6/14/2010 12:12:00 PM Real Estate Transactions Day 3 Chapter 4 Executory Contracts Executory contract period: Generally begins at the

moment the parties reach an agreement, usually memorialized in the execution of a formal writing. Typically, it ends at the closing of the contract with the satisfactory completion of all the various contractual undertakings of each party. Time horizon: the duration of the parties contractual relationship with each other. There are gray areas as to the timetable, but courts still think of it as a horizon with specific and measurable moments of commencement and closure. The Need for a Writing Basic legal rule is that the agreement for the purchase and sale of real property must comply with the statute of frauds. To satisfy the SOF: The writing must include the essential terms such as the name of the parties, the description of the property, and the intent to buy and sell. It does not need to include all contract terms, and thus, the parol evidence rule may be a factor when considering the enforceability of an alleged contract when terms are not part of the written agreement. The writing must be signed by the party to be charged This can be done electronically, pursuant to the Electronic Signatures in Global and National Commerce Act, which authorizes electronic signatures in transactions of real property between parties in or affecting interstate or foreign commerce, including contracts, sales, leases or other dispositions of personal and real property. This act preempts any state law to the contrary. This includes emailing back an approval that is meant to signify intent to be bound. Also included are telephone calls, which are electronic communications (voicemail or telephone messages on an answering machine- can operate as a legal signature) Some oral contracts for the purchase and sale of real property can be enforced on the theory of part performance or equitable estoppel. There must be proof of an oral agreement between the parties. A claim may be made also in on the theory of promissory estoppel, as a contract substitute,

where one does not have to prove an oral contract, but only demonstrate facts supporting detrimental reliance. Problem 4A Dana and Jim: Married and own real property in northern New York August 1, Jim enters into a contract to sell the property to Donnatella, for a purchase price of 300K Dana is out of town, and doesnt know that Jim is making deal When she returns, inflation has cause the price of the property to improve 50-70K Dana refuses to join in the deed and recognize the contract I would advise Donnatella to find out if the jurisdiction she is in recognizes tenancy by the entireties. Also, besides sharing the four unities necessary to create a joint tenancy with right of survivorship - time, title, interest, and possession - there must also be the fifth unity of marriage. However, unlike a JTWROS, neither party in a tenancy by the entirety has a unilateral right to sever the tenancy. The termination of the tenancy or any dealing with any part of the property requires the consent of both spouses. A divorce breaks the unity of marriage, leaving the default tenancy, which may be a tenancy in common in equal shares. What if Donnatella paid too much money and then calls out the TBE but then Dana signs it? She must proceed or pay damages because she agreed to be bound by the contract when she signed it Title search: Does the seller have a saleable interest in the property? What kind of restrictions or allowances pertains to the use of the land (real covenants, easements, or other servitude's)? Do any liens exist on the property which need to be paid off at closing Other Requirements for an Enforceable Contract There are issues of adequate consideration, offer, acceptance, unconscionability, anticipatory repudiation, breach, warranty, and damages.

The Florida Bar v. Belleville

Complaint comes from the recommendation of Walter J. Belleville to be found not guilty of alleged ethical violations Facts: Summer of 1988, Belleville was retained as counsel for Bradley Bloch, who entered into an agreement with James Cowan to purchase Cowans property. Cowan was 83, with a 3rd grade education. Even though Cowan had sold property in the past, no one refutes that the deal overwhelmingly favored Bloch Equitable conversion: splits title to the property between the seller and the buyer at the moment the contract is signed. The seller is still the owner of the property and is said to retain legal title to the property, while the buyer is said to have acquired equitable title. This means that the buyer has an interest in the property even though the contract has not been fully performed. Both parties have a right to deal with their respective interests. 1. equitable interest can be sold by the buyer, it can be assigned (as a security, or mortgage or pledged)

Brokers When is a commission due? When does a broker have a right to the commission? y A ready, willing and able with terms acceptable to the seller. y There is an exception to this general rule o If there is an unsatisfied condition which gives either party the right to terminate and cause the deal to die and not close, then there is no commission due.  A condition to a closing if in fact, title is not good.  Real estate is still one of the local areas of practice must know local rules This goes back to contract law: Sellers and Brokers are free to enter into contract which otherwise is outside the jurisdiction

