Property Transactions
I. Market Context for Real Estate Transactions
A. Context:
1. Property Transactions overall:
a. transfer of real property from one person or entity to another;
b. its different from sales of goods because each piece of real property is unique (unlike an iPhone or cereal);
c. knowing who has rights to the real property is more complex than with goods;
d. real property is also usually far more expensive than goods, often requiring financing;
2. Covered in Class:
a. The Stages of Property Transfers:
(1) Marketing/Shopping;
(2) Preparing to Contract;
(3) Executory Contract (aka Purchase and Sale Agreement);
(4) Closing;
(5) Post-Closing;
b. Financing Mechanisms;
c. Foreclosures & Other Remedies;
d. Zoning & Governmental Restrictions;
e. Commercial Real Estate Transactions;
3. Pieces Involved in a Property Transaction:
a. The Law;
b. What You Don't Know;
c. The Players;
(1) Buyer;
(2) Seller;
(3) Broker;
(4) Lender;
(5) Title Company;
(6) Appraiser;
(7) Inspector;
(8) Government;
(9) Lawyers;
d. The Documents;
(1) Contracts;
(2) Conveyances;
4. Categories of Real Estate Transactional Practice:
a. Residential:
(1) Lawyers represent either buyer, seller, or lender;
(2) Field is shared with nonlaywers - Real Estate Brokers, Title Companies, Escrow-Closing Agents;
b. Commercial:
(1) As in Residential Property, Commercial involves contract, property, and mortgage law;
(a) Adds:  taxation law, business associations, securities, bankruptcy, environmental, land use and zoning, takings, torts, UCC, and administrative law;
(2) What law is used depends upon the client's commercial interest, goal, and activity;
5. Things Lawyers Must Understand - Lawyer's Focus:
a. Transactional Perspective:
(1) Of Clients:
(a) Their objectives, goals;
(2) Non-Clients:
(a) Their objectives, goals;
(3) The Attorney:
(a) Your right to a fee;
(b) Limiting your exposure to liability;
b. Transactional Purpose:
(1) Subject of the transaction:
(a) raw land, raw land plus a home, or a shopping center, et al.
(2) Objective of the transaction:
(a) strictly profit-making, for a tax break, to put in a kind of business, et al.
c. Transactional Planning:
(1) I.R.S. - not the agency:
(a) Identify the Risk, Reduce the Risk, and/or Shift the Risk;
(b) Cost control;
6. Profits:
a. Account Profits:
(1) based on covering the cost of a transaction;
b. Economic Profits:
(1) measure the amount of accounting profit against the comparative return that could have been earned from undertaking an alternative transaction of comparable risk;
7. Value, Utility, & Comparative Advantage:
a. Value:
(1) the importance, worth, or usefulness of something; estimate the monetary worth of (something);
b. Utility:
(1) How much an individual values a particular good, service, or activity;
c. Comparative Advantage:
(1) the ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another;
8. Categories of Costs:
a. Transaction:
(1) the costs of undertaking a particular exchange;
b. Out-of-Pocket:
(1) actual expenses incurred in doing a project;
c. Opportunity:
(1) market choices one gives up to pursue the selected choice;
d. Sunk Costs:
(1) special type of Out-of-Pocket costs;
(2) costs that cannot be recovered when a party abandons a course of action;
9. Transactional Misbehavior:
a. Occurs when a party to a transaction tries to change the dynamics of the deal after the deal has been struck - in other words, that a contract exists;
b. lawyers should try to construct contracts and documents to ensure that this kind of behavior is minimized;
10. Categories of Market Risk:
a. Temporal Risk:
(1) Risk factors related to time;
(a) Key to this concept is the time value of money; a dollar today is worth more than a dollar tomorrow (inflationary concept);
b. Transactional Risk:
(1) Included here are:
(a) Investor/Ownership Risk (aka Entrepreneurial Risk):
