REAL ESTATE TRANSACTIONS (SPRING, 2017)

PROFESSOR DEWEY
UM LAW

Real Estate -- OUTLINE FOR EXAM ~

EXAM: 50 T/F and 50 MC; Closed book

Brokers and Listing Agreements

What brokers do ~ What are their job functions
Find parties for the deal (critical task)
Help disseminate the info between the parties
Facilitate the transaction/negotiations
Contract law
Agency law
Fiduciary duties
Assist buyer in finding financing Help with various aspects of the inspection
Brokers regulated by State law
Two distinctions in Florida (Highly regulated in Florida)
Real Estate Agent ~ has sale license but has to work under a broker
Real Estate Broker ~ Must obtain a license issued by proper authority
before they can perform brokerage services
Discipline of Brokers ~ Gross negligence; repeated misrepresentations;
commingling clients funds w/ brokers own $$ and any other forms of
incompetence or dishonesty
Courts generally prohibit unlicensed brokers from recovering regardless of
whether the unlicensed broker proceeds upon an express K or an alternate theory
like quantum merit, unjust enrichment or promissory estoppel
Different types of Brokers (typically no overlap) 99% of brokers fall within one of
these categories:
Residential ~ Sell single-family homes, condos, and sometimes vacant lots
Commercial ~ Handle sales of office buildings, industrial parks, retail
centers, land for shopping centers, apt. buildings; Often specialize by type
of property in addition to location
Leasing ~ Specialize in leases; work mainly for LLs; Go out and find Ts
for space
Get percentage of amount of rent per term
If renewal of lease, they also get commission for that
Usually, commission is paid upon lease execution or occupancy
Mortgage ~ Facilitates mortgage lending in residential and commercial
property
They have contacts with institutional lenders (banks, savings and
loans, insurance companies, pension funds)
May use this broker instead of going to lender directly because
they may be able to get a better rate, get several different offers
from different banks
Will get percentage of loan, or get a flat fee
 A commercial transaction, developers wont use a Mortgage Broker
~ Will go directly to their bank
Listing broker is ~ work for seller; list property
Cooperating Broker ~ comes with buyer to house
Types of Listing Agreements/Relationships ~
(These are agreements between Seller & Buyer; they do NOT have to be in
writing in FL; they are NOT a type of K governed by Statute of FraudsKey
parts of a Listing Agreement: Type (which type), Length (duration/time ~ tends to
be 6 months), Amount of Commission/Compensation)
1. Exclusive Right to Sell ~ Seller engages a broker; if the seller sells the
home on his own, and the broker is not involved at all, the seller still owes
the broker commission
The most protective of the Brokers interests
If you are the Broker, you always want this type of listing
No matter how sold, Broker always gets commission
2. Exclusive Agency ~ Similar to above but if the seller finds a buyer on
his own, he does not have to pay the Broker commission
Seller still does not have right to use another broker
Better for seller
3. Open Listing ~ Non Exclusive free for all
Broker only gets commission if the Broker brings the buyer
If seller brings the buyer then broker gets nothing
Seller has the right to use other Brokers
Not common in residential
Open sale up to all brokers
Favors Sellers
Net ~ All Listing
Broker gets a net amount over the predetermined sale amount
Not common in residential
The commission is not specified as a %, rather the seller agrees to
pay the broker all amounts received in excess of the set price
established by the broker and seller
Broker Compensation ~ done by custom of where they are located Usually 5-
7%; vacant land can be up to 9%
Get % of purchase price, unless negotiated otherwise
Average commission is 6%; parts of NY is 7%
Can be negotiated (have this right as a seller)
Want broker to only earn commission when produce ready, able, willing
buyer AND at closing
General (majority) Rule ~ get commission once produce willing, able,
ready buyer
Want to make sure get paid at closing ~ YOU must include that comment!
If closing does not happen because seller refuses to close, then Buyers
Broker has earned the fee and can sue for the commission; Buyers can also
sue Seller
If Buyer defaults, there is generally a deposit placed in Escrow with a title
 company with the sellers attorney; If you are the seller, best to have
deposit with title company or attorneyDeposit goes to pay Broker fee
then to the seller
MLS ~ Multiple Listing Systems ~ property in database so everyone can
seethats how you get cooperation
All potential buyers can see the selling property
Reason why most people get brokers, so can list house on MLS
Now, can get into MLS without signing with a broker by going through
internet
Brokers Duties
Duty of loyalty, disclose, confidentiality.
Know who Broker Represents ~ buyer or seller
Dual Agency ~ permissible in most states Represent both buyer and seller
NOT allowed in Florida
When allowed, Broker must disclose the dual agency to both parties who
consent to arrangement
Potential for conflicting duties
Types of broker relationships:
Single Agent/Broker
Most Common; Represents buyer or seller; Dont represent both
parties; owes fiduciary duty to party they are representing (Ex.
Listing or Selling Broker)
Transactional or Non-Agency
Represents both the buyer and the seller; dual agency; Avoids
creation of fiduciary duties; dont give advice to either party and
not an advocate to either party; Prohibited in FL (b/c dual agency
prohibited)
No Representation
Broker is just referring parties to each other sales person, referral
person, etc
Designated Sales Person
Only in Commercial Transaction
Brokers are there to facilitate the transaction ~ bring parties together and
facilitate getting deal donehelp parties

DUBBS V STRIBLING AND ASSOC.

FACTS:
The (P) Dubbs put their apt on the market in an open listing
Stribling and Assoc (D) a real estate brokerage showed the apt to prospective
buyers
Dubbs confided in brokers agents that they preferred staying in their apt and
purchasing the adjacent apt and combining the two rather than moving, but the
owner of the adjacent apt was not willing to sell.
After showing apt to several prospective buyers, the agent herself placed an offer
to purchase
 The two parties entered into a K for sale in Dec 1994 and no broker was listed on
the K.
The K allowed for several months of delay of the closing so that the Dubbs could
find a place to live.
The Dubbs used a different broker to find their new house, and entered into a
purchase K in March 1995
3 weeks before the May 1995 closing, D (the agents) entered into an oral
agreement with the neighbor to purchase the adjacent apt.
The Dubbs were not aware that the adjacent apt was put on the marker or that (D)
intended to purchase it
On June 5, 1995 (D) the agents entered into a written K to purchase adjacent apt

ISSUE:
Did the agents breach a fiduciary duty when they failed to inform the Dubbs that
the adjacent apt had been placed on the market?

HOLDING/REASONING:
No, (D) had a duty to inform the seller of her intention to purchase the property
and to disclose any information that could bear on the sellers consideration of her
offer. She did this when they entered into the purchase contract.
The parties agreed in the K that no broker would be involved in facilitating the
transaction
Although the general rule is that a real estate broker is a fiduciary with a duty of
loyalty and an obligation to act in the best interest of the principal it is also
settled that the broker/principal relationship and accompanying fiduciary duty
can be severed by an agreement of the parties or by unilateral action of the
principal here the K served as to sever the relationship, and (D) no longer had
any duties to uphold.

Purchase & Sale Agreements

What is a P&S Agreement? ~ Parties come together and come to some
understanding as to what will be exchanged and when and how the exchange will
occur.
Generally, the seller has obligation of preparing the K (but not always the case)
Could be your job as attorney to prepare the K
MUST put everything in writing of what parties want and what they are
exchanging!
Gives parties understanding of obligations and what is being exchanged
Requirements:
Must Identify the Property
Street address is not adequate ~ MUST attach a legal description of
property
Real property as well as tangible personal property and intangible
(liquor license, trademark)
Must determine the Deposit
Must determine the Financing
 Contingent upon buyer obtaining financing; must use good faith
efforts
Include Title Protection
Who will pay for title? Who will pay for examination of title? What
are permitted encumbrances?
Need for definitions
Define certain terms in K; Representations of Buyer and Seller; Any
warranties that seller may give to buyer; inspections; due diligence
period
Set forth Zoning
If buyer purchasing property for commercial use, set forth in K that
the property is zoned for this particular use; or put Condition
Precedent that are obtaining zoning, but if cannot get zoning, Buyer
does not have to buy property
Cannot put on any restrains of alienation
Just because have Florida Form, parties can negotiate outside Pre-Printed
form ~ parties have ability to freely negotiate terms of K ~ can negotiate
around customs
Different stages of Real Estate Transaction
Pre-K ~ both parties meet, gather info, discuss transaction & expectations, letter of
intent possibly
Negotiate decide on terms of K
Keep track of who is preparing K (In residential, broker usually drafts K on
spot for acceptance by seller, who may accept on spot)
Residential ~ Short time period; Commercial ~ Long time period
Keep track of all changes and order of Ks as they are created
Execution ~ Where K signed; getting ready to do closing; runs from moment of
entering into K until Closing (Longest period of time)
Conditions Precedent
Risk ~ longer period of time is, the more risk parties have
Make sure K drafted carefully so party that is supposed to have risk,
has the risk and they are properly insured
o In Florida, Purchaser bears risk at this time
Sometimes parties in diff locations ~ Specify in K to allow faxes/PDFs to
constitute originals and can be signed by counterparts ~ Should swap
originals
After signed, recommended that you
Prepare important dates check-list and remind buyer of pending
dates
Prepare closing check-list ~ go through K and title commitment
they will tell you what you need for closing; Then write down all
docs that need to be produced, who is responsible for producing it,
and who is required to sign it
The longer the time b/t this Stage and Closing Stage, the more risk each
party has
Set forth in K where risk will lie
 Majority Rule in FL ~ Purchaser bears risk ~ this seems odd and
unfair because they are the party without insurance!
Minority Rule ~ Sellers bear risk ~ they are insured Buyer doesnt
usually obtain insurance until closing, or eve of closing
Residential generally closes around 45 days
Commercial period may not close 6 months to a year
Closing or Settlement ~ parties exchange documents; buyer pays for property
Make sure have check-list with all documents and everything signed,
notarized
Can occur in 2 Ways:
Closing in person
In Escrow (by mail)
o Usually do this when parties do not live near each other
o Requires planning ahead
o Cheaper & quicker
Money is Exchanged
Residential ~ usually by certified check
Commercial ~ lender usually wires money to settlement agent, and
buyer will bring remaining money (general rule: 3:30pm)
Escrow closing ~ certified check can be mailed, more common to
wire
Post-Closing ~ make sure docs recorded, clear up any left over issues
Can be as simple as giving copies or originals to each party, and making
sure proceeds have been disbursed
Sometimes w/ commercial transactions, there are a lot of post closing
actions that need to take place (can take months) ~ common to agree that
there are still outstanding issues
Need a post closing letter ~ see responsibilities of each party if actions need
to be taken

To have valid conveyance of property, must have Grantor and Grantee

Once deed executed, and payment paid, Grantee is new owner of property
Grantee = buyer; Grantor = Seller

Conditions Precedent
In certain Ks, there will be certain requirements that must be met prior to closing

Difference between Letter of Intent and Option Agreement

Letter of Intent ~ Sets forth proposal for purchase or sale of real property
Many attorneys recommend that you do not prepare these
Take property off market before there is an actual contract signed ~ this
gives buyer more time to weigh pros and cons of buying property and
during this time, seller cannot market property to others
Usually, NO consideration paid for letter of intent
Many times, waste to do this because still have to do K, and so it is a waste
of money for both parties (attorneys fees)
 Most IMP reason why discouraged If you do not get to K phase b/c one
party decides not to go through w/ transaction, you have this non-binding
writing, and then you still sue b/c one party thinks other party had
obligations
Things in letter of intent may or may not make it into contract
Option Agreement ~ Holder of option has option in future to purchase property
for a set price
Generally, holder pays a certain price for option, which doesnt necessarily
have to be paid at outset
Right of First Offer ~ must go to holder of option and say you are going to
sell property, and allow holder to give you offer
Holder pays for this option to buy in future
Right of First Refusal ~ Seller has valid offer from 3rd Party and a K, the
seller must present this to Holder of Right of First Refusal, and that holder
must have the opportunity to match asking price seller has
3 Parties: (1) Seller; (2) Buyer; and (3) Holder of Right of First
Refusal
Buyer wants CP that requires seller to get a waiver
Generally sellers duty (but can get K to change that)
Any option should ALWAYS be recorded ~ If you are a holder, make sure
they are recorded in order to protect your right and put everyone on notice
Holder does not always have to pay money at time of signing, may be in
position that seller and holder may have had previous transaction and the
option is part of prior agreement
Can get very messy