The seller can insist that unless it closes, no commission is due.  If a buyer defaults and there is no closing, no commission is due if the agreement between the seller and the broker is such that no commission is due unless it closes.  Do I owe this broker a commission? First look at the listing agreement to see what it says. This is one place where you can avoid the law of the jurisdiction. THIS WILL COME BACK AGAIN  What if the deal does not close, and you want to know what to do with the earnest money, etc Look at the purchase contract y Sometimes the seller gets to retain money as liquidated damages y Often times, the listing agreement (between the seller and the broker) provides that the earnest money is partly turned over to the broker If at all possible, you want the two agreements to be consistent. o The listing agreement and the purchase contract o The text talks about a minority rule that is being followed by some jurisdictions that came out of New Jersey in the case of Ellsworth  if the sale doesnt close, no commission will be due  As is often the case in real estate law, there is an exception to the minority rule if it is the sellers fault, then the broker is entitled to the commission. You have a general rule Problem 2C o (a) A ready, willing and able at the time of the signing of the contract so a commission is due. o (b) o (c)

o (d) the transaction never closes, so the broker is y There are some things that seller can do about re: easements; you must reserve the right to void the title if there is a lien on it. y Can a broker be engaged in a real estate contract y an attempt to delineate between what lawyers and non-lawyers can do in terms of real estate. o The attorneys almost unique role is the one to advise and inform their specific client about the pitfalls and risks when undertaking a purchase agreement. They are there to protect the interest of their client. o C. Look at Brokers and Lawyers on page 41  In Illinois, lawyers still play a large role. y War in New Jersey o As a result, the Supreme Court of NJ came out with a notice to buyers and sellers: you must read this notice before signing the contract  Addressed to buyers and sellers: the party that is responsible for making sure all parties sign the notice is the broker.  I am not qualified to give either the buyer and seller legal advice. If you do not hire a lawyer, no one will represent you. Problem 2D y The broker can take time for the buyer to read the covenants and restrictions packet. y The broker can call the management association and see if they can put in a pool. y What if the document was amended and the copy you have is not complete? o This is one of those cases where the brokers self-interest would urge the deal to go forward in order to close that day In Re Roth: y We have an attorney and a broker in the same transaction o has to decide if he is an attorney in the deal or the broker.

Chapter 4 What happens to parties involved in the transaction who are not represented? The Florida Bar v. Belleville The terms of the document to deal did not go along with the agreement y It would be good to see a copy of the contract and see how it as described y Often times, contracts say that seller agrees to sell apt. building on this street for Y contract price. y What is the scope that you as an attorney, have to the other unrepresented party as a duty or an obligation? o The attorney must explain to the unrepresented opposing party the fact that the attorney is representing an adverse party. o The attorney must also explain the material terms of the documents that the attorney has drafted for the client so that the opposing party fully understands their actual affect. 4B Tom will need to get the contract from John,

Day 4 One of the biggest concepts in chapter 4 is equitable conversion. y Its a big issue because it tells you who will be liable during the executory time period. y Contingencies decide whether or not a deal will go through. y When does the deposit go hard? o All the contingencies have been met, and the buyer doesnt show so the seller gets to keep the earnest money o One alternative to having contingencies is for the seller to give warranties and representations. If a breach of a warranty occurs y A buyer should have due diligence when deciding to get into contracts In Louisiana Real Estate Commission v. Butler, the Butlers agreed to buy a house for 770,000 but had a provision for to borrow the sum to be determined and an 8.5% rate. They were denied and they asked for their

12.5K earnest money back, but didnt get it. The court said that because they didnt have to get a 90% loan. The only specified amount was the 8.5% rate. They also didnt mention the down payment. They could have gotten a smaller loan amount. The court also thought that Perfect v. McAndrew Alires v. McGehee In this case, the Alires purchased a home from the McGehees

June 21, 2010 Six elements of conveyance that must be accomplished at closing y The deed must be in writing y It must name a grantor and grantee y It must adequately describe the real property to the exclusion of all others y There must be an intent to convey by the grantor y There must be actual or constructive delivery y The grantee must accept the deed (when the buyer pays the money, it isnt an issue) o Sometimes, land is granted without consideration  Gifts, annexation agreements etc. y * recording of the deed is not required, but is done to protect the grantees interest from third parties y Recordation is not required in order for a deed to be valid. Yet the prudent grantee will immediately record in order to protect his title against later claimants. In re Lanza (1974) y Greene (seller) hired Lanza (attorney) who also agreed to represent Connollys (buyers) without consulting Greene y closing date altered, issue with post-dated check and condition of property y Lanzas conduct was unprofessional because: (1) he failed to consult

