Pacheco (defendant kept using se!er line under property sold to plaintiffs)

This is an implied reservation.

Court holds that reasonable necessity sufficient no need for strict necessity.

Court does not discuss apparency at time of the split. Court holds that the se!er line !as apparent 2 the 6teros should at least have had constructive

notice of it. This !as held to be an implied easement by reservation even though the court made no

determination of apparency at the time of the split.

Ease#ent 2#plied y Strict 1ecessity

n easement implied by strict necessity will be found when such an easement is necessary for the

enjoyment of the land (and w/o it" the land is useless or effectively useless). ;equirements<

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Keemin Ngiam

o *ommon ownership of the land at a prior point in time

o 9trict necessity that is created by conveyance of the land (usually only applies to

roadways and utilities). 'andloc,ed land is the prime eample.

o ?o quasi7easement at time of split is required.

%n ease#ent i#plied y strict necessity lasts only as long as the necessity e(ists$ Once the

circu#stances change and the necessity of the ease#ent dissipates the ease#ent dissipates

along "ith it$

%ublic %olicy or 6ntent wners who convey away land and landloc, themselves. Hay be considered an intent not to have

an easement.

6f it’s a public policy decision" then it raises questions of ta,ings and just compensation for

ta,ings. 4sing intent as the basis however requires more litigation to determine what the parties’ intents

were. Wuestionable that current public policy is against letting land go unused.

6f easements by necessity were public policy" then conveyances creating need for such easements

should be void. 'andloc,ed parcels are not prohibited by law.

7urloc)er v. edina (speculator !ho bought landlocked parcel) Hurlocker claims an easement by strict necessity on the basis of his plot of land (the ;.; acres)

being landlocked.

"hen courts do find easements created by strict necessity, they try and locate them in a way

that least interferes with the owner of the servient land. 1reat deference is paid to the owner of

the servient land.

Dedina argues that necessity !as not created by the split4off (!hich is true).

+ut necessity !as created !hen the lots !ere in common o!nership (the bank).

$ourt holds that either situation can give rise to easement by strict necessity. ,f t!o contiguous

lots come into common o!nership and a necessity is later created that’s fine. Court holds that intents of parties should be basis of finding easement not public policy.

The +ank sold Hurlocker the land later in a landlocked condition.

+oth the +ank and Hurlocker !ere a!are of the landlocked condition 2 he got it for half of its

value.

The evidence seems to indicate that the +ank sold it !*o any such easement.

,n about half of the states there is legislation giving landlocked o!ner the right to condemn an

easement of access 2 eminent domain for a public purpose. ,s giving a landlocked o!ner the po!er to condemn an easement for his private use a public purposeG 1iving private o!ners the po!er of eminent domain has traditionally been upheld constitutionally.

The value of the easement is measured by the difference in value of %ot :< !ith and !*o the

easement. The difference is the condemnation a!ard.

Ease#ents y Prescription

• &hey are easements by adverse use.

• 4se must be<

1. adverse (similar to hostile under .%.) some courts hold that it must just be non7permissive

this issue is not litigated very often

2. open and notorious3. continuous and uninterrupted" but in ,eeping with reasonable use of the easement

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Keemin Ngiam

. does not need to be eclusive< many easements are noneclusive.

• *olor of title and taes< no relevance to easements by prescription.

@overnment usually doesn’t assess taes on easements" especially appurtenant

easements.;ecent * *ase

• &wo adjacent pieces of land" one owned by government water utility" other private.

• :am on water utility bac,ed up and flooded private owner’s land.

• 8isted for over five years (past 9o').

• @overnment could not claim .%. (requires paying taes).

• 5ut government obtained a perpetual easement by prescription to ,eep the water there.

9eems li,e a ta,ing.

5ut owner could have brought action before 9o' ran out.

9o owner waives his right.

6t is not .%. because the underlying land still belongs to private owner" e.g. if

there was oil under the water.

• 6f government had demolished dam" the easement would probably disappear.

• 5ut if it were .%." land would belong to government even if dam destroyed and land unflooded.

• 'andowner might be able to still use the water on his land – boating" fishing" etc. :epends on

what the easement was.

• 6f there is no easement by prescription statute" court will li,ely just follow .%. statute.

• ther states do have easement by prescription statutes" e.g. * (which does not require paying of

taes).

• %re7eisting writing< legal fiction underlying easement by prescription.

• -hen someone uses someone else’s land w/o a formal easement" theory of prescription is that we

give someone an easement by prescription because there has been a writing that has been lost –the 'ost @rant &heory.

• nly matters in the case of an act of protest by true owner.

&he true owner is not recogni0ing a lost grant.

%rotest therefore interrupts the running of the 9o'.

• Policy3 perhaps protest should e enough to interrupt ease#ent y prescription$

6t reduces lawsuits.

-rong use of land is not a good thing.

%uts burden on the wrongdoing adverse user to establish that he has a right to use

the land. %erhaps protest should also stop the cloc, in .%.

&ac,ing and %rivity

• &ac,ing is easy with appurtenant easements< when dominant estate is sold" easement rights go

with it.• &ac,ing is a problem with easements in gross< not tied to a dominant estate.

7ester v. 5awyers (’ property is landlocked !ith easement for a road over H’s property)

• /ot easement by necessity because no common o!nership of lands.

• First road !as held to be permissive. +ut once second road !as built after land !as

enclosed second road !as adverse use.

• Court borro!s /D $.. o%.

• Court finds easement by prescription.

• $dverse use proved by&

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Keemin Ngiam

o resumption is that in rural areas unless land is fully fenced use of land by third

party is permissive.

o econd road !as used after land !as fully fenced in& presumption of adversity.

o tore do!n a barrier that H erected.

• #hen H asked to move road he agreed. erhaps should raise presumption of permissionG

+ut not raised.

5han)s v. %loom (common drive!ay b*! ; neighbors)

• Dost common easement disputes in the J..

• Court holds presumption is of adverse and not permissive use once drive!ay installed. Da"ority

rule.

• resumption of adverse use creates certainty& it vests in : years short of interruption.

• resumption not rebutted and so both sides have a perpetual easement in the other’s land for

drive!ay purposes.

• ,f court had adopted minority rule. Could find that they created a mutual license that is

irrevocable because of part performance& estoppel by virtue of their investment in the drive!ay.

• They could also have created a cross4license agreement. “not!ithstanding reliance in creatingdrive!ay not!ithstanding estoppel !e agree that license is revocable at any time.”

Pulic Trust &octrine

• -hen private land is used by public" there is a continuity problem and privity problem< hard to

identify specific parties who own the prescriptive easement" and parties may not be in continuoususe.

• 5ut when the easement is in favor of the sovereign" there is no continuity or privity problem< the

sovereign is represented by members of the public.

• %ublic trust is almost always used for roadways" and sometimes for par,s.

6n *

•

long beaches" private ownership typically ends at the dry sand area – the government owns allthe wet sand< all the land up till the mean high7tide line.

• 6f public uses land for period of 9o'" and landowner has done nothing" landowner has i#plicitly

dedicated use of the land to the public.

• 'egislature passed law< if landowner files declaration with recording office allowing public to use

private beach" prescription and implicit dedication defeated.

&he 9upreme *ourt of ?ew Gersey held that access to the wet sand area must be given" otherwise

the land is worthless. +ence the public has a right of reasonale access$ &he public#must be given access to and use of privately7owned dry sand areas as reasonablynecessary. -hile the public’s rights in private beaches are not co7etensive with theright enjoyed in municipal beaches" private landowners may not in all instances

prevent the public from eercising its rights under the public trust doctrine. &he public must be afforded reasonable access to the foreshore as well as a suitable areafor recreation on the dry sand.$

Haintenance of the easement is the government’s responsibility" not the landowner’s.

;ationale 5ehind ;ight of ;easonable ccess" %ublic &rust :octrine Hay not be able to meet all the elements for implied easement by strict necessity.

*ondemning the land would be too epensive.

1ion v. $ity of 5anta $ru (beach access case)

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Keemin Ngiam

*ity held that it had an easement on the beach for public access and enjoyment.

?ot one by prescription (due to difficulties of proof)" but because the public had for a long time

been allowed to use the beach" the owner had implicitly dedicated the beach to public use. ctually involved two cases. 6n one case the government had actually gone in and paved part of

the property (which they did not own) for a par,ing lot. 6n the other" it was just about using the beach.

6n both cases the court held that the owners had given the government and the public easements

by virtue of implied dedication.

6mplied dedication traditionally was used only for roadways. 8here “"hen hu#an #e#ory

runneth not to the contrary” the pulic "as granted an ease#ent over a private road"ay$

6n response to 1ion" the legislature did two things.

(1) 'andowner could protect herself against prescriptive easement by recording a notice giving permission to the public to use her land and thus conclusively negate prescription. &he use became permissive.

(2) :edications from public use were prohibited unless the owner ma,es epress written offerof dedication. 5ut if the government went in and epended substantial funds on the land" plus there had been public use for five years" then implied dedication was appropriate. &he

epense of money and the use for a long period of time" the owner is estopped from protesting. lthough the par,ing lot case was a ta,ing" the statute of limitations applies< that because the

owner registered no protest or court action for five years" the statute of limitations has run againstthe owner and now the government has acquired a prescriptive easement to use the whole property as a par,ing lot.

2n cases of pulic use the assu#ption is that the pulic represents the govern#ent$ %nd

hence "hen the pulic uses the land they “act” for the govern#ent allo"ing the

govern#ent to clai# a pulic ease#ent after five years$

'aw of L does not apply to prescriptive easements (no consideration for prescriptive easements).

6t is under 'aw of %roperty. 5ecause if it’s acquired by prescription" it gets ta,en out of L – thereis no mutual agreement at all" yet the prescriptive adverse possessor can obtain an easement.

Scope of the Ease#ent

&he concept of surcharge – impermissible use of the easement that violates the underlying

landowner’s rights. 4sually two issues<

1. -hether there is a violation of the purpose of the easement.2. 6s there overuse of the easement.

E(press ease#ents – purpose and acceptable level of use of the easement are dealt with by the

language of the document granting the easement. 5ut most easements are not drafted precisely. Host are drafted quite vaguely – #to pass and

repass along private road for access to Zblan,Z from Zblan,Z.$ Hight ma,e sense to tie the use of the easement down through the epress language.

Rule of Reason3 -here there is any ambiguity at all in the language of the easement" the partiesforesee reasonale evolutionary change. 5oth in use of the dominant estate and in technology.

9ubdivision and 9urcharge

9ervient owners are per se assumed to foresee subdivision of the dominant land and increased use

resulting therefrom. 5ut surcharge can occur when the burden on the servient owner becomes substantial.

-hile parties are presumed to foresee some gradual increase in use" when the change is too

revolutionary" it is not the subdivision that is the surcharge.

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Keemin Ngiam

6t is the burden on the servient landowner that becomes the surcharge< pollution" public nuisance"

etc.

$ameron v. #arton (use of road easement changes overtime)

T!o things have happened&

:. change of use of the dominant land 2 from slaughterhouse to a garage.;. change of type of vehicles on the road!ay 2 from animals to trucks.

6!ner of the servient land attempts to get a court order holding that there has been overuse

of the easement. Court holds that technological change is foreseeable, and change in the use of the

dominant estate is also foreseeable to some extent (i.e. change from the slaughterhouse to a

garage !as reasonably foreseeable). arties could have drafted a tighter and more precise easement 2 no technological change

foreseen only horse4dra!n carts and so on.

#rown v. 9oss (%ot +BC glommed together sought to use easement across lot $)

“No glom on” rule& The per se rule is that you cannot attach one property to another and use

the easement for the benefit of the property that did not have the easement. Court agrees that the rule should stand.

+ut court found that the o!ner of lot $ !ould not be e-cessively disturbed.

oss sought to get an in"unction against the +ro!ns using the easement to benefit lot C. Court

ultimately denies it.

Court holds that the +ro!ns are !rongdoers 2 they violated the “no glom on” rule. +ut they only

give M: in damages because it !ould be unfair (ine9uitable) to grant an in"unction against +ro!n.

,t is akin to an estoppel 2 the osses let the +ro!ns spend that money and didn’t do anything

about it until they got to trial.

"hen a dominant and a servient tenement come into common ownership, the easement

disappears, it terminates.

Derging lots + and C (creating ++) does not affect the easement& the easement !ill still onlyapply to the southern half of lot ++.

4xpansion of the dominant tenement is not foreseeable.

2nly change in the use of the dominant tenement can be considered foreseeable.

%ristoe v. 8rapeau (o!ner !ants to build home on lemon grove accessible only via easement)

7asement not in !riting "ust implied.

ervient o!ner says building home on dominant estate !ill be a surcharge on the easement.

o Dore traffic as result of construction.

o 5aily use by residents vs. seasonal use by lemon pickers.

+he ob6ection is not to what the easement says ?it doesn*t say anything@, but that a change in

the use of the dominant estate results in a surcharge on the easement. +aseline !ill be the use of easement !hen it !as first created !hether by e-press agreement or

by implication.

Court says there’s a presumption that society favors single4family d!ellings and that governs

here. ,n this sense the case is a no4brainer.

To some e-tent focusing on easements allo!s lando!ners to combat !hat they believe is

detrimental to the environment.

ervient lando!ner could try to&

bring a private nuisance action.

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Keemin Ngiam

bring an action claiming surcharge of the easement& revolutionary and not evolutionary

change of the use of the easement.

1lenn v. Poole (easement used for long time 2 prescriptive)

Focus here is on surcharge of a prescriptive easement.

ooles start off in the lumber business then go into the gravel pit business and finally are no!

running a repair garage. ignificant change of use over P years.

$ourt holds that there has been a prescriptive easement< the Pooles have been adversely using

the road w/o permission for such a long time.

"hat is not clear is what exactly the nature of the prescriptive easement is.

The prescriptive easement !as established !hen the statute of limitations first ran. o around

## , oole’s trespassing ripened into a right 2 a prescriptive easement.

The 9uestion no! is if there has been a surcharge. The ooles graveled the lot asphalted it and

rounded off the turn onto the main road.

The court holds that some change is foreseeable (but not all not too much). ome increase of use

both physically and technologically comes !ithin the scope of the easement (but it must beevolutionary and not revolutionary).

+his tells us that an easement can be expanded by evolutionary change but can also beexpanded by revolutionary change if it occurs by prescription< if there has been no protest

about it.

6’+rien v. Hamilton& Court dealing !ith prescriptive easement found surcharge !hen use

changed from 84!heel dump trucks to noisy : and :P4!heel trucks making : to : trips a day.ince servient o!ner ob"ected in time the e-pansion of the easement !as stopped but if he had

not long enough use !ould result in there being an e-pansion of the scope of the easement via prescription.