I. risks like tort liability, environmental problems, contract liability, improvement costs to the property, etc.
(b) Markeplace Risk:
I. risks associated with general market forces that can affect profitability of any given transaction; affects all market participants, not just the owner;
(c) Credit Risk (of the buyer):
I. usually pertains to financing transactions, but occurs whenever payment and performance are not simultaneous;
(d) Transfer Risk:
I. risk in the actual mechanics of the transfer;
II. when any particular promise, warranty, or representation made by one party to another party may be untrue or unenforceable;
c. Ethics:
(1) lawyers cannot simply function as mere economic actors seeking to maximize profits because of the Rules of Professional Conduct;
(2) Particular attention should be paid to Conflicts of Interest;
II. Real Estate Brokers
A. Primary Functions
1. Parties & Information:
a. they bring together the parties for a transaction;
b. assist with contract negotiations;
c. assist with property inspections;
d. assist with financing arrangements;
e. provide market information;
B. Regulation/Licensure:
1. States:
a. all 50 states regulate real estate brokerage;
b. a state administrative agency is responsible for enforcing the laws pertaining to brokers;
2. Licensure has Two Levels:
a. Broker:
(1) has a full license; although he may work for another he is qualified, just like an attorney, to go into business for himself;
b. Salesperson:
(1) has a limited license that permits him to act as a broker only under the supervision of a licensed broker (like a legal intern);
(2) often states require that individuals must be Salespersons for a period before they can obtain a Broker's license;
(3) In Oregon the division is:  Principal Broker (full license) and Broker (limited license).
c. Realtor:
(1) is a trademark term of the National Association of Realtors;
(2) in common parlance most Americans see the term to mean Brokers and Salespersons;
C. Income:
1. Commissions:
a. commissions are the most common form of payment for brokers;
b. typically the range is 5 - 7% of the sales price;
2. Flat Fee or Hourly Rates:
a. can be used but are rarely used;
D. Listings (aka List Agreements):
1. contracts to sell a property on behalf of an owner are called Listings;
2. there are four kinds;
a. Open Listing (aka Nonexculsive Listing):
(1) Broker earns a commission if he finds a buyer;
(2) other Brokers can be used by the seller, in which event, the first one to procure a buyer earns the commission;
(3) seller can sell his house as well in this scenario and end up paying no brokers;
b. Exclusive Agency Listing:
(1) contains a promise by the seller not to engage another broker during the term of the agreement; the Broker is the exclusive selling agent;
(2) if the owner sells using another agent, the exclusive agent is still entitled to his commission;
(3) however, if the seller finds a buyer they do not have to pay the Broker;
c. Exclusive Right to Sell Listing: // Most preferred, most used agreement.
(1) most protective of the Broker's expectation of a commission;
(2) seller is obligated to pay the commission if any buyer purchases the property during the term of the agreement no matter where the buyer comes from;
d. Net Listing:  //  Very uncommon.
(1) least common;
(2) the commission is not specified as a percentage;
(3) the seller agrees to pay the broker all amounts received in excess of a set price established by the broker and the seller;
(4) e.g. the agreement might say that seller is to receive a net price of $300K and the Broker might set an initial asking price of $330K.
(5) Note:  This is illegal in some states.
3. Multiple Listing Service (MLS):
a. almost all listings in the MLS are Exclusive Right to Sell listings;
b. Listing Broker:
(1) realtor who puts a property on the MLS;
(2) Property Owner's/Seller's agent;
c. Selling Broker (aka Buyer's Broker) (who can end up being a Cooperating Broker and usually does):
(1) the realtor who works directly with a buyer, showing the buyer many prospective properties;
(2) the Buyer's Agent;
d. Cooperating Broker:
(1) realtor who brings a buyer to the listing and may get end up selling the listing;
(2) both split the commission in such a case equally;
(3) this is just a term used to describe the brokers when they are both working the sale (buyer's broker and seller's broker splitting a commission);
E. Duties to Clients:
1. Relevant Law:
a. most law for property transactions and realtors is governed by the Law of Contracts and the Law of Agency;
2. Fiduciary Relationship:
a. Brokers owe a fiduciary responsibility to the client;
b. Key duties to their Principal:
(1) Duty of Loyalty;
(a) to advance the best interests of the principal;
(2) Duty of Disclosure;
(a) must disclose anything material the broker knows that affects the principal's interests;
(3) Duty of Confidentiality;
(a) much like a lawyer's duty; the principal's interests cannot be disclosed to third parties without consent by the principal;
3. Law of Agency Problems:
a. Realtors, in most states, can engage in Dual Agency -- meaning they can represent both the seller and the buyer with informed consent;
b. this can pose problems for the Fiduciary Duties owed to each client;
F. Brokers' Duties to Nonclients (third-parties):
1. Disclosures that materially can affect the sale of property are an obligation on the part of the seller (Holmes v. Summer);
a. In most jurisdictions, there is a duty to disclose any material information that could not be otherwise located through diligent research;
2. (Holmes v. Summer) Even though the Seller's Agent owes them Fiduciary Duties, and generally does not owe such duties to the Buyer, the Seller and Sellers Agent owes the buyer the affirmative duties of:
a. care;
b. honesty;
c. good faith;
d. fair dealing;
e. disclosure;
G. Broker's Right to a Commission:
1. Default Ω:
a. The Broker earns his commission when he produces a customer who is ready, willing, and able to purchase upon acceptable terms to the owner/seller.  (But is typically DUE to be paid upon closing.)
