Professor Kane Fall 2011 Anu Dhuga

PROPERTY I FINAL EXAM OUTLINE **EXAM NOTE: 30 MULTIPLE CHOICE (12 ON ESTATES AND FUTURE INTERESTS [2 OF THESE INVOLVING RAP]) AND ONE ESSAY QUESTION WITH MULTIPLE SUBPARTS.
(1) POSSESSION AND ACQUISITIONS: 1(a) Ownership vs. Possession: A. Ownership: title to property; usually proven by showing documents by previous owner (or 1st possessor) transferring title to present titleholder. 1. Title, or ownership, is relative; lawyers conceive of property as referring to relationships among people with respect to things, not to a relationship between a person and a thing. 2. An owner always wins against a mere possessor. B. Possession is proven by showing physical control and the intent to exclude others. **Possession is easier to prove than ownership. 1. First possession: Making an unowned thing, or previously enjoyed by all, ones own. i. First-In-Time Rule: The first person to take possession of a thing owns it. 2. Subsequent possession: Something is already owned by someone else, A, and it comes into Bs possession without As consent, B can become its owner without being declared owner, and be granted protection by the legal system. 3. Prior Possession rule: A prior possessor wins over a subsequent possessor in claims of both personal property and real property; rule can be explicitly invoked only in support of honest claimants - unless between 2 wrongdoers. 1(b) Acquisitions: Acquisition by Capture: Capture Of Wild Animals A. The exercise of dominion and control over a wild animal constitutes possession of the animal and ownership is vested in the possessor. 1. Mortally wounding or trapping an animal or fish constitutes constructive possession, provided the hunter pursues the wounded animal and, in the case of trapping, capture is virtually complete. 2. Mere pursuit of a wild animal does not create a property right. 3. Killing or capture = Occupancy/Possession 4. Occupancy/Actual Possession = Intent to Appropriate + Deprive of Liberty + Subject in your certain control B. A trespasser's title to a killed or captured animal is inferior to that of the land's owner. C. The owner of a captured animal loses title if the animal escapes and resumes its natural state. D. If a captured wild animal escapes, the captor retains title only if the escaped animal has been tamed and forms a habit of periodically returning to the captor, or the animal is not indigenous to the area, so that a potential captor is put on notice that it belongs to someone else. Hypo: Shoot an animal on my property and it is wounded. Animal then wanders off my property and dies. You pick the animal up. Property owner had constrictive ownership first in time.

Professor Kane Fall 2011 Anu Dhuga

Acquisition by Creation: Ownership of Intangible Things A. Patents: Granted for novel, useful, and nonobvious processes or products 1. Lasts for 20 years from the date of the original application. 2. Not renewable and at expiration, the innovation enters public domain. B. Trademarks: Words and symbols indicating the source of a product or service. 1. Lost when abandoned and when a mark becomes generic 2. Owners of marks protected against use of similar marks by others when such use would result in confusion. Example: Drugs like Aspirin become generic. C. Copyrights: Protects the expression of ideas (not ideas themselves) in books, articles, music, artistic works, and so on. 1. Protection begins when the work is set down in a tangible form. 2. Lasts normally until 70 years after the death of the author/creator subject to a right in others to make fair use of the materials. 3. Work must be original and must be independent creations. Acquisition by Find: Lost, Mislaid, And Abandoned Chattels A. When an owner of a chattel accidentally and involuntarily parts with it and does not know where to find it, the chattel is considered lost. B. When an owner of a chattel intentionally puts the chattel in a certain place but forgets to retrieve it, it is considered mislaid. C. When the owner of a chattel intentionally and voluntarily relinquishes both title and possession it is considered abandoned. D. Title to a lost or mislaid chattel remains with the rightful owner. One who reduces a lost chattel to possession is its finder and only acquires a possessory right to the chattel. E. Rule of Armory: A finder's rights to a lost chattel are generally superior to all except the rightful owner. F. A finder's possessory right to a lost chattel found when the finder was on another's property with consent (express or implied) is generally superior to that of the property's owner. 1. If one finds a chattel on private premises open to the public (e.g. the public area of a shop), the finder's possessory rights are superior to all except the rightful owner. 2. If a chattel is found in a private portion of a landowner's premises, the landowner (not the finder) acquires a possessory right to the chattel. G. Mislaid Chattel: The owner of the property where a mislaid chattel is found acquires a possessory right to the chattel that is superior to all but the rightful owner. H. One who finds a chattel by virtue of a trespass generally does not acquire a possessory right superior to that of the owner of the property upon which the finder has trespassed. 1. One who wrongfully (i.e., by trespass) obtains possession of a lost chattel may sue to recover possession from a third party (i.e., persons other than the rightful owner or the owner of the property) interfering with his possession. 2. One who finds but then loses a chattel may sue to recover the chattel from a third person who subsequently finds the same. I. A landowner, not a finder, acquires a possessory right, based on constructive possession, to objects (e.g., meteorites) embedded in soil located on his property. J. Unclaimed gold, silver, currency, etc. intentionally concealed or buried by an unknown owner (i.e., a treasure trove) belongs either to the finder or to the landowner, depending on the jurisdiction. 2

Professor Kane Fall 2011 Anu Dhuga

K. Due Care: As a quasi-bailee, a possessor must exercise due care toward a lost or mislaid chattel in his custody. 1. If a possessor knows, or can reasonably ascertain, a rightful owner's identity, he has a duty to do so. A breach of this duty is grounds for a charge of larceny and an action for conversion. 2. A possessor's obligations persist until either sufficient time has passed to constitute abandonment, or the statute of limitations has run. L. Gaining Title 1. A possessor gains title to lost or mislaid property when either the statute of limitations has run or the chattel is held to be abandoned. 2. Most jurisdictions have enacted estray statutes under which a lost or mislaid chattel is placed with proper authorities who register it. If the chattel is unclaimed after a certain amount of time, the possessor becomes the owner. M. Statute of Limitations: Every jurisdiction has a statute of limitations prescribing the period during which the rightful owner must bring suit to recover possession of a lost or mislaid chattel. Modern courts tend to depart from the rule applying adverse possession to chattels and apply the discovery rule, which dictates that a rightful owner's cause of action accrues "when he first knew, or reasonably should have known through the exercise of due diligence, of the cause of action, including the identity of the possessor . . .. N. Factors to consider in lost vs. mislaid property: 1. Status of where property is lost or mislaid private place vs. purely public 2. Status of the found item embedded in soil or simply laid or abandoned 3. Status of the finder trespasser vs. agent/employee Acquisition by Gift A. Generally: Inter vivos and causa mortis gifts deal only with non-real property. Real property cannot be transferred without a writing due to the statute of frauds. 1. Inter vivos: gift made with no knowledge or threat of impending death and are irrevocable. 2. Causa mortis: gifts made with knowledge or under threat of immediate death and motivated by that fact, and are revocable if donor recovers. B. To accomplish a gift of personal property, the donor must intent to make a gift, the property must be delivered to the donee, and the donee must accept the property. 1. Intent: Donor must intend to transfer title. If donors intent is merely to transfer possession, this is not a gift. i. Gifts causa mortis are revocable if the donor recovers from the threat of death that motivated the gift. Intent of gift is presumed to be made only because of impending death. 2. Delivery: Must be done physically, actual physical transfer, unless impractical or impossible, which donor may then deliver symbolically or constructively. i. Symbolic: Usually a written instrument but could be anything that symbolizes the gift. For example, a picture of the gift or a letter stating the giving of gift. ii. Constructive: Some object that is the means of obtaining possession of the property gives access to or control over the gift. For example, giving donee a password or pin number to show intent to give gift. 3. Acceptance: A gift is not complete until it has been accepted by the donee.