Green before accepting clients with potentially adverse interests, as well as explaining the conflict to the Connollys; (2) he should have advised Green to insist on the full purchase price or a mortgage/security of the $1000 and if neither were accepted , he should have withdrawn from the representing both parties y the extent of necessary disclosure is important y potential conflicts must be discussed Doctrine of Merger y Everything is incorporated into one final agreement y Some things can survive the merger doctrine if there is a specific affirmative step in order to make it survive or make a new agreement at closing y Could be bad, because it makes all the things in the executory void and only follows the final contract. Embassy Group, Inc. v. Hatch Escrow y When you go to closing, you go to the title company y Loan escrows are instructions from the loaner so that people know when the money can be disbursed y Money left with the title company pending the completion of certain specified events. y June 23, 2010 Monday, Chapters 14, 15 Today we will talk about allocating risks of title Making sure that title is in accord with the commitments made in the purchase contract- sellers responsibility y During executory period, seller orders title record y Send the commitment and a survey (if it is provided by seller) to the buyer for review y The convention of the real estate transaction process, buyers have a right to review title. o They have a right to object and the seller will have a defined period of time to either be removed from title or have title insurance y Third party possessory rights y

o What is your expectation at closing

Warranty Deed Questions 1. General Warranty based on the language in paragraph 4; covenant of seisin, assurances/ free from encumbrances except for aforesaid, warranty etc. subject to all zoning ordinances, easements and restrictions of record affecting said property.

Possession and Use of Mortgage Property y June 29, 2010 Who gets involved in the instrument execution process? Who is a necessary party? -> a notary, who the document is signed in front of and then he stamps it/ he is a public official As you can tell from the process that led to the title report on 235, it is an upward process y it shows the difference rather than using the grantor-grantee index, using the tract book index

July 12, 2010 When someone is attempted to obtain a mortgage loan y You have to fill out the promissory note and a mortgage o PN contains the promise to repay a specified amount of money (principle) interest, and when and where it will be made o Mortgage includes the borrowers covenants, recorded against the real estate in order to create a security interest in the property.  When the loan is satisfied, the promissory note is marked cancelled, Paid IN FULL and returned to the borrower

o Title searching/ o Title curing acts: instruments that had defects in them such as improper acknowledgement  Problem 12A Mortgage Obligations The purpose of any mortgage is to secure the payment of performance of some obligation owed to the mortgagee, usually a debt which is normally recorded by writing. y A. PAYMENT OF DEBT o Usury:

July 14, 2010 y Non-debt security secured by a mortgage o Foreclosure is the process by which the lender gets value from the collateral to repay part or all of the debt after default from the lendee. y Three kinds of foreclosure o Strict Foreclosure o Judicial Foreclosure o Non-Judicial Foreclosures done pursuant to power-of-sale foreclosures  Not allowed unless permitted in state  The loan documents themselves say that the lender can make a non-judicial foreclosure via power-of-sale o Lender can purchase the property for the outstanding principle balance of the note based on the value of the property. o The property is sold at foreclosure for less- deficiency o The property is sold at foreclosure for more surplus In Strict Foreclosure, after the period of equity is over, the lender gets title to the property; no need to account for what it actually realizes when it disposes of the property Code of Georgia

Sales made on foreclosure under the power of sale- when deficiency judgment allowed; confirmation and approval; notice and hearing; resale 1. he needs to get Cleveland to sign an assumption of personal liability and he needs to get an ovation or release from the loan agreement as well. 2. 3. 4. The mortgagee is entitled to a surplus following a strict foreclosure of a mortgage loan. The right of a the mortgagor and any person or entity with a subordinate interest to surplus monies,

July 19, 2010 When real estate suffers a downturn, articles of agreement become a common way to purchase property Mortgage substitutes: documents that may or may not comprise a mortgage loan transaction y If something is labeled a mortgage, mortgage law developed over centuries suddenly applies to the transaction y From a borrowers POV, if a transaction is characterized as a mortgage, two important rights arise for the borrower o Has equity of redemption, forcing the lender to take a late payment o If mortgage, the lender can only take the property in a foreclosure proceeding. y There are procedures that the lender must comply with in order for the lender to have the title free and clear from the borrower and junior encumbrances placed on the land from the borrower y A judicial finding that you have a mortgage means that a whole new body of law applies. o Mortgage law will trump what the parties have agreed to in their contracts.

o Sometimes find out that agreements are disguised mortgages  Have common characteristics Would be borrower does not have access to normal sources of credit, must turn to alternative lenders to borrow money for whatever the transaction is Substance trumps the form of the documents; when a borrower fails to pay, mortgage law applies This concept of equitable mortgages was big in the late 1960s Wraparound mortgages are junior mortgages o