Statute of Fraud ~
P&S Agreement must comply with Statute of Fraud
Must be in writing
Adequate description of parties
Doesnt have to set forth closing date
Description of the property
Intent to buy and sell
Agreement doesnt have to include ALL parties terms to comply with of
frauds although should include all terms, parole evidence rule may be a
factor when considering the enforceability of alleged K terms that are
not part of the written agreement
Certain states require price in K FLORIDA requires this!
Closing date does NOT need to be set forth in K to satisfy of frauds
Both parties do NOT have to sign the agreement ~ whoever the party is
being charged, MUST have signed the agreement
Noncompliance with of frauds makes the contract voidable
EXCEPTION: if there is Part Performance
In residential, usually not an issue (inspection report is biggest problem;
also problem of financing)
To have valid conveyance, must have Grantee and Grantor
 Grantor = Seller; Grantee = Buyer
Mortgagee = Lender; Mortgagor = Buyer
During Due Diligence Stage, make sure other party is in good standing (if
not, can make them in good standing does not make contract voidable)
A failure of condition in agreement does not always result in breach ~ just b/c one
party fails to fulfill 1 condition, can still close But if do not agree, the failure to
fulfill condition can give right not to close

Purchase and Sales agreement (contd) - RISK ALLOCATION

4 main sections found in P and S agreement
Section 1 part that includes info (i.e. names of parties, when closing will be, etc.)
Section 2 Covenants
Promises
Allocate risk by mapping out the parties mutual expectations and
obligations
Assignments of specific tasks to either buyer or seller
Can be negative covenants I promise I will not enter into any new service
contracts
Can be affirmative covenants I promise that I will maintain the current
quality of the property
Section 3 Representations and Warranties
Contract provisions designed to address areas of informational risk
By putting these express provisions in the contract, the buyer gains a
direct cause of action against the seller should the information prove to
be false
How much is the seller going to let the buyer rely on it
o Rent role for seller, buyer will rely on this for how much rent
is, number of tenants
This area is very much negotiated
May be made on the part of the buyer financing contingency
o Buyer may represent that he is employed and makes XX $
Section 4 Conditions and Contingencies
Things that have to happen before 1 party or the other is obligated to go
forward in the K
Help reduce economic exposure and cost by sometimes allowing one party
to hold back on certain actions or expenses until the other party has first
accomplished a preliminary prerequisite or objective
Time for performance will generally be strictly enforced if there is a
certain stated date in the contract, and the contract provides that time
is of the essence
If a K term is interpreted as establishing a condition precedent or a
simultaneous condition, the parties will generally be released from any
further obligations; but if the K language in question is interpreted as a
covenant, there may be a different result
Failure of representation breach of K
Failure of a condition or contingency failure of K
 Buyer financing is the most common contingency
Risk allocation - draft provision in a manner to ensure certainty
If seller, limit the time for the buyer to obtain financing (if buyer, would like the
longest period of time to obtain financing)
If seller, set out specific terms of the financing (buyer would like open ended
financing terms and conditions with buyers sole discretion to terminate)
If representing the buyer, should set out conditions in which buyer is excused if
lender cannot perform

Inspection Period
Time, Basis for Termination

Issues that relate to the Property

Quality
Physical condition
Environmental issues
Zoning/entitlement (development rights)
Quantity
Acres - where acreage is important, need to account for it in the contract

MATERIAL DEFECTS AND DUTY TO DISCLOSE

Statutory duty to disclose
Interstate Lands Sales Disclosure Act (property quality)
Disclosure statute that requires the developer to file a registration known as
a statement of record for approval by the govt before offering any lots for
sale
Developer must give each prospective purchase a detailed property report
that contains required disclosures about the lot and the total real estate
development
Implied duty to disclose
Latent defects do not give rise to a duty on the part of the seller, and
constitute an exception to the application of caveat emptor
When latent defects are coupled with misrepresentations or
concealment, caveat emptor does not preclude a recovery for fraud
Fraudulent concealment exists where a vendor fails to disclose
sources of peril of which hes aware, if such a source is not
discoverable by the vendee
Misrepresentation, concealment or nondisclosure of a material fact by
a seller of residential property in response to an affirmative inquiry is
evidence of a breach of duty on the part of the seller
After inquiry, if the buyer justifiably relied on the misrepresentation or
nondisclosure, or was induced or misled into effecting the sale to his
detriment/damage, the buyer has met the burden of proof required to
withstand a summary judgment motion
Fraud may be committed by suppression or concealment, as well as
by expression of a falsehood
 Even an innocent misrepresentation may, under the appropriate
circumstances, justify rescission in the interests of fairness
o The misrepresentation must be regarding a material fact
o The misrepresentation or nondisclosure of the seller must
cause justifiable reliance on the part of the buyer, and
damage must result as a consequence of the fraudulent
transaction
o In determining whether the reliance is justifiable, courts
consider various circumstances involved, such as the nature
of the transaction, the form and materiality of the
representation, the relationship b/t the parties, age,
experience of the parties
When a fiduciary relationship exists b/t an agent and
a client, the client can rely upon the representations
of the realtor
In the absence of a fiduciary relationship, the law
requires a person to exercise proper vigilance in his
dealings, so that where one is put on notice as to any
doubt as to the truth of a representation, the person is
under a duty to reasonably investigate before
relying
The prevailing trend in misrepresentation cases is
to place a minimal duty on the buyer to investigate
and discover the true facts about the property
A seller who is under a duty to disclose will be
held liable for damages directly and proximately
resulting from his silence
Realtor has no duty to affirmatively speak up and
disclose their knowledge if inquiry is not directed
at them
Implied Warranties
Arise from the situation or context in which a transaction takes place
The implied warranty is read into an exchange on the basis of reasonable or
fair expectations given the nature of the exchange
Has been extended beyond the physical structure of the home to include
such things as the quality of the water and soil related to the home

Contract Remedies
Damages Meant to compensate party for loss and to make them economically
whole:
Examples:
Recovery of expectation
Value on transaction
Out of pocket expenses
Loss profits
How you measure damages is the loss of the partys bargain
 How to measure the loss of the partys bargain difference b/t K price and fair
market value of the property at the time of the breach, not at time of performance,
i.e. closing date.
General Damages damages, which are real and substantial; the amount of
damages that are allocated to the injured party. Difference b/t K price vs. fair
market value at time of breach
Ex: If I was seller, selling piece of property, and buyer failed to closeand
under K, I had to buy this survey for $500so now I am out $500. The
$500 is general damages that I can get.
Special Specific Damages damages, which are actual but not necessarily result in
injury.
Not contemplated at time of making contract
Ex: the buyer sells their existing house they are living at in order to buy
another house (already closed on their house 1 day before closing of new
house)at day of closing of new house, seller refuses to close...so Buyer
now has to find a place to live until seller closes or they find somewhere
else to liveSo, incurring Hotel Expenses. This was not foreseeable!
To have special specific recoverable, need to flow immediately and directly
from K
Consequential Damages losses or injuries which are the result of an act but are
not direct or immediate
Stem from losses of non breaching party, which are proximate result and are
reasonably foreseeable by breaching party
Ex: Failure to close b/c of buyers breach, but all conditions under K have
been met, Seller expected to close, but now incurs expenses to maintain
property taxes, utilities, maintenance! Seller needs to incur these costs
until Buyer closes or can find new buyer!
Stem from loss and flow directly from contract
If get Special Damages, can get Consequential Damages
Liquidated Damages Damages that the parties to a K agree to and quantify in
advance of any breach.
Cant get consequential damages if have Liquidated Damages Clause in
K!
Must appear to be reasonable in light of all the circumstances
Actual damages from a potential breach are hard to predict at the time of
contracting
Must bear a reasonable proportion to the probable loss caused by the breach
If there is a breach and you have default, and non-breaching party sues, they
are entitled to attorneys fees as long as contract provides for it!
Generally, party drafting K puts in their terms and then parties negotiate
from there
Ks often have clause If buyer defaults, seller has right to cancel K, and
keep deposit
Usually seen in residential situations
Generally, deposit is 3% - 10% of purchase price
Once negotiate for those damages, cannot go back and sue for more
 damages
If parties agree to liquidated damages, they cant waive and sue for actual
damages
Not every liquidated damages clause is enforceable Court may find it
unreasonable!
But, if it is reasonable, parties cannot sue for actual damages
Pre-Judgment Interest incurs from date of closing; available to litigant
Generally, Punitive Damages NOT grantedonly in aggravated cases

4 Major Equitable Remedies: difficult in proving when there is a subsequent

purchaser
Rescission allows parties to put an end to the agreement.
Can stem from fraud, misrepresentation, or mutual mistake. Most from
fraud and misrepresentation
Subject to the courts discretion
Rescission is granted only if the problem is sufficiently material so that
continuation of the contract is not appropriate or feasible
Specific Performance makes parties complete the agreement (most important)
Requires reluctant party to perform under the K
Buyer cannot be made whole by providing them with substitute property or
giving back property ~ Property must be special
If bringing claim for this, must be ready, able, and willing to perform
Plaintiff must have satisfied all contract conditions and requirements
that were his obligations before he can demand performance from
the other side
Buyer will say hes entitled to this remedy this is b/c the land is
considered unique
Buyer will force seller to complete closing
Buyer must prove that land is unique and there is no other piece of land in
the world that would give exactly the same characteristics and location
Very hard to prove!
Reason why courts force seller to seller, as opposed to forcing the buyer to
buy, is because generally believed seller can be made whole with money
damages
Depending on market, if in declining market, some Courts are
forcing Buyer to buy the property this is because buyers are rare in
declining market
If Buyer wants to impose specific performance; must show hes: Ready,
willing, able
If Seller in declining market wants to force Buyer to purchase property,
MUST keep house off the market
Can be very costly for the non-breaching party

A list of realtors want back up contracts MUST BE CLEAR As seller do not

want 2nd or 3rd buyer to think they are ones buying house
Abatement of Purchase Price Minor breaches in K, i.e. defects in physical
 conditions of property, shortages in area, slight title defects (see this a lot with
structural defects)
Buyer will want to pay less than the K price and will ask for specific
performance with an abatement of price to reflect the loss of value from the
problem
Buyer has much more bargaining power in declining market

In order to obtain specific performance, Plaintiff must prove 3 things

1. Binding contract
2. Plaintiff is ready, willing and able to perform
3. There is no legal remedy available monetary damages will not make
them whole, and they cant go out and buy another piece of property
comparable to lost property

Vendor Vendee Lien (not very common) Party can put lien on property
By operation of law, a seller obtains a vendors lien on the property title to secure
the unpaid purchase price
Prior to closing, the vendors lien attaches to the buyers equitable title, which
the buyer has as a consequence of the doctrine of equitable conversion.
After the closing, if the seller has not received full payment, the lien attaches to
the title conveyed by the deed. The buyer has a reciprocal right, known as a
vendees lien to secure the return of the down payment or the payment of
reliance damages in the event the sale does not close
Lis pendens - method of asserting potential claim or conflicting interest against
title to real estate when litigation is filed or pending
Can be done for Mortgage foreclosure, Purchase/Sale Contract, Adverse Possession
Puts people on constructive notice of the rights that you are serving
Anybody who takes title to the property, that interest will be inferior to
the rights you obtain from the lawsuit
Method whereby someone asserts potential claim or conflicting interest
against title to real property when litigation is pending
It is a lien that you file on property puts everyone on notice that you have
a lien, claim, on that property it even states the amount
Generally, can be cleared up at closing seller would pay out of closing
proceeds amt of money owed, and Buyer would pay for property Monetary
effect
Important to file lis pendens if you have a claim on property so put
everyone on notice you have claim
Buyer wants to make sure lis pendens is paid, because it will cloud their
title! And title insurance will not cover you for that!
They are common
Reformation the parties are allowed to re-write the contract, or re-form the
contract, appropriate when the document has to be reformed to reflect the parties
intentions. Must have mutual mistake; if the language of the written contract has
an error or mistake, one of the parties may seek a correction through
reformation
 This happens in the event of a mutual mistake
Ex: Inspection period the Buyer was supposed to have right at end of
period to cancel K without any reason, and the K was written incorrectly to
say that they could only cancel if there were repairs over $1,000the K
was signed, and then realized K was signed incorrectly.So, under this,
can go back and re-write because it was BOTH parties intent to allow
Buyer to cancel the K for any reason

