Agenda for 18 th Class

1. Agenda for 18th Class • Admin stuff • Name plates • Handouts • Slides • Recording Problems • Review of last class • Land Transactions • Purchase Agreement • Executory Period • Closing • Title Warranties • Post-closing liabilities • Introduction to Recording

2. Assignment for Next Class • Review any questions we did not discuss in class today • Questions to think about / Writing Assignments • Recording Problems • Q1 (WG1&WG6), Q2 (WG2&WG7), Q3 (WG3), Q4 (WG4), Q5 (WG5) • Q6 (WG6), Q7 (WG7) • Q8 (WG1), Q9 (WG2), Q10 (WG3), Q11 (WG4), Q12 (WG5) • Optional: Examples & Explanations Ch. 25. • Optional: Altman video on webpage • Double points if writing assignment turned in by Sunday noon

3. Review of Last Class I • Implied warranty of habitability • Allows tenants to sue for lack of maintenance and problems that reasonably expected landlord would take care of • Remedy for landlord shirking • May not be necessary, as landlords have market/reputation incentives not to shirk • Bars rental of substandard housing • May price some people out of housing, aggravate homelessness • Not waivable • Applies even to problems known to lessee at time of lease • Fair Housing Act of 1968 • Bars discrimination based on race, national origin, religion, sex, “familial status,” disability • NOT. Age, sexual orientation, gender identity, marital status • Bars discriminatory advertises or advertising that might suggest illegal preferences • Does not apply to rooms within rental units (i.e. roommates)

4. Review of Last Class II – Proposition I0 • Costa-Hawkins bars cities from • Controlling rents on single-family homes and condos • Controlling initial rent to new tenant (vacancy control) • Controlling rent on units constructed since 1995 • Proposition 10 would repeal Costa-Hawkins • Allow more stringent & universal rent control • Arguments for Proposition 10 • Local control • Would probably reduce average rents • Arguments against Proposition 10 • Would probably reduce supply of rental housing • Owners might convert existing rentals into condos • Less new construction • Would probably reduce property taxes and thus local revenue • Might increase discrimination

5. Review of Last Class III • Problems with rent control under Costa-Hawkins (vacancy decontrol) • Incentive to stay in unit inefficiently long (e.g. large unit after kids have grown up) • Benefits long-term tenants (elderly), but not short-term tenants (e.g. students) • Other solutions to high rent and homelessness • Generally: address supply of housing and ability to pay • Change zoning to allow more multi-family homes • Rent subsidies (Section 8) • Supportive housing for homeless • $1.2 billion under LA Proposition HHH • Income redistribution / reduce income inequality • Require new construction to have affordable housing • Require cities to have affordable housing • Public housing

6. Is There a Problem? • Is the high cost of housing a problem government should address? • Housing is expensive b/c people want to live here • People have option of living elsewhere where rents are cheaper • Lowering cost of housing will only attract more people • If cities think it is important to have teachers and firefighters who live in the city, they can pay them more or give them housing subsidies • Raise taxes to do so • Some people will leave the state to avoid taxes • But those who value the city and having public employees who live locally will stay • High housing costs are self-correcting • If housing costs get too high, people and businesses will leave • That will reduce housing costs • Market equilibrium

7. Phases of Land Transactions • Purchase & Sale Agreement • Executory Period • Closing • Post-Closing

8. Purchase Agreement • Must be in writing (Statute of Frauds) • Must include identity of parties & property, price or method to determine price, signature of both parties • Sets out obligations during executory period & at closing • Usually includes deposit or earnest money • Forfeited by purchaser if fails to follow through, unless excused by contingencies • Deposit usually held by escrow agent • Usually includes “contingencies” that allow one or both parties to cancel the contract • Financing • Sale of other home • Condition of property and title • Seller may not agree to contingencies, especially in strong market • According to the California Residential Purchase Agreement, under what circumstances can the buyer cancel the agreement and receive a return of the deposit money?