b. Court Interpretation:  the broker finishes his undertaking prior to closing, when he presents his client, the owner, with an acceptable written offer to purchase.
2. Exceptions:
a. Often sellers defeat Brokers' claims to commission for sales that fail to close due to exceptions to the General Ω;
(1) Conditions in the Contract for Sale:
(a) express conditions that, if not satisfied, give one or both parties the right to terminate the contract;
(b) if the sale fails due to an unsatisfied condition, the right to the commission ends;
(2) Express Closing Term in Contract:
(a) some sellers expressly mandate that closing is required for commission to be paid;
3. NJ Ω (Oregon falls in this category as well) // Minority Ω:
a. In a minority of jurisdictions, closing is a required step to earn a commission even if not included in the agreement;
(a) if failure to close is caused by the seller's wrongful default or interference, then the commission is payable;
H. Brokers and Lawyers:
1. Unauthorized Practice of Law:
a. When has a Realtor crossed the line into practicing law without a license?  Three tests are commonly used to determine this:
(1) Contract Versus Conveyances Test:
(a) The Broker may prepare the contract of sale or earnest money contract between the parties and other ancillary documents, such as a loan application or escrow instructions, but may not prepare closing instruments that convey interest in land.
(2) Simple-Complex Test:
(a) If the transaction is simple, a Broker is permitted to select standard-form instruments and assist the parties in filling in the blanks.
(b) The Broker cannot furnish documents for a complex transaction or an unusual feature of a simple transaction, such as creation of an easement.
(3) Incidental Test:
(a) Broker drafting of instruments is authorized if it is incidental to the Broker's business and the party pays no separate charge for this service.
2. Lawyers Acting as Brokers:
a. Attorneys are exempt from licensing requirements in nearly all states from regulation on buying and selling real estate;
(1) in some states the exemption's scope varies;
b. In most states, the exemption is limited to brokerage services that are incidental to the attorney's law practice (and also exclude them from collecting a commission for the brokerage services).
c. Oregon?
(1) § 696 ORS;
(a) Oregon does not have a written attorney exemption; but the In Re Roth holding is mirrored in Oregon law;
d. NJ:  (In Re Roth);
(1) Attorneys may perform brokerage services that are only incidental to the normal practice of law, which cannot be the basis for a claim as compensation as a broker.  In other words, if the attorney is acting as an attorney for a client, the only brokerage services he can engage in must be incidental and he cannot be compensated for the brokerage services.
III. Preparing to Contract
A. Legal Elements of a Property Transaction:
1. Legal foundation:
a. Contract law;
b. Property law;
2. Risk Allocation:
a. The more risk a party has, the less valuable the transaction is to them; (Risk, then, is a kind of cost.)
(1) When Contract terms allocate more risk to the buyer, the purchase price must be lowered;
(2) When more risk is allocated to the seller, the seller will desire an increase in the sales price;
(a) Buyer and Seller have inverse relationships in the tradeoff between risk and price.
B. Real Estate Transactions Timeline:
1. The Timeline (Four Stages):
a. A »» B »» C »» D  //  A=Precontract, B=Executory Contract, C=Closing the Contract, D=Postclosing
b. Time Period A »» B (Precontract Stage):
(1) Precontract stage is typically information gathering and negotiating;
(2) Good information must be gathered to assess the value of the transaction;
c. Time Period B »» C (Executory Contract Stage):
(1) Begins from the moment of entering into the contract until the moment of “closing” the contract;
(2) In a typical residential home sale, the time is usually from one to three months;
(3) In a typical commercial property sale, this could range from 6 - 18 months or longer;
(4) Doctrine of Equitable Conversion:
(a) Once the contract document for the sale of a property comes into effect, this doctrine is active;
(b) means that title is split, with the Legal Title remaining in the seller and the Equitable Title remaining in the buyer at the moment the contract of sale is signed.