Professor Kane Fall 2011 Anu Dhuga

C. Special Circumstances 1. Gift promises are legally unenforceable for want of consideration. For example, I promise to give you this ring when I die. 2. Engagement rings cannot be recovered if donor is at fault for breaking off the marriage. D. Inheritance 1.Inherit by Will: the testator leaves property to her devisees or beneficiaries, who can be anyone friends and relations, charitable or political organizations, pets, etc. 2.Inherit by Intestate Succession: the governing state statute will determine who gets the deceaseds property called heirs and typically include spouses and blood relatives. i. An heir is a person who (1) fits the statutory classification and (2) is alive at the time of the descendants death. ii. An issue is a direct or lineal descendant your children and there children, and so on. a. Issue is not synonymous for children. b. Issue and descendants are synonymous and are a subset of heirs. (2) ADVERSE POSSESSION: A. Generally: The doctrine of adverse possession obligates the titleholder of land to eject, within a statutorily prescribed period, a wrongful possessor of the land. Provided certain other elements are satisfied, a titleholder who fails this obligation will lose title to the land in question to the adverse possessor. B. Elements of Adverse Possession - O.C.E.A.N 1. Open and Notorious: Possession is "open and notorious" when the adverse possessor actually uses a reasonable percentage of the claimed land in a manner similar to that of typical owners of similar land, and this use is sufficient to put the true owner or the community on notice of his possession. Occupancy public in the sense that you live there like the true owner would. 2. Continuous: The adverse possessor must "continuously" occupy the land throughout the statutory period, in a manner consistent with the normal uses of similar land. Although intermittent occupancy is insufficient, an adverse possessor need not occupy the land every day of every year during the statutory period, (e.g., if the land is normally used only in the summer, seasonal possession suffices to satisfy this requirement). 3. Exclusive: People must assume that the adverse possessor is perceived as rightful owner. 4. Actual Entry: More than just mere use Use or property in a manner the average true owner would under the circumstances. 5. No Permission: Hostile or Adverse and under a claim of right. Hostile when the adverse possessor occupies land without the titleholder's consent and in a manner inconsistent with his rights. Note: Permission defeats hostility. i. Majority/Objective Rule: State of mind is generally irrelevant. As long as the owner has not permitted occupancy, it is adverse. ii. Good Faith Rule: State of mind is I thought I owned it. My bad. iii. Bad Faith Rule: State of mind is I knew I didnt own it, but I wanted it anyway.

Professor Kane Fall 2011 Anu Dhuga

C. Claim of Right, Color of Title and Constructive Possession 1. Claim of right/claim of title when the adverse possessor indicates, by words or conduct simply a way of expressing - that he holds the land as against all others. Term used to describe the level of hostility. 2. Color of title a claim founded on a written instrument that is for some reason defective. *Note: Think of a document you can color. i. A possessor who enters under color of title is one who has a defective deed or other writing that purports to deliver title to the possessor, but which the possessor does not know to be invalid. 3. Constructive possession - under "color of title" (i.e., the possessor holds a defective conveyance document) a portion of a large, unitary tract of land may gain title by adverse possession to the whole tract as described in the defective document, even if never actually possessing or using the entire tract. D. Concurrently Held Land - To gain title by adverse possession to concurrently owned land, the adverse possessor must oust his cotenant. E. Tacking: When possession is continuous, and the parties are in privity the time in possession of successive adverse possessors may be added together to fulfill the statutory period. 1. In order to tack one period of adverse possession on to another, there must be privity between the two adverse possessors. i. Privity of Contract: relationship between parties to a contract. Generally only the parties can sue one another on the contract. ii. Privity of Estate: relationship between parties with concurrent or successive rights in the same property. iii. Privity of Possession: relationship between parties in a voluntary transfer of possession of property. F. Hypotheticals and Examples 1. O owns and possesses a 100-acre farm. A enters the back 40 acres under an invalid deed from Z, who had no interest, for the whole 100 acres. A works the back 40 acres for the statutory period. Can A evict O? No A could prevail only if O was not in possession of the front 60 acres. As claim of constructive possession under color of title does not defeat actual possession, nor does it replace the exclusivity requirement. 2. X owns lot 1 and Y owns lot 2 next door. Neither is in possession. Z conveys both lots 1 and 2 to A under an invalid deed. A enters lot 1 and holds for the statutory period. A sues to evict X and Y. Who wins? A defeats X without needed the color of title doctrine if A actually occupied all of lot 1. If A occupied only part of 1 then A still gets it all under color of title. Y defeats A because Y never had an ejectment claim against A. A color of title claim still requires actual entry against the owner. 3. What is X had conveyed lots 1 and 2 to A and A had entered only lot 1? Then A has good title to lot 1 from X by conveyance. 4. What about lot 2? A never actually entered ay part of lot 2. You need actual entry against the owner to claim adverse possession. Also, Y never had an eviction claim against A as to which the statute of limitations could begin to run. 5