9. Executory Period – Marketable Title I • Purchase agreement has implied covenant that seller will provide marketable title • Unless specifically waived or excluded in contract • Promise to deliver quitclaim deed does not waive marketable title • Seller must provide title “free from reasonable doubt” about validity • Unless problems are disclosed in purchase and sale agreement • Purchaser does not have to “buy a lawsuit” • Examples of items that would make title “unmarketable,” if not disclosed • Serious questions about whether seller owns property • Co-ownership by person not signing purchase agreement • Adverse possession • Whether by seller of property being sold or by others • Problems with deeds or recording -- • Lack of deed notarization, improper description, sale by person without capacity, improper recording • Covenant restricting height to one story • Easements

10. Executory Period – Marketable Title II • If problems arise, seller has right to “cure” defects before closing • Mortgage that will be paid off at closing does NOT make title unmarketable • If defects not cured • Buyer can rescind (cancel) agreement • Can sue for damages or specific performance with abatement of price • After closing, implied covenant “merges” with title taken in deed • Buyer can no longer sue for lack of marketable title • Buy can only sue for violation of warranties in deed (see later slides) • Problems relating to condition (not title) do NOT merge

11. Executory Period – Equitable Conversion • During period between purchase agreement and closing • Buyer is considered the “equitable owner” with a “real property” interest • Seller has only “bare legal title” with a “personal property” interest in the proceeds • If will says X gets “real property” and Y gets “personal property” • X gets Blackacre, if testator had signed purchase and sale as buyer • Y gets proceeds at closing, if testator had signed purchase & sale as seller • Purchaser gets both increases and decreases in value • If lawsuit gives proceeds to owners, buyer gets proceeds • If property is destroyed without fault, buyer bears risk • Minority rule places risk on seller • California and other states which have enacted the Uniform Vendor & Purchaser Risk Act • Seller still has obligation to maintain property • States split on insurance issues • What if buyer has insurance but seller has risk?

12. Executory Period – Duty to Disclose • Traditional / common law rules • Fraud -- Seller liable for fraud if intentionally misrepresented condition of property • Seller could not conceal defects • e.g. paint or cover up water damage • BUT seller had no duty to disclose defects or problems • “Caveat Emptor” • Modified by statute in most jurisdictions, including California • Statutes (most states, including Cal) • Require sellers to disclose material, latent defects known to seller • “material” –would affect desirability/value of property (e.g. health, safety) • “latent” – seller does not have to disclose things that are obvious or discoverable by the buyer on reasonable inspection • “known to seller” – seller is not liable for things it does not know • Selling property “as is” does not negate liability for failure to disclose in most states (including California; SD is exception) • Remedies • Defects disclosed may give buyer right to rescind contract • Buyer can sue for damages before or after closing if defects were not disclosed. • See Englehart, which involved suit after closing

13. Stambovsky v. Ackley • Seller publicized house as haunted • Reported ghosts to Reader’s Digest and local press • Included in walking tour as “riverfront Victorian (with ghost”) • Seller signed purchase and sale • But did not disclose ghosts to buyer • NY does not have duty-to-disclose statute • “caveat emptor” • Judge allowed buyer to rescind contract • “even the most meticulous inspection and search would not reveal the presence of poltergeists at the premises or unearth the property’s ghoulish reputation in the community” • “Where a condition … created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser…. Nondisclosure constitutes a basis for recission…” • Do you think the court reached the correct decision in Stambovsky v Ackley as a matter of law and policy?

14. Closing • Closing is meeting in which documents are signed or exchanged • Deed is delivered • Money is transferred • Buyer can force sale if seller refuses to close • “specific performance,” because real property is “unique” • Seller also may have a right to specific performance, but usually can only collect damages • Deeds • Formal instrument transferring title to real property • 2 basic kinds • Quitclaim deed – no covenants • Seller/grantor conveys whatever she has • Which may be little or nothing • Warranty deed – 6 common covenants (next slide) • Deeds can be used for gifts and other transfers • Not just sales • So will refer to grantor & grantee • Not seller and buyer