d. Time Period C »» D (Closing Stage):
(1) The sale and transfer of title process which completes the contract for the transaction is called a “closing” or “settlement”;
(2) Puts an end to the Executory Contract Stage;
(3) Equitable Conversion ends as the buyer is vested with full title as conveyed by the seller;
(a) Closing is about the buyer formally delivering the purchase price and the seller delivering the instrument of conveyance;
(b) At Closing the Doctrine of Merger applies;
I. it means that all promises prior to the closing are “merged” into the final documents taken at closing (thus, warranties in the instrument of conveyance replace the warranties that were in the contract);
e. Time Period D »» (Post-Closing Period):
(1) this is the period where all of the executed documents must be recorded in the public records (such as the warranty deed, the mortgage, et al.);
(2) during this period much can go wrong if things are lost, not properly recorded, or are misfiled or filed with the wrong documents; such mishaps can seriously impair the completion of the transaction;
C. Letters of Intent, Options, & Contract Enforceability:
1. Negotiation Stage Problems:
a. When negotiating, much information is exchanged (proposed contracts, offers, verbal communication, et al.);
(1) Key Question:  When does negotiation become a binding contract?
(a) If a contract, what kind:  Options Contract (to purchase at a later date), specific terms, et al.
b. Parol Evidence Rule:
(1) Prohibits the admission of prior written or prior or contemporaneous oral evidence that adds to or is inconsistent with the final written agreement between the parties;
(a) Presumption:  this assumes the parties intended the final written agreement to be fully integrated;
I. Integration Clause:  provision in a contract stating that the document is the full and complete agreement between the parties -- intended to raise the Parol Evidence bar;
c. Statute of Frauds:
(1) Prohibits enforcement of oral agreements unless there is a writing signed by the party to be charged; (usually for amounts above $500, or for the sale of real property (land), or for a contract term greater than a year);
(a) Writing must contain:
I. essential terms;
II. property to be exchanged;
III. name of the parties;
(b) Note:  the writing doesn't have to be just a single document; several exchanged documents, emails, etc. are permissible;
2. Letters of Intent:
a. Similar to an Option Contract;
(1) both seek to take the property off the market while giving the buyer more time to consider a possible purchase;
(2) usually very limited in time;
(3) usually given WITHOUT consideration;
b. Difference from an Option Contract:
(1) an Option Contract is granted on the basis of consideration (usually money) given in exchange for taking the property off the market;
(2) the money is lost if the option is not exercised (it basically buys the "time" the property is off the market);
IV. Executory Contracts (Stage B of the Real Estate Transaction Timeline)
A. Executing an Enforceable Contract:
1. Executory Time Period:
a. The Executory Period begins when the parties reach an agreement (memorialized with a formal writing/contract);
(1) During the Executory Period the parties are busy performing their contractual obligations;
b. The Executory Period ends at the closing of the contract;
(1) Note:  This beginning and ending of the Executory Stage of the Transaction Timeline is not always so clear.  When a writing is complete enough to be enforceable or when all contractual provision have been fulfilled to end the period are sometimes "gray areas" which courts must deal with.
2. Default Ω:  An agreement for the purchase of Real Property must comply with the Statute of Frauds;
a. Elements:
(1) Must be in writing;
(2) Writing must contain:
(a) names of the parties;
(b) description of the property;
(c) the intent to buy and sell;
(d) must be signed by the party to be charged;
I. Note:  electronic signatures are also acceptable (Electronic Signatures in Global and National Commerce Act, 15 USC §§ 7001 - 7031);  any state law requiring a written signature is preempted by this act;
b. Exceptions:
(1) Not ALL contract terms must be included;
(a) This mean the Parol Evidence Ω  may be a factor in considering the enforceability of alleged contract terms which are NOT part of the written agreement;
B. Equitable Conversion Doctrine & Allocation of Risk:
1. Equitable Conversion Doctrine:
a. Means that title is split, with the Legal Title remaining in the seller and the Equitable Title remaining in the buyer at the moment the contract is signed.