Johnson v. Davis
FACTS: The buyers put down an initial deposit of $5,000 and upon seller telling
them that plaster on ceiling was from minor problems, Buyers went ahead and put
additional deposit down, totaling $30,000prior to closing, Buyers went to house
and there was rain gushing in and major water damagesBuyers sued for deposit
back
HOLDING: Deposit should be returned to buyer.
Created duty to disclose Seller has duty to disclose facts materially
affecting value or desirability of property, which are not readily observable
and not known to the buyer
This disclosure requirement applies to As is sales
Imposes duty on seller
Disclosure requirement in Johnson v. Davis only applies to
residential!
Other things must disclose if seller is aware of: asbestos, rats, mold, cracked
walls and foundation, etc.
Disclosure requirement does NOT apply to commercial property! Caveat
Emptor still applies in commercialUnless
May be contractual duty to disclose in commercial; But generally,
Buyers must beware because they are much more sophisticated than
residential buyer
If seller makes representation in contract that they are not aware of
anything, then misrepresenting if they know. (Usually written, Seller not
aware ofexcept
Many times, Contract makes representations and warranties so sellers
protected
If seller makes misrepresentations or false statements or try to conceal
condition of property, then seller is liable to buyer for damages

Slander of Title: when someone files a false claim against property; or cloud
owners title to property (File lis pendens improperly)
Where someone causes changes in or there are changes in perception of
value of property Ex: a false claim against a piece of property
Slander would also come from filing a valid deed or a lis pendens against
the property b/c that would change a sale to someone else, and owner would
not be able to close on a sale.
POINTS TO REMEMBER FROM TODAYS CLASS:
If a party receives liquidated damages, NOT entitled to actual damages
Generally, injunction not a remedy that parties utilize in connection with
real property transactions or breach of real estate contract

Recording, Abstracting, Title Insurance- (handled during executory period)

Marketable Title ~ A marketable title is free from encumbrances and free
from reasonable doubt as to its validity; and A market title is title that a
prudent person with full knowledge of all the facts and legal consequences
would be willing to accept
All contracts deal with title by either an express term or an implied term
In contracting about title, the starting point is the norm that the buyer has the right
to merchantable title, a term that is synonymous with marketable title
Title is one of the most important items to be reviewed done during due diligence
period
Parties research title, especially the Buyer they contact title company and
ask them to search to see whether the title is marketable or unmarketable
Usually buyer buys title commitment; but parties can contract otherwise
When you enter into K, starting norm is Marketable Title that the seller MUST
convey marketable title
The right to marketable title is an implied term of the contract, based
on the parties probable expectations
The marketable title provision operates to allocate risk between the parties
By entering into the contract, the seller impliedly promises that his title is
marketable
Means that he has taken on the risk that a defect may be discovered
that makes the title unmarketable
If this happens, the seller has failed his obligation under the contract
and is responsible for damages
In addition to being an implied promise, marketable title is an implied
condition, the buyers obligation to pay the purchase price and close the
transaction are conditioned on title being marketable
If this condition fails, the buyer has no further obligation.
The sellers title must be marketable only at the closing, not earlier.
When the land is subject to a mortgage or other lien, the seller may use
the purchase price to satisfy that encumbrance.
Most written contracts, however, are not silent on the issue of title.
Many contracts have an express promise by the seller of the marketable
title; instead of changing the implied term, the parties simply recognize
it
If K silent to marketable title, courts generally construe this standard of
Marketable Title
During due diligence period, after sign K, when you determine as a buyer whether
property is marketable, can object at this time
If monetary lien on property, doesnt have to be cured until closing ~ as
buyer, no right to cancel K because monetary lien
 Reasons why property may not be marketable
No witnesses; damage; liens, mortgages; encumbrances; restrictions
Which ones can be cured at closing? Liens, mortgages, witnesses;
documents can be cured and re-filed
Encumbrances ~ covenants, restrictions
Marketable Title clear title; free from encumbrances
If it is monetary encumbrances that can be handled at closing this is not
reason buyer has right to not close!
A defect you may not be able to cure is if there is no access to the property
and the buyer cannot get easement this would render property
unmarketable
Generally, must be a big issue in order to be unmarketable
Issue of Use: In residential neighborhoods, may have covenant that have to use
property as residential. Want to make sure that the use of the buyer is what they
want to use property for.
~ Will be Marketable Title Questions on Exam
In Florida, the deed always has to be signed by 2 witnesses and notarized If not
signed by 2 witnesses or notarized the deed will be defective (On Exam)

Contract Title (2 types; Record and Insurable) Instead of marketable title, Parties
can contract for different variations of what Marketable Title is
Contracts that define the quality of the title that the seller must furnish and
the buyer must accept
The parties specify the sellers obligations and what is acceptable to the
buyer
Can be more lenient or more strict than marketable title
Dont have to go to standard of marketable title (Contract Title)
Record Title aka as Insurable Title type of title in K that states that if
Insurance Company is willing to issue Title Insurance, then the property is
Marketable
Buyer has protection of the Title Insurance Company.
Insurable title ~ Title company will issue insurance
When the buyer plans to obtain a title insurance policy, the contract often
describes the type of policy that will be satisfactory to the buyer.
The contract may provide that a title insurance companys willingness to
issue that policy fully satisfies the sellers title obligations. In effect, the
parties replace the courts, as the arbiter of marketability, with the insurance
company
Record title ~ Buy will get title that is on the record
Requires proof of the status of the title, gathered solely from deeds and
other instruments that are recorded in the public records for recording
interests in real property.
Means that the sellers title cannot depend on an unrecorded
instrument, such as a deed that hasnt been recorded, a will that
hasnt been probated, or a claim based on adverse possession
Courts are split on the question of whether title by adverse possession is
 marketable when the seller has not successfully litigated the adverse
possession claim but has strong evidence of the elements
Some courts state that marketable title must be based on records
Other courts hold that title by adverse possession is marketable,
provided, that the seller can clearly establish the elements
Sometimes defects that cause title to be unmarketable can be cured sometimes
you may have to get corrective deed from previous seller; Seller can clean up
certain things that render property unmarketable
Sometimes curing defect requires litigation because title defects cannot be cured by
bargaining Action to Quiet Title Plaintiff brings adverse claimants into courts as
Defendants compelling them to establish their rights or relinquish them
Litigation necessary to clean up title defect
Very long process, should be used as last resort
If you cant find someone for entity (dont know who claimants are) must
publish in newspaper to give notice
IMPORTANT POINT: As attorney, when reviewing title, and looking at whether
client sees title as marketable, also look at what Lender wants because status of title
affects value of property which will also affect security of the lenders loan!
In residential cases, not much leeway if unmarketable, will not get
financing
In commercial cases, may be willing to take more risks
Another issue in Actions to Quiet Title Adverse Possession if claim to own
part or whole property by adverse possession, will render unmarketable If entire
property, property is definitely unmarketable
Many states have not addressed issue of whether or not seller has to actually litigate
title when dealing with property being sold by person who obtained through
Adverse Possession
CA takes position that marketable title is based on records, so if take
property by adverse possession, must be records showing this;
NY takes position that title by Adverse possession is marketable provided
that seller can establish all the elements of Adverse Possession, however
this rule compels owner from bringing Quiet Title actions before putting
property up for sale
PROFESSOR STANDARD: Unless seller can produce proof that owns
property by adverse possession, then unmarketable
Buyer has legal right to get out of contract

Encumbrance - a non-possessory right or interest in the property held by a 3rd Party that
reduces the propertys market value, restricts its use, or imposes an obligation on the
property owner.
Examples: Easements, real covenants, mortgage or tax liens, equitable servitudes,
etc.
Means that the seller does not own 100% of the fee simple absolute
Have different kinds:
De Minimis Encumbrance Buyer must accept; it has no measurable affect
on price or value
 Ex: Cable Easement; Utility Easement
Visible Encumbrance Not always of record, may be recorded if there is a
taking; will not see it until look at survey
Ex. Public Roadway actually a right of way that goes onto the
property (may be 10 15ft)
If Recorded because of taking Could impair marketability
Ex: Covenant Could impair marketability
Important to say in K what property is to be used for!

Encroachment - Unauthorized extension of an improvement across a boundary line.

Constitutes a trespass by the improver
3 types of encroachments are of concern to a purchaser:
(1) The improvements on the property under K may encroach on
neighboring tracts, or (2) on a street, or (3) neighboring improvements may
encroach on the property.
All three types of encroachments generally render title unmarketable
When the sellers improvements encroach on the neighbors land or a
protected area, the purchaser may be required to pay damages or remove the
improvement
When the neighbors improvements encroach, the purchaser may have lost
title to the area covered by encroachment under the law of adverse
possession or by virtues of principle of equity
This is where survey comes into use
If encroachment on street (Ex. sidewalk) not a big issue
If your encroachment adjoining on to neighboring property BIG issue! They
could make you move, which would cause you to spend more money!
If they are encroaching onto your property can give them permission to do this, or
could have adverse possession issue
Is a title marketable, notwithstanding a clear violation of a restrictive
covenant?
A court of equity will not compel a purchaser to accept a title which is so
doubtful that it may expose him to litigation, though the court may believe
it to be good
Although a title defect may be small, it is nonetheless a cloud on the title
that may expose buyers to the possibility of litigation due to the remedies
available to other landowners in the subdivision
Absent waivers from all landowners holding buyers harmless, the
possibility of litigation on the matter will not end, consequently a cloud on a
title may render the property unmarketable

Recording and Public Records

Purpose of Public Records System - resolve competing claims to land
Common law rule - first in time, first in right
2 types of indexes: Grantor/Grantee Index or Track Index
In Florida, Deed must be witnessed by 2 witnesses and be notarized or Clerk will
reject deed and it will have a defect This is why you want to know what State or
 County requires
In Florida, Notary can act as a witness
May also have to pay transfer taxes on deed (in Florida, called documentary stamp
taxes)
Pay recording fees when file
Every State has different recording acts and a system where record all public
records
Every County may have a different system
The recording system has 2 basic functions
Title assurance - risk reduction, reduces risk by providing a method for
determining who owns a tract of land and tells the owner where that
property is
Establishes priorities when there are successive transfers of interests;
Who has priority over other lien holders; lenders want to make sure they
have 1st priority and everything else falls behind the mortgage!
Certain docs may have to be set up a certain way, different costs for recording fees
To record a document or easement, must bring original document to recorders
office and pay recording fees (In Florida, $12 for 1st page, $8 for each additional
PER DOC)
Index Systems - essential to finding the relevant documents for a title search;
used to discover chain of title:
Name Index Lists by Grantor-Grantee Indexes!
Index system uses names of the parties to the deeds and other
instruments
Searcher uses the name indexes to construct a chain of title for the
land by working backward from the present owner
Tracking Index Uncommon
Divides all the land in the county into parcels and organizes deeds
and other instruments according to the parcel or parcels they affect
3 reasons why few states have adopted Tract Indexes:
o Very Costly
o More skill is required of the recording office employees to
manage tract system so more room for error
o Indexing systems used for public records is relatively
unimportant because of the prevalence of private title plants
owned by title insurance companies and abstract companies
When Title Searcher searches property, they do 4 things:
Search Chain of Title
Look for Adverse Recorded Transfers by the present owner and by all prior
owners in the chain of title.
To find these adverse transfers, the searcher checks the records of
the deeds and other instruments in the county where the land is
located.
An adverse transfer may upset the apparent chain of title by showing
that a prior owner conveyed land twice or that the apparent present
owner has conveyed to someone else
 Review all recorded instruments found, review deeds must look beyond
who the grantor-grantee are, b/c there may be restrictions or exceptions to
the deeds; covenants may be in the deed
Consult other records in addition to recorded documents Fed tax liens,
State tax liens, Bankruptcy records (those are not in public recorded
documents) make sure do not have these liens against property