Professor Kane Fall 2011 Anu Dhuga

(3) POSSESSORY ESTATES: A. An estate has two components possession and duration and the words of the grant are words of purchase (designate the grantee) and words of limitation (designate the time of interest transferred). 1. To B for life To B are words of purchase, and for life are words of limitation. B. Freehold Estates 1. Fee Simple Absolute: absolute ownership in the sense that its duration is perpetual it may last forever. i. Sample grant: To A, or To A and his heirs. ii. Freely alienable (able to be transferred to new ownership). 2. Fee Simple Determinable: potentially infinite ownership as long as the condition is not violated. If violated, the estate automatically terminates and possession reverts back to grantor possibility of reverter. i. Sample grant: To A and his heirs, so long as they use the land for specified purposes only. ii. Critical words: so long as, until, while. iii. Freely alienable and new holder is also subject to the condition. iv. Defeasible. 3. Fee Simple Subject to a Condition Subsequent: unlike fee simple determinable, violation of the condition does not lead to automatic forfeiture. i. Sample grant: To A and his heirs, but if the land is used for other than specific purposes, G or his heirs will have the right to enter and declare the estate forfeited. ii. Grantee keeps possession until the grantor enters and terminates the estate. iii. Can last forever if grantor decides not to terminate or if condition is not violated, which means grantor did not convey all of his interest grantor maintains the right to enter and terminate estate. iv. Freely alienable and always subject to condition. v. Defeasible. 4. Fee Simple Subject to An Executory Interest: just like ordinary fee simple determinable or one subject to a condition subsequent, except if condition is broken the estate goes to a third party and not the grantor. i. Sample grant: G grants to A and his heirs, but if the land is used to sell alcohol then to B and his heirs or B and her heirs shall have the right to enter and declare the estate forfeited, or but if A has no sons then to B and his heirs. ii. The third partys right to the future possession is called an executor interest. 5. Life Estate: lasts until the death of the grantee, whereupon possession of property reverts to the grantor or his heirs; therefore, the grantor has only transferred possession for the grantees life. i. Sample grant: To A for life. ii. Whoever is named as the measuring life remains the measuring life. a. O to A for life A is the measuring life, even if A transfers that estate to B (B then has a life estate pour autre vie an estate that lasts as long as A is alive). iii. Defeasible if life estate is conditional upon a certain event, the occurrence of which will entitle the grantor to either automatic reversion or to enter and reclaim possession. 6

Professor Kane Fall 2011 Anu Dhuga

6. Fee Tail: purpose of this grant is to keep ownership of property within a family. i. Sample grant: To A and the heirs of As body. ii. Descends to lineal descendants generation after generation and expires when the original tenant in fee tail, A and all of As descendants, are dead. Then property will revert to grantor or the grantors heirs by way of reversion. iii. Every fee tail has a reversion or a remainder. 7. Term of Years: an estate that will last for some fixed period of days, months, or years. i. Sample grant: O to A for 15 years. ii. A non-freehold estate merely a form of leasing not owning. iii. Subject to a reversion or remainder. (4) FUTURE INTERETS: A. Definition: A future interest is a present interest in future possession. 1. Transferors can reserve a future interest while transferring present possession to someone else. 2. Transferees can receive a future interest instead of a present possessory interest. B. Interests retained by Transferor/Grantor: grantor who conveys his property to another can retain part of his interest. 1. Reversion: automatically created if grantor transfers an estate of a shorter duration than the one he holds. i. Arises following the natural termination of a life estate or term of years. ii. Waits patiently for the grantees estate to end naturally. iii. All reversions are retained interests which remain vested in the grantor. iv. Can be divested if the condition necessary for reversion cannot be met. a. For example, O grants To B for life, the to C, if she outlives B. Two things can happen at Bs death: (1) If C is dead, then possession reverts to O because there are no other takers; but if (2) C is alive, she takes possession in fee simple absolute and the reversion is divested. v. Grantors reversion will not interrupt the grantees possessory estate. 2. Possibility of Reverter: the residual future interest held by a grantor of a fee simple determinable only (also any determinable estate). i. Waits patiently for the grantees estate to end naturally. ii. Can never be created in a grantee. iii. Example, O conveys Blackacre to the Library Commission, so long as it is used for library purposes. O has a possibility of reverter and the Library Commission has a fee simple determinable. iv. Grantors possibility of reverter will not interrupt the grantees possessory estate. 3. Right of Re-Entry: the residual future interest in the grantor of a fee simple upon a condition subsequent, where the grantor expressly reserves the right to reenter and reclaim. i. Only becomes possessory if condition is broken and to take possession, the grantor must actually enter it and declare the prior possessors claim void. ii. Can only be created by the grantor. iii. Grantors right to entry will interrupt the prior estate. C. Interests retained by Transferee/Grantee: grantee can receive a future interest if the transfer is made to several sequential grantees or if the grantor places some condition to delay possession. 7

Professor Kane Fall 2011 Anu Dhuga

1. Remainders: a future interest in one grantee which becomes possessory upon the natural expiration of a prior life estate held by another grantee. i. Vested: becomes possessory at the termination of the prior life estate and is subject to no other condition precedent. *Test: Given to an ascertained person (born and identified person) AND not subject to a condition precedent. a. Indefeasibly vested remainders: certain to come and remain possessory nothing will prevent possession from happening eventually and once possession occurs, it will last forever. b. Vested remainders subject to complete divestment: subject to a condition subsequent which if it occurs, will completely divest the remainder of his interest. c. Vested remainders subject to open (partial divestment): created in a class or group of grantees, at least one of whom is presently existing and entitled to possession as soon as the preceding estate expires, but which is capable of expansion to include as yet unknown people. *Subject to open, meaning the class is left open for the entry of new members. Class closes if (1) it is no longer physiologically possible to have new entrants, or (2) if the rule of conveyance applies. The rule indicates that a class closes if any member of the class is entitled to immediate possession and that result is consistent with the intent of the grantor making the class. d. Reversion: Vested remainder creates an executor interest in a third party. e. Examples O conveys to A for life, then to the children of B. At the time of conveyance, B has one child, X. o A has a life estate. o The children of B have a remainder in fee simple absolute. o X is ascertainable and there are no conditions for X to receive her fee; therefore X has a vested remainder in fee simple absolute. O conveys to A for life, then to B and her heirs. o B has an indefeasibly vested remainder certain to become possessory upon termination of the life estate. o If B dies during As life, Bs remainder passes to Bs devisees on Bs death; or if B dies without a will, passes to Bs heirs; or if B dies without a will or heirs, then to the state. o B or Bs successor in interest is certain to take possession upon As death. ii. Contingent: becomes possessory only at the termination of the prior life estate and the fulfillment of some other condition precedent. *Test: Given to an unknown person OR has a condition precedent (condition must be expressed in the grant and does not include natural expiration of prior estate or precatory wishes or advisory suggestions - language in grant). a. More than one contingency: sequential events where multiple contingencies must occur and can be in the same estate. b. Reversion: Contingent remainder creates a reversion in the grantor because of the possibility that the condition will not be met.