(1) Default Ω on Risk: The risk is on the buyer to fulfill all of their contractual duties in the event of loss or failure to make it to closing period (e.g. the property is destroyed by a  tornado -- buyer is still obligated to buy the property);
(a) UNLESS:  this risk has been contracted around;
b. Interests Created:
(1) Buyer has an interest in the property even though the contract has not been fully performed;
(2) Each party (buyer and seller) have the right to deal with their respective interests:  to buy, sell, assign, pledge, mortgage, insure, et al. their Legal or Equitable Interest;
(a) Restricting this Ability:
I. Seller and Buyer may not want to have these abilities during the Executory Period because of the complications it can cause and the potential legal issues that may arise;
2. Risk Allocation (during Equitable Conversion Period):
a. While title is split under Equitable Conversion, who bears the costs for damage or loss during the Executory Period?  Or who gets the gain if something radically enhances the value (like discovery of gold in the back yard)?
(1) Old Default Ω:  The buyer takes on the risks associated with anything that happens during the Executory Period;
(a) You can contract around this, however, by simply creating a contract provision assigning risk to the seller;
(b) And, as noted, you should insure your risk whatever it happens to be;
b. Specific Risks:
(1) To Seller:
(a) Commission to Broker;
(b) Property comes off of the market;
(2) To Buyer:
(a) Buyer has to forgo other properties;
(b) possible liabilities for failure to close the contract;
c. Uniform Vendor and Purchaser Risk Act  of 1935:  (Williston)
(1) § 1:  Risk of Loss:
(a) if, before title is transferred,  property is damaged or destroyed, seller cannot enforce the contract and the buyer is entitled to recover any money paid;
(b) if, after title is transferred, property is damaged or destroyed, seller can enforce the contract and the buyer is not entitled to recover any money paid;
3. Insurable Interest:
a. Each party can insure the areas of risk in the transaction for themselves;
b. In the common law, a seller could insure their risk and if they had a loss, collect the insurance proceeds and still enforce the contract against the buyer if title had been transferred;
(1) Since this is seen as a windfall for the seller and a loss for the buyer, some states have statutes which require the insurance money to be escrowed for the buyer's benefit to prevent a loss and unjust windfall;
C. Major Contract Conditions:
1. Allocating risk can most effectively be done using contract:
a. express promises (covenants);
b. warranties;
c. representations;
d. conditions/contingencies;
(1) Most common condition:  if a home mortgage loan cannot be obtained, the contract is terminated;
D. Finacing:
1. All-Cash Exchange:
a. the buyer undertakes to buy the property at the stated price and takes on all the risk of having the full amount of money in hand at closing;
2. Purchase Money Mortgage (aka PMM or Seller Financing):
a. when the buyer obtains financing from the seller himself; seller acts as the lender as well.
(1) Note:  Sometimes the term PMM is used more broadly to include third-party lenders as well (not usual).
E. Deposits / Earnest Money (terms interchangeable):
1. Nothing in the law says how much you have to put down;
2. Typically it is 10%, but can be any amount agreed to;
3. What is put down is applied toward to the purchase price;
a. Often, if the Buyer fails to obtain financing or close the deal the Deposit is forfeited to the Seller;
V. Condition of the Property
A. Quantity & Quality: The contract must address matters that relate to both the quantity and the quality of the property being exchanged;
1. Such matters affect the value (thus price) of the transaction;
B. Quantity:
1. In Gross:  (quantity)
a. an In Gross sale of property means that the property is sold as "a whole", in a lump for a gross sum;
(1) the Buyer takes the risk of the quantity;
(a) as long as there is no fraud, concealment, or misrepresentation;
2. Per Acre: (quantity)
a. where property is sold "at so much per acre" and there is a deficiency in the number of acres conveyed, the purchaser will be entitled to compensation;
3. Doctrine of Mutual Mistake of Fact:
a. Where both parties share a common assumption about a vital fact upon which they based their bargain, and that assumption is false, the transaction may be voided if because of the mistake a very different exchange of values occurs from the exchange of values contemplated by the parties.
C. Quality:
1. Ethical Duty of Lawyers to Third Parties:
a. Opinion letters, title reports, or offering statements which a lawyer writes for a client and knows may be relied upon by non-client third parties can create an ethical duty of care when such reliance is foreseeable by the attorney.  (Petrillo v. Bachenberg);
(1) The facts surrounding a document determine whether the reliance attaches liability to the attorney or not;
(2) The Duty of Care to third-parties does not mean that assessments or tests represented in an attorney's work must be "accurate", only that they do not negligently misrepresent the contents of a material document on which he knows others will rely on to their financial detriment;   (Petrillo v. Bachenberg)
2. Duty to Disclose Material Defects:
a. Interstate Land Sales