Recording Acts 3 Types: problem 10G is a good example

Race Statute In a jurisdiction that uses this, the 1st to record wins, only thing
that matters is who recorded 1st
If you have a deed, and someone else has a deed for the same property, and
you record 1st, you are the owner of the property and it does not matter if he
has notice of any other claimant or who got the interest in the property first.
Does not seem fair, but some states have this statute
Notice Statute (Florida Follows) The Last Bona fide Purchaser wins
Purchased in good faith, but does not have notice of the prior transfer
Whoever takes w/o prior notice and pays consideration wins.
Notice is evaluated at the time the grantee pays value
If there are competing bona fide purchasers, the last bona fide purchaser to
take conveyance wins
Different ways to evaluate notice:
Actual Notice purchaser has actual knowledge of prior interest. If
C knows of the fact that B acquired from A, then C cant claim
protection of the act.
Constructive Notice purchaser is deemed to have knowledge of
all prior recorded interests whether or not searched public record; if
anything is recorded, purchaser has automatic constructive notice.
Doesnt matter whether you actually have notice, b/c it is out there.
Deemed to have constructive notice b/c it has been recorded, does
not qualify for protection of recording act, and thus reverts back to
common law rule of first in time.
Inquiry Notice Purchaser has knowledge of facts suggesting that
someone may have an unrecorded interest, and is required to
inquire.
o Most important aspect of inquiry notice is a duty to
inspect the land; buyer generally takes subject to the rights
of the parties in possession and other unrecorded interests
that are visible from inspection
o Under this Statute, ask (1) Was there a bona fide purchaser;
and (2) Whether they had notice?
o Exception: if there is in fact something recorded in the public
records, then you are entitled to rely upon that instrument as
setting out their interest no subsequent inquiry necessary.
Race-Notice Statute hybrid of the 2 types of recording acts idea is that the first
bona fide purchaser to record wins (where subsequent purchaser must both record
AND take without notice); is less protective of BFPs than either a race statute or a
 notice statute. If there are competing purchasers, each of whom claims to qualify as
a BFP, the 1st BFP to record wins
Not only have to record first, you must also be bona fide purchaser (BFP)
Bona fide Purchaser MUST: (1) Pay Value; (2) Have no notice of prior
interest; (3) Record first
In Florida, you must need the transaction witnessed by two people
For a corporation, you need either a CEO, President, or VP present; AND it
must be sealed

Recordable Interests and Non-recordable Interests

The recording act, no matter which type, only protects a BFP against an off the
record interest that is capable of being recorded. If a prior in time claimant asserts a
property right that hes not permitted to place on the record, the recording act has
no application to the claimants dispute w/ a subsequent purchaser. Instead common
law must resolve the dispute, and it generally applies the first in time, first in
right baseline.
Nonrecordable interests (adverse possession, short term leases, easements)
2 types:
Those that cant be created by instrument like claims of adverse
possession, prescriptive easements, and marital property rights; and
Those that cant be recorded like short-term leases.
Consequence of having nonrecordable rights in land is that a purchaser
is bound by them, even though their existence is not ascertainable by a
search of the records. Often a prudent purchaser can detect these
unrecorded interests by inspecting the land, but this is not always the case.
Functions of Public Record System ~ Title Insurance and Establishing Priority

Bona fide Purchaser Status

Notice From Records
A purchaser may have constructive notice of any interest that is validly
recorded
The recorded interest creates an estate or other interest in land, and any
subsequent purchaser is thereby bound by it
Some records refer to matters and transactions that are not themselves
recorded, raising issues about the scope of the constructive notice
Recorded deed may state that the grantor acquired through
inheritance or have a recital to a mortgage that is not recorded
Defects in Recorded Instruments
Occasionally an instrument is recorded although it does not meet the formal
statutory requirements for recordation. When this happens, usually the
defect relates to acknowledgment; all states limit recordation to documents
that are properly acknowledged.
A defectively acknowledged deed does not impart constructive notice b/c it
should not be there
This means that the grantee who claims under the defective
instrument has some risk of losing to a subsequent BFP
 Deeds that are forged or signed by a grantor that were not delivered are
deemed void, even though these defects are not ascertainable by looking at
the deed itself
Labeling these deeds void means that the original owner can recover the
land, even though the grantee under the void deed has sold the land to a
BFP
In contrast, less serious defects are said to render a deed voidable, but not
void.
Payment of Value
2nd requirement for a grantee to qualify as a BFP, in addition to lack of
notice of the prior interest, is payment of value. This is true under race and
both notice-based statutes.
2 sets of issues concerning value are raised:
Measurement how much consideration is needed? Standard deed
forms often recite that the grantee has paid $10 and other good and
valuable consideration. Nominal consideration does not suffice to
make a donee into a BFP. The consideration doesnt have to be full
market value, it just has to be substantial.
Timing the traditional doctrine is that the purchaser is not a BFP
before he actually pays the consideration to the seller. Only at
closing, when he pays the remainder of the purchase price, does he
become a BFP. Therefore, the purchaser bears the risk that 3rd
parties might record their claims or otherwise give notice of their
claims after the K is signed but prior to closing.
Shelter Rule
Under the shelter rule, a grantee from a bona fide purchaser is protected as
a bona fide purchaser, even though the grantee would not otherwise qualify
for this status. Suppose O conveys to A, and then to B (a bona fide
purchaser). Before B can convey to C, A notifies C about the O-A deed;
because C has notice, C cannot be a bona fide purchaser. However, under
the shelter rule, C prevails over A.
Notice from Possession
In notice and race notice statutes, a purchaser takes subject to rights of
parties in possession and other unrecorded interests that are visible from an
inspection of the property. Even though holders of these interests could
have recorded and failed to do so, they are protected by their states view of
inquiry notice.
Possession by someone other than the seller gives rise to a duty of inquiry;
purchaser is bound by whatever rights would have been uncovered by diligent
inquiry
1 general exception to the duty to inquire of possessors: when
possession is consistent w/ record title, there is no duty of inquiry.
When theres a recorded lease, theres no duty to ask tenant why
hes there
Many states there is also an exception to inquiry notice for
possession by a grantor who recently deeded the property to the
 seller

Issues in recording acts

An interest that was not entitled to be recorded because of a defect, then it doesnt
impart constructive notice
But what happens when the purchaser nevertheless becomes aware of the deed?
If A conveys interest to B and it is not recorded, and C takes interest from A
without notice, and D takes interest from C. B wont win if files suit against
D, under the shelter rule, anybody who takes from C takes free from interest

TITLE PRODUCTS (Chapter 11)

The recording system is the backbone of title assurance. Approximately 25% of
closings involve a title-related issue or problem. The title search process and the
final product are 2 different things. The search process can result in several
different types of final products, each giving a different set of rights to the
purchaser. The 3 main products are:
Title abstracts - A title abstract is a written distillation of the record search
process. It summarizes all recorded deeds and other recorded items in the
chain of title, including encumbrances. Today many searches only go back
about 50-60 years. Most abstracts are prepared chronologically w/ a
summary of all items found. Expensive and little recourse.
Purpose of the abstract is to give the purchaser sufficient info to
decide whether record title is acceptable. Most abstracts dont
provide an opinion, just the info.
o Liability/Limitations
o Relying on the solvency of the abstractor
Attorneys title opinions or title certificates a title opinion does not
guarantee the client that title is marketable, it only reflects the attorneys
professional opinion based on the evidence he has. Attorneys are usually
only liable for mistakes if negligence or malpractice can be proven.
Title insurance policies (best) a form of title assurance that serves as an
alternative to an abstract of title or a lawyers opinion. This form of
assurance has grown rapidly in recent years. The corporations that provide
this service are regulated and required to have reserve assets. Title
insurance has 2 main functions: the insurer searches the records and
discloses its findings, and it insures undisclosed risks. Real estate attorneys,
regardless of the type of transaction, should almost always use title
insurance rather than #1 or #2.
No fault
High possibility of claim being paid
Insuring against off record risk
o 1) Forge deed
o 2) Prescriptive easement
o 3) Adverse possession
A title insurance policy is no substitute for trying to get the best
possible warranty deed from the seller b/c some title issues may fall
 outside the scope of the insurance
2 primary documents of legal significance: the title commitment
and the policy
o The title commitment is issued once the company has
completed its title search. The commitment is the companys
promise to issue a policy, provided that it receives the
insurance premium and that certain other specified
conditions are met.
The following is a title commitment in FL---2006
Alta Forms (with Florida Modifications)
Jacket (3 parts)
o Schedule A (format of the policy)
Effective Date--- Last time
the public records were
searched
Amount of insurance =
Purchase price
Type of estate
Title vested
Property insured
Proposed insured
Owners policy
Loan policy--- name of the
loan
o Schedule B1 (what you need to do to
issue the policy)
Payment of premium
Obtain and record a deed
Obtain and record a mortgage
Municipal lien searches
Estoppel letter
o Schedule B2 (Instruments that were
found in the title search)
These are all uninsured titles
Ex. FP&L easement, mortgage
o A title policy is only issued after closing.
K whereby insurer (title company) is paid one sum at closing in
consideration for agreeing to indemnify the insured (owner of
property) up to a certain amount (usually purchase price) against
loss caused by encumbrances, upon or defects to real property, in
which the insured has an interest
Gives you the best chance of recovering
Primary benefit of title insurance coverage is that the insured can recover if
there is an actual loss as a result of someone else asserting a claim or interest
that turns out to be superior to the stated interest of the insured
Also covers the insured for actual loss resulting from a document that is improperly
 signed, sealed, acknowledged, or delivered; or if there is fraud, forgery, incapacity,
or impersonation involved in the transaction. Also covers improper filing of
documents and any attorneys fees from defending the title.
When both a lender and an owner policy are issued, the title insurance liability
exposure is not cumulative
The lender is paid to the amount of the outstanding debt and then the owner
is paid. Together the title insurance company is only liable up to the full
amount of the stated title insurance coverage.
Purposes:
Give overview of documents that affect the property shows if there are
liens or easements out there. Tells everything about property that affects
title. Also gives legal description make sure matches up to deed
Title Insurance/Premium ~ Paid Once at closing
Importance is that once you have everything, title company has agreed to insure, if
the title company does not show you that there was a shared driveway (for
example), company will try to settle among property owners first, and handle out of
pocket expenses and try to make you whole But, if that driveway was shown as
exception to titled, then you are out of luck because you knew about it!
Another important thing about title insurance is that when you buy residential
property, you will get a Warranty Deed these warrant title which seller warrants
title throughout whole history of title
It is a lot easier to go to Title Company and let them handle this issue rather
than going directly after seller
Title Insurance ~ gives owners different coverage than lenders
Owners get coverage up to purchase price paid for propert
Lenders get coverage up to amount of loan
Title Companies may be more willing to take more risk with lender over owners
Title Plan ~ Title Cos keep own recorded docs
Monetary Liens ~ must be paid off at closing, unless have buyer assuming
mortgage or taking property subject to

Title Commitment
In a typical transaction w/ title insurance, there are 2 primary documents of legal
significance:
The title insurance commitment (aka a title insurance binder or preliminary
title report)
Issued only after the title search is complete.
The commitment is the companys promise to issue a policy, on a
designated standard form, provided that it receives the insurance
premium and that certain other specified conditions are met
The policy
Only issued after closing. Every title commitment hopefully
becomes a title policy.
A title policy can insure a variety of real property interests,
including fee simple estates, leaseholds, and life estates.
To determine whether a particular title problem is insured, you must study the policy of
title insurance carefully. Policies are laid out in different parts, which must be read in
combination. The key parts are:
Insuring provisions
Conditions and stipulations
Exclusions from coverage
Exceptions from coverage
Endorsements if any

The most common and significant exclusions and exceptions, usually expressed in
standardized language, are:
Survey exception there is no coverage for matters an accurate survey would
show, such as encroachments, boundary line disputes, or shortages in area.
Zoning and building laws
Rights of parties not shown by public records,
Rights or claims of which the insured has knowledge prior to issuance of the
policy,
Taxes or assessments for the current year, which are not yet due and payable, and
taxes or assessments that are not shown as existing liens by the public records.
Liens for work performed on the property and materials incorporated into the
property (mechanics; and materialmens liens)

The scope of coverage is negotiable and for most policies the exclusions and exceptions
are the key determinant of coverage. As a general rule of thumb, if a title matter affects
the insured land and the policy does not exclude it from coverage, then it is insured.
When you get a title commitment, its actually searching for any liens on property ~ will
not show any judgments against prospective purchaser. Its a written K by the title
insurance company, and a legally binding obligation on the title company to issue a
title policy.
All policies have some title risks that are not insured. Company and the
insured have opposing interests.
Title Policy - two types, Owner and Loan (owners policy are not only issued for
purchase and sale contracts

Purchaser gives a last affidavit stating will not record any interest; last gap affidavit
Insurance provided only goes before effective date - when deed is recorded
Exclusive purchaser
No work within 90 days for which payment has not been made
I have not nor will I record or create that interest

TITLE COMMITMENT
Schedule A Requirements - name of insured, amount of policy, description of
property, effective date, description of what type of policy is going to be issued
3rd Page Schedule B-1 Requirements Title Companys Requirements of what
documents must be produced at closing in order to get title insurance.
Requirements that title company imposes on the insured before the company is
 obligated to issue the policy:
Payment of the premium
Most of time, will always be deleted
Schedule B1 part 2
General exceptions
Specific exceptions
4th Page Schedule B-2 Exceptions Will stay on policy unless get them removed
Usually, first 4 Exceptions Standard Exceptions

Endorsement - Can be expensive

Generally, title companies will give lenders more protection than the owner
An opinion of title (an attorney would write out opinion of title about whether
marketable, issues) gives less coverage than a title policy would Only advisory and
doesnt give you any insurance
A lien must be removed before title is conveyed
Attorneys in FL can write title insurance (attorneys act as agents for bigger title
companies)
Attorney gets 70% of the premium, and give 30% to the title company ~
also, attorney acquires 70% of the risk
Usually, when keep 70%, and working on behalf of buyer, you do not
charge them for any work you do in connection with the title policy; bill it
against your premium

Improving the Efficiency of the Title System (Chapter 12)

Weaknesses of recording system, 2 general categories:
Stale recorded interests accumulate over time the ease of recording is a
benefit and a drawback. It impedes efficiency b/c stale interests of record
can cloud titles. Often the only remaining value of old interests is as an
impediment to title, blockage value. Another issue w/ stale interests is
that their owners are often hard to identify.
The off-the-record risks deeds and other instruments may be void or
voidable for reasons such as nondelivery, incapacity, fraud, and adverse
possession.