Professor Kane Fall 2011 Anu Dhuga

c. If condition is not met, the remainder is divested; if condition is met, the remainder vests and the grantors reversion is eliminated. d. Examples O conveys to A for life, then to C if C graduates cum laude from law school. o A has a life estate. o C cannot cut short or take away As interest so C has a remainder. o C is ascertainable but there is a condition that C must do before C possesses. o O has a reversion in fee simple because O did not grant a vested remainder in Os entire interest. O conveys to A for life, then to B for life is B marries, then to C if C is married. C is single at conveyance. o B must marry to earn possession so Bs remainder in a life estate is contingent. o C must be married to earn possession so Cs remainder in fee is contingent. o Untils Cs interests vest, O has a reversion in fee simple. O conveys to A for life, then to B if B survives A, otherwise to C. o Bs condition is that he must survive A before possession. o Cs condition is that B must not survive A before possession. o Both B and C are contingent remainders in fee simple, and remainders are alternative because only one can vest. o A has a life estate. o O has a reversion in fee at conveyance because no vested interest in fee has been transferred. 2. Executory Interests: a future interest created in a grantee that must cut short or divest another estate or interest in order to become a possessory estate. *Can never exist alone because they must have something to divest; Must be paired with (1) a possessory interest, or (2) a vested remainder; Always operate on a pre-condition that is attacked; Executed immediately and automatically upon occurrence of condition. i. Shifting executory interest: divests grantees by shifting the interest from one grantee to another. To A for life, then to B; but if B fails to graduate, then C. a. Examples O conveys to A, but if B should ever be released from prison, to B. o B has shifting interest that will divest A, another grantee, by cutting short As fee simple if and when B is released. O conveys to A for life, then to B, but if B does not survive A, then to C. o C has shifting interest that will divest B, another grantee, of Bs vested remainder in fee simple if B does not survive A. ii. Springing executory interest: divests grantors by springing out of the grantors interest. To C if C graduates.

Professor Kane Fall 2011 Anu Dhuga

a. Examples O, a teacher, conveys Blackacre to the first student in his class to become a judge. o This unknown student is springing because the student gains interest by becoming a judge. O conveys to A upon her marriage. o A has nothing yet because she must marry first. o This is not a remainder because she is not waiting for some prior estate to end naturally; if she marries, she takes. (5) SUMMARY OF PRESENT POSSESSORY ESTATES AND DEFEASIBLE FEES SIMPLE:
PRESENT POSSESSORY ESTATES Present Estate Fee Simple Absolute Examples To A & his heirs To A & his heirs so long as... until... while... To A & his heirs, but if... upon condition that... provided that... however... To A & his heirs, for so long as..., and if not..., to B. To A & his heirs, but if..., to B. To A & the heirs of his body To A for life, or To A for the life of B Life Estate (may be defeasible) To A for life, then to B To A for life, but if..., to B. Until end of measuring life or happening of event. Duration Forever As long as condition is met, then automatically to grantor Until happening of named event and re-entry by grantor As long as condition is met, then to 3P. Until happening of event. Until A and his line die out Until end of measuring life Until end of measuring life Future Interest in Grantor None Possibility of reverter Future Interest in 3P None

Fee Simple Determinable Fee Simple Subject to Condition Subsequent Fee Simple Subject to an Executory Limitation Fee Tail

Right of Entry (See fsd ) (See fs subject to cond. subsequent ) Reversion Reversion None Reversion Executory Interest Executory Interest None (but remainder is possible) None (but see below) Remainder Executory Interest

10

Professor Kane Fall 2011 Anu Dhuga

Future Interest Retained by Grantor Future Interest Created in Transferee

DEFEASIBLE FEES SIMPLE So Long As (naturally But If (cut short) expires) Fee Simple Subject to Condition Fee Simple Determinable Subsequent & & Possibility of Reverter Right of Entry Fee Simple Subject to an Executory Fee Simple Determinable Limitation & & Executory Interest Executory Interest

(6) RULES AGAINST PERPETUITIES: A. Rule: No interest other than one in the grantor is good unless it must vest, or fails to vest if it is a remainder, or become possessory or fails to become possessory, if at all, no mater than 21 years plus a gestation period (child is considered alive from the time of conception is the child is later born alive) after the death of all lives in being. 1. Only interests subject to rule are: (1) contingent remainders, (2) executor interests, and (3) vested remainders subject to open/partial divestment. 2. Interest is good if it will certainly vest or certainly fail to vest (1) within 21 years of its creation, or (2) during the life of some person alive at its creation, or (3) upon the death of some person alive at its creation. i. If an effective measure or validation of life cannot be identified, the interest is void. ii. Validating lives: only living persons who can affect vesting of the interest qualify and these persons are testing to see if the interest must vest or fail within their lives or within 21 years of their deaths. a. Determine what events can affect vesting, then determine who can affect those events. b. Typical examples are the preceding life tenant; the taker(s) of a contingent interest; anyone who can affect the identity of those takers (e.g., A in a gift to As children); and anyone who can affect the occurrence of the condition precedent. B. Procedure to Determine if interest violates rule using example of: O grants "To A for life, remainder to A's children for life, remainder to his grandchildren at the death of A's last child," where A has two sons and a grandchild at the time of transfer. 1. A has a present possessory life estate (not subject to the rule); A's sons have a vested remainder in a life estate, which is subject to open (and to the rule); A's grandchildren have a vested remainder subject to open (and to the rule). 2. A, A's sons and grandchildren living at the time of transfer are all "lives in being. 3. If A has another child within nine months, that child will also be a life in being. 4. A could have a son two years after the grant is made. Although the child affects the vesting of his life estate with his brothers and has a causal effect on the class of grandchildren, he was not alive at the time of transfer. 5. A, his two sons, and his grandchild could all die in a plane crash a year later, so that only the third son remains alive. The perpetuities period starts.

11

Professor Kane Fall 2011 Anu Dhuga

6. The surviving son's life estate becomes possessory upon the death of A, and the class is also closed by that event, so that his estate does not violate the rule. However, he could live for longer than 21 years, or he could die sooner. Thus there is no guarantee that the grandchildren's remainder in fee simple will close (remember that it is vested already) or not within 21 years. The remainder violates the rule and is struck out. Possession reverts to O, or his heirs, after the surviving son dies. C. Class Gifts: same principles as above apply if class gift is not fully vested. 1. Look for anyone who is a beneficiary of the gift or anyone who can affect (1) a beneficiarys identity, (2) the closing of the class, or (3) a condition on the gifts vesting. 2. Open class: members may be added in the future and those members are unascertained and will prevent the class interest from being vested. 3. Closed class: members are ascertained because no new members can be added and does not necessarily make the class gift vest because there may be a contingency that must still be met, such as surviving A or completing law school. (7) CONCURRENT OWNERSHIP (COTENANCY): A. General: Situations arise when more than one person owns the same interest in property at the same time and the law provides some default rules to mediate conflict. B. Three types of Cotenancy 1. Tenants in Common: persons own separate but undivided interests in the same interest in property. i. Interest may be conveyed by deed (I convey my home to A and B) or will (I leave my home to my children) or severance of a joint tenancy or tenancy by entirety. ii. No right of survivorship so deceased tenants interest will pass to his heirs or devisees. iii. Must only have unity of possession each tenant is entitled to possess the whole property. iv. Tenants can obtain unequal shares and different estates. v. Examples a. Two people who own a sailboat as tenants in common each own a fraction of the entire boat, and they are each entitled to sail it, but they cannot prevent the other from doing so. b. O conveys Roadhouse to A and B as tenants in common. If A conveys his interest to C, B and C are now tenants in common. If B dies, devising his interest in Roadhouse to D, C and D are now tenants in common. 2. Joint Tenants: persons own an undivided share in the same interest in either real or personal property, but the surviving joint tenant owns the entire state. i. Right of survivorship exists so living tenant continues without regard to interest of deceased. ii. Interests of tenants must be equal in every respect; so all tenants must take their interests: a. At the same time: each tenant must take an interest in the property at the same time. b. Under the same instrument: the interest must be created by the same document. 12