15. Covenants in Warranty Deed I • Seisin • Grantor has title and possession at time of grant • Violated, e.g., by adverse possession by 3rd party • Right to convey • Usually satisfied by title, but violated if restraint against alienation means grantor did not have right to sell • Sometimes part of the same covenant as seisin • See deed in materials • Against encumbrances • No undisclosed encroachments, mortgages, tax liens, easements, outstanding leases, restrictive covenants • Quiet enjoyment -- No 3rd party has lawful claim of title • Warranty • Grantor will defend grantee against reasonable claims of title and compensate for losses against those with superior title • Violated if building encroaches on neighbor’s property • May be identical to Quiet Enjoyment • Further assurances • Grantor will take necessary steps to perfect title • E.g. Sign documents to cure defects in deeds

16. Covenants in Warranty Deed II • Present covenants • Seisin, right to convey, against encumbrances • Breached at closing • Enforceable only by grantee • Future covenants • Other covenants – Quiet enjoyment, Warranty, Further Assurances • Breached only when 3rd party asserts claim • Run with land • Remedies • Damages, except covenant for future assurances can be enforced by injunction • Estoppel by deed • A grants Blackacre to B • It turns out that A does not own Blackacre • A later acquires Blackacre • B automatically gets title to Blackacre • Does not apply if grant from A to B was by quitclaim deed • Why would anyone ever accept a quitclaim deed?

17. Post-Closing • Purchaser can no longer sue seller for failure to deliver marketable title • Purchaser can sue for damages for violations of disclosure statutes • Purchase can sue for violation of all covenants in deeds • Future grantees can sue for violations future covenants in deeds

18. Englehart v Kramer • 4 days before putting home on market, Kramer • Put wood paneling over large basement wall cracks • Took before & after photographs • In filling out SD statutory disclosures, Kramer disclosed • “Small amt of H20 penetration in NW + NE corners [when it] rains” • “[Cracked] Basement floor, some spots in basements walls, East bedroom walls” • “Basement cement walls have some crumbling, behind paneling, basement floor cracked [and] uneven in spots” • When Englehart was in process of buying • Kramer offered to remove basement paneling • Kramer did not offer to show pictures • After closing, Englehart • Noticed water seepage in south wall • Removed paneling and found large cracks • Engineer opined that • Walls could collapse at any time • Foundation had to be replaced • Court awarded 34.8K in damages

19. Englehart v Kramer Qs • Do you think the court in Englehartv Kramer reached the correct decision as a matter of law and policy? Do you think it is a good idea that sellers are required to disclose defects and other conditions negatively affecting the property? • 1. In Lucero v. Van Wie, 598 NW 2d 893 (S.D. 1999), the seller failed to provide the statutorily required disclosure statement, but the contract of sale contained the following clause: • The buyer acknowledges that she has examined the premises and the same are in satisfactory condition and they accept the property in the “as-is” condition … . This time, the South Dakota Supreme Court held that the buyer could not recover for undisclosed defects in the property; she “entered into an enforceable contract and purchased the property ‘as is,’ the result of which was to waive disclosure requirements.” After Lucero, what do you expect happened to real estate sales contracts in South Dakota?

20. Englehart v Kramer Qs • What do you expect the South Dakota courts will do in cases where the sales contract contains an “as-is” clause but the buyer alleges that the seller affirmatively lied about the condition of the property – e.g., “No, the roof has never leaked.” • 2. Consider … a seller who doesn’t know whether her home’s attic walls contain asbestos insulation, and a buyer whose offer to buy the house is contingent on drilling into the walls to confirm that they do not contain asbestos. If you represented the seller, would you advise your client to accept this contingency? • 3. What kinds of conditions must be disclosed? A leaky roof? A leaky faucet? The presence of lead paint on the walls? The fact that a previous inhabitant of the home was gruesomely murdered by a family member? That the homeowner regularly gave “ghost tours” on which she pretended to tourists that the house was haunted? The fact that a registered sex offender lives on the block? The fact that there is a municipal garbage dump half a mile away?