Title Standards (27 states adopted them since 1938, only 20 still use them)
A set of standards can be the most efficient and effective if it addresses only
the issues on which competent lawyers agree but on which novice
examiners might be ignorant and on which overly meticulous examiners
might disagree with the majority of examiners.
A recent trend suggests its time to revisit the status of title examination
standards in America. One of the most obvious reasons is the 1987
adoption by the title industry of a definition for unmarketability.
Unmarketability an alleged or apparent matter affecting the title
to the land, not excluded or excepted from coverage, which would
entitle a purchaser of the estate or interest described in Schedule A
or the insured mortgage to be released from the obligation to
 purchase by virtue of a contractual condition requiring the delivery
of marketable title.

Title Curative Acts

States have passed Title Curative Acts, which provide that instruments
bearing certain defects are conclusively presumed valid after the passage of
a specified number of years after recordation.
With curative legislation, more titles are marketable b/c searchers may
safely disregard evidence of old defects. This increases the efficiency of the
title assurance system, w/out imposing any significant costs its extremely
rare that shoring up the record title by eliminating old formal defects cuts
off substantive rights of claimants to the land

Marketable Title Acts (presently 18 states have them)

Limit the period of time covered by title searches and to render more titles
marketable by eliminating stale interests. 40yrs is most common, but some
states specify 30 or 50yrs.
Extinguishes interests and defects that are older than the root of title, which
is the most recent deed or instrument in the record chain of title that is more
than 30-50 yrs old
W/out marketable title acts, run the risk of older, undiscovered interests that
are still valid
Reduce risk by cutting off ancient claims
An interest created prior to the root of title no longer affects title unless it is
referred to in a post-root instrument, or re-recorded, or reflected by
possession after the root of title
Unfortunately, all marketable title acts have exceptions, which
may undercut their fundamental goal. Many older interests are
sheltered by exceptions, the most common are:
o Interests of the US government
o Interests of state and local governments
o Utility and railroad easements
o Mineral rights
o Visible easements
As a practical matter, the list of exceptions means that the searcher
who stops at the root of title is taking a significant risk of missing an
interest that is still valid.

Surveys & Legal Descriptions

Both real estate Ks and deeds must contain a description of the land. This is also
true for mortgages, leases, covenants, and easements.
Whats the purpose of a Legal description? Need to properly and
adequately describe the property because property is unique
Fundamental principle that for a deed to be valid it must contain a
sufficient description
Subject to statute of frauds - have adequate description of property,
 describe with certainty
Must always attach docs that are being recorded to Purchase and Sale
Agreement
Must attach legal description to anything that is recorded, so that you can
actually trace who owns the property
Every property must have a land description, if you cant describe property,
you cant tell what you own

3 types of Land/Legal Descriptions

Metes and Bounds oldest method
Describes every boundary line of the parcel
Described by a series of Calls
Distance/Angle
Tells the reader how to draw a square, rectangle, or other geometric shape.
Description starts at a point of beginning, which is usually a corner of the parcel
adjoining a public road. Each boundary is defined by length and course. Surveyors
indicate the course by divergence from the north-south line.
Used to describe smaller pieces of property within governmental land survey
When do this, always appoint a beginning (POB); Point of beginning never moves
Metes means measurements
Bounds refers to direction of boundaries
Most accurate type of legal description
Used for describing large, irregular shaped properties
Read legal description in Degrees Minutes Seconds
All good land descriptions are metes and bounds descriptions, either directly
or indirectly or b/c they are reducible to metes and bounds descriptions.
Government Map/Survey Systems ~ also called Congressional or Rectangular
Thomas Jefferson gets credit for this because he promoted Western Development
The system divides land into townships and sections, using a system of square
and rectangular grids
Each township is a square with sides that are approximately six miles
Each township is located by reference to the intersection of a principal
residence and baseline
Major problem township has 2 meanings:
A unit of area, 36 square miles
A unit of distance, 6-mile north-south increments
Each township is divided into 36 sections
Each section is a one-mile square, which contains 640 acres. The
sections within each township are numbered. Section 1 begins in the
NE corner of the township, and numbers proceed back and forth so
that sections bearing consecutive numbers are always bordering.
(like a snake)
The starting point for every govt survey description is the intersection of a
Principal Meridian, a line of longitude which runs north-south, and a BaseLine, a
line of latitude which runs east-west
Each PM and BL is identified by a distinctive number or name
 Imposed on land outside the 13 colonies in 1780s
Florida is in this system
Used to describe large land transactions
Within every J always have point of beginning ~ In Florida, Tallahassee
Florida divided into 24 mile squares ~ Each square called a check
Checks divided into 6 mile squares called Townships
Read description Right to Left
ON TEST WONT ask you to write legal description! Know what a Check,
Township, and Section is!
Plats
Aka Lot and Block
Very common in new developments and condos
Reference to subdivision, which are filed as part of the public land records.
Lots in the subdivision are then described by referring to the recorded plat
Boundaries must be identified to describe adequately a parcel of land
Almost like a short cut way
Instead of metes and bounds, you have metes and bounds for entire subdivision,
and then hire someone to map out subdivision
Have plat, mark off every parcel for different lots in each block ~ the plat is
recorded in public records
Many times will not put metes and bounds on survey (wont put measurements)
In Residential not issue to do metes and bounds or plats
In Commercial ~ many say that metes and bounds and Plats is not good enough
Lots and Blocks important because in condo buildings; cant describe everything in
metes and bounds ~ cant describe vertical! So important have this way!
Much neater when doing a subdivisionbutmetes and bounds more accurate
Ex. Page 321
Monument Descriptions ~ least accurate type of legal description; not used today

SURVEYS
Process of evaluating property evidence in order to locate the physical limits of a
particular parcel of land
The real property evidence considered by the surveyor typically consists of
physical evidence, written record evidence, and field measurements
The surveyor, having made an evaluation of the evidence, forms an opinion as to
where he believes a court of law would locate the boundary lines of the property
A survey is subject to review by a court in the event that a boundary dispute
reaches litigation
Surveying is not an exact science, therefore 2 surveyors could reach different
opinions b/c they each evaluated the evidence differently.

5 fundamental reasons for requiring land surveys in real estate transactions:

Want to make sure the property actually exists
For a deed to be valid it must contain a sufficient description
Can get updated survey
 Want to know relationship of subject property to other adjoining properties
Make sure boundaries are consistent, not overlapping onto another property
As a general rule, the description in a senior deed or prior conveyance
controls over any discrepancy in a later one.
Want to make sure that the record boundary lines are actually the ones that
are being occupied
Make sure the fence is not on neighboring property; make sure no
discrepancies b/t the possession and the record;
Property owner may want to record an appropriate document confirming his
claim of ownership or seek a change in possession to match the record line
Want to know the location of any physical improvements
Want to know location of building in relation to boundary lines of property
Locate any fences, walls, driveways, utilities, etc.
This info is necessary to determine the presence of features, which may
limit the value or use of the property and to determine conformity w/ local
ordinances regarding minimum setbacks.
Want to know if there are any unreported easements that are not recorded
There are several unrecorded rights that can affect property and wouldnt
show up in a title search
Survey is not required ~ BUT, should make it a condition for closing to get
one!
Generally, the buyers responsibility
Buyer notifies Seller that ordered survey ~ generally, both sides get survey
and then have certain time periods to object (In residential, usually get
within days)
An as-built survey is a detailed map of a building or other improvement
and its relation, as built, to the plans it was built from. Its purpose is to
determine if the completed projects accords w/ previously approved plans
and specifications.

Legal Adequacy of Description

All writings that affect title to land (i.e. deeds, easements, covenants, mortgages,
leases, and contracts of sale) must contain a written description of the land.
A valid legal description depends as much on the quality of the extrinsic evidence
as on the content of the deed.
The courts have been flexible about the evidence they consider.
When land is described in a deed conveying fee title or in other recorded
instruments, a prime characteristic of the writing is its permanence
It becomes part of the chain of title for the property to be retrieved and
evaluated for many decades
The relationship b/t a land description and extrinsic evidence is the subject of
several judicial maxims
In the absence of fraud or mistake, extrinsic evidence is not admissible to
contradict clear language in the operative portions of a deed
Extrinsic evidence is not admissible to supply the deed with an adequate
property description or enlarge the scope of the description
 Extrinsic evidence is admissible to clarify an unclear document
Extrinsic evidence is admissible to apply the description to its subject
matter

Example Survey Handout

1st thing to do when looking at survey is to make sure its the right one and get a
general overview of it. Look for the address.
Next make sure date on survey reflects most recent date ~ should be w/in 90 days
of closing dates
Certification Surveys always certified to parities ~ make sure survey is certified
to parties
Make sure parties names are spelled right
Legal Description make sure to proof read the legal description against title
commitment; then, proof read up to survey
After proof read legal description, follow around on drawing ~ spend lots of time
on legal description
Next, make sure property has access
Not always will have access to public roadway
May have access through an easement
Next, make sure all easements of record are shown on survey, are plotted and
shown where located
Look at encroachments
Flood Note ~ check whether you need flood insurance (In Florida, Zones A and B
do)
Check setback lines
For commercial, check for adequate parking
Legal non-conforming status (what is this?)
Pertinent Easement benefits property would not be in legal description but
make sure title policy gives you this
Want title company to insure you for as much as you can be insured for
Always compare the actual survey with the record survey
Title insurance does not insure quality or the actual location

DEEDS AND CLOSING STATEMENTS

Closing the K of purchase and sale represents the culmination of the earlier stages of the
transaction. It is a 2-phase process:
1st phase consists of everything that goes into preparing for the completion of the
exchange as contracted
The 2nd phase involves the paperwork that is required post closing, such as the
recording of documents in the public records.
From the buyers point of view, the primary document is the deed of conveyance
It has to be examined for the quantity and quality of estate transferred and for any
typographical errors that could result in title problems, such as mistyped legal
description or an incorrect spelling of the grantor or grantees name
In order to have an effective conveyance:
The deed must be in writing
 Have name of Grantor and Grantee
Must adequately describe the property
Must be an intent to convey by the Grantor
Must be actual or constructive delivery
Grantee must accept the deed
Must comply with the State requirements
In Florida, must have 2 witnesses and be notarized, notary can be 1 of your
witnesses
Exception to 2 witnesses, for corporation, if signed by CEO, CFO,
etc. and sealed then you dont need 2 witnesses
Recording a Deed is not required for valid conveyance, but especially in
Florida, b/c Notice State, if dont put on record, must put bona fide
purchaser on notice

Closing Documents - seller delivers the purchaser title to the property

Closing checklist, whether you represent the buyer or the seller
Most common mistakes
Wrong legal
Wrong county
Wrong sequence
Never recorded
Fraud
In Florida, you need 2 witnesses. Deed must be recorded if u want to protect the
property from subsequent 3rd parties
Do not have to state the purchase price in deed
Where closings generally occur ~ Attorneys office, Title Company Office, Lenders
office
Escrow Closing ~ by mail
At closing, make sure all obligations of each party are met; get money before hand
over docs
Deeds ~ vary from state to state (each has diff form)
Deed conveys the interest in the real property

Closing Checklist ~ review!! List of common Real Estate docs (LOOK AT

HANDOUT)
Bill of sale conveys personal prop
Aferta Affidavit ??
Seller who giving proceeds to are a US tax payer
Leases may have assignment or assumption of leases

Previously talked about.