Professor Kane Fall 2011 Anu Dhuga

c. With the same interests: all tenants must have equal interests. d. With the same right to possession: each tenant has the right to possess the whole property. iii. If any of the four unities are not present, joint tenancy cannot be created, and if any of the unities are ever destroyed, the joint tenancy is also severed and becomes a tenancy in common. iv. Only created by specific language To A and B as joint tenants with rights of survivorship and not as tenants in common. v. Cannot be formed by inheritance. 3. Tenancy by the Entirety: a form of joint ownership available only to a husband and wife. i. Must be between husband and wife, plus four unities (time, instrument, interests, rights) ii. Husband and wife safe as one person, so neither can unilaterally destroy the tenancy by grant to a third party. C. Responsibilities and Rights of Cotenants 1. Shared Expenses: generally, responsibilities are proportionate to the rights. i. Every tenant has to preserve the estate by carrying costs of taxes and mortgage payments, repairs and improvements, etc. 2. Share Use: generally, parties can agree to how to use property but if there is no agree, the law will decide. i. Tenancy in Common: each owns an undivided share of whole. ii. Joint Tenancy: each owns the undivided whole. iii. Tenancy by Entirety: each owns the whole and not a share. 3. Right to Use/Let Others Use: generally, any party can make full use of property as long as they dont interfere with another parties right to make full use. i. A cotenant in possession generally doesnt have to pay rent, unless there is ouster; however, cotenants are liable for costs and repairs to the value of their share of the rent. ii. Cotenants can rent out their interest in the property. iii. Most cotenants can use their interest in property as collateral. 4. Right to Convey/Encumber i. Tenancy in Common: free to convey or encumber their interest. ii. Joint Tenancy: can generally unilaterally encumber their interest. a. A Joint Tenant who conveys their interest thereby converts that interest, and only that interest into a Tenancy in Common interest. iii. Tenancy by Entirety: generally cannot unilaterally convey their interest. a. If unilateral encumbrance is attempted (1) Majority states that creditors cannot attach the separate interest of one spouse or (2) Minority states that the creditor can attack one spouses right of survivorship. 5. Right of Devise/Descent i. Tenancy in Common: can leave their interests to devisees or heirs. ii. Joint Tenancy: have no rights to leave to devisees or heirs and survivor has the right of survivorship as to the whole. iii. Tenancy by Entirety: have no separate rights to leave to devisees or heirs and survivor has the rights of survivorship as to the whole. D. Destruction of Cotenancy 1. Tenancy in Common 13

Professor Kane Fall 2011 Anu Dhuga

i. Parties can agree on partition or seek partition in court. 2. Joint Tenancy: i. Parties can agree on partition or seek partition in court. ii. Death of a party destroys that specific parties interest. iii. Murder of a party severs that joint tenancy relationship. iv. Parties who convey title to their interests destroy the joint tenancy as to that interest only, a. Problem: O to A, B, + C as joint tenants. (1) A conveys her interest to D, and (2) then B dies intestate, leaving H as his heir. (1) As conveyance severed the joint tenancy but only as to the interest conveyed. B and C remain joint tenants as to a 2/3 interest and they are tenants in common with D as to the other interest. (2) When B dies, Cs right of survivorship kicks in and H takes nothing. D and C are tenants in common (D=1/3 and C=2/3) 3. Tenancy by Entirety i. Parties can agree on partition but no one party can see partition in court. ii. Divorce destroys the tenancy and usually becomes tenancy in common. E. Remedies Issues 1. Partition: If tenants want to terminate their cotenancy, they can mutually agree on a division of the property or file partition with the courts. **Note: not available for Tenancy by Entirety parties.** i. Partition in Kind: physical division of the property ordered by court unless a party can prove either (1) that physical partition is impossible or extremely impractical, or (2) that physical partition is not in the best interest of all parties. ii. Partition by Sale: a sale of the property conducted under the supervision of the court. a. After sale, the net proceeds are divided among the co-owners in proportion to their ownership interests. b. If no evidence in title of unequal shares, courts will assume that each coowner is entitled to an equal part of proceeds. 2. Ouster: One party may not move to eject another party because all parties have a cotenancy right to possess, and usually occurs in two ways. i. Tenant actually prevents or bars physical entry by another tenant. a. For example, tenant changes locks to property. ii. Tenant denies another tenants claim to title. a. For example, tenant makes express statements denying that the cotenant is that is out of possession has any valid claim of ownership. iii. Remedy for ouster is a market test: fair rental value of particular property and tenant who is ousted is entitled to proportionate share of rent. 3. Accounting i. Rent: A cotenant who receives rents on the property from a third party is obligated to account to his cotenants for those rents. a. If amount received by a cotenant is greater than cotenants share, then he is obligated to pay the excess to other cotenants. ii. Profits: If a cotenant permanently removes an asset from the land, he must account to his cotenants their proportionate share of the value of the removed assets.

14

Professor Kane Fall 2011 Anu Dhuga

iii. Taxes and Mortgage Payments: Each cotenant is obligated to pay their proportionate share of taxes and mortgage payments, unless otherwise indicated. iv. Repairs: A cotenant voluntarily making repairs has no affirmative right to be reimbursed by other cotenants for their share of the repairs, unless: a. Accounting for rents: If repairing cotenant is under a duty to account to other cotenants for rent, the repairing cotenant may deduct from the rents due the other cotenants share of the repair costs incurred by repairing cotenant. b. Partition: Upon partition, a repairing cotenant is entitled to be reimbursed for the repair costs in excess of her share. If partition by sale, it will be cash reimbursement from proceeds before pro rata distribution to other cotenants. If partition in kind, the repairing cotenant will either receive cash reimbursement from other cotenants before physical division or will receive a larger parcel. v. Improvements: A cotenant making improvements has no affirmative right to collect from other cotenants because cotenants have no duty to improve property. a. Exceptions: Upon partition or if improving cotenant is under a duty to account to other cotenants for rent, the improving cotenant is entitled to recover only the value added by the improvement, not the cost of improvement. F. Summary Comparison of Joint Tenancy vs. Tenancy in Common
Right of survivorship? Must tenants have equal shares? Same estate required? Alienable? Devisable and inheritable? Create by implication or expressly? Right of possession of entirety? Presumption in favor when ambiguous? Joint Tenancy Yes Yes Yes Yes, but turns to TIC No Express grant only Yes No Traditional At death of spouse: No Yes No At divorce: No No, unless reformed Tenancy in Common No No No Yes Yes Either Yes Yes Community Sometimes No Yes No Yes

G. Summary Comparison of Tenancy by Entirety Traditional vs. Community

Right of survivorship? Divide property from before marriage? Real property pass to spouse w/o probate? Account for fault? Account for length of marriage?