%ssigning;Splitting Ease#ents

Ease#ents in gross are assignale$ %ipelines can be sold freely.

&ivisiility is dependent on e(clusivity.

6f the easement is eclusive" easement holder can subdivide easement" but not landowner. 6f it’s non7eclusive" only landowner can subdivide easement.

2f it+s non)e(clusive and the lando"ner sudivides the ease#ent , Pasadena0 then all that the

original ease#ent holder can litigate is if the second ease#ent unreasonaly interferes "ith

its use and en?oy#ent of the ease#ent$

2f it+s e(clusive the lando"ner can ring action against first ease#ent holder clai#ing that

there has een surcharge of the ease#ent3 ,>0 purpose of the ease#ent has changed or ,-0

the second ease#ent is an undue urden on the lando"ner$

8asements for roadway purposes or ingress and egress" have often been judicially read by courts"

to also allow for the installation of utility lines (easement appurtenant). &he courts reasoning isthat the overall burden to the landowner is not greatly increased. They conflate the purpose and

urden issues$

-hy 4tilities are @iven %ower of 8minent :omain 5ecause they provide a public benefit.

-/o giving them the power of eminent domain" they would have to buy each easement or each

piece of land upon which they lay their pipes" railways" etc. 6t would raise the cost of the utilities.

Dou also face the problem of holdouts< landowners who refuse to sell at any price" disrupting

provision of the utilities.

Pasadena v. $aliforniaAichigan 3and B "ater (plitting !ater pipe easement)

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Keemin Ngiam

Case really is about competition for !ater supply rights in asadena.

6!ner of the land grants the city of asadena an easement to lay a !ater4pipe.

%ater on the same lando!ner grants an easement to C4D on the same space.

asadena challenges this second easement in court on grounds of e-clusivity& that their easement

is e-clusive.

,f this really !ere an e-clusive easement then only asadena could make further subdivision of

this easement. +ut if it !ere non4e-clusive the lando!ner could make further grants in the same area.

Court holds the easement is not e-clusive. #hat is the testG

Priority is given to the first grantee. ubse9uent uses of the easement cannot interfere !ith the

uses of the first grantee& so C4D cannot interfere !ith asadena’s use of the easement. +ut so

long as it does not do so it’s okay for C4D to have an easement on the same land.

9odification of Ease#ents

%er se rule< if the location of the ease#ent is specifically stipulated in the ease#ent or it is

de facto located on the land over a long period of ti#e neither do#inant nor servientlando"ner #ay relocate the ease#ent "ithout per#ission of the other$

8ven if it would be efficient or eminently reasonable to do so.

&o allow dominant holder to do so would greatly decrease the value and mar,etability of servient

land< uncertainty about how the easement’s location might change. &he converse is also true< servient owner cannot relocate easement" where it is clearly specified or

de facto fied by physical installation" without permission of dominant owner. But a court "ill allo" i#portant #odifications. *ourts will routinely" at the request of servient

owners" limit the height of easements. &hey do not go to the heavens. &hey will limit the height of the easement to what is reasonable use of it. 5ut they will not change the physical location.

-hen location is specifically described" dominant owner cannot change it.

6f it was floating" but has been specifically located in fact" dominant owner cannot change it

(llowing dominant owner to change location would severely reduce the value of the servientland and its mar,etability).

6f the servient owner see,s a change" courts will allow a modification of the easement’s height

(and even width) to permit significant development on the servient estate.

3ewis v. Eoung (the greedy nephe! and the tennis court and the road)

Three easements granted at time of land split& t!o of them are specifically described the third

(the one in dispute) is not& it is merely for a “perpetual use> of the Q+ro!ns’R main drive!ayrunning in a generally south!esterly direction b*! outh Ferry ?oad and the Q+ro!ns’R

residence premises.” +ro!n later sells the !estern (servient) tract to the 0oungs.

0oungs plan to tear the house do!n build a ne! house !ith a s!imming pool and tennis court.

Tennis court’s location re9uires a change in location of the drive!ay.

They speak !ith Drs Eaffee she agrees as does IatK.

Drs Eaffee passes on leaving her estate to %e!is.

%e!is begins disputing the drive!ay 2 he conditions relocation of drive!ay if the 0oungs upgrade

it. They consent to do so once ne! home is completed.

+efore house is completed %e!is demands that the drive!ay be completed as promised or else

he !ould put the easement back in its original place destroying the tennis court. $nd thus 2 litigation.

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Keemin Ngiam

rocedurally the 0oungs could have !aited. They might have prior to starting renovations gone

to court and sought an in"unction declaring them able to move the easement. ,n such a case the

court might have "ust applied the traditional rule that they could not move a floating easement. +ut in this case they detrimentally relied on Eaffee’s prior agreement. There !as also the strong

hint of e-tortion on the part of %e!is. ?ew ;ule $ balancing test is also appropriate as to relocation of an undefined right of !ay.

,n the absence of a demonstrated intent to provide other!ise a lando!ner consonant !ith the

beneficial use and development of its property can move that right of !ay so long as thelando!ner bears the e-pense of the relocation and so long as the change does not frustrate the parties’ intent or ob"ect in creating the right of !ay does not increase the burden on the easement

holder and does not significantly lessen the utility of the right of !ay. +he rule is valid in NE, but it*s not the ma6ority rule.

#e first al!ays look to the e-press language. ,f the easement is described clearly and fi-ed in the

creating document then it cannot be moved absent consent of both parties.

,f the language does not fi- the location of the easement it may be moved by servient o!ner if

necessary (see /0 rule).

Ter#ination of Ease#ents

1. 8asement holder eecutes a deed of release. n oral release is insufficient – 9tatute of rauds prevents it (it is a conveyance of land).

2. 6f it is oral" detrimental reliance on the release may suffice to terminate easement.3. 8ecute a quitclaim deed. 6f there’s only one easement and that’s the only interest in the land. &he

quitclaim deed is to the entire servient tenement. 6t thus conveys all interest in the servient estate" bac, to the dominant owner. (6t would cover even un,nown interests in the servient tenement" andmultiple easements. :anger of quitting interests that were not intended to be released)

. Herger. -hen there are two tracts of land" owned by different owners" which are later owned bythe same owner. *ommon ownership etinguishes the easement (one cannot have an easementover one’s own land. %erhaps there might be a quasi7easement). (&he danger of merger is that

should one of the tracts be sold again later" there is no easement unless epressly granted orreserved).!. Hortgages -hen easement granted over mortgaged property.

6f mortgage is foreclosed" easement will be wiped out< the easement is not on the mortgage deed.

2f a senior #ortgage is foreclosed it "ipes out all ?unior interests in the #ortgaged property$

8ven though the easement is physically there" physically on the ground" it is wiped out.

9olution< s, the ban, to subordinate its mortgage to the easement. @et -ash. Hut. to sign the

mortgage as well" and promise that even if it forecloses the mortgage" the easement will remain.5ut there is little incentive for -ash. Hut. to do so. &he easement reduces the value of the land.

8ven if the dominant owner detrimentally relies on the easement" or his property is valueless but

for the easement" w/o consent of the mortgage holder" no dice. +e might" if landloc,ed" be able to

either have a court recogni0e an easement by strict necessity" or in some states" condemn such aneasement.

I. Goint &enancy unilateral grant of an easement" under a unities approach" is li,ely to sever the joint tenancy.

*hange in interest.J. 8minent :omain 6f the servient land is condemned by the state for a legitimate purpose" the easement is wiped off.

6onde#nation destroys ease#ents. &he general rule is that the dominant owner gets to share in the condemnation award – :.. has

lost a valuable interest in land.

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Keemin Ngiam

&wo methods of computing :..’s share of award<

1. :ifference b/w value of condemned land with and without easement.2. :ifference b/w value of :..’s land with and without easement.

5oth methods measure the value of the easement.

6n (2)" the state has to pay HV for servient land" measured w/o the easement" as

well as an etra on top for the value of :..’s land. 9tate will have to pay more under method (2).

The loss of the ease#ent is a ta!ing fro# &$O$

K. &a 9ale

:efault position 7 ta sale wipes the slate clean. purchaser buys the property in f.s.a." subject

to nothing. 9ome states" however" have decided on another approach. 6n assessing taes on the dominant

land" they include taes for the easement – how much the easement increases the dominant property.

4nder this approach" the easement is not subject to the ta sale. &he easement is ,ept even though

the servient land is sold.

But if the servient land ta( does not include the ease#ent it "ill not e included in the ta(

sale$ :.. therefore has an interest in 9.. paying 9..’s taes" if easement is not included in :..’s

ta assessment.=. ied7'ength 8asements 8asement can be etinguished at the termination of the easement period" e.g. !7year easement.

5ut after the end of the period" if use continues" adverse possession might occur< easement by

prescription.

&here is no equivalent to tenancy at sufferance in easements.

1B. bandonment Here nonuse is not abandonment.

5ut other acts" or lac, of action" together with nonuse" can combine to be evidence of

abandonment. 8.g. bloc,ing off the right of way.

ral statement cannot constitute abandonment. 5ut it can help support that inference" if there issome act that helps provide evidence of abandonment.

6f the easement is not used for some time" and 9.. builds over part of the easement" and :..

does not object" :.. may be estopped from claiming bac, the easement. The difference ;" estoppel and aandon#ent is that aandon#ent "ipes out the ease#ent3

estoppel does not$ 5o" long should &$O$ e estopped:

6f it’s just a crop of wheat" and :.. doesn’t say anything to object" then :.. may be estopped

for a short period of time< until wheat can be harvested.

The longer the estoppel the #ore it see#s li!e aandon#ent$

5ut reliance by 9.. does not create abandonment.

8stoppel requires the 9.. to act in detrimental reliance on what the :.. does or does not do.

The !ey to estalishing estoppel is detri#ental reliance on the part of S$O$ regardless of&$O$+s state of #ind$

5ut if the 9.. occupies the easement for long enough" then the easement might be destroyed by

prescription< prescription can irth and !ill an ease#ent$

7ic)erson v. #ender (house by the lake built into neighbor’s easement for path to lake)

o!ners of the dominant estate didn’t use the easement for a !hile 2 nonuse.

$bandonment here is an e-treme holding because abandonment is hard to establish& here there is

no clear evidence of intent to abandon. /onuse alone cannot establish abandonment.

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Keemin Ngiam

Furthermore there is some evidence that Hickerson’s predecessors in interest did use the

easement.

?eliance of servient o!ner cannot establish abandonment.

+ut it can lead to estoppel but not really sho! abandonment.

Court holds there is abandonment.

,t is easier to "ustify by an appeal to adverse possession or prescription.

"hat really happened here is adverse possession or prescription - the fact that the +enders and

the +enders predecessors in interest did not ob"ect to the Hickersons’ encroachment.

1losemeyer v. =nited 5tates (rails to trails) Dany of the grants to ?? easements !ere pretty ambiguous. “$ ?? right of !ay” “a strip of land for a ?? right of !ay.” 9ome of these" especially the latter" have been interpreted as f.s.a.-hy not a restrictive covenant %erhaps they might be – a f.s.a. with a restrictive covenant. ??s al!ays paid ta-es on both easement and f.s.a. right of !ays.

6f the rights of way are easements" they are capable of being abandoned. nd if they are abandoned"then the land is owned by the adjoining landowners or underlying landowner (it goes bac, to whoever

has the land from which the easement was crafted).

6n rails to trails" the ederal @overnment sought to turn these abandoned rail lines over to localgovernment for use as nature trails. +ow1. railroads had to go to the 9urface &ransportation 5oard" a regulatory agency" in order to see,

permission to tear up the trac,. &his was usually granted.2. &he statute allowed for third parties" trail providers" usually the local government" to enter into Ls

with the railroads in order to use the trails for hi,ing and bi,ing.3. -hen the ;; and the trail provider enter into the deal" it is deemed a rail purpose and not to be

treated as an abandonment. 6t is a railroad purpose regardless of what state law says.

+ow 6s &rail 4se ;ail 4se

• orm of transportation. rail purpose – moving people around.Courts are not in favor of this argument. They hold that abandoning not using the track plus

tearing up the actual physical track is pretty strong evidence of abandonment.• ;ail ban,ing. &he ;; can as, for the property bac, when they want to start running trains on it

again.Courts also disfavor this approach. They say it is unlikely that the railroads !ill start running

trains on these tracks again.

*onclusion *ourt concludes that if there is no rail purpose" that the federal statute really just wor,s a

ta,ing. 8ssentially the government now owns the easements. 4nder state law" when the easementwas abandoned" it returned to the underlying landowner.

6t is a ta,ing because under the current use" the landowner loses the power to eclude others

(the public) from the easements.

&he federal statute ta,es away landowner’s right to eclude" a fundamental part of the bundle

of rights" and thus constitutes a ta,ing – #the power to eclude has traditionally been consideredone of the most treasured strands in an owner’s bundle of property rights.$

;ight to 8clusion -hen ;; had right to eclude" they did convey interest to government.

*ourts’ 9olutions

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Keemin Ngiam

• *ourts have either interpreted the easement to be a f.s.a. and given it to the government (ironicgiven the populist rationale behind why they didn’t get f.s.a. to begin with).

• r held that even if it’s an easement" it’s still a rail purpose.• r just said that the statute wor,s a ta,ing and ordered the government to compensate the

underlying landowner.

S%'E %1& F21%1621* OF R E%' EST%TE &here is an earnest #oney contract.fter 1 – 3 months" there is a closing.&his applies to all property.

-hy the 8arnest Honey L and the -ait

• %hysical inspection of property• 8nsure that the title is mar,etable• rrange for financing

-hy 4se 9tandard orms• 5ecause most deals are done through bro,ers. nd the bro,ers’ lawyers draft the forms for them.• &he forms thus have several main goals<

(1) ensuring that the bro,er gets paidC(2) insulating the bro,er from as much liability as possible.

5ut in commercial transactions" the form is just a starting point. &he parties negotiate the eact

terms of the earnest money L very carefully.

&erms of *ontract&itle Wuality< :efault position is that the title will be mar,etable and clear. &his is true in every state.

8ven if it’s not stated in L" courts will assume that the title was mar,etable. 9ar!etale is

?ust free fro# reasonale dout not that it+s perfect$

&itle pproval< JB> of land transfers in the 4.9. are covered by title insurance. &he seller agrees to give

buyer a preliminary title report within a few days after signing.

&itle 6nsurance promise by the title company that if the deal is closed" the title company will issue an insurance

policy in favor of the buyer guaranteeing title in f.s.a." #subject to the following<$ a list ofencumbrances that are eisting on the title – leases" mortgages" easements" etc.

&he buyer then has the power to object to any encumbrance on the title and as, the seller to

rectify it.