Pre-closing period ~ where you hire broker to find buyer for you if you are seller,
or find seller if you want to find property
Negotiating purchase and sale agreement ~ Due Diligence; survey review; make
sure have no objections
Now, Second Phase Preparing the Closing Documents
 At closing, buyer and seller must demonstrate compliance w/ all terms and
conditions of K
Time when all the necessary documents are prepared and then are delivered in
exchange for purchase price
Most closings occur in conference room in attorneys office or title company
At Residential Closing, sometimes it can be a whole room of ppl, included brokers
to collect commission check, respective attorneys, title agent, and sometimes a loan
representative
Sometimes in Residential Closing on buyer and seller there, and title agent, but no
lawyers
Commercial closing may have more people
Make sure you check through docs, make sure parties properly signed,
acknowledged by notary
Closing checklist (talked about earlier) Take this and check off, as attorney, all of
the docs and make sure all at the table, and go through them and make sure they
have been signed, witnessed, and notarized
Make sure check over legal description in the Deed
Compare to the vesting deed of record and title commitment and survey
Check name of parties on Deed ~ Check spelling, and that they are taking
ownership in the proper form (Ts in common, Ts by entirety, etc.)
Address put on Deed to grantee is where tax bills will go ~ Make sure address for
grantee is address where they will be (could be buying a 3rd house just for
vacations, so wouldnt want that to be address on Deed)
Deed format ~ Varies State to State
Generally, want local counsel in other states.especially if obtaining
financing
Get Deed approved by local counsel or title company
From Buyers perspective the best deed is the Warranty Deed or Generally
Warranty deed
The next best is the Specialty Deed
Then the Quick Claim Deed

Deed Covenants of Title (p. 192)

Among the most important provisions of a deed are its covenants of title or
warranties of title
They allocate risk between the parties if problems related to title arise
The parties should be certain that the deed accurately reflects their expectations
about title and what should happen if, after closing, a title problem arises
At common law, no title covenants are implied; they must be express!
Buyer, as grantee, must be sure that deed spells out whatever guarantees of title the
seller has undertaken as an express or implied part of their contractual agreements

Warranty Deed (or General Warranty Deed) grantors promises as to title are
general in the sense that they cover the entire chain of title up to the time of
delivery.
No time restrictions as to the title defects that are subject to the warranties
 Gives the grantee the maximum amount of protection
Grantor takes all the risks; warrants his own conduct and conduct of prior
owners
Specialty Warranty Deed ~ grantor warrants title for time period he has owned
the property
Offers less protection to the grantee than a general deed
Unlike the general deed in which the grantor assumes all the risks, the
special warranty deed reflects a sharing of title risk between the parties
Warranties are limited to the time the grantor owned the property
All the grantor is promising is that since the moment he acquired the title,
he has not done anything to dilute or impair that title
Generally used in Commercial transactions
In some states, the term Limited Warranty Deed is used instead (theyre the
same)
In Florida, called Specialty Warranty Deeds
Quitclaim Deed ~ Worst for Grantee, Best for Grantor
Deed that has no covenants of title
Grantor not warranting anything, not making any promises
Grantee is taking all the risks associated with the title
Grantor is not liable for any liens, encumbrances, or other title defects. If it
turns out that the grantor did not even own the property at all and a 3rd party
has paramount title, the grantor is not responsible and the grantee bears
the entire loss
Usually given when a property is a gift
If gift to spouse by putting them on the deed, better to give warranty deed
so protection extends because quit claim deed breaks the chain of title!
If a Buyer pays market price for a property, they will not take a Quitclaim Deed!
If a situation where seller will not give Warranty Deed, buyer can take comfort in
getting Title Policy at end of day b/c the Title Company will still insure the
property
So if there is a defect in title, you will still be covered by title insurance
policy
Some attorneys will tell you that it doesnt matter if you have a Warranty Deed or
Specialty Warranty Deed because you still get Title Insurance

Title Covenants (6 should know, 3 present and 3 future)

There are 3 present covenants: this means that the covenant speaks only to the state of
affairs at the moment the deed is delivered
If a present covenant is breached, it is breached upon delivery
Statute of limitations begins to run at delivery
Present covenants do not run with the land; a grantee may only sue his immediate
grantor
Seisin ~
Grantor promises he is seized of the estate the deed purports to convey
Most courts view the covenant of seisin as a promise of good title to the
estate
 Right to Convey ~
Grantor promises that he has the legal right to convey the property
Covenant of Encumbrances ~
Grantor promises there are no encumbrances on the land (there are no
easements)
Buyers knowledge of encumbrances at time of delivery of deed does not
preclude recovery against the grantor under this covenant. However, when
the encumbrance is visible, many courts find an implied exception from the
covenant against encumbrances.

There are 3 future covenants that are in General Warranty Deed or Special Warranty
Deeds
These protect the grantee from certain specified events that may occur after
the deed is delivered in the future
In contrast to present covenants, these run with the land, meaning they
protect successors in interest to the property
Present owner may sue not only his immediate grantor on a future covenant
but also any remote grantor in the chain of title on future covenants
contained in the remote grantors warranty deed
Covenant of Quiet Enjoyment ~
Grantor promises that the grantee may possess and quietly enjoy the land
without interference; Right to possess and enjo
Its breached if the grantee is actually or constructively evicted from all or
part of the land by the grantor, by someone claiming under the grantor, or
by someone with paramount title
Covenant of Warranty ~
Grantor warrants the title to the grantee
In most states, this covenant has the same scope as the covenant of quiet
enjoyment; it is breached by an actual or constructive eviction of the
grantee from all or part of the property.
Covenant for further assurances
Grantor promises to give whatever further assurances that may be required
in the future to vest title in the Grantee
Other 5 covenants, the remedy for breach is damages, w/ most states
limiting the grantors liability to the purchase price plus statutory interest.
Here, specific performance is an available remedy as an alternative to
damages.

Doctrine of Merger
Everything in purchase and sale contract (all promises, representations, warranties)
are merged into the deed at closing
This is why it is important that all conditions are met at closing
All rights, warranties, and obligations from the executory K are no longer operative
b/t the parties. The K is no longer executory; at closing, it is executed.
Any causes of action based on the pre-closing Ks or negotiations no longer
exist. Once closing occurs, the parties are left w/ only those rights,
 warranties, and promises expressed in the closing documents.
Utah Supreme Court explained the doctrine of merger as follows:
The doctrine of mergeris applicable when the acts to be performed by
the seller in a contract relate only to the delivery of title to the buyer.
Execution and delivery of a deed by the seller then usually constitutes full
performance on his part, and acceptance of the deed by the buyer manifests
his acceptance of that performance even though the estate conveyed may
differ from that promised in the prior agreement. Therefore, in such a case,
the deed is the final agreement and all prior terms, whether written or
verbal, are extinguished and unenforceable.
As a consequence, all rights, warranties, and obligations from the executory K are
no longer operative b/t the 2 parties
The contract is no longer executory at closing, it is executed
Any causes of action based on the pre-closing contracts or negotiations no
longer exist.
Once closing occurs, the parties are left with only those rights,
warranties, and promises expressed in the closing documents
This is why you will sometimes see that some provisions will survive closing for a
specified period of timeIf so, person receiving protection wants to limit the time
period the provisions survives closing
Exceptions: fraud, mutual mistake (must show by clear and convincing evidence),
collateral rights (certain covenants unrelated to the contract)
Fraud - all elements of fraud must be established by clear and convincing evidence
Mistake not every mistake will suffice; a mistake precludes merger when one of
the parties demonstrates a mutual mistake in the drafting of the contractual
documents has occurred.
Party denying merger must demonstrate that:
Instrument does not conform to intent of parties, or
Claimant was mistaken as to the content of the instrument and the
other party knew of the mistake but kept silent, or
Claimant was mistaken as to actual content due to fraudulent
affirmative behavior
Collateral rights in the K of sale - when the contract of sale contains terms
collateral to the conveyance of title, the deed cannot be said to be the intended
performance of those terms, which necessarily survive after the conveyance
Covenants relating to title and encumbrances are not considered
to be collateral because they relate to the same subject matter as
the deed
Applies when the sellers performance involves some act
collateral to the conveyance of title, with the result that those
obligations survive the deed and are not extinguished by it
Parties can agree that some provisions will survive closing even though not
stated in the contract
Courts will generally not recognize an exception for title documents
BUT should have presumption that everything merges into the Deed
Types of Documents at Closing
(Closing Checklist Handout)
Warranty deed ~ Conveys real property
Gets recorded
Bill of Sale ~ Conveys personal property (such as fixtures, furniture)
Does NOT get recorded
Buyer should keep original
Sellers Affidavit (aka title affidavit) ~ For the Title Companys benefit
Title company will require this so that the Seller actually makes certain
promises to the Title Company
Title company wants to make sure Seller has not done anything to adversely
affect the property
If representing seller, want to make sure that everything in their affidavit is
true
Title company will usually get the original and the buyer will get a copy
FIRPTA (Non-Foreign person affidavit) must get signed for IRS ~ standard form
Buyer wants to keep the originalif seller doesnt pay taxes then settlement
agent has to withhold 10% of purchase price to ensure that taxes will be
paid on that income (IRS form must be submitted within 20 days of closing)
Florida Dept Of Revenue for Transfers of Interest in Florida Real Property (Form
DR-219) always has to be recorded w/ conveyance of real property b/c taxes are
paid on this amount
Pay off Letter ~ (get notes)
Purchasers title commitment
Real Estate and Local Lien Searches ~ Important b/c water and sewer fees are
sometimes owned
Estoppel Letter from developed estates homeowners Assoc ~ make sure all
assessments have been paid; want letter from assoc setting forth the amount owed
Brokerage Receipt ~ want broker to sign that check was received
Information Statement (another IRS form) ~ Generally in Residential or
Partnership Only fill out if you are a Settlement Agent
Settlement Statement
Closing Disbursements ~ who owes what to broker

Escrow (3 types)
Escrow can be used 3 different ways when talking about Residential Transactions. It may
refer to a means of collecting funds for the payment of taxes and insurance; a method to
handle the real estate closing; or a technique to resolve a closing contingency or problem.
Each serves a distinct purpose. There are 3 types of escrow:
Loan Escrow
Used by lenders to collect and hold money from the debtor for paying
annual real property taxes and fire and hazard insurance premiums
Lenders desire loan escrows for 2 reasons:
o 1. With the escrow the lender does not have to worry about default by the borrower
in paying taxes, which could lead to a tax lien or tax sale and jeopardize the lenders
security.
 o 2. For hazard insurance, the lender wants to control payment of hazard insurance so
property remains insured
Pay in escrow 1/12 of real property taxes and insurance along with
mortgage
Lender sets up escrow account where they keep those payments to that end
of the year you have saved enough to pay insurance and property taxes
Many times, at closing, lenders will ask for 6 months of reserves
Will be on Settlement Statement
Very rare in Commercial
This can be waived
Escrow Closing
This means the parties have appointed an escrow agent to conduct the
closing.
Escrow is usually documented by a written escrow agreement which is
signed by the buyer, the seller, and the agent and spells out all the duties of
all 3 parties
Parties actually exchange docs by mail or by e-mail
Escrow Agent (can be the settlement agent or an attorney) administers the K
of purchase and sale and has fiduciary duties to both the buyer and the
seller.
Escrow letter is sent to title agent allowing disbursement of funds only upon
satisfaction of certain conditions
Contingency Escrow
Process used to resolve a problem that arises at or before closing.
Often the problem concerns the physical condition of the property being
purchased
When the problem consists of an unperformed obligation of the seller, the
escrow usually consists of withholding part of the purchase price from the
seller pending the correction of the problem.
Suppose that there is something wrong w/ the property, but the buyer still
wants to close on the houseSeller needs to repair roof ~ You could put an
extra $10,000 into escrow to be held so repairs can be made
Buyer can only get up to amount for repair cannot get full $10K if repairs
only cost $7K
The seller gets rest of money back
Always a written agreement with this type
As Escrow Agent want to make sure you define your rights and
responsibilities
If there is a disagreement, Escrow Agent cannot release until both parties
agree

Closing Statements (Settlement Statements)

HUD ~ know general area where things are located (HANDOUT)

3/31 from class, what we need to know from HUD:

 To properly account for loan escrow items, you enter the sums in the 1000s
All pairs appear on the front page
To properly account for a prepaid item at closing, you must enter the sums in the
100s
To properly account for an unpaid item at closing, you must enter the sums in the
200s and 500s
Know generally HUD 1 used in residential
Two diff types of Settlement Statement
2 Party ~ buyer and seller
3 Party ~ buyer, seller, escrow agent
Buyers debits are in 100s
Buyers credits are in 200s
Sellers credits are in 400s
Sellers debits are in 500s
100s & 400s ~ anything seller has prepaid, buyer would have to pay at closing
Seller would get credit for that
200s & 500s are Unpaids ~ real estate taxes
2nd Page all of Buyers and Sellers Debits ~ NO credits on 2nd page
In Florida, Discount on Real Estate Taxes
If pay in Nov, 4%
If pay in Dec, 3:%
If pay in Jan, 2%
If pay in Feb, 1%
Due by end of March
Taxes in Florida are paid in rears ~ if pay now, taxes for 2005 are due
Will NOT ask on what line is____on? Know generally where things are.
Handout what is usually used in residential
Two types of Closing Statements :
Two Party Closing Statement ~ buyer and seller sign
On HUD 1 worksheet, borrower always refers to buyer
Three Party Closing statement ~ the buyer, the seller, and escrow agent (Settlement
Agent) sign
All HUD closings are Three Party

How to Read Statement (look at HUD Worksheet)

Read HUD 1 back to front ~ Always look at 2nd page first!