21. Recording Systems • Common law rule • Nemo dat – no one can convey rights they do not own • Sales were private and often secret • So hard to know who owned property • A might have deed to property • But no way of knowing if A had sold or given property to B • No way of knowing if A’s deed was valid • Maybe X granted deed to A, but X did not have title • Also, no way of knowing if A had mortgaged property • And whether lender had rights that would survive sale • Warranties and title insurance helped, but were not complete solution • Recording statutes • In 19th century, all states enacted recording statutes • Made land ownership public information • Incentivized recording by (sometimes) denying title to person who did not record • (Usually) protected bona fide purchasers • Who purchased from people who had record title, but had granted land to others in unrecorded transaction

22. Types of Recording Acts I • O to A • O to B • B records • A records • Race Statutes (rare) • Subsequent purchaser has title if records first • “No conveyance … shall be valid…. but from the time of registration” • B has title, even if B knew that O had previously conveyed to A • Notice Statutes (common) • Subsequent purchaser has title if without notice • “A conveyance is void …. unless … filed for record. The unrecorded instrument is binding on … a subsequent purchaser … who has notice.” • B has title, unless B knew that O had previously conveyed to A • Race-Notice Statute (most common, including California) • Subsequent purchaser has title if without notice AND records first • “Every grant is conclusive …. against everyone … except a purchaser … who in good faith … acquires a title … by an instrument that is first duly recorded.” • “good faith” means without notice • B has title, b/c recorded first, unless B knew about prior conveyance

23. Another Recording Problem • O to A • O to B • A records • B records • Common law • A wins, because O had nothing to transfer to B (Nemo dat) • Race Statutes • Subsequent purchaser has title if records first • A has title, because recorded first • Notice Statutes • Subsequent purchaser has title if without notice • B has title, unless had notice • Race-Notice Statute • Subsequent purchaser has title if without notice AND records first • A has title, b/c O transferred to A first • Common law result • B does not have title, b/c did not record first • B does not get benefit of statute, so common law controls

24. Recording Acts – All types • Protect only purchasers for value • Not donees (recipients of gifts), those who get title by inheritance • Donee loses to prior, unrecorded grantee • Do not affect validity between grantor and grantee • Grantee prevails in dispute against grantor, even if unrecorded • 3 kinds of notice • Actual notice • Purchaser had actual knowledge of prior, unrecorded transaction • Constructive notice • Purchaser could have gotten actual knowledge of prior, unrecorded transaction by searching in recording office. • Inquiry notice • Purchaser had information that would cause “ordinarily prudent person” to inquire further • Example. Purchaser visits property and sees B in possession

25. Indices I • Recording provides notice only if it would be revealed in a proper search • What would be revealed in a proper search depends on indexing systems • Tract Index • All transactions relating to a particular property are listed one after another on a page (or consecutive pages • Relatively easy to use, but also uncommon • Searcher reviews all transactions related to property to ensure that grantor has title • Grantor/Grantee Index • Transactions are listed by grantor’s name by date of recording • Transactions are listed by grantee’s name by date of recording • Searcher • Uses Grantee index to find grantor in this transaction • Finds deed in which grantor was grantee of relevant property • Then checks grantee index going back in time for grantor in that transaction • And so on, until gets to “root” of title (usually government grant) • Then search uses grantor index to go forward in time • And make sure no transactions by grantors before grantee of interest (and thus might give priority to others)

26. Indices II • Suppose D wants to purchase from C • Tract index for relevant property • 1850. Govt to A • 1900. A to B • 1950 B to C • Searcher would check those deeds • Grantor/Grantee index • Searcher checks grantee index for C & finds B to C transaction in 1950 • Then checks grantee index for B going backward from 1950 • Finds A to B transaction in 1900 • Then checks grantee index for A going backward from 1900 • Finds Govt to A transaction in 1850 • Then checks grantor index for A going forward from 1850 • Makes sure A didn’t grant property to anyone before 1900 • Then checks grantor index for B going forward to 1950 • Checks that B didn’t grant property to anyone before 1950 • Then checks grantor index for C • Makes sure that C didn’t grant property to anyone up to present • If recording would not provide notice, then ignored under all systems (even race statutes)