(8) REAL ESTATE TRANSACTIONS - CONTRACTS OF SALE: A. Contracts of Sale: To be enforceable, a contract to convey real property must be in writing and signed by the party against whom it is sought to be enforced. 1. Brokers: The seller and buyer generally hires a broker to sell or buy the property on the terms and conditions in the listing agreement. 15

Professor Kane Fall 2011 Anu Dhuga

i. Brokers duties to the seller include: good faith and fair dealing, listing, showing, administrative assistance, helping to negotiate/maximize price, communicating helpful information, limited/unlimited closing duties, and disclose defects to buyers (in some states). ii. Brokers duties to the buyer include: good faith and fair dealing, helping to negotiate/minimize price, help with inspections and surveys, closings, disclosing material defects, and communication. iii. Listing Broker lists and shows the property for the seller. iv. Selling Broker works with the buyer, but is the sellers agent. 2. Listings: A listing agreement is an employment contract between a real estate broker and a seller. i. Open listing: seller retains the rights to sell, but broker earns commission if he is the first to procure an offer from a ready, willing and able buyer. ii. Exclusive Agency listing: Only one broker (exclusive agent) can sell the property and if another agent sells, he has to share commission with exclusive agent. **Note: Owner can still sell and not pay. ii. Exclusive Right to Sell: The owner must pay the broker if any buyer purchases the property during the specified duration of the listing, not matter who found the buyer. B. Primary Issues with Contract of Sale 1. State of Frauds: No interest in land can be created or transferred unless it is in writing and signed by the owner of the interest. **Note: there can be exceptions to this rule, and mostly both parties must sign the contract.** i. Writing Requirements: A contract for sale must describe the real estate, state the price, and have parties signatures. a. Description: Metes and Bounds local geography, directions and distances, boundaries of land, etc. A legal description of the land more than just a street address. b. Price: If price was agreed to, it is an essential term to the contract. If price is not agreed to, courts may imply and enforce a reasonable price. 2. Exceptions to the State of Frauds: There are two major exceptions part performance and equitable estoppel. i. Part Performance: A substitute for the writing requirement of the State of Frauds if: (1) the buyer has paid some or all of the price, (2) the buyer has taken possession, and (3) the jurisdictions will enforce a contract proven by clear and convincing evidence even if it is not in writing, a. Generally only applies in equity so available only in a suit seeking specific performance, but not damages. ii. Equitable Estoppel: A substitute for the writing requirement if: (1) one party reasonably reliance on the other parties oral promise to sell to their detriment and (2) it would be unjust not to enforce the sale. iii. Leases of less than one or three years do not require writing. 3. Marketable Title: An implied condition of the contract that seller must convey, which if not satisfied, the buyer is entitled to rescind the contract. i. Title that a buyer would accept, reasonably free of doubt that there are any rival claimants to title.

16

Professor Kane Fall 2011 Anu Dhuga

a. Reasonable doubts whether the title exposes buyer to unreasonable risk of litigation due to outstanding claimants/interests. ii. Defects in title must be substantial and likely to injure the buyer to render title unmarketable. Encumbrances make title unmarketable unless the encumbrance is: (1) a beneficial easement known to the buyer, or (2) a restrictive covenant that does not limit the particular use specified in the contract. a. Encumbrances: An interest in some third party to use or affect the use of the property in some substantial way will encumber the title. (1) An easement allows others to physically use some aspect of the property. (2) A covenant, contract marital right, option, or preemptive right may restrict the propertys use or alienability. (3) A lien allows a third party to use the property as security for a debt, and if there is a default, to foreclose on the property. iii. Zoning restrictions are not encumbrances and do not render title unmarketable. iv. Property in violation of existing zoning laws at the time of the contract renders title unmarketable for purposes of an action for specific performance. v. If there are breaks in the chain of title, such as a defective deed, title may be unmarketable. 4. Duty to Disclose: Sellers are obligated by law to disclose all defects which have been created by the seller, are known to seller and are not easily discoverable by the buyer, that materially affects the value or desirability of the property. i. As Is Clause: Upheld if the defects are reasonably discoverable, seller does not know of defect, and there is no fraud, including fraudulent representation. ii. Merger Doctrine: Agreements in the contract that are unrelated to title do not merge into the deed. a. Only applies to quality of title or quantity of land conveyed. 5. Implied Warranty of Quality: A cause of action that only arises after closing, and only applies to builders, contractors, or other professionals involved in real estate transactions. i. Does not apply to private sellers. ii. Only applies to residential property. iii. Applies to physical characteristics of the land and applies to recent or new construction. iv. New rule allows for warranty to extend to subsequent purchasers. a. Privity of contracts it not necessary for latent defects which manifest themselves with a reasonable time after purchase and which cause economic harm. **Note: Plaintiff has burden of proof to show that defect was caused by defendants workmanship.** C. Remedies for Breach of the Sales Contract: Some courts follow the rule allowing the buyer rescission and restitution, while other courts rule that the buyer is entitled to a benefit of the bargain and consequential damages. Party requesting damages must be ready, willing, and able to perform. 1. Specific Performance: Since land is considered unique, damages are considered to be inadequate compensation for breach.

17

Professor Kane Fall 2011 Anu Dhuga

i. If sellers title is defective and the buyer still wants the property, the buyer is entitled to an abatement of the price (reduction) to reflect the diminution in value due to the defect. ii. A seller entitled to specific performance is required to reduce the price if there is an insubstantial defect in title. iii: Equitable Conversion: If contract is specifically enforceable, equity deems it to have been performed for certain purposes. a. Seller is deemed to have a claim to buyers money and buyer is deemed to have received sellers title. b. Seller now owns the right to be paid and the buyer is the equitable owner of property. c. Important in death of a party, and risk of loss. 2. Rescission: If seller is in breach, the buyer can elect to rescind the contract, recover partial payments that were already made, and basically walk away from the contract. If the buyer breaches, the seller can also elect to rescind the contract and sell the property to another buyer. 3. Money Damages: The measure of damages is the benefit of the bargain, retention of deposit, and other out of pocket expenses. i. Benefit of the Bargain: The difference between the contract price and the fair market value of the property at the time of breach. a. Buyers: (FMV at breach Contract Price) + Deposit b. Sellers: (Contract Price FMV at breach) Deposit ii. Special/Consequential: Natural and probable expenses incurred as reliance on the contract, such as interest paid on a mortgage. iii. Retention of Deposit and Liquidated Damages: Provisions in contract allowing the seller to keep the buyers deposit as a way to protect the seller, are enforceable as long as there is some reasonable relationship between the deposit amount and the actual damages suffered. 4. Limitations on Damages i. Good faith vs Due Diligence: Good faith means no bad faith or intent to harm, and due diligence means doing what a reasonable person would do in the same situation. a. Where the mortgagee conducting a foreclosure sale lacks good faith, damages are the difference between the sale price and fair market value. b. Where the mortgagee conducting a foreclosure lacks only due diligence, damages are the difference between the sale price and a fair price. ii. Unless buyer can prove the liquidated damages were a penalty, seller can keep them. (9) REAL ESTATE TRANSACTIONS DEEDS: A. Definition: A written document that effectuates a transfer of real property. B. Requirements of a deed 1. Grantor identified 2. Grantee identified 3. Words of conveyance: An expression of an intent to effect a transfer of realty. 4. Land described: Any description that clearly and precisely identifies the parcel enough. 5. Signed by grantor 18

Professor Kane Fall 2011 Anu Dhuga

6. Notarization 7. Consideration C. Forged and Fraudulently Procured Deeds 1. Forged deeds are void, and a subsequent good faith purchaser does not get good title. 2. Fraudulently procured deeds are voidable, meaning the true owner can void the deed until a good faith purchaser gives value to it. D. Warranties of Title: A sellers warranties concerning the state of title are, if at all, in the deed and are not implied. 1. General Warranty Deed: Warrants against all existing title defects, whether the defect arose before or during the time the grantor had title. o Present Covenants: Covenants or promises that are true at the time of conveyance. i. Covenant of Seisin: Promises the grantee that the grantor owns the estate he purports to convey. E.g., I own the interest Im conveying. ii. Covenant of Right to Convey: The grantor pledges that at the time he sells the property and conveys the deed, he has the right to do so. E.g., I have the right to convey this interest. iii. Covenant against Encumbrances: A promise that there are no outstanding encumbrances on the property. E.g., There are no encumbrances as of the date of the transfer. o Future Covenants: Covenants or a promise about the present state of title as it affects the grantees future use of the property. iv. Covenant of General Warranty: Promises that the grantor will defendant against lawful claims of superior title and will compensate the grantee for any loss he sustains by the successful assertion of title. E.g., I will defend against lawful claims and pay damages if you lose. v. Covenant of Quiet Enjoyment: Promise that the grantee will not be disturbed in possession and enjoyment of the property by someone else asserting superior title. E.g., No one will assert better title that you in a way that interferes with your use and enjoyment. vi. Covenant of Future Assurances: Promise by the grantor that he will cooperate with the grantee by executing any documents required to perfect the title conveyed. E.g., I will sign any other documents needed to perfect the title. 2. Special Warranty Deed: Warrants against defects of title that arose during the grantors time of holding title. 3. Quit Claim Deed: Contains no warranties of title and gives buyer no protection. E. Delivery of Deeds 1. A deed is not effective to transfer title until it is delivered with the intent to immediately convey an interest. 2. Delivery manifests the grantors intent to be bound by the transfer. 3. Manual delivery is usual way to delivery but does not always provide proof of intent and is not always necessary in order for court to see if delivery occurred. 4.Rarely a problem in real estate transactions but issues commonly arises in donative transfers. F. Conditional Delivery of Deeds 1. Oral conditions on a deed delivered are usually not enforced and the deed is deemed to convey unconditioned title. 19

Professor Kane Fall 2011 Anu Dhuga

i. Some courts will enforce the condition and give title only if the condition has been fulfilled. ii. If condition is written, it is generally enforced. 2. Conditional delivery to a third party escrow is generally enforceable if it is irrevocable. i. A delivery in escrow is a delivery to an impartial third party who holds the deed until certain conditions are met. (10) REAL ESTATE TRANSACTIONS MORTGAGES: A. Definition: A mortgage is the principal device enabling people to acquire real property and loosely refers to the entire transaction, which consists of two distinct element: the loan and the mortgage. 1. Mortgage is evidenced by a document called a mortgage this is a security agreement between the parties by which the borrower gives the lender the right to sell the property if borrower defaults on the loan. 2. The loan is evidenced by a promissory note a personal promise to repay the loan on the terms contained in the note. 3. The lender secures repayment of the loan either by the mortgage or deed of trust to the property. i. A deed of trust to the property is a transfer of title of the property to a trustee for the purposes of conveying it to the lender if the borrower defaults or back to the borrower if he does not default. a. If borrower defaults, the lender or trustee has power to sell the property without going to court. 4. Power of Sale: A provision in a mortgage that gives the lender the ability to sell the property without going to court, similar to a deed of trust, which makes the foreclosure sale more expeditious and inexpensive. B. Development of the Mortgage: Begins as a conveyance where lenders would require the borrower to convey the property to the lender in fee simple subject to condition subsequent. The mortgagors interest in the property is known as the equity of redemption. **Note: Buyer/Borrower = Mortgagor and Lender=Mortgagee** C. Types of Mortgages 1. First and Second Mortgages: The same property can be used to secure more than one loan. i. First mortgage is given first in time. ii. Second mortgage is given second in time and is taken subject to the rights of the senior the first mortgage. a. Upon foreclosure, the holder of the second mortgage is entitled to share in the sale proceeds only after the first mortgage is fully satisfied. 2. Fully Amortized Mortgage: A loan where the principal is retired over the life of the loan so that the monthly payments are constant or vary with interest rates. 3. Balloon Payment Mortgage: A loan with very small to no payments during the life of the loan and full payment of the principal amount is required on the due date. D. Foreclosure Options 1. Judicial Foreclosure: Unless provided otherwise, upon default, a mortgagee must give notice and an opportunity to cure because asking a court to conduct foreclosure proceedings and a sale of the property. 2. Deed of Trust: The borrower gives a person a deed to hold in trust as security for a loan. If borrower defaults, this other person has power to sell land without need of the court. 20

Professor Kane Fall 2011 Anu Dhuga

3. Power of Sale Mortgage: Similar to deed of trust and allows lender to sell property without going to court. E. Redemption After Default on Mortgage 1. Equity of Redemption: Judicially created right to redeem (oneself by bringing his/her payments up to date within a reasonable time) from the borrower. i. Borrower cannot ask lender to waive the equity of redemption. ii. Extinguished by the foreclosed sale. 2. Statutory Right of Redemption: Statutes that give lender the statutory right to buy back the property from the foreclosure sale buyer within a specified time period ranging from three months to two years. i. This right does not become operative until the borrowers equity is extinguished at a foreclosed sale.
Mortgage Default Notice Foreclosure & Equity Redemption Taken from Borrower Statutory Right to Redeem

F. Subject to Mortgage vs. Assuming the Mortgage 1. Under both methods of purchasing property, the buyer takes the property subject to the lien and the mortgagee can foreclosure if there is a default. 2. Only a buyer who assumes the mortgage takes on personal liability as well. (11) LAND CONTRACTS: A. Generally: An arrangement whereby the purchaser takes possession and the seller contracts to convey title to the purchaser when the purchaser has paid the purchase price in regular installments over a fixed period of time. 1. Seller financing device under which the buyer makes a small down payment, takes possession, and is responsible for all the normal expenses on owner. 2. Seller retains legal title until the buyer pays the entire purchase price over time only then does buyer get title. (12) TITLE RECORDING SYSTEM: A. Deeds, mortgages, leases, option agreements, liens, wills, easements, and all additional instruments affecting land titles can be recorded at the public records office. 1. A deed is valid and good against the grantor without being recorded. B. In order to do a title search, look at an index at the public records office, where currently there are two types of indices used. 1. The Tract Index (search by property): Organization of the sequential recordings of deeds, mortgages, and other instruments, on the basis of property descriptions. **This method is not commonly used. 2. The Grantor/Grantee Index (search by name of parties): i. There is an index for the grantors and an index for grantees. ii. Example - How to search under this system: A enters into a purchase agreement with O for the sale of land. A wants to do a title search to make sure O really owns the land and has good title. a. Look up O in the grantee index and find the deed granting the property to him. b. Once O is found, it is seen that Os grantor was P, there is a property description and any recorded restrictions on the deed.

21

Professor Kane Fall 2011 Anu Dhuga

c. Next look up P in grantee index and find the deed giving it to him, which is Q, who is Ps grantor, and review this deed. d. Then look up Q in the grantee index and find the deed giving it to her, who is R. e. Go as far back as necessary, 60 years or less in some jurisdictions, to ensure good title. R -> Q Q -> P P -> O f. Now switch and search from the grantor index starting with R to confirm the chain of title and make sure that there are no deviations from this chain of title, duplicate conveyances to others, etc. **Note: Must look under each persons name for each year after they acquired the property until next conveyance is found. If R was deeded the property by someone in 1970, look under R in 1971, 1972, 1973, etc., until R conveys to Q proceed until O is reached. g. It is important to search based on the date the deeds were signed not from the dates they were recorded. C. Recording Acts: General common law rule is first in time, first in right, but recording acts are the exceptions to this rule. 1. Race Statute: The party that wins the records first wins and whether a subsequent purchaser has knowledge of a prior purchasers claim is irrelevant. i. O -> A (does not record), then O -> B (of same parcel) B knows of deed to A and B records. B prevails over A. 2. Notice Statute: The prevailing party does not have to record to win, but will remain vulnerable to subsequent purchasers without notice if he/she does not, and must take without notice and must pay value. i. O -> A (who does not record), then O -> B (of the same parcel) who does not have notice or knowledge of As deed. B prevails over A, even though B does not record the deed from O -> B. 3. Race-Notice Statute: The prevailing party must pay value, take without notice, and record before the prior purchaser. i. O -> A (who does not record), then O -> B (of the same parcel) who does not have notice or knowledge of As deed. Then A records, then B records. A prevails over B because, even though B had no notice, B did not record before A. 4. Shelter Rule: A person who takes from a bona fide purchaser protected by the recording statute has the same rights as his grantor, even if the subsequent purchaser had notice, and applies only in a notice or race-notice jurisdiction. i. O -> A (not recorded), then O -> B, who pays fair value and takes without notice of O -> A. B records, then A records, then B -> C. B is protected as the subsequent purchaser, but when A records, C will be on notice of As interest. (13) MARKETABLE TITLE ACTS AND INQUIRY NOTICE: A. There are three types of notice with respect to a prior claim on land: 1. Actual: Where a person is aware of conflicting interest in real property, often due to anothers possession of the property. 2. Record: Notice one has based on properly recorded instruments. 22

Professor Kane Fall 2011 Anu Dhuga

3. Inquiry: Based on facts that would cause a reasonable person to make inquiry into the possible existence of an interest in real property. B. Marketable Title Acts: Used to limit title searches to a reasonable period time, usually 30 to 40 years. 1. This eliminates old title defects with the passage of time so that when one person has record title to land for a certain period of time, inconsistent claims are extinguished. 2. Claimants of an interest in land must file a notice of claim every 30 or 40 years after the recording of their instruments of acquisition to preserve their interest in jurisdictions where such acts are present. i. Notice of claim is either a recording of the old interest or claim, or a new recording made to renew an interest or claim for an additional 30 or 40 years. 3. Example: 1889, O gives a 99-year lease to X which is recorded the same year. 1890, O -> A via deed reciting that it is subject to the recorded lease in X. 1920, A -> B via deed with no mention of the lease. 1941, B -> C via deed with no mention of the lease. o Under a 40-year marketable title act, Cs title would be free and clear of the 99year lease as of 1960, when the 1920 deed had been of record for 40 years, assuming that X was not in possession and that X has not filed a notice of claim. C. Exceptions to Marketable Title Acts: There are some exceptions to the extinguishment of rights under the act. 1. Possession, serves as notice of an interest or claim under some statutes. 2. Mineral rights, easements, and claims of the federal government under some statutes. 3. Example: Assume jurisdiction has 40-year marketable title act. 1959, O dies intestate and owns unimproved land. Os heir, H, doesnt know O owns land. 1960, F forges Hs name to a deed conveying land from H -> A. Forged deed is recorded. 1962, A -> B. 2002, Hs daughter and sole heir, C, discovers the 1960 forgery. C brings suit against B to establish title to land. C wins. (14) TITLE INSURNACE: A. A guarantee provided by an insurance company that the title is of a certain quality, which commonly means the title is free from encumbrances other than those specifically excepted in the title insurance policy. **Such guarantee is that the insurance company has searched the public records and insures the policyholder against any defects in the records. 1. Insurance is purchased by the payment of one premium paid at the time the policy is issued. 2. Continues for so long as the insured maintains an interest in the property. 3. Purchased in the amount of the purchase price of the home on a homeowners policy, and is purchased in the amount of the loan of a lenders policy. 4. Does not run with the land, so a subsequent purchaser must take out a new policy if insurance is wanted. B. Exceptions to title policies:

23

Professor Kane Fall 2011 Anu Dhuga

1. Facts that a survey would show, which should be done prior to purchase, are usually excluded. 2. Adverse possession is not protected under title policy.

24