Starting from line 1400 ~ get total numbers
Buyers numbers get transferred to the first page, where they get entered
into line 103
Same for Sellers number on 1400 ~ they go to line 502 on first page
First page ~ Read Right to Left
Back page of HUD 1 are all negatives ~ Monies owed by each party
Never see credits on second page
On first page, more complicated ~ under J on Borrower side (left side) those are
Buyers Debits ~ always negatives!
 J 101 ~ Contract sales pricethat is a Negative for the Buyer because that
is something they have to buy
100s ~ Buyers Debits
400s (opposite from 100s) ~ Sellers credits
100s and 400s mirror e/o
200s on left side ~ Buyers Credits
201 ~ Deposit
202 ~ they also get a credit for amt which the loan is for
203 ~ is rare in residential
210, 211, 212 ~ Items that the seller didnt pay for but something that he got
benefit from, so you want to give the buyer credits for this
500s ~ Sellers Debits (mirror some of the 200s)
504 and 505 ~ Payoff
Usually, have mortgage on property and that has to be paid at
closing

PAGE 2
700 ~ Place Brokers Commission (6% or 5% whatever you negotiate)
701 & 702 ~ can name Listing Broker, and Cooperating Broker
On test, what page of settlement statement is the Sales commission shown
on?
800 ~ item in connections with loan Where Buyer has loan!
801 ~ Loan origination fee Not every loan has this fee!
802 ~ Loan discount fee
803 ~ Appraisal fee
805 ~ not generally in residential in residential, buyer usually does own
inspection
807 ~ Assumption fee which is if assuming a mortgage, which doesnt usually
happen in residential
Seller not responsible for any fees in connection with the buyer!
Test, Q regarding Loan ~ Whose fees would they be?
808 812 ~ If have additional Fees not listed, can type in and add fees
900 ~ Lender asks for things in advance ~ Escrow Loan (dont get confused with
other types of Escrow)
Remember, Escrow closing done by mail
900 ~ Required items to be paid in advance
902 ~ insurance premium
903 ~ Hazard insurance premium (Usually dont see, usually see 1001 hazard
insurance)
900s ~ Items required by Lender to be paid in advance
Buyer pays mortgage insurance: insurance paid when loan is above 98%
1000s ~ where pay loan escrows
Insure that house is insured!
1003 ~ property taxes
1004 ~ City and County taxes
Loan Escrows benefit the lender
 1005 ~ annual assessments, usually lenders do not escrow for this
1100s ~ Title Charges Imp to look at K to see who is responsible for each
payment!!
1101 ~ Settlement fee (fee to handle closing; $200 - $300 is customary)
1102 ~ could be paid by buyer or seller, this could be lumped with 1103.
Miami, Dade, Broward ~ Buyer pays
Palm Beach and up ~ the seller pays
Client is to seller, but have fid duty to buyer in preparing policy
1104 ~ generally not used in residential
1105 ~ document preparation many times will prepare docs because
parties dont have attorneys and will charge fee ($200 - $300, which is
cheaper than getting attorney to do it)
1106 ~ just a way for them to make money!
1107 ~ attorneys usually put their fees on the statement, helps guarantee
getting paid
1108 ~ where premiums of title insurance will go paid once at closing
1109 ~ Owners coverage = amount of purchase price; Lenders coverage =
loan amt
If dont know who pays, go to Custom of the state!
No questions on exam about custom chart
1111, 1112, 1113 ~ any title charges not listed can be added there
Endorsements (what the lender will require to be attached to lenders
policy)
Buyer will not request them unless seller requires them adds on
additional fees
Generally, ask for Form 9 endorsement
1200s ~ Government Recording and Transfer Charges where put recording fees;
how much it costs to record a document
1201 ~ Buyer responsible for paying Deed, Mortgag
Seller Responsible for paying Releases
1202 or 1203 ~ Documentary Stamp Taxes (Transfer Taxes) owed on
deeds, and in some states on your note
Not all states have transfer taxes on notes and deeds
Deed Documentary Stamp Taxes in Florida ~ Except Miami Dade, $
.70 per $100 of purchase price ($ .60 in Miami-Dade)
o Seller pays!
o Who pays for documentary stamp taxes on deed? Seller
(Test Q)
o Pay for when file deed!
o If commercial property in Miami-Dade ~ $1.05
Mortgage Documentary Stamp Taxes in Florida ~ $ .35
o Buyer pays
o Mortgages have intangible taxes ~ to get, take amt of
mortgage and multiply by .002
1300s ~ Misc. charges
1301 ~ Generally, Buyer pays for survey (Good Test Q)
 1302 ~ Pest Inspection Paid by buyer because benefits him!

FIRST PAGE
Line 103 ~ actually line 1400 on borrowers side on 2nd page What Buyer owes
Lines 106, 107, 108 ~ anything that seller paid for in advance, Buyer would be
responsible for paying what benefited from
Same with county taxes
406 408 on seller side ~ mirror; If pay in advance and get credit from buyer,
would show up there
What would show up in 106 would show up in 406
201 ~ amt of deposit
202 ~ amt of new loans
204 ~ add in amt of new loan additions
502 ~ settlement charges (line 1400 ~ what seller owes; gets deducted from sellers
proceeds)
504, 505 ~ payoffs (for 1st and 2nd mortgage)
506 ~ could put in amt of deposit there
210, 211, 212 ~ adjustment for items unpaid by seller
If seller fails to pay assessments for next quarter, then they actually owe
buyer credit because buyer will pay for assessments
Must pay for what they used
Same for taxes in 211, and 511
210; 510
213 219 ~ Blank likes if have to put something additional (example. Condo
fees, and master level condo fees)
220 ~ total paid by/for Buyer where calculations come together!
Amt of loan, and then in 301, put gross amt from Buyer from 120
Purchase price deposit any fees loan(s) = amt in line 220
520 ~ total reduction amt due seller
600 ~ Cash at settlement to/from seller
602 ~ less reductions, take line 520 and plug in
Software automatically plugs in these numbers for you!
On test, no calculations! Get familiar w/ where things go! (Example Qs:
Where would sellers commission be, 1st or 2nd page? Who pays for ____?)

In Florida, real estate taxes due the following year

So in 2006, get bill for 2005 (year behind)
Mailed out in November
Due by March 30
If pay early, get discounts
4% discount if pay by November
3% discount in December
2% in Jan
1% in Feb
When figuring out how much is owed, you give benefit to buyer that they
will pay in November and get 4% discount, b/c seller should not pay more
 money just b/c Buyer waited until March to pay!

Notes, Mortgages, Foreclosures

Promissory Note ~ what evidences the debt; separate instrument from the mortgage
Difference between Mortgagee and Mortgagor
Mortgagee ~ Lender (Gee, I hope they pay me back)

Three different modern mortgage theories: (Said this would be good exam ?)
Title Theory ~ where the mortgage instrument conveys fee title to Mortgagee
Lender actually has title to the real property
Mortgagee has right to possession, even prior to default
In all title theory states, the mortgagor is generally treated as the substantial
owner of the property both with respect to rights (such as the right to sell,
develop, the right to recover for injury to property) and with respect to
duties (such as the duty to pay real estate taxes and maintain property in
accordance with the laws)
RULE: Mortgagee has right to possession when mortgage is executed
immediately
Borrower still has use of property as long as pays obligations
Mortgage Theory ~ (FLORIDA & Majority of states) Mortgagor (borrower)
keeps legal and equitable title to the property after sign mortgage; Mortgagee only
has lien on the property
Mortgagees property rights are limited to the right to foreclose after default
Hybrid Theory ~ (Ohio, PA) Mortgagee only has title to the property when the
Mortgagor defaultsup until point Borrower defaults, they have legal title! But
once fail to follow through on an obligation, Mortgagee then has legal possession
of property

Diff between Deed of Trust and the Mortgage

Do same thing, but know why Mortgage is used and why Deed of Trust is
used
Difference is the method or process of foreclosure!
Mortgage ~ actually have to go to the court, and get court involved have
judicial processUnless, state has power of sale clause (allows lender to
foreclose by conducting private sale)
Deed of Trust ~ allows a 3rd Party (trustee) acts as neutral party to foreclose

Deeds of Trusts in Mortgages:

Two types of Instruments to secure loans where the real property is used as
collateral:
Mortgage (Florida & Majority)
Deed of trust (CA & TX)
These have the power of sale without judicial intervention
Both used to secure collateralonly real difference b/t the two is the Process of
foreclosure
Mortgages derived from Traditional Law designed to protect rights of borrowers
 Deed of Trust ~ Adds a 3rd Party Trustee
Role of Trustee ~ act as neutral party to the foreclosure and would conduct
private sale in event of fault by mortgagor
Trustee generally appointed by a lender, is a title company agent, or sometimes
lenders attorney
W/ mortgages, dont have trustee, so must go to court and proceed w/ foreclosure -
can be costly
Several states, authorizes mortgages but have power of sale of mortgage ~ Power
of Sale Clause means that Lender may foreclose by holding private sale
Gives lender power to have sale as would in Deed in Trust, but it is
Mortgage so no Trustee involved
Would find defaults in Deed of Trust or Mortgage
Keep in mind that in FL, lien theory state ~ mortgagor can keep possession until
default

Trustee ~ should be neutral party to foreclose, usually appointed by lender or title

company
Right to Possession by Mortgagor ~ Notwithstanding diff Mortgage theories, the
borrower (mortgagor) is left with the property
Majority Rule ~ lien theory

Doctrine of Wastes:
When real property is owned by more than 1 person, this doctrine can come into
effect
The owner who is in possession owes the other owners the duty not to damage
or destroy the property
Applies to protect owners of future interests, such as reversions and remainders
Yet the possessor is entitled to make reasonable use of the property, and often
reasonable use requires the making of some changes to the property
Whenever land is mortgaged it is subject to multiple ownership by the
mortgagor and mortgagee together
Basic goal is to preserve the economic value of the property (protects the economic
value of the mortgagees right to security)
If in Title Theory State, the lender is actually the owner of the property and the
borrower is living and enjoying the property...So, want to make sure that the
mortgager is doing everything he needs to doMortgagee needs to make sure
Borrower hasnt committed any voluntary wastes
Law imposes affirmative duties on the mortgagor
Voluntary Waste ~ intentionally doing something that harms the value of
the property
Permissive Waste ~ your failure to act causes harm to the property
Mortgage document will set out certain obligations that borrower
needs to do
Build into default clause a grace period for amount of time to fix
something
POSSESSION BY MORTGAGEE
Mortgagee in possession
A term applied to a lender that takes physical control of a debtors property prior to
foreclosure; mortgagee who has obtained possession of property from the
mortgagor with the consent of the latter
This remedy avoids the drastic step of foreclosure while enabling the mortgagee to
protect and preserve its security interest
Mortgagee does not thereby limit its right to foreclosure, and upon
foreclosure, the mortgagee may purchase the property at sheriffs sale
If the mortgagor should avoid foreclosure by paying off the mortgage debt
while the mortgagee is in possession of the property, the mortgagee must
surrender the property to the mortgagor
Generally the reason the lender takes possession of mortgaged property is to
preserve and protect its asset value
Such a lender is not considered to be the owner of the property simply as a result of
taking possession, even in a state that follows the title theory or intermediate theory
The mortgagee in possession has a special duty to act prudently in taking care of
the property and must make a full accounting of rents and profits derived from the
property
Mortgagor is entitled to an accounting from the mortgagee who has possession
Fiduciary duty of a mortgagee in possession is owed only to the mortgagor
In the absence of a valid agreement by which the mortgagee has assumed or
guaranteed payment of the mortgagors debt, mortgagee cannot be required to
pay unsecured claims held by creditors of the mortgagor. Creditors must look
to the mortgagor