+ow does the seller rectify it @oes to the title company" which agrees that" for an additional

premium from the seller" it will delete that eception. nce this is done" the title insurance company will send the buyer a title with the objections

deleted.

bstracts9ome states don’t use title insurance. 6nstead they use abstract list – a history boo, of the property. 6trecords every transaction that has to do with the land. 8very time the land is sold" the seller hands the buyer an updated abstract. &he abstracts are handled by abstract companies. &here is no title insurance.&he abstracts are analy0ed by the buyer’s lawyers. &he only insurance the buyer has" is to sue the lawfirm for malpractice.

'awyers

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Keemin Ngiam

9ome states don’t have title insurance or abstracts. 6nstead lawyers will eamine title and inform the buyer if title is clear. &his is cheaper than title insurance and abstract.

&orrens 9ystem8very time title is transferred" the state will issue new title to the buyer. &he title will still contain all theencumbrances and eceptions to title. &he buyer must still eamine the title. &here is still #subject to the

following.$ 6f the state fails to list an encumbrance" it is liable and will compensate the buyer. &orrens islargely dwindling due to title insurance.

Real Estate Financing

5uyer has to put money down for an earnest money L. &here is no required amount. 6n a seller’s mar,et itwill be higher" in a buyer’s mar,et it will be lower. buyer will usually have to pay by conventional financing" an uninsured mortgage. conventionalmortgage is a KB> 'oan &o Value ('&V). KB> of the purchase price. &he buyer has to come up with 2B>of the purchase price.9eller then conveys a grant deed at closing.

Fannie and Freddie

?H – annie Hae. +'H* – reddie Hac. &hey used to both be wholly7own government entities. 6nthe XJBs they were privati0ed. &hey have trillions of dollars in assets. &hey buy secondary loans frommortgagees li,e -ashington Hutual. nd either ,eep them" or sell the mortgages piecemeal to the public" by creating mortgage pools" aggregates of individual mortgages. nd they then sell portions of those pools to public investors. annie Hae and reddie Hac guarantee returns to the investors. 6nvestors thin,there is an implicit guarantee that the government would bail out ?H and +'H* if they went underor were unable to pay.

?H P +'H* – Wuasi7federal. &hey issue bonds to raise money. *onsidered safe because implicitassumption of investors is that the federal government will bail them out in case of trouble.

annie and reddie do two things with mortgages< ,eep them for themselves" or form mortgage pools and

sell shares in those pools to investors.

6onventional and 2nsured 'oans

&here are two governmental entities that insure loans< the + (part of +4:) and the V. 6f one qualifiesfor a + or V loan" one can pay as little as nothing down. V loans are B> down" + loans are 273>down.• &he government doesn’t ma,e the loan. 6t just insures it.• 6f the mortgage is foreclosed" and the property cannot pay off the debt" the + or V will cover

the difference.

• 5uyers pay a premium to + or V for the insurance. 9ince they usually are poor" they usuallytac, on .!> to the interest rate to pay it off.

• 5ut + and V loans are limited in si0e (currently about 22!, in *).• &here are also %rivate Hortgage 6nsurers (%H6). &hey will insure 0ero7down loans. &hey either

ta,e their premium up front in cash" or as a percentage tac,ed onto the i/r amount.• 9ome companies these days ma,e loans with 0ero7percent down" or as much as 12!> of the

property value. 8ven if they are uninsured. +ecause the market is good and they think they canrecoup from the property alone.

• @overnment ?ational Hortgage ssociation (@innie Hae) – it buys + and V loans. ndcreates mortgage pools" selling them in much the same way as annie and reddie. 5ut they are safer.&he underlying loan is protected by the + or V. 6t is also eplicitly guaranteed by the 4.9.@overnment through @innie Hae – it is a federal entity. @innie Hae operates to brea, even" not toma,e money.

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Keemin Ngiam

• annie" reddie" + and V mortgages are all standardi0ed.

Secondary 'oan 9ar!et Ris!s

+ow do investors in mortgage pools protect against pre7payment &hey can’t" in residential mortgagecontets. ll @innie" annie" and reddie loans" are all pre7payable. -hen i/r drops" mortgagors can

refinance. &his results in the mortgages being paid off M resulting in less interest and returns to theinvestors.

&his is in contrast to commercial mortgages – these are not pre7payable" or if they are" they will befully compensated for it.

The market also kno!s that there is a lag time in pre4payment. The public generally !aits for i*r to

drop by :4;N before it acts. Furthermore there is refinancing costs. %re7payment is therefore to someetent predictable" and the ris,s are avoidable.

f course" investors are not protected against i/r increases. &heir money is loc,ed in" unless they selltheir interest in the mortgage pool.

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Keemin Ngiam

%d?ustale Rate 9ortgages

;H – 'enders li,e them. 5orrowers li,e them because the i/r or downpayment usually starts off beinglower.

Secondary 'oan 9ar!ets 7 2#portance

&hey have financed the merican home mar,et. &he inflow of equity has allowed more mericans to

own homes.

Seller Financing ,alternative to 6onventional Financing0

• %opular when i/r are high.• t a time in the past" the + loan rate was 1J>.• lot of buyers" even though they could pay the 2B> down" could not qualify for the 1J> loan.• 9o to help buyers" sellers would themselves ta,e on a mortgage. 5uyer would give seller a note

and mortgage for 2B," payable in full (balloons) in years (usually five – they were pretty short7term).

• 9o the buyer pays the seller a constant stream of income (interest and some principal) for the years" and the balance of the principal at the end of the years.

• &he theory was that at the end of the years" the buyer would refinance" and the i/r would go

down.• &his historically wor,ed – i/r did drop.• &his did mean that the seller got less for their house. 5ecause the seller too, on below mar,et7

rate interest financing. nd would be getting less" vis7R7vis getting cashed out (because if theycashed out" they could turn around and invest it at the higher i/r).

Buyer 6an Ta!e Out T"o 9ortgages if 5e+s Short on the &o"n

• 6f the buyer only had B, (and not IB," to ma,e the 2B> down)" and the mortgagee only waswilling to loan KB>" buyer would be 2B, short.

• 5uyer would then ta,e out two mortgages – a second mortgage to the seller for 2B,. 5ut thismortgage is ris,ier< because it would get wiped out if the first mortgage foreclosed. &hey alsoearn higher interest because of the higher ris,.

• amilies are also a good and popular source of secondary mortgages. 8specially parents.• 6n contemporary merican society" parents tend to want to give mortgages" in case of the

eventuality of divorce. &o ma,e sure that they are protected in case of divorce.• ther institutions may also grant secondary mortgages" but at higher i/r.

Ta!ing Over 'oans

• Hortgagor has a 2B, mortgage with mortgagee" at I>.• 6nterest rates go up to 1B>.• &he buyer might want to ta,e over the mortgage.• 5ut the mortgagee might not consent – the due on sale clause of the mortgage might step in. Host

mortgagees won’t.

• 5ut if it’s a V or + loan" they H49& consent to transfer so long as buyer is creditworthy. &he buyer doesn’t need to qualify for the V or + loan personally.

Statute of Frauds

5y and large" based on the 1IJJ 8nglish 9tatute of rauds.Host commonly requires<

• *ontract" some memorandum or note thereof" be in writing.

• nly eception is for leases of a year or less.• :oes not have to be a formal L.

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Keemin Ngiam

• 6t does not even need to be between the buyer and seller. *orrespondence b/w one of the partiesand a third party could be sufficient.

• Gust need to identify< parties" property" and price.• signature or some sign of consent.• The statute of frauds does not #a!e a contract void for all purposes$ 2t ?ust #eans that

neither party can enforce the D$ ut it #ight still e valid for other purposes$

%art %erformance• %art performance can ta,e a L out of the statute of frauds.• 6t can apply when L is purely oral.• r when written L lac,s one of the essential elements. (5erg v. &ing)

9afety %rovision in 8.H. L • #6f 5uyer defaults" 9eller’s sole remedy is to ,eep the 8.H.$

• &his is the functional euivalent of an option.• 9eller should ?8V8; agree to this.

Essential Ele#ents of a Earnest 9oney D

• ?ames of parties• 6dentification of the property. #Hy farm$ can be enough. #Hy house$ can be enough. &he street

address can be enough.o 9ome courts hold that the #legal description$ is the essential element. p. =!.

&hree &ypes of 'egal :escriptions1. by reference to a 4.9. survey (Gefferson had the Hidwest and west surveyed" even before

they belonged to the 4.9.)a. divided up into townships" then sections. 8ach section is IB acres – one square

mile.2. 5y reference to an official subdivision.3. Hetes and bounds. %roblem is that they don’t always close. 9imply calls distances" using

feet" and angles. 9ometimes they would even use landmar,s.o (surveying these days is ris,y – finding that you don’t own your property)

• 9tatement of the price. 6ncluding the terms of the mortgage" if any (if seller is financing).Hortgage terms must be reasonably complete.

• :on’t need to specify a closing date< court will just read in a closing at a reasonable time.• :oes not need to be signed. 9tatute of rauds usually requires the L to be signed by the party to

be charged (only defendant who might raise 9tatute of rauds).o *ourts have been pretty liberal in interpreting the signature requirement.o 5ut see p. K1" n. K. %retty broad definition of #electronic signature.$

Past Perfor#ance Theories to Escape Statute of Frauds

>$ evidentiary theory

-$ estoppel)reliance theory

5oth require #the big 3$<• payment

• possession

• improvements

8videntiary theory uses them as evidence that there was some ,ind of agreement about land b/w the parties. 8ither party can introduce evidence of any party’s acts under evidentiary theory.

8stoppel7reliance uses them just to indicate that the parties have relied detrimentally on something. %artysee,ing estoppel must introduce evidence of its detrimental reliance. &he big 3 is just evidence that

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Keemin Ngiam

someone has ta,en steps to their detriment. But estoppel)reliance does not need the ig @ 7 ?ust need

so#e evidence that there "as detri#ental reliance$

Policy3 Statute of Frauds

• 9ome argue that since we prefer written agreements" and have so many eceptions for part

performance" the 9o should be abolished.

• 5ut the 9o does serve a purpose" a good one. 6t ma,es fraud harder.

oundy v. "aner (dispute b*! parents and kids about !ho o!ned home parents lived in)

#aners (daughter and son4in4la!) o!n legal title but not e9uitable title. ,mportance of %egal Title

• The possession of legal title allo!s the #aners to sell the property. rovided that the purchaser

!as a +ona Fide urchaser (+F) the purchaser could cut off the ?oundys’ e9uitable title their

real title. ?eal title can be cut off by legal title passed to a +F.

• ,n :@83 the property !as purchased because the ?oundys (parents) could not get a mortgage on

the house.

• ,n :@8@ there is a falling out and the ?oundys demand that the #aners remove their names from

the title.• #aners sue and ask the court to recogniKe an oral agreement b*! the parties in :@8P to pass

e9uitable title to the #aners.

• Consideration&

• paying off the mortgage

• promise to make improvements

• past services 2 taking care of Drs. ?oundy

7stoppel reliance&

• the #aners sold their house to move closer

• the oF !ill not be allo!ed to be used to perpetuate fraud

#a court of equity will not permit the 9tatute of rauds itself to become an agent of fraud. defendant

who is induced to rely on an oral agreement and who changes position to his own detriment cannot bedefrauded by a plaintiff who interposes the 9tatute of rauds to declare the agreement invalid.$

#urns v. c$ormic) (deal to move out and take care old man till death get house)

• CardoKo holds that oral agreement cannot overcome the oF.

• Furthermore there are insufficient acts of past performance.

• Follo!ed the evidentiary theory. Furthermore the evidence is not une9uivocal. /o

possession 2 must be e-clusive according to CardoKo (the old man !as still in possession) andevidence of payment (taking care of the old man) insufficient.

• Jnder estoppel4reliance the fact that the +urns sold their house and business and

moved out there !ould be sufficient to allo! the bar to the oF to come do!n and allo!

evidence of the oral agreement.

• CardoKo is mindful that the deceased cannot testify& !e only have the testimony ofthe plaintiffs.

Escro" Syste#s ,in 6%0

o 8arnest money L in writing.

o &here is a closing in 173 months.

o 1 or 2 days after earnest money L is signed" the property goes #into escrow.$ Gust means a L is

pending.o -ithin a wee, or two after earnest money L is signed" the parties sign an escrow contract with an

escrow company.

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Keemin Ngiam

o &he escrow company ta,es care of all the paperwor," closing services< chec,ing the property" holding

the earnest money" chec,ing title.o 6f the buyer eamines title and finds something objectionable" they raise it with the escrow company"

which in turn raises it with the seller.o &he standard going rate is .!> of the sale price. A!BBB on a A1BBB, house.

o &hese services are practiced" in other states" by the realtors" or by the title insurance company.

o &he title insurance company has a vested interest in ma,ing sure the deal goes right. therwise it’s on

the hoo,.o &he escrow company will not do anything unless both parties consent" or there is a court order. 9o if

buyer defaults" escrow company will not release earnest money as liquidated damages without buyer’s consent.

o &itle insurance companies charge a lot less for the same services. A13! flat fee" vs. A1!BB or even

A!BBB.o 8scrow companies go bac, to the late XBs and early X!Bs" when the mortgagees would do the same

services (because they had an interest in the property). &he employees who handled these serviceswent independent" set up escrow companies.

o 8scrow companies can do one thing other closing services can’t< if the seller dies before closing" the

escrow company can still convey the deed< the deed is still valid. 5ecause it was signed by the seller.-ithout an escrow company" the court might require a deed from the eecutor.

o 'awyers don’t get as involved in residential real estate closings. 5ut they are in commercial settings.

o 8scrow companies assume some ris,.

6onflicts of interest:

&he argument made in favor of escrow companies is that they are neutral parties" who have the interestsof both parties in mind.

9ar!etaility of Title

6n virtually every state" the government’s role in assuring good title is twofold<

• a recording office where titles are ,ept for eamination

• a court system for litigation over validity of title&his is pretty much the limit of the government’s involvement.8cept in &orrens system states where the state issues title.

5uyer usually has more than one source of protection.

• %re7closing" major protection is mar,etability standard. :efault in every sale of land" is an

implicit promise by the seller to deliver mar,etable title.o 8ven if L is purely oral" and escapes 9o because of part performance" court will read

implicit warranty of mar,etability into the L.o 9ar!etaility standard free fro# reasonale dout$

o 6f buyer eamines title and objects to it" buyer can refuse to close L.

o

r buyer can sue for performance" but with abatement.o Har,etability is an issue in both cases.

o r seller can demand performance" and show that title is mar,etable.

o 5uyer’s remorse can masquerade behind mar,etability.

o Har,etability can be negated by epress provisions in L< buyer accepts title #as is.$

• %ost7closing" title insurance is major line of defense" or the lawyer.

o fter closing" mar,etability objections to title merge into the deed. &hey can no longer be

raised.o 5ut if title is defective" you can recover from title insurance.

o 6f lawyer who eamined title was negligent or engaged in malpractice" can sue lawyer.

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Keemin Ngiam

o -e can also sue the seller for breach of warranty" if a warranty deed is given.

o &he practice in * is to give a grant deed" not a warranty deed. @rant deeds are limited

warranty deeds. nly warrants that the seller did not do anything to defect title. 5ut doesnot warrant prior owners.

o 9ome sellers will only give a quit7claim deed. 4sually the government. -ill only pass

over whatever the seller has" whatever that is.

• Har,etability protects the purchaser w.r.t. title defects prior to closing.

• -hen the buyer does due diligence to ensure that seller has mar,etable title" buyer is protected<

not required to close when title is unmar,etable" not free from reasonable doubt.

• Seller cannot plead #ar!etaility3 only the uyer #ay$ 2t+s only a uyer+s defense$

• part from buyer" the mortgagee (mortgage lender) might refuse to grant the mortgage because of

ris,y title. &here are usually two premiums – one for the buyer" one for the mortgage lender.

Brea! in 6hain

• -hen seller" in theory" does not actually have title to the property.

• 9eller purports to sell the property to buyer.

• 5ut there is a brea, in the chain of title.• t the worst" it means that the owner at the time of the brea, in chain" still owns the property.

• 4sually" however" the current seller really does own the title.

• +reaks in chain usually are the result of a missing deed that !as never recorded.

lternative *ause< dverse %ossession.

• 5ut problem is that the .%. issue must first be litigated. nd it must be litigated between seller

and the owner at time of brea,< a quiet title action" with the owner at time of brea," and allsubsequent owners" joined as parties.

• &he .%. issue cannot be litigated b/w seller and buyer M buyer has no standing. -e require the

owner at time of brea," and all subsequent owners" to be parties.

• &he further bac, the brea," the more li,ely the court will be to hold it unimportant.

-hen 5ad &itle 6s Har,etable• ssume that in the chain of title" one of the deeds was forged. &he title is entirely mar,etable (no

brea, in chain)" but it’s also utterly bad< invalid.-hen @ood &itle 6s 4nmar,etable

• 6f there was a brea, in chain" but only because deed was not recorded< all owners did in fact

convey" there was no .%.

Encu#rances

• Encu#rance< any claim by a third party against the real estate. Host commonly mortgages"

easements.

• 9ortgages do not always or even usually render title unmar,etable< buyer may ta,e over the

mortgage" or mortgage will be paid off out of proceeds of sale.

• Ease#ents.

• 'eases – 8cept that often parties buy property with leases on them because they ma,e the

property more valuable (source of income).

• =npaid property ta(es – a government lien.

• Judg#ent liens. Gudgments" when recorded" can become a lien on all of the debtor’s real estate

within the county" or even within the state (in some states).

• Restrictive covenants – the mere eistence of such covenants is an encumbrance that renders

title unmar,etable.

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Keemin Ngiam

• Koning ordinances" while possibly encumbrances" do not render title un#ar!etale. 4nless" at

time of sale" property is violating the ordinance. 5uilding code violations do not violatemar,etability.

• Encu#rances render title un#ar!etale unless they are the type the uyer has agreed in

the D to ta!e su?ect to$ 6n the L" the buyer waives certain potential claims" provided that theydo not materially interfere with use and enjoyment of the property.

• &efeasaility – having a defeasible condition upon the land renders title unmar,etable" generally

spea,ing.

Encroach#ents

8ither seller encroaching upon neighbor’s land" or neighbor encroaching on seller’s land. 8ither way" titleis rendered unmar,etable.

2nsurale v$ #ar!etale

• lmost all title is sold as mar,etable. 5ut this is different from insurable.

• Har,etability standards were developed by lawyers.

• 5ut when the brea, is not substantial or the ris, is small" the insurance company or mortgage

company will issue an insurable title.• 6f the title is mar,etable" the insurance company will issue an insurable title. 6f it’s not" title

company will just refuse to grant the mortgage or the deed.

• 6nsurability is a laer standard than mar,etability.

• 9ometimes 8.H. L will say that seller will convey by quitclaim deed.

• Wuitclaim deed does not negate the mar,etability. 5ut it does ma,e it harder to convey. 5ecause

the buyer must then ta,e the deed and record it – openly.

• 8ven where L is silent about mar,etability" there is an implied L of mar,etability" even in

quitclaim deed.

• 5uyer’s right to reject deed for unmar,etability is not annulled by the fact that there is no such

language in the L.

3aba v. $arey (the uneven side!alk case)

• The general promise !as not marketability but insurability 2 “title such as any reputable title

company !ould approve and insure.”

• +ut the provisions of the clause had the buyer to take sub"ect to the encumbrances noted in the I

and free of all notes or notices of violations of la! or municipal ordinances orders orre9uirements noted in or issued by the 5epartment of Health etc.

• The side!alk !as belo! city’s grade re9uirement. +ut city had !aived any such ob"ection to it.

The title insurance company did agree to insure that the property did not violate any restrictive

covenants at this point in time 2 so the side!alk grade issue !as irrelevant.

• +ut in n. the standard of the I is marketability. +uyer argues that the survey sho!ed that the

property didn’t meet the city’s re9uirements. Court dismisses his claim 2 it !ould render most

titles in the state void.

Herger

• nce you close the deal" you are barred from ma,ing any mar,etability claims to void the deal.

Har,etability claims merge into the closing" because well" the deed was mar,eted.

• &his does not foreclose all options< you can still sue for misrepresentation" fraud" or other causes

of action.

Types of %ctions Filed Before 6losing

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Keemin Ngiam

5uyer 9eller

• ;estitution (8.H. and ependituresin direct reliance)

• :amages (8.H. and loss of bargainZ). ?ot common.

• 9pecific performance (an equitable

remedy).ZZ

• 9ue for 8.H. as liquidateddamages.ZZZ

• :amagesZZZZ• 9pecific performance (the price of

the L in echange for the

land)ZZZZZZ 'oss of argain< if HV of property is above L price" loss of bargain is the difference b/w the two.

%roblem with loss of bargain is the need for evidence" witnesses. 6t’s costly toestablish loss of bargain.

ZZ Specific perfor#ance was traditionally the default per se remedy – because every land is unique"irreplaceable by money. 5enefit of s.p. is that it needs no evidence of HV" etc. 8asier burden of proof.

ZZZ :epends on whether or not the sum is reasonable e- ante. therwise it becomes a penalty. 6t must bereasonable given the price of the property.

ZZZZ 9uing for damages can lead the jury to thin, you’re ta,ing the buyer for a ride. &hat you sold the property for more than HV. 5ecause damages results in a jury trial. 9pecific performance is inequity – no jury.

ZZZZZ 9pecific performance is the traditional option for the seller as well as buyer – because the land isunique.

• 6f the value of the land has increased" buyer will see, s.p.

• 6f value of land has dropped" buyer will see, restitution.

• 6f property was sold to someone else who did not ,now about the L (5%)" the land is

unavailable" and specific performance is not available.

• nly options left would be restitution or damages. :amages might be easier to prove in such a

situation< HV could be pegged at what the seller sold the land to the bona fide purchaser for.

'imited to ;estitution– the 8nglish ;ule (Hinority of 9tates)• 6f the seller has breached in good faith (unintentionally)" e.g. bad title" and is unable to convey the

land.• nly remedy is restitution" not loss of bargain.• 5ut this rule is dying out. Hajority of states don’t care what seller’s state of mind is.

9ortgages

#8venly amorti0ed$ – evenly distributed over course of the loan.

%re 1=Bs&he evenly amorti0ed mortgage is a relatively recent development in merican economic history.6ts predecessor was the balloon mortgage – everything came due at the end of a short period of time – !years or so. ffered by #buildings P loans associations$" later ,nown as #savings P loans associations.$&he monthly payments were mostly interest" and a little principal. 5ut all of the principal would be due at

the end of the mortgage.

5alloon mortgages were traditionally successful because property values rose from year to year" and sonew loans could always be ta,en out< they would be renewed at the end of each balloon mortgage. &hedebts would slowly be paid off over the decades.

5ut this ended in the :epression of 1=2=. +omeowners were unable to find ban,s that would refinancetheir loans. 5an,s either went belly7up" or refused to issue new loans (hoarding cash to save it).+omeowners thus could not ,eep their houses – their properties would be foreclosed because they couldnot ma,e the balloon payments.

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Keemin Ngiam

6n 1=3!" *ongress set up the ederal +ousing dministration (+). %olicy was to encourage long7termloans. 6n 1=3!" + 6nsurance said that if lender was willing to loan out =B7=!> of the loan" for 3B years(or so)" evenly amorti0ed" the government would insure the lender. -ould pay the difference. +6nsurance is paid by tac,ing on .!> to the interest premium paid by buyer.

&he 1=Bs to 1=JBs

6n 1=" *ongress passed the @.6. 5ill. 9ending @.6.s to universities and college especially. &he V..Hortgage @uarantees were a part of the @.6. 5ill. &he V.. guarantee was that if a lender gave a veteran along7term loan with 0ero7down" the V.. would insure the lender if the loan was defaulted upon.

&he default rate on the + and V loans was miniscule. 5ased on their success" private lenders therefore began ma,ing long7term loans to other parties on their own. 5ut since they were not insured" lendersrequired 2B> down.

6n the 1=Bs to 1=IBs" the interest rate of 9P' was fied by the government. 6t was usually pretty low.6nflation was also low" around 1 to 1.!>. nd so they could offer low loan rates. 2> i/r" and they would just tac, on 2> and offer > loans.

6n the 1=IBs" inflation rose to !>. %eople made massive withdrawals from 9P'" and invested in federal bonds instead< disinter#ediation. &hey went straight to the government and invested in bonds at ! toI>. &hey cut out the middleman. 6n response" *ongress deregulated interest rates" allowed 9P's to settheir own interest rates.

6n an environment of s,yroc,eting interest rates" in order to ,eep customers’ savings" the 9P' beganoffering matching interest rates" or more. 1> or more.5ut this was unsustainable. &he assets that the 9P's had were mortgages" with no due7on7sale clauses.&he long7term mortgages were at 7!>" but they had to pay out up to 1>. bviously they went belly up"and were bailed out by the federal government.

&he 1=KBs

6n response" in 1=K2 *ongress made due7on7sale clauses enforceable. nd lenders began using them as amatter of course< so that low interest rates could not be passed on from buyer to buyer (lender couldrefuse and raise the interest rate" end the loan and demand a new one at higher i/r).

'enders also began using ;H mortgages – adjustable rate mortgages.'enders also started using pre7payment charges. &he economic reverse of a due7on7sale clause. ;equiring borrowers to pay etra if they started paying off their loans early. ?ot very significant bac, then becausei/r were high< no one was refinancing. &hey disappeared in the early XKBs with annie and reddie" whogot rid of them ostensibly to appear more reasonable. lthough annie and reddie did not grant loansdirectly" they required anyone who granted a mortgage and wished to sell it to them" not to impose pre7 payment charges on the borrower. annie and reddie have sought to create uniformity in mortgagesthrough contract law as much as possible. 'imited by state statute< certain terms are non7waivable" e.g in

'" foreclosure outside of court is unavailable. (&he forms are evenly balanced in terms of advantagesand burdens to both parties.)6ne solution found by lenders is to disallo! pre4payment entirely by inserting terms into the mortgages.

T,$$4C?7F mortgages are non pre4payable.

6n 1=K2" *ongress also passed legislation deregulating 9P's entirely. @ave them full power to act li,e ban,s. 5y the late XKBs" many of them were running into difficulties caused by mendacious incompetence.&hey did not have the resources to act li,e ban,s" but tried to. 6n response" the federal government createdthe ;esolution &rust *orporation – ;&*. 6t sold off the assets of all the failed 9P's 7 A!B billion worth.

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Keemin Ngiam

ften at firesale prices. #@et rid of it and do it fast.$ &he ;&* was dissolved after I years" after havingsold off all of the assets.

&he 1==Bs6n the X=Bs" the importance of the secondary mar,et started growing.

riginators (grantors of loans) – ban,s" thrifts (former 9P's)" mortgage ban,ers (*ountrywide)"mortgage bro,ers (they never own the loans" just match lenders with borrowers). riginators ,eep theloans for a while. 5an,s and thrifts tend to ,eep the safest loans in their own portfolio – the ;H loans.5ut they will sell most of the others" fied7rate loans" on the secondary mar,et.

Hortgage ban,ers will ,eep no loans in their portfolio. &hey ma,e a loan and hold it for no more than 3Bto IB days before selling it on the secondary mar,et" e.g. to annie Hae" reddie Hac.

6ncidentally" annie and reddie have incredible leverage – they have much lower requirements in termsof holdings to loans< they can loan much more than ban,s" and are required to hold less cash.

&he 2BBBs

&he worry about reddie and annie today is that they might go belly up.

ederal 6nvolvement in reddie and annie&hey get preferred borrower status from the &reasury.&hey are not subject to state taation.&he %resident of the 4.9. appoints ! out of their 1! directors.

'atest studies indicate that homeowners are saving about .2!> on their mortgages due to annie orreddie.

5istory of 9ortgages

9tarted about 1!B in common law 8ngland.

@rantor (Hortgagor) wished to borrow money and use the land as security for the debt.+e would grant a deed to the lender (mortgagee).&he deed would say< but if grantor paid the lender the loan amount (2B, pounds) on a day certain (the lawday)" grantor had a right to re7enter and regain title. (a fee simple s.c.s.)

9o the first mortgages in common law 8ngland were f.s.s.c.s.nd no interest would be charged – it would be usury.5ut the mortgagee/lender would collect rent on the land.

6f debt was not repaid on law day" the right of re7entry would be etinguished.nd the law court would uphold that" even if debtor sought to repay the debt several days late.

6t was transactions such as these that created the power of equity courts.:ebtors would go to the Ling’s *hancellor’s courts and see, equitable remedy.&he equity courts held that these were not really f.s.s.c.s." they were not really grants of land. &hey werereally just deeds as security for a debt. &hey did not pass real title.&he debtor was held to still have equitable title to the land. &he lender only had legal title.&hey called the debtor’s interest in the land equity of redemption" i.e. equitable title.:ebtor therefore has a right to pay off the full amount provided debtor is not unreasonably tardy or late inrepayment.

8quity of redemption U right to pay late" provided it’s not unreasonably late.

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Keemin Ngiam

8quity of a house< amount by which value of the house eceeds value of the mortgage.8quity in a corporation is eactly the same thing< substantive ownership of the corporation" via the issueand possession of stoc,.

+owever" this created an absence of predictability< lenders now did not ,now whether or not they truly

owned the property when law day passed. urthermore reasonably late was not fied by definition. &heywere therefore discouraged from lending.

8quity courts therefore created the option of #foreclosure$.'enders could go into court and see, a writ of foreclosure.*ourts would craft an order saying that if the debtor came up with the full amount by a day certain" debtor could get the land bac,.5ut if debtor failed to do so" the land would absolutely belong to the lender.&his restored predictability.&his option was ,nown as strict foreclosure. &o distinguish it from foreclosure by sale (which did noteist bac, then" but does now).

6n the ;enaissance" canon laws prohibiting usury ceased to operate. 9o lenders now charged interest andno longer went into possession. 5ut 8ngland" and some of the ?ew 8ngland states" retain the notion thatthe lender has legal title (these are title theory and not lien theory states).

8ffectively it’s the same thing unless there’s a default. 6f there’s a default" the lender can go into possession in a title theory state. 6n a lien theory state" lender cannot go into possession short of aforeclosure.

Foreclosure Today

• oreclosure today is done by public sale" foreclosure by sale. nly two states" V& and *&" still

use strict foreclosure.

• &here are two documents creating a mortgage< a promissory note and a mortgage.

• ne cannot have a mortgage unless it’s lin,ed to a promissory note" a promise to pay.

• promissory note without an accompanying mortgage is just an unsecured debt.

• Host promissory notes have a provision" an acceleration clause. &he clause allows the mortgagee

to demand the full amount if the mortgagor defaults.

• %rior to acceleration" mortgagor can always cure a default by paying arrears< bac, payments" late

fees" etc.

• 5ut once acceleration ,ic,s in" mortgagor must tender the full amount or lose the land at

foreclosure.

• 5ut w/o acceleration clause" the situation would get messy< mortgagee cannot demand full

amount.

• fter acceleration ,ic,s in" and presuming mortgagor doesn’t pay" there is a foreclosure sale.

foreclosure sale is pro7debtor. 5ecause of public competition" the price arguably will be higherand the debt is more li,ely to get paid offC or more of it will be paid off.

• 9ome states" a minority" only permit judicial foreclosure – ?D" +" '" 6'. nd it is not

waivable.o very pro7defaulting debtor rule.

o @ives the debtor a day in court by default (non7judicial foreclosure requires debtor to hire

a lawyer and go to court).o Gudicial foreclosure states have higher i/r. and lenders tend to lend less" in terms of loan to

value ratio.

• ther states" over last 1BB years" have developed non7judicial foreclosure.

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Keemin Ngiam

Foreclosure Options

• 6n the majority of the states" if the proceeds of the foreclosure sale are less than the debt" the

ecess becomes unsecured debt.

• &he mortagee will obtain a deficiency judgment and collect the balance from the debtor’s other

assets (of course this debt could be wiped out if the debtor went through ban,ruptcy). &hedeficiency judgment becomes an in personam debt.

• 5ut in *" there is an anti)deficiency statute. 6f you are a debtor on a #purchase #oney

#ortgage$ on residential real estate (mortgage was used to buy the property)" and the propertyis o"ner)occupied and a > to . fa#ily d"elling" a deficiency ?udg#ent against the #ortgagor

is arred. &hese loans are also ,nown as no7recourse loans. &his is the minority position.

8hat 6auses Foreclosures:

• unemployment

• illness

• divorce (a leading cause – people stop paying for emotional reasons)

• rational behavior. 3BB, mortgage on a 2BB, house. 5ecause the debtor receives no equity out of ma,ing payments.

o &o discourage voluntary foreclosure" there is the credit system. ?ot ma,ing payments

affects your credit rating and renders lenders less li,ely to lend the defaulting debtormoney.

lternative to :efaulting as ;ational 5ehavior

• :ebtor can go to lender and stri,e a bargain with them< to pay a percentage of the deficiency in

echange for not being reported to the credit bureau. 5ut the lender still ,eeps the property.

• &he debtor can also grant the lender a deed in lieu of foreclosure. &he lender thus doesn’t need to go

through the process of foreclosure. &his reduces the costs for lender" might ma,e lender more willing

to stri,e a deal.

Second 9ortgages and Priorities

• Hortgagor grants -ashington Hutual a first mortgage for 1J!,.

• 6f mortgagor wants to ta,e out a second loan for another purpose" mortgagor can go to another

lender and see, a second mortgage" e.g. 5o.

• 6f 5o is rational" they will see, to ,now if there is equity in the real estate< hire an appraiser to

chec, the property. 5ecause they ,now their mortgage is secondary. &hey want to ,now that theHV of the real estate will either equal or (better) eceed the value of the primary mortgage.

Foreclosure y Pulic Sale

1. Gudicial foreclosure2. ?on7judicial foreclosure (power of sale foreclosure)

Eudicial Foreclosure

• Gudicial foreclosure is the sole means of foreclosure in certain states. good old fashioned

lawsuit" with depositions" trials" etc. ?D" '" +" 6' are all sole judicial foreclosure suits.

• fter accelerating the debt" Hortgagee 1 will file a lawsuit against mortgagor" and join mortgagee

2 as a party.

• 8ach month that the judicial process continues" the mortgagor will be in possession without

needing to ma,e a payment – mortgagee will be losing money.

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Keemin Ngiam

• &he process ta,es between ! to I months.

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Keemin Ngiam

/on4Eudicial Foreclosure

• Hajority of states today (including *) now allow either judicial or non7judicial foreclosure.

• 4nder non7judicial foreclosure" the mortgage will grant the #power of sale$ to a trustee" usually

the lawyer for the lender.

• &he trustee publishes notice in the newspaper and sends notice to the parties" that the foreclosure

sale will ta,e place on a certain date.• nd that foreclosure wipes out the equity of redemption.

• 5ut even in states that have non7judicial foreclosure" lenders will still use judicial foreclosure.

• 6n *" there is a statute prohibiting deficiency judgments unless there is a judicial foreclosure.

• 5ecause there are a substantial number of mortgages in * that are not purchase money

mortgages" or are not on 1 to family dwellings.

Po"er of Sale Foreclosure

• ll p/s states require an e(plicit p;s clause in the mortgage. 6f no clause" no p;s.

• %/s states allow both ,inds of foreclosure.

• 6n *" not possible to get deficiency judgment ecept through judicial foreclosure. nd even

then" there are limitations.

• -hen there is uncertainty about mortgage priority" judicial foreclosures are more li,ely. 5ecause

a p/s foreclosure would suppress the bidding< people don’t ,now what they are bidding on" whatthe priority of their deed will be.

a. %ower of 9ale in 8%ower of sale is in lender" mortgagee. &his of course has the potential for abuse. Hortgagees areheld to a high standard.

b. %ower of 9ale in sheriff %/s is in sheriff or some other public official" a neutral third party.

c. :eed of trust (%/s in trustee)&he overwhelming majority of states" including almost the entire west" use a deed of trust" with p/s in trustee.

o :ebtor conveys via a deed to trustee" who holds it in trust for lender.

o 6n case of default" trustee will sell the deed via public sale.

o 5ut it still ta,es at least !7I months" more typically J7K" to get to sale.

o 5ut the trustee is not really a trustee" and it’s not really a trust. &he trustee’s main

function is to conduct a sale and get as high a price as possible.

acts bout oreclosure 9aleso ;are that a foreclosure sale will yield the same price as a regular sale on the open mar,et"

HV.o 5ecause you cannot inspect the property – it’s still occupied.

o ( rational homeowner would try and sell the property on their own before the

foreclosure sale. nd would allow inspections – whatever would increase the price of the

house at the sale.)o :rop7dead date problem< the sale must be sold by a day certain< a definite date.

o %urchaser must also eject the old debtor" via a court action. 9elf7help impermissible. &his

also reduces the price at foreclosure.o 9tatutory redemption also can reduce the price.

o @overnment does not warranty the title" nor does any title insurance company.

o 9peculators have to pay up7front cost to do title research. Host insurance companies

would allow the cost to be put towards an insurance policy if speculator bought the property.

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Keemin Ngiam

Statutory Rede#ption

• nother form of defaulting debtor protection.

• :efault on mortgage M acceleration of mortgage (mortgagor must come up with full mortgage

amount to avoid foreclosure) M followed by foreclosure sale.

• 4p till the foreclosure sale" the mortgagor still has an equity of redemption" the right to pay late.

•

6n about IB> of the states" a valid foreclosure sale spells the end for the debtor.• 5ut in B> of the states" there is a period after foreclosure sale" about 3 months to a year" during

which debtor has a right to pay the purchaser the foreclosure sale price" and get the property bac,.

• 5ut this discourages buying at a foreclosure sale< you are only buying a defeasible title.

• ny purchases will probably be for a much reduced price.

• &he original theory behind statutory redemption was that purchasers would drive the price up" to

ma,e it harder for the debtor to regain the property.

• 9tatutory redemption is being cut bac, in the states that have it< reducing the period of statutory

redemption.

• &he debtor will still usually be in possession of the land.

6logging the Euity of Rede#ption

• Hortgagees may attempt to clog the equity of redemption.

• ffer a lower i/r in echange for a waiver of the foreclosure sale" or to ma,e foreclosure sale

earlier.

• %ll such atte#pts to clog the euity of rede#ption are unenforceale$

• greements waiving or limiting the right to have a foreclosure sale are judicially unenforceable.

• Foreclosure is a right in the detor$ 6t is for their protection.

Foreclosure and 9ortgage Priorities

• &he purpose of foreclosure" is to put % into the shoes of H; at the moment before the mortgage

was created.

• oreclosure gives % the title that H; had at the moment before H; signed the mortgage being

foreclosed.

• Valid foreclosure of a senior mortgage wipes out all junior interests.

• ny government lien (ta lien) will be senior to all mortgages.

• mortgagee goes to the sale with money in her poc,et< the mortgagee does not need to pay

actual cash up to the value of the mortgage.

+ypo<H; mortgages to 81 for 1BB,.H; later mortgages to 82 for IB,.

6f H; defaults and 81 forecloses" what is the maimum should % pay

•

% should only pay a maimum of HV.• 5ecause 81 is the senior mortgage" and foreclosure on the senior mortgage ,ills the junior

mortgage.#hat if +lackacre sells for :AkG&rustee or public official or 81 will be in charge of distributing money.81’s mortgage will be paid off.82’s mortgage will also be paid off.nd balance will go to H;.#hat if +lackacre sells for :3kG81 will be fully paid off.

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Keemin Ngiam

82 will be repaid B," leaving a debt of 2B,.82 will then be able to pursue a deficiency judgment against H;.#hat if +lackacre sells for AkG81 will get the full J!,.82 will only be able to get a deficiency judgment on the note" i.e. it will be an unsecured debt.6n *" 81 will be unable to get a deficiency judgment" if it were a purchase money mortgage.

#hen property drops in value it hurts 7 ; before 7 :. +ecause 7 :’s senior mortgage protects it.

#hat if 7 ; forecloses before 7 :G

• The #ost P should pay at ?unior foreclosure sale is F9< less senior det$

@oes bac, to principle of foreclosure< foreclosure puts % in H;’s shoes the moment before theforeclosed mortgage was created.% will ta,e title with 81 mortgage on it.

#hat if FD is :Ak and 7 ; foreclosesG

• % should only pay J!, – HV less senior mortgage.

• %" after buying the property or even before buying the property" will go to 81 and as, to ta,e over

the mortgage.

• 81 will usually agree to allow them to do so. 5ecause an unpaid debt" a liability on their balance

sheet" will now be paid off.

#hat if pays more than FD at saleG82 will be paid off.

• 5ut senior liens have no right to junior surplus.

• Gunior liens do have right to senior #surplus$" to recover the lien amount. 5ecause H; has

assigned the surplus to 82 by ta,ing out the junior mortgage.

• H; has not assigned surplus to 81" because that mortgage was given prior to the junior mortgage.

9o the surplus will go to H;.

#hat if FD is @k less than the 7 : mortgageG-ould it be rational to foreclose ?o rational purchaser would buy.8cept perhaps 82. 5ecause it can bid up to IB," hold the property" ma,e payments to 8 1" andwait for property prices to rise.

=nifor# 1on)?udicial Foreclosure %ct ,=1F%0$

• n option of the lender< instead of public auction" to try and sell property in ordinary course of

business – going out into the mar,et to get the best offer" hire a bro,er" etc.

• &heory is that once mortgagee receives an acceptable offer (best one on the mar,et)" mortgagee will

accept it" and notify every interested party (mortgagor and all mortgagees). nd all interests will besatisfied via the proceeds.

• 6f any interested party refuses consent" then property will be sold at auction.

• %roblem with residential real estate< Hortgagor often will not cooperate – hostility to foreclosure. 5ut

it is in mortgagor’s best interest to cooperate and ct itself has provisions compelling mortgagor tocooperate.

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Keemin Ngiam

T2T'ES %1& &EE&S :eeds8ample on p. =3K.

Reuire#ents

• :eed does not have to be a formal document. lthough it usually is.

• :eed must be in writing" unless it is a lease for less than a year.

• %arties must be identified

• 'and must be described (even #my home$ or #my farm$ sufficient).

• 8vidence of intent to convey.

• @rantor’s signature.

• :eed must be delivered to grantee.

8hat+s 9issing

• ?o price mentioned.

• ?o notaries required.

• lthough ==> of the time deeds are notari0ed.

•

&hey usually are notari0ed in order to be recorded< signature must be recogni0ed by a notary. &oma,e it effective against third parties" under recording acts.

• 5ut as between the parties" the deed is effective without notari0ation.

6onsideration

• ;equired to enforce L against either party.

• Ls to give gifts are unenforceable" save for promissory estoppel.

*onsideration for the :eed

• #in consideration of A1B and other valuable consideration$ is usually in the deed.

• ?eed they say this at all

• ?o. *onsideration is given for the L.

•

5ut what if the deed is a gift• lmost all courts today say no. ne can convey land for nothing" as a gift to a charity" family

member" etc.

• 5ut it is a historical relic. nd we ,eep it around.

$hase %ederal v. 5chreiber (conman conveyance for love and affection)

• ?oss conveys to Cournoyer a 9uitclaim deed for “M: and other valuable consideration” and“love and affection.”

• Cournoyer conveys to the ereK’s.• The ereK’s in turn mortgage property to Chase Federal.• $fter ?oss’ death chreiber ?oss’ successor in interest sues to set aside the conveyance and

regain o!nership of the land.

•

chreiber argues that under F% la! a conveyance for “love and affection” can only be grantedto family members but not non4family members.

• $ conveyance to non4family members previously did re9uire valid consideration.• chreiber argues that the ereK’s had constructive notice of the invalid consideration.

• The F% upreme Court changes the rule and holds that “love and consideration” is sufficientconsideration for a conveyance to non4family members.

• “%ove and consideration” or even no consideration at all is re9uired for a conveyance to a non4 family member.

• The ereK’s are protected from "udgment if they !ere +Fs 2 bona fide purchasers.

• +ut if they kne! or should have kno!n that the original conveyance !as fraudulent or someho!

invalid then they are not protected.

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Keemin Ngiam

Dinds of &eeds

1. -arrantya. usually have ! or I covenants that protect buyers

2. 'imited -arrantya. only protect buyers w.r.t. things that grantor did – do not warrant mista,es made by

previous owners other than grantor. b. 6n *" ,nown as a grant deed.c. buyer with clout might demand a full warranty deed. 5ut they are seldom used.

3. Wuitclaima. *onveys all interest that grantor has in 5lac,acre to grantee. b. 5ut ma,es no warranties whatsoever.

9ar!etaility

• Hust be raised before closing.• nce closing has occurred" mar,etability has merged into the deed< it cannot be raised.• ne could bring malpractice suit against the lawyer who represented the buyer.

• r sue grantor for breaching one of the warranties of deeds.

#arranty 5eeds9ome states have passed statutes allowing the granting of warranty deeds by simply using several words.:oes not need to epressly mention each covenant. %imited #arranty 5eed &he deed language changes. 5ut it still is effected by a few words – #bargains" sells and conveys.$ 6t doesnot render grantor liable for defects not incurred by grantor.Suitclaim 5eed &he #magic language$ is #release" remise and quitclaim.$

6ovenants

8ither present or future.

Present<1. 9eisin. @rantor is affirming ownership of the land. 6n minority jurisdictions" grantor affirms

possession of land (only important if there is a.p.).2. ;ight to convey (almost irrelevantC just means that if grantor has appointed an agent to handle the

conveyance" that the agent does indeed have the power to convey).3. against encumbrances< third party interests in the land" e.g. mortgages" liens" leases" etc. &rac,s

mar,etability (but is not the same thing. Gust eamines if title is bad or good" not if it’smar,etable).

a. ;estrictive covenants" 0oning laws are encumbrances (only if there is a present violation).Clarify !ith him

i. 5ut not violations of codes that are irrelevant to title" e.g. building code" 0oning"etc. 8isting conditions which breach local 0oning or other ordinances are not

usually considered to violate deed covenants of title.b. *lause will often say #of record"$ to hold grantor not liable for un,nown encumbrances.c. #;eservation$ – to find implied reservation for an easement" is literally to attac, one’s

warranty deed. &he grantor is trying to reclaim an interest that he conveyed" or trying to brea, his own warranty.

cause of action is triggered on day the deed is delivered. The state of li#itations egins to run fro#

date of delivery of deed$

%resent covenants do not run with the land< only good against the grantor.

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Keemin Ngiam

Future<1. -arranty and quiet enjoyment. &hey are substantively the same. &hey essentially cover seisin"

right to convey" and encumbrances< trac,ing the present warranties.• -hat ma,es future covenants important is that they are triggered only where there is an eviction

or constructive eviction.o 6n the case of a mortgage foreclosure several years after sale" it is an eviction.o Statute of li#itations starts to run fro# the date of eviction.

o nd a cause of action is triggered by the eviction.

o &he grantee could always settle with the mortgagee< pay it off" or settle with the

mortgagee. &his would be constructive eviction" even if not actual eviction.

5ut grantee must ensure that the mortgage is validE

6f it’s not valid" there is no cause of action against grantor.

2. urther assurances.• &he only warranty that can be satisfied by anything other than money.• 6f there is a problem with title" and grantor can cure it by eecuting and delivering a document"

court will compel grantor to eecute and deliver document to cure title< specific performance for

further assurances.• uture covenants run with the land.

Re#edy %vailale

4sually just money damages. 9pecific performance only for breach of future assurances warranty.

Guality of Title

Har,etability – title must not only be good" but mar,etable< not subject to an unreasonable ris, oflitigation.:eed covenants – title only needs to be goodC unmar,etability does not violate covenant< it can besubject to unreasonable litigation.

3ober v. #rown (buyer thought he had all the coal but only had a third)• %ober conveys property to +ro!n.

• +ro!n in turn sells coal on property to Coal Co.• Coal Co. discovers that +ro!n only o!ns a third of the coal.

• +ro!n then sues %ober for a violation of seisin.• +ut suit is unsuccessful because +ro!n brings suit after statute of limitations ran out (against

present covenants).• +ro!n cannot plead a violation of !arranty of 9uiet en"oyment either& no actual or constructive

eviction. “Dere e-istence of paramount title in one other than the covenantee is not sufficient toconstitute a breach of the covenant of !arranty or 9uiet en"oyment.”

• +ro!n could have gotten the prior o!ner !ho reserved right to t!o4thirds of coal to someho!actually or constructively evict +ro!n& to mine the coal or sue +ro!n etc.

• This !ould have given +ro!n a cause of action against %ober 2 violation of 9uiet en"oyment.

$lternative Hypo• +ro!n conveys land to Coal Co.

• $nd assume +ro!n is "udgment4proof.• Could Coal Co. sue %ober on future covenant if there is an actual or constructive evictionG

• 0es& future covenants do run with the land, beyond the initial grantee.

• Present covenants are only valid w.r.t. initial grantee.

• ,n practice a court !ould probably limit ho! far back the future covenant could run.• +ut in theory it goes on forever.

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Keemin Ngiam

%resent *ovenants uture *ovenants

-hen does 9o' begin to run

-hen deed is delivered -hen eviction occurs

-hat constitutes a breach

ailure of title/ eistence of anencumbrance at time of delivery

8viction (actual or constructive) byholder of paramount title

-ho may be sued nly plaintiff’s immediate grantor(present covenants do not run with theland)

ny predecessor in title who gave afuture covenant.

Guitclai# &eeds and 6ovenants

M 5 M *• * cannot sue 5 when property is conveyed via a quitclaim deed.• 9ome states do allow plaintiff * to sue when 5 conveys via quitclaim.

o rgument is that 5 conveyed all interest in land" including present covenants received

from " to *.o &his is the minority position.

• Wuitclaim deeds carry no covenants at all< grantee cannot sue for either breach of present orfuture covenants.

%$P$ and 6ovenants

M 5 (quitclaim) M * M :8 claims .%. of portion of the land.-ho can : sue for breach of quiet enjoyment and warranty

• *annot sue 5< 5 granted quitclaim deed.• : can only sue owners of 5lac,acre who owned during duration of .%.

%cts 6onstituting %ctual or 6onstructive Eviction

1. paramount title holder obtains order giving hi# possession or confir#ing his title to the land (decree of specific performance" ejectment).

2. paramount title holder orders grantee off the land and threatens litigation against her.3. grantee uys the para#ount title in order to avoid being evicted by its holder (provided title is

good).. grantee surrenders clai# to para#ount title holder and moves off the land (assuming the

grantee has no interest in the land in fact).!. grantee is sued by the person with paramount title" and enters into a reasonable settlement of the

suit in which the grantee is left with only a part of the land originally granted by the deed inquestion.

I. %hysical interference by paramount title holder with grantee’s possession – actual eviction.a. -hen paramount holder is already in possession. b. +older of paramount title comes onto land and attempts to ta,e possession" use easement"

etc.c. 6f government is holder of paramount title" government entry onto land to ta,e possession

comprises eviction.

'i#its on Recovery

• ;ecovery limited to consideration paid by grantee (plus interest).• -hen grantee loses title" cannot recover for increase in land value or

improvements made on land.• 9ome courts and some statutes allow for greater measure of recovery – remove

limitation and permit recovery based on current land value.

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Keemin Ngiam

• 'imitation applies even if a prior encumbrance is for value greater thanconsideration.

• 5ut of course" plaintiff can sue multiple prior title holders to cover cost (goingafter more than one deep poc,et).

• 5ut this limitation hard to apply when consideration is not monetary" but in,ind (land for land).

• lso hard to calculate when it is a future covenant that is breached andrecovery sought against a remote grantor< what is value of recovery for the grantee Value forwhich remote grantor conveyed to immediate grantor r value for which immediate grantorconveyed to grantee

• :amages for an encumbrance measured by<• amount required to remove encumbrance.• mount by which value of land is diminished by the encumbrance.

• ;ecovery limited to actual loss – if grantee does not suffer inconvenience orremove encumbrance" nominal recovery only.

• *ovenantee can usually recover court costs" attorney’s fees" interest onconsideration. Hore liberal than other causes of actions. %rovided that negotiation or litigation isdone in good faith against holder of paramount title. 9ome courts require grantee to first demand

grantor to provide representation in order for grantee to receive recovery for litigation costs.• 6f grantee litigates against paramount title holder and wins" the grantee is

usually held to have established the lac, of a title defect" and that the grantor is not liable tograntee for any costs or damages.

3ober v. #rown ?changed hypo@

% ' +.

$fter %’s uncle dies % gets the t!o4thirds interest in coal. 7stoppel by deed ' since % has already conveyed the t!o4third interest to + % is estopped to claim

that interest.

Estoppel y &eed

• -hen grantor gains interest in land after having conveyed it to grantee" grantor is estoppedfrom claiming any interest in the land.

• 5ut this does not apply to quitclaim deeds< uitclai# deeds only pass interests possessed at

ti#e of conveyance$

6alifornia

• * uses grant deeds" not warranty deeds.• 4se of grant deeds are not required by law.• (5ut as,ing for a warranty deed ma,es people suspect you’re up to no good).

8lements of @rant :eeds1. nly allows suit against grantor for defects caused by grantor< immediately prior title holder.2. nly incorporates present covenants" not future covenants.

R E6OR&21* %6TS 6o##on 'a" Rules Prior to Recording %cts

• 4nder common law" the 1st ta,er has title" because the 2nd conveyance is void< had nothing toconvey.

• &his is true even if gave no consideration for the land ( was a donee) and 5 did.

Policy Behind Recording %cts

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Keemin Ngiam

• cts ma,e it easier to chec, title< one central location where almost all documents concerning theland are ,ept.

• &his facilitates the transferability and alienation of land.• &his also enables third parties to ,now the status of the land.

o 5etween two parties" recording is not necessary< it is effective between the parties even

before it is recorded.o 6nsurance against other claimants to the land< ;ecording protects against subsequent

5%s< recording voids third party 5% claims to the land.

*eneral Operation of Recording %cts

• ;ecording cts answer the question< #-hen does a subsequent ta,er of aconveyance prevail as against a prior unrecorded conveyance (1st ta,er)

• =nder every Recording %ct the prior ta!er al"ays "ins if he;she records

efore second ta!er ta!es$

• 6f ta,es but does not record before 5 ta,es<o -e could impose a penalty on by giving 5 title regardless of who records first. 5ut 5

does not automatically trump in any state.

o &he actual approach depends on the system.

“Race” States

• ' is the only state that has a pure race system.o 6t disregards subjective intents of parties

o :isregards whether consideration was given

o irst one to record gets legal title.

o &his is the 4** approach nationwide for chattel.

o %erhaps eceptions when the race is unfair< one party murders or detains the other.

o &he system is clean" but considerations of justice and fairness result in ' being the only

state that uses it.• ?* and :8 are modified race states.

o 9ubsequent ta,er prevails against prior conveyances if subsequent ta,er<1. records first

2. pays value (does not need to be HV)• 9ubjective state of mind of subsequent ta,er does not matter.• 5ut donees are not protected because they do not pay value (will not prevail against

prior ta,ers" even if they record first).• &he other J states are either %ure ?otice or ?otice7;ace states.

o 9ubsequent ta,er H49& be a 5%.

Ele#ents of BFP3

1. 5% must be purchaser for value :onees not protected – they are only protected against subsequent

recordings" but not prior ones.

2. 5% must ta,e without notice" either actual or constructive< ?o awareness of prior instrument. 9ubsequent ta,er is always on

constructive notice of a prior ta,er who recorded conveyance.

6n %ure ?otice states" subsequent ta,er does not need to record in order to be perpetually superior to prior ta,er. Suseuent ta!er displaces prior ta!er.

o 9ubsequent ta,er need only be a 5%.

o 8ven if prior ta,er records before subsequent ta,er.

o 9ubsequent ta,er will still want to record" to protect against other subsequent

5%s.

6n ?otice7;ace states" a 5% must meet an additional requirement<

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Keemin Ngiam

o 5% must record first.

%rior ta,er will beat subsequent ta,er if prior ta,er records first.

5ut if subsequent ta,er records first" prior ta,er loses.

1otice

1. ctual notice.a. ?ot just rumor. b. 5ut a court will imply actual notice from circumstantial evidence.

2. %rior ta,er records first – automatic constructive notice.3. *onstructive notice of rights of parties in possession.

a. 6n almost all states" possession is the equivalent of recording. b. 'eases are thus constructively recorded.c. %urchasers of properties with leases are thus deemed to ,now of the lease" and thus of

rights of lessees.d. ?ot all states (H9" possibly H) follow this rule. 6n some states" possession is only

actual notice" not constructive notice. (this rule encourages negligence)

6n all but 3 ;ecording cts" subsequent party can only trump prior ta,er if subsequent party ta,es

w/o noticeo ?otice may be actual or constructive

o ;ecording by prior ta,er is automatic constructive notice

o %arties in possession< even if there is a written document and it can be recorded" actual

possession creates constructive notice to subsequent parties 6n commercial leases" not all lessees record all of their lease< they usually record

just the #memorandum of lease.$ one7page notari0ed document that allowslease to be recorded.

&enants< their possession is a substitute for recording.

9easonal lessees or tenants< if this is the reasonable use of land" notice is created.

o 5ut some prior interests in land cannot be recorded. Det they are so important that

subsequent ta,ers are deemed to be on notice of them. dverse possession

• .%. don’t need to record their interest in the land.

• 6f we required them to record" it would mean they had a clear intent to

#steal$ the land.

• &his would run afoul of the trend in the law to reward innocent .%." by

meaning only ,nowing .%." ,nowing thieves" would get .%.

• .%. must be open P notorious to put actual owner on notice

• 5ut open P notorious also puts third parties" subsequent ta,ers" on

notice.o 9ubsequent ta,ers fall under inverse tac,ing< the cloc, ,eeps

tic,ing even when legal title is transferredo ;ationale is because subsequent ta,ers are also under notice"

through open P notorious element of .%.

• 9easonable .%.< putting third parties on constructive notice may be a

stretch. 5ut the rule still holds" even if it doesn’t reflect reality.

• 9ometimes even if .%. is not in possession at all" .%. can be found< if

.%. establishes .%. prior" then leaves M subsequent ta,er still held to beon notice of .%.

• &itle is clear #subject to rights of parties in possession.$

8asements by prescription

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Keemin Ngiam

• 9ubsequent ta,ers are deemed to have constructive notice of easements

by prescription.

• Ha,es sense to chec, the land before closing" to ensure there are no

easements.

• &itle is clear #subject to rights of parties using the land.$

8asements by implication• #pparency.$ &here must be physical apparency of the need for the

easement" at the time of the split.

• &here must also be apparency w.r.t. later third parties. %. 1BB= fn. 1.

Hechanics liens.

• -hen labor or materials are invested in real estate (supplier" contractor"

architect" plumber" etc. 5ut it must be part of the real estate" not personal property)" such #investors$ are termed #mechanics.$

• Hechanics are deemed to be secured creditors< they get security" a lien" at

an early stage – when they put the investment in.

• lthough not recorded" 5%s are on constructive notice of mechanic’s

liens.

• &here is no foolproof protection against mechanic’s liens" ecept title

insurance by a reputable company against them" without any eception tothem.

9echanics 'ien

5irth< date of first visible improvement.

:ate last wor,/supply is done.

:ate lien claim must be filed (usually 37I months after last wor, is done). &his is the period of

ris, to 5%s. fter lien is filed" the lien is of record.

&here is usually one year from filing of lien until action to foreclose lien may be filed.

6f action is not instituted to foreclose the lien" the lien is lost.

&he claim of action remains" but the lien is lost.

&he lien holder has to put up or shut up.

6n about half the states" home owner need only pay general contractor.

&his is deemed to be payment to subcontractors< they cannot file a lien against homeowner. *an

only see, action against general contractor. 5ut in other half of the states" including *" payment to general contractor is not payment to

subcontractor.

compromise in H9<

or single7family dwellings" payment to general contractor is payment to subcontractors.

5ut for all other property" subcontractor can still file a lien against property.

2n 6%

s, for list of subcontractors and lien waivers when having wor, done – general contractor

to show that all subcontractors have waived the right to institute a lien against property.

ier74ppers and mechanics liens+ome sellers often remodel their home before selling it.&he remodel is a tic,ing mechanic’s lien – if contractor not paid" they could file a lien claim againstthe home purchaser (who did not pay for the remodel but bought house after it).

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Keemin Ngiam

+ome purchaser can require that title insurance company insure against #liens that do not appear

of record.$ &itle insurance companies these days will provide such coverage w/o charging more.

6f they do" seller might pay. 6f seller doesn’t" li,ely that real estate bro,er would" to close the deal

and earn the commission. -arranty deeds would cover such liens" but it requires suing the owner.

5uying a ?ew +ouse 6mportant to get lien coverage from title insurance – because the whole house could be a

mechanic’s lienE

:etermining %riority of Hechanics 'iens

*ould be done in terms of time< but it would be unfair. ll parties add value to the real estate.

Host states treat all lien holders ali,e – relate all liens to date of first visible improvement.

Paying <alue M (1st ta,er" unrecorded) M 5-hen can 5 use ;ecording ct to defeat

2n every state ut '% B #ust pay value$

6f 5 is a donee" will win even if 5 records first and even if was a donee.

;ecording cts still have presumption built into them that favor the first ta,er.

Paying value is a fle(ile standard3 it is not F9<$

nly requires paying some significant amount for the transaction.

6f any money is given" with a promissory note for the rest" buyer is deemed to have paid value.

2f only pro#issory note given3 it is only value if it is negotiale 7 #eets all the =66

reuire#ents of negotiaility$

?elson’s position< when an enforceable promissory note is given" it is value< it is liability to theissuer and should constitute paying value.

H; M 81 (unrecorded)H; M 82

-hen ;ecording ct applied to mortgages" 81’s interest is not lost. &he penalty for not recording

is just a loss of priority. 82 will defeat 81 if 82 pays value for the mortgage.

o +alf of states (notice states) also require 82 to ta,e without notice.

o &he other half (notice7race states) require 82 to ta,e without notice and record.

-hat if purchaser at 82’s foreclosure sale ,nows about 81

o

:oesn’t matter. nce 82 ta,es over 81’s priority" 82’s new priority is fied and cannot betrumped.

Beneficiaries of Recording %cts

1. %urchasers (grantees) who pay value2. 'essees (for value)3. 8asement holders (for value). Hortgagees (who by definition pay value)!. ption holdersI. Gudgment lien holders

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Keemin Ngiam

H; M 81 (unrecorded)H; M 82

6n *" notice7race state" 82 must<

1) pay value (loan H; money)

2) have no notice of 81’s mortgage (either actual or constructive)

3) record before 81

in order to ta,e priority over 81.

%ntecedent det

previously unsecured creditor who see,s security via a lien on the property.8.g. 82 lent H; money that is on an unsecured note" but now see,s security via a mortgage.

4nless 82 gives present value for the mortgage" 82 is said to have not paid value under the ;ecording ct.82 can give present value by<

1. loaning more money2. granting an etension on the antecedent debt (this is also giving value" valuable consideration)

-ithout giving present value" holder of an antecedent debt who obtains a mortgage cannot ta,e priorityover a prior unrecorded mortgagee.

Policy3 ecause "e place value on giving value$

Judg#ent 'ien 5olders

H; M 81 (unrecorded)H; M G' (Visa)

G' +olders as 8qual *reditors G' may not get the benefit of being able to assert the ;ecording ct against prior recorded

interest – no payment of present value. 5ut G' holders will go to trial and sue to get judgment on the debt.

&he time and money epended might be considered present value for the G'. &his is the rule in *. G' holders are deemed to pay present value for the lien on the land.

G' +olders as 9econd *lass *reditors 5ut in other states" courts will #pity the plight of the judgment creditor$ (Visa) (but not really –

it’s a term of sarcasm). &hey consider the judgment debt to be antecedent debt" and that no present value was given.

6n these jurisidictions" 81 is only wiped out if G' gets to a foreclosure sale" and purchaser at sale"

at moment of purchasing" is a 5% (w/o ,nowledge of 81).

5ut if 81 records at any time prior to the sale" purchaser at the sale buys subject to 81’s mortgage.

-hat if H; ta,es out third mortgage from 83

o *ircularity of liens problem.

o G' records judgment lien and has perfected and recorded lien" protecting itself fromsubsequent ta,ers (83).

o 5ut once 83 records" it will trump 81. 5ecause it’s not a G' holder< under either race or

race7notice systems" it just needs to give present value and record.o 9o G' will be senior to 83" but 83 in turn will be senior to 81" while 81 will be senior to G'.

Torrens Syste#

in most states" state’s role in title is threefold<

o setting up offices for recording of title

o paying judges to adjudicate title disputes

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Keemin Ngiam

o passing substantive rules regarding title disputes

6n &orrens states" state ta,es on an additional duty<

o &he &orrens system (in H?" &orrens is largely limited to the largest cities" twin cities and

;ochester" :uluth).

&orrens system began in 8ngland" and is largely prevalent in former 5ritish colonies

(*ommonwealth). 9tate’s role w.r.t. title is similar to its role w.r.t. automobiles.

'and enters the &orrens system through landowners voluntarily bringing their land into the

&orrens system.o %revalent in urban and suburban areas" because post7war" developers found that it cost

less to bring their numerous suburban divisions under the &orrens system" rather thanmaintain separate abstracts for each one.

&orrens ;egistration< 6nstead of bringing quiet title action to determine bounds and limits of

prescriptive easement" landowners can register land in 'and *ourts. unctionally equivalent toquiet title.

nce the land is registered" state issues a *ertificate of &itle. wner gets a copy" but the master

*ertificate is ,ept in the &orrens ffice.

5enefit of &orrens is that it ma,es title eamination much easier< almost all relevant interests inthe land are recorded on one certificate" in one place.

5uying land in a &orrens system requires a deed from the owner" plus the owner’s *ertificate of

&itle (just li,e selling or buying a car).

&here is no .%. in &orrens system – barred by statute.

5ut &orrens eaminers ma,e mista,es. 8.g. forgeries and stolen certificates. &hat is still bad title.

6n the case of mista,es" there is a fund that will compensate the person who bought the fa,e title.

&orrens still wor,s well in H? and small parts of H.

5ut it’s dying out because of<

o &itle insurance companies.

o 6' has stopped new properties from being brought under &orrens system.

o &itle insurance companies brought political pressure.

o 5ut the &orrens office was also very slow – issuing certificate too, = to 12 months.

o 6n the secondary mortgage mar,et" buyers demand insurance on those mortgages" even if

it’s &orrens real estate.o 8ven though the &orrens system is insurance on the mortgage" secondary buyers still

demand commercial title insurance for the mortgage< duplicative insurance.o it requires epertise in the &orrens office. ;eal estate lawyers willing to do it.

Title 2nsurance

6n *anada (a detour)

&itle insurance is gaining a foothold in *anada. &orrens offices in *anada were not able to ,eep up with the speed of real estate transactions.

&itle insurance companies promised that title insurance would speed up real estate deals< they

would insure the land and issue title policies even before &orrens office issued certificates. &he policies are not stop7gap< they are for the life of the land. 5ut they are issued with effective

date being the date of the deal" not date of the issue of certificate. %olicies are written without even chec,ing the record< title company ta,es the ris,.

6n the 4.9.

KB> of the country is under title insurance" including *.

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Keemin Ngiam

-hen an 8.H. L for land is entered" a preliminary title report will be issued by title insurance

company. 5uyer then has to chec, report and raise objections with seller.

wee, after closing" the actual policy will be sent to the escrow company" which will forward it

to the new owner.

&itle insurance companies today" are willing to insure more – they pay just .!> of their gross

revenues for claims" and are willing to offer to insure more" to gain more business. &raditionally they were not willing to offer as much coverage – p. 1B2 9chedule 5. :id not

cover boundary disputes" implied or prescriptive easements" rights of parties in possession"whether or not disclosed by public record" mechanic’s liens" whether or not disclosed by publicrecord.

Buyer+s 2nsurance

&itle insurance protects homeowner mostly only during time of ownership.

5ut there is some post7sale insurance.

o +omeowner grants a warranty deed.

o 6f problems crop up later" homeowner can loo, to title insurance company for protection.

o &he insurance policy doesn’t just cover that title is good during ownership" but it alsocovers that title will be mar,etable.

5ut no title insurance company insures against defects in title that the homeowner creates after

getting title.

9eller customarily pays for buyer’s policy (in some 8ast *oast states" buyer pays).

9ample &itle 6nsurance

'& policy is pro7consumer.

'& 9chedule 5 is list of actual encumbrances on land disclosed by due diligence.

-ea,er policy found on p. 1B2< -'& standard owner’s policy’s 9chedule 5.

o :oes not cover<

8ncroachments or questions of location" boundary" area" disclosable by accurate

survey

%ublic or private easements unless disclosed of record (ecludes all implied or

prescriptive easements) ;ights or claims of persons in possession

Hechanics’ liens

'& %olicy *overed ;is,s<

o 9omeone else owns an interest in policy holder’s title

o 'eases" contracts" or options (recorded leases would be in 9chedule 5)

o orgeries or impersonations (most common are forged mortgage releases)

o 8asements (ecept those in preliminary title report and therefore in 9chedule 5)

o ;ight to limit use of land

o :efective titleo 'ien on title

o ny lien occurring before or after policy date" for labor and material furnished before the

policy date

o 12. %olicy holder forced to correct or remove an eisting violation of any covenant"

condition or restriction affecting the land" even if such covenant is ecepted in 9chedule5.

o 1K. %olicy holder forced to remove eisting structures because they encroach on

neighbor’s land. 6f encroachment is a boundary wall or fence" coverage is limited.

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o 2B. policy holder forced to remove eisting structures which encroach onto an easement"

or over a building set7bac, line" even if easement or set7bac, line is ecepted in 9chedule5.

o 22. eisting improvements are damaged because of future eercise of right to use surface

of land for etraction or development of minerals" water" or any other substance" even ifsuch rights are ecepted or reserved from description of land or ecepted in 9chedule 5.

6nsurance company will probably want to have a survey done before issuing such a policy 7 [12"

1K" 2B.

lternatively they might just require a #drive7by"$ a purely visual inspection.

&itle insurance companies only pay out .!> of their gross national income on claims.

6nsurance policies don’t usually have inflation riders – must be specifically as,ed for.

6nsurance policy will usually be for full purchase price.

9ame title insurance company will usually insure both lender and homeowner< more efficient –

only one title search is done.ction/:uty of 6nsurance company 6nsurance company will<

o %ay attorney’s fees.

o r cure the defect themselves (e.g. pay off an undiscovered mortgage" buy bac, aneasement). *uring it themselves is preferable to paying out money" unless encumbrancecosts more than the policy coverage.

9ome lenders are now only paying a flat insurance fee for their title insurance. A2J!. and

theoretically those savings are passed on to the borrower" who usually pays for the insurance onthe loan anyway.

'enders now are requiring escrow companies for refinancing loans. 5ecause they want title

insurance on the refinanced mortgage.

'ender+s 2nsurance

5ecause secondary mar,et requires insurance on mortgages" lenders will ta,e out such insurance

on the mortgage policy. %olicy is assignable< policy travels with the mortgage.

Hortgagee’s policy typically paid for by borrower.

'ender’s policy has greater protection<

o 6t insures lender’s lien priority (usually 1st – because only senior mortgage lenders as, for

insurance. Gunior mortgage lenders usually don’t)o 6t also contains all the usual buyer’s coverage (lender wants to ma,e sure that buyer at

foreclosure sale will ta,e clean and clear f.s.a.) Gunior mortgage lenders usually rely on senior mortgage lender’s insurance" as an assurance of

good title.

6f they form a secondary mar,et mortgage pool" they might ta,e out insurance.

Gunior mortgage lenders might just as, for a preliminary title report from insurance company" justto ma,e sure that they are o,ay. 5ut won’t ta,e out the policy.

R ESTR26T2<E 6O<E1%1TS &hree ways of regulating land use in the 4.9.<

1. law of nuisance – landowner cannot use land in such a way as to unreasonably interfere with useof neighbor’s land

2. restrictive covenants – amalgamate law of L and law of real property3. 0oning laws

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8ffectively or functionally li,e negative easements.

lso ,nown as #servitudes.$

6n the ;estatement" servitudes cover both easements and restrictive covenants.

o ;ight to use someone’s land" or right to prohibit use of someone’s land.

&here is increasingly less litigation over whether covenants run with the land and burden

successors in interest.o 5ecause in the last !B years" we are increasingly just using formal **P;s.

o &hese are just created incident to the development of real estate< they benefit and burden

all members of the subdivision.

o *ourts have ta,en the position in equity" that the sole question is whether the defendant is

on notice.

o Wuestions of hori0ontal privity are largely fading. =!7==> of litigation dealing with

restrictive covenants deal with the question< #-hat do the words mean$

For#al %pproach

developer buys a plot of land and has local government approve and record a new plat that

subdivides the land.

:eveloper then records a set of restrictions< **P; – covenants" conditions" and restrictions" before any lot is conveyed out.

8very purchaser of a lot is thus under constructive notice of those **P;s" and is subjected to

their conditions. &ypical ;estrictions

o 9ingle7family dwelling

o nly for residential and not commercial purpose

o 9et7bac, lines – how close to the street or to the neighboring lot can the home can be

builto 9i0e of home

ll subsequent purchasers of the property are both bound and benefit from the **P;.

&he **P; are reciprocal< all owners in the subdivision can sue for their violation" and all benefit

from them. 9ome subdivisions have a *ontinuing wner’s ssociation<

o 'evy can be charged to finance the owner’s association.

o 4npaid levies become liens on individual lots.

o 'evies are sometimes assessed based on si0e of the house or lot.

o wner’s association benefit< a pot of money to pay a lawyer to ta,e legal action to

enforce **P;. 9ome subdivisions may also have a 5uilding or rchitectural *ommittee to approve of proposed

plans.o *ommittee usually controlled by developer until large amount of units are sold.

Vertical 9ubdivision 7 condominiums *ondos have a set of bylaws" created before sale of any units.

5ylaws give board of directors of owner’s association<

o the right to levy monthly assessment"

o sometimes right to levy assessment for capital improvements"

o sometimes right to amend the bylaws.

:eveloper typically controls owner’s association at the beginning of development< until sufficient

lots are sold to other owners.

9ometimes the bylaws reserve !1> control of owner’s association to developer until J!> of units

are sold< to help developer preserve control until it ,nows sufficient units have been sold.

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;emedies for Violation of **P; 4sually an injunction.

:amages are possible" but very speculative.

2nfor#al Restrictions

?elson’s half7assed restrictions.

Piece#eal sudivision of property – so unli,e creating a plat and all subdivisions at once"

developer partitions them and sells them one by one.

nd developer conveys each one with separate restrictions" separate **P;s.

o 9o each buyer has a separate **P;.

9ometimes" perhaps by mista,e" a deed may be granted free of any **P;.

6n such a situation" court will have to address two issues<

o ?o covenant grants any of the owners right to enforce **P; against another owner –

they are not benefited by each other’s **P;.o *ourt has held that if subdivision loo, s li,e there’s a common plan (apparency test)"

even the landowner whose property is free from **P;" will be bound to the **P; of

the common plan.o *ommon plan analysis will also give the other homeowners standing.

5ut the requirements to find standing are much more stringent than the

requirements to bind someone to the litigation result.

T"o lando"ners$

-hen owns a plot of land" subdivides it" and sells half to 5" with some restrictions on the deed.

ll restrictions are now on 'ot 2" not 'ot 1.

*ourt will usually allow purchaser of 'ot 2 to maintain status quo< to build as 'ot 1 builds/built.

r and 5 own adjacent lots and agree to ma,e some **P; between them" eecute a bilateral

agreement – to only allow single7family use" building. &he agreement will bind both and 5" and their successors in interest.

'itigation arises over subsequent successors in interest< argument that they were not in privity.

;estrictions were not created incident to a possessory interest in real estate. ?o hori0ontal privity. &he law used to agree with such an interpretation" and some jurisdictions still do< that recovery

cannot etend to subsequent parties.

5ut injunctive relief available if owner is on notice" regardless of privity.

Restrictive 6ovenants and Koning

+ouston" &F" has no 0oning law" just restrictive covenants.

5asic ;ule< &he more restrictive of the two will govern.

5ut must comply with both restrictions.

2nterpretation and 9eaning of 8ords **P;s are often drafted by lawyers of the developer (in the typical subdivision).

'awyers have no great vested interest in the restrictions.

5uyers often don’t read the covenants anyway.

%#iguity< &wo opposing policy arguments.

o %ttac!ing restriction< 'aw favors free and unfettered use of land.

o &efending restriction< 'aw should favor planning through the use of **P;.

6ourt "ill al"ays loo! at #eaning of ter#s first$

1roninger v. (umiller (model home in a subdivision used to make deals building v. use)

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+uilding or use restrictionG $mbiguity in the language.

Court holds that it is a building and not a use restriction.

$lthough home is used for a business the building itself is a residential structure.

etner v. "o6dyla (daycare center in a home dispute) 6nly limitation is the “residential purposes” covenant.

+ut “residential” could cover a variety of arrangements !here property is rented or used for

commercial residential purposes.

“!ithout the consent of the grantor” 2 may invalidate covenant.

Court holds that “residential” is the opposite of “commercial.”

o (+ut it’s a false dichotomy)

o eems unlikely court !ould not permit grandparents to take care of grandchildren.

+etter provision !ould have been “no commercial purposes allo!ed.”

Home offices 2 both residential and commercial.

o %olicy< reduces pollution" traffic" encourages enterprise" lowers business costs" more

efficient.o eople often do !ork from home or take !ork home or telecommute or are consultants.

“$ll commercial use” might be unenforceable 2 too broad and covers too much.o Court may "ust distinguish b*! commercial uses !ith negative e-ternalities and those

that do not.

5rafter must therefore specify !hat sort of commercial activity is barred 2 !hat kind of

e-ternalities to prohibit.

9torey ;estrictions

#ne7storey only.$

o %revent intrusion on other people’s air rights" light" etc.

o ;estriction affected HV of land< land was not absolutely free.

o Void for ambiguity – could build !B’ tall one7storey home. #storey$ is too vague to

enforce.

*rystal *lear *ovenants

8.g. #9ingle amily – ;elated by 5lood or Harriage$

;estriction would bar same7se couples or unmarried partners" but not large immigrant families.

nce the restriction is clear" ambiguity cannot be used to attac, the covenant.

Other 8ays of %ttac!ing Restrictive 6ovenants

1. *onstitutional 'aw – 9helley v. Lramer.2. 9tate statutes.3. 'ocal ordinances.. ederal statutes.

o Host prominent< ederal +ousing ct (+ of 1=KK" dealt with disabilities)!. %ublic policy.

&he holding of 9helley stands" but it has been operationali0ed through legislation.

5ecause 9helley was decided on state action grounds – judicial enforcement of a restrictive

covenant.

Host cases therefore do not try to argue on the basis of 9helley" but on the basis of a violation of

an ordinance or statute. 9tate statutes often cover most suspect classes< race" national origin" ethnicity" disability" religion"

etc.

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#5lood or Harriage$ *ase in 'a:ue" H 5rady 5unch family.

*ity sought to enforce 0oning ordinance – #blood or marriage.$

'ower court held it violated privacy rights.

9upreme *ourt said it encouraged marriage – public policy.

&en days later" they got married.

9tate 9tatutes 7 @roup +omes 6f covenant is #residential use"$ they have a good argument.

6f covenant is #single family" blood or marriage"$ they can’t use ambiguity.

Hany states have passed statutes saying that such covenants are inapplicable to group homes for

the aged or mentally retarded.

9tatutes put limits on number of people in the home" to reduce negative eternalities.

ederal 9tatutes air +ousing ct – bans discrimination against the handicapped.

9tatute has often allowed for density restrictions. 9ome group homes are not covered<

o 9e offenders

9ome are not<

o lcoholics

o :rug addicts

&here is a cultural difference b/w homes for the physically handicapped" mentally challenged"

and group homes for released felons" drug addicts" se offenders.

;estrictions on families with children also illegal.

%rivate property prohibitions on epression have been upheld< not violations of irst

mendment.

8ho Bears the Burden:

&hose who don’t have as much money or power to protect their interest.

-here land is epensive" you don’t see group homes. &hey can’t afford the land.

6t’s all about who has the money.

?elson’s proposal< 9preading out low7income housing. ne lot in every neighborhood"

condemned by the government.

6ondo =nit O"ner vs$ O"ner+s %ssociation

*ondo bylaws and regulations often give tremendous power to owner’s association" which in turn

gives it to the board of directors. 6n part because people live in greater proimity – greater impact on each other’s lives.

&he owner’s association also has the power to ta" power to impose an ownership fee.o ;evenue to maintain common areas.

9cholars have made argument that board of directors should be treated as the government" and

subject to the 8%*. &he hot button issue today is the board of directors’ po"er to ta(.

o ssessments for maintenance are normally allowed for in the bylaws" and assessments

for capital investments usually require a special vote.o *ondo regulations often say that failure to pay fees becomes a lien on the unit.

o nd foreclosure on an assessment sale is often" by statute" deemed to be just li,e a

foreclosure on a mortgage" a deed of trust.

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o 5ut if the analogy is paying taes" the time needed to foreclose a ta lien is long" whereas

the time needed to foreclose an assessment lien is much shorter.o 'egislatures have been lengthening the time b/w foreclosure and sale.

o 6n a ta sale" the burden of unpaid taes is borne broadly by all tapayers.

o 5ut in a condo" the burden is heavier on the others in the smaller pool of condo owners.

o ailure to pay has a greater impact on the condominium as a whole.

o ssessment liens in condos are usually junior to mortgage liens. &heir priority varies

from state to state< some states they are senior to all but first mortgage" others they ta,e priority according to when they were recorded.

*ondominium 5ylaws &here is a declaration (*onstitution) and bylaws.

*ondo bylaws are more fluid than **P;s in a housing development.

&he board of directors functions li,e a city council.

&he standard test for condo bylaws and other **P;s is reasonaleness.

o 8ither the court’s view of reasonableness

o r if the regulation serves any rational purpose

o #5usiness judgment$ rule. @ranting deference to board or committee. 6nquiry is solelywhether they acted within scope of authority and action was in good faith pursuit oflegitimate interest.

:evelopment rchitectural *ommittees 4sually first staffed by the developer.

'ater will be filled by owners in the development.

ll subsequent developments on the land" changes to the structures" must be approved by the

architectural committee.

*ourts will uphold their decisions so long as they are rational and not prejudicial in nature.

&heir oversight tends to lapse as the subdivision or development gets older< people stop caring as

much" new owners move in" etc.

5o" Restrictive 6ovenants End

%redetermined end date – 2B" 2! years.

&he default rule for renewal is that everyone in the subdivision must agree to renew the covenant<

otherwise the covenant is not binding. 5ut many covenants have a supermajority provision for renewal< setting less than 1BB> approval

for renewal.

%#end#ents

**P;s usually also have separate provisions for amendments< requiring just a supermajority.

*ourts sometimes impose a unifor#ity reuire#ent for amendments.

o &o avoid benefiting some owners at the epense of others.o \oning law analogue is #spot 0oning.$ &he 0oning only provides a benefit for one piece

of property.

Pietrows)i v. 8ufrane (detached garage sheds restrictive covenant)

5amages are hard to grant for a violation of CCB?. 7very o!ner in the subdivision is in"ured by

the violation although not all to the same degree. The typical remedy is therefore an in"unction.

%aches and estoppel did not apply& plaintiff put defendant on notice from the start.

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=nclean hands (e9uitable defense). laintiff cannot claim relief if plaintiff has violated the same

or similar covenant.

o court rules that plaintiff’s violation !as too minor to be a !aiver of right to relief. $

storage shed is not the same as a freestanding garage. 5istinction b*! minor and serious

breaches of covenant. (c!uiescence. ,f plaintiff allo!s others to violate the same or similar covenant plaintiff has

!aived right to enforce or ac9uiesced in the other violations and has therefore !aived right tobring an action.

o imilar to 7C violation of selective enforcement.

“Changed circumstances” v. “abandonment.”

o 7ither !ould destroy the covenant.

o $hanged circumstances 2 ,f the changes in the residential character of the

neighborhood are substantial enough that they frustrate the purpose of the covenant.Changed circumstances only apply in residential settings.

Dinority rule& Changed circumstances of environment outside subdivision may

void covenant.o (bandonment 2 there is substantial violation of the covenant !hich does not change the

residential character of neighborhood. ,f it is e-tensive enough it !ill constituteabandonment.

Test& !hether average person !ould reasonably conclude that there !as

abandonment. $lternative test& !hether violations !idespread enough to frustrate goal of the

covenant such that enforcement !ould impair value of burdened lot !*obenefiting other lots.

o (c!uiescence is a personal defense – abandonment applies to the whole neighborhood.

&efenses for the Breacher

'aches n equitable defense – unreasonable delay. 6t bars injunctive relief (but not legal damages).

'aches can bar a plaintiff’s claim much earlier than a statute of limitations. 9ome argue laches should be prevented by bringing suit< but not good policy – encourages

lawsuits when a simple letter or personal notice will do.8stoppel

:efense against both law and equity.

-here the plaintiff affirmatively misleads the defendant.

:istinction b/w laches and estoppel is not a bright7line< sometimes estoppel can be laches" or vice

versa.

8ven if laches or estoppel bars the plaintiff" it does not bar other members of the subdivision.

Balancing %pproach

9imilar to Hanillo v. @ors,i.

*ourt eamines if defendant acted in good faith< did defendant ,nowingly (subjectively" not

constructively) violate the covenant" or do it innocently 6f in bad faith" injunction will be granted.

6f violation occurred in good faith" court may not grant injunction – depends on outcome of the

balancing test.

*an occur in sideyard or setbac, requirement violations.

o 5ut if injunction is granted" and defendant pays off plaintiff" defendant might also have to

pay off the rest of the subdivision.o Hight create incentive for others to demand a pay7off too.

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o &herefore it ma,es it hard to buy off the injunction.

o 6f court does not grant injunction but instead grants damages in lieu" defendant will

probably want to bind everyone to the action (class action).

9erger

-hen properties bound by a **P; are subsequently owned by the same owner at the same time"

the covenants are merged and wiped out of eistence" as with easements. 5ut unli,e easements" there are no quasi7covenants or implied covenants.

Herger in a large subdivision is virtually impossible.

E#inent &o#ain

*ondemnation by the government will wipe out any covenant on the condemned land.

Host courts have held that when the government condemns certain lots in a subdivision" the other

owners of the subdivision can claim damages for the reduction in value of their property" forviolation of **P;.

&hey are suing for a condemnation of their property right – the restrictive covenant – occasioned

by the condemnation and ta,ing of their fellow subdivision owner’s land.

5ut the other owners are still bound by the covenant.

Ta( Foreclosure

5uyer at a ta sale ta,es free and clear of all encumbrances on the land.

Hany states" however" require the buyer to still be bound by the covenant< **P;s are not

destroyed by the ta sale in these states.

&estroying 66IR y Prescription

nalogous to obtaining an easement by prescription.

Property Notes.doc

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Transcript of Property Notes.doc