Mortgages
Purpose of Mortgage ~ to secure a payment or performance of an obligation owed
to lender
Mortgagee = Lender (Gee, I hope they pay me back)
Mortgagor = Borrower
Sign promissory note the actual debt instrument that is signed by Borrower in
order to borrow money; the mortgagee has them sign a mortgage that is filed
against the property
Can sign note and not mortgage
When dealing with residential and commercial property, in order to get
loan, mortgage on property
Some provisions for a Promissory Note fall under Article 3 UCC
Generally, no legal requirement that debt (Note or mortgage) must be in
writingbut most times it is
Mortgage follows the note! Without the note you cannot have a mortgage!!
If A gives B a (note + mortgage), and B gives the note to C, and B gives the
assigns the debt to D
C has the right to receive payments on the note, AND force A to
foreclose on the mortgage
Loan Assignments, which is really only done in the commercial market, (assigning
 a loan from one lender to another lender) has two documents involved:
Allonge- a form with endorsement information that is attached to the
promissory note that passes the loan assignment to a new party
Assignment of Mortgage- This is the form that is filed/recorded to let
everyone else out there know that the new lender is the owner of the debt
At closing, client (if borrower) will only sign Note once only one original note,
which stays with lender (mortgagee)
Partial Payment

Late Payment ~ what if make late payment of mortgage? Def of Late Payment and
why lenders charge one
Know regulated by federal law
Most of time, its a % of amount not paid that month (not amt of entire loan)
If fail to pay within certain time period, could be in default of your mortgage if you
fail to pay within the specified time period
Most Residential Mortgages will allow for a late charge ~ a percentage due that
monthnot percentage of entire loan owed; or could be a flat fee (most do
percentage)
Late charges on payments are lawful!
Courts generally analyze late charges under the law of liquidated damages,
which permits parties to contract for the payment of a fixed amount to be paid
upon a breach, provided that actual damages are difficult or impracticable to
calculate and the liquidated sum is a reasonable estimate of actual harm

Pre-Payment (Opposite of Late Payment)

Most residential prop ~ can prepay
When pay off mortgage before it is due
Pre-Payment generally in residential occurs all the time
Can be total or partial
Prepayment is attractive to the borrower b/c interest ceases to accrue on the prepaid
principal; the borrower wont have to pay the interest on the loan that would have
continued to accrue
Usually, no pre-payment penalty on first mortgage
If have 2nd mortgage, sometimes to get a certain lower interest rate, will agree to a
pre-payment penalty
Why do lenders charge a prepay penalty? It changes their return of the investment
over time.
Lenders make money from the interest, so if people pay back loans, they
wont make $
Also, 2nd mortgages, the lender is taking more risk because hes priority
Commercial mortgages typically have pre-payment penalties
Many notes have an express provision on the subject, either permitting prepayment
at the borrowers option or restricting prepayment.
Restrictions often consist of a complete prohibition on prepayment or the
imposition of a charge to be paid by the borrower if the borrower prepays
Prepayment premiums are designed to protect a lender against
 potential losses it may incur if a loan is paid earlier than contracted for
Prepayment fees are nothing more than liquidated damage clauses
Lender has committed itself to leave its funds outstanding for a fixed
period at a given interest yield and to suffer the market rate risk
inherent in that position
If rates rise after a loan has been made, value of loan will fall for
lender
In return for absorbing the risk of rising rates, the lender wants
assurances that if the market rate falls, the borrower will not merely
prepay the loan and refinance at a lower rate
From the lenders viewpoint, a prepayment is a derogation of the
right to earn the agreed yield for the full term, even if extrinsic rates
drop. In other words, the borrower breaches its obligations to keep
the loan in effect for its full term
Prepayment cannot be charged if it is the result of property being taken by
eminent domain, destruction of property
A prepayment fee can be collected when the prepayment results from the
mortgagees acceleration of the secured debt due to the mortgagors default
Although it was involuntary, Mortgagors action in defaulting triggered the
acceleration
Mortgagee has no duty to refrain from accelerating a defaulted loan, and
the acceleration gives rise to a payment that may impose costs and risks on
the mortgagee identical to those flowing from a voluntary prepayment
Risk of a prepayment resulting from default and acceleration is well within
the range of risks which the mortgagee has agreed to absorb in return for
the fee
Borrower fully understood and had the opportunity to bargain over the
clause, clause will ordinarily be enforced
When you do pay off mortgage, lender will give you a satisfaction of mortgage
However, sometimes, mortgages are paid off out of cash from closing when
property is sold

Taking Property Subject To:

What happens when Buyer takes property subject to Mortgage?
Shown as exception to title, they take property with the mortgage
They dont make an absolute promise to pay the debt but they agree to have
it as an exception on the title policy
Shown on Schedule B2 because exception to title, and not requirement at
closing (Schedule B1 ~ requirements)
Shown as exception to title!
When Buyer takes property with mortgage, they do not have any personal liability!
If lender forecloses on property, the buyer who took mortgage subject to,
does not have personal liability, they may lose property though, but cannot
go after new buyer!
If new buyer does not make promise to pay mortgage, will keep making
payments because dont want to lose payments
 So, Buyer still makes payments, but do not have personal liability!
When actually sell property subject to mortgage, do need lenders consent in most
cases
Due on Sale Clause if sell to someone else, loan is automatically then due
Subject To ~ rare because have Due on Sale Clause by lender
If dont ask Lenders permission and sell, then there is risk that lender will declare
Loan in default and foreclose immediately unless loan is paid off
If take property subject to ~ Lender can go after original borrower
On exam: What does Subject To mean
Assuming a Mortgage:
When buyer promises to pay off mortgage
Generally, always have to have lenders consent
Personally liable!
If lender forecloses on property, and have action, can go after the party that
assumed the loan for rest of money
Original borrower has to obtain a release from a lender
This is good for lender because can go after property, new buyer, and original
borrower
Lender is unlikely to give release unless new borrower has better credit

Default:
Acceleration ~ when all future payments become due at once
When default, entire rest of debt is due
Severe type of default
Default provisions in Mortgages and Promissory notes
Acceleration ~ after default, (must be major default) automatically take
affect when have due on sale ALL of debt is due!

Usury: ~ Dont need to know history and stuff about congress; Know what it is; the
Penalties
There is a maximum amount the Lender can charge for interest, limit the amount of
interest a lender may charge on a loan ($500,000 or less---18%, >500,000--- 25%)
Generally applies to all types of loans transactions
Generally, States govern usury
Important not only look at interest, but also can look at fees lender charges you up
front
Not all fees may be included ~ depends on State law.
It is not strictly your interests
Many states will have a ceiling for interests
Can be different for commercial and residential
Why would Lenders get in trouble with this if they know the maximum? Sometimes
loans are not always fixed and depend on marketso sometimes interests will
spike and then go beyond, and automatically the Lender can get penalties for Usery
For example, loans with adjustable int. rates often present usury problems
(Variable Rates, Points/Fees, Equity Kickers)
If an adjustment makes the int. rate exceed the maximum for a certain
 period of time, some courts look at the entire loan term, spreading the
interest over that period to see whether there is a violation
Some courts hold that variable interest cant be spread over the entire term
of a loan
Lenders may sometimes charge hidden interest - borrower fees and amounts that
are not denominated as interest, but legally they may constitute interest if they are
paid for the use of the loan money
Usually get in more trouble with commercial loans
Fed Govt ~ in Residential mortgages, no limit on 1st mortgageBut States opt out
of this
Fed Govt makes residential mortgages more conform

Penalties for Usury:

Lightest penalty ~ if lender charged with Usury, they forfeit the extra interest
Forfeit the extra interest that is in excess of the maximum rate permitted
(second lightest) ~ pay statutory fines that are double or triple the excess interest
Make lender feel how much money they are losing
Lender has no right to collect interest on entire amount of loan
Lender loses right to interest and to payment (NY only)

FORECLOSURES
Process after default where the lender gets value from the collateral to repay part or
all of the debt
2 processes in which foreclosure done
Judicial foreclosure
Deed of trust - done privately outside the courts, by the mortgagee or a 3rd
party such as a trustee
One action Rule
Limits the mortgagee to a single action that must include foreclosure and
may include, if appropriate, a deficiency judgment
Compels the mortgagee to satisfy the debt out of the mortgaged property
first, before chasing other assets owned by the mortgagor
Mortgagee cannot bring a personal action on the debt; the mortgagee must
1st exhaust the security the parties agreed to for the debt before making
other collection attempts
Statutory Redemption
Foreclosure terminates the mortgagors equity of redemption. Up until the
moment of foreclosure sale, the equity of redemption means the mortgagor
has the right to pay the debt and obtain a release of the mortgage
Borrower may have an additional right called the right of statutory
redemption that comes into play after the foreclosure
Right to redeem, time period to redeem, redemption price
(foreclosure sales price plus interest), right to possession, who can
redeem, effect of redemption on liens, compliance with statutory
requirements
3 TYPES OF FORECLOSURE
Strict Foreclosure
Judicial Foreclosure
Florida is a judicial foreclosure state
Judge sets a date by which the mortgagor must pay or lose the property
Mortgagor loses equity of redemption if he does not pay by the deadline
With judicial foreclosure, a court-supervised public sale of the property occurs,
usually a public auction outside the courthouse done by a sheriff.
Superior b/c the market decides how much the mortgaged property is worth
Foreclosure is not an in rem proceeding, a foreclosure decree binds parties who are
defendants with proper service of process
Nonparties are usually not bound by a foreclosure decree or a foreclosure
sale
Parties to be named in action
Necessary parties - persons who hold junior interest; they have to be
joined as defendants to accomplish the goal of transferring title to the
buyer in the condition it was in when the mortgage was granted
Borrower/owner
Junior lien holder
Lease interest
Proper Parties person who has rights or duties w/ respect to the property
or the debt but who is not a necessary party. Significance of naming a
proper party is that he/she can be joined w/out consent. Can be forced in as
an additional defendant
Holders of prior interest in the property and person who are
liable on the debt but do not have ownership in the property
Senior mtg holder
Guarantor
Power of Sale Foreclosure
Foreclosure by power of sale
Dont have judicial oversight
Faster and cheaper than judicial foreclosure
All the steps in the foreclosure process, including the sale, are handled
either by the lender or by a 3rd party, such as the trustee under the
deed of trust
Can be employed only if the mortgage instrument authorizes the procedure
by granting a power of sale to the lender or to a third party such as a trustee
State statutes and parties agreements govern the availability of non-judicial
foreclosure
The goal is the same as judicial foreclosure; to sell THE PROPERTY AND
APPLY THE NET sales proceeds to the debt. Reason for this is to save the
lender time and expense of going to court and also provides safeguards to
the mortgagor and 3rd parties

Deed in lieu (take subject to everything with property)

Instead of going into foreclosure, borrower transfers ownership over to the
 lender
The lender gets the title right away and can keep or sell the property
The borrower is relieved of responsibility for the property and avoids being
the target of foreclosure
Essentially, the deed in lieu of foreclosure transaction is a negotiated sale of
the property to the lender, where the lender pays the purchase price by
cancellation of the debt
Poses significant risks to the lender
After consummation of the transaction, the mortgagor may try to set
aside the deed in lieu of foreclosure, claiming that the deed clogs her
equity of redemption
Some courts are willing to scrutinize a deed in lieu of foreclosure
transaction on grounds of inadequacy of consideration or
unconscionability
Lender who contemplates acceptance of a deed in lieu of foreclosure
has to consider risks that third parties may have rights
o Deeds in lieu will not cut off junior interests

Default - technical v. material

Anti-deficiency statutes
Acceleration
Process by which the lender, after default by the borrower, makes the entire debt
due and payable
Lenders goal in foreclosure is to sell the mortgaged property and use the sales
proceeds to repay the entire debt
All loan documents explicitly address acceleration, usually in promissory note
2 types of acceleration clauses
One provides that the entire debt shall be due and payable if a specified
event happens, acceleration is triggered when event occurs, no action by
lender is necessary
Lender has the option to accelerate maturity of the debt. Lender has the
choice; may insist upon acceleration or may forbear, preferable
If the documents have an optional acceleration clause, the lender must take some
affirmative action that demonstrates its intent to accelerate, otherwise the loan is
not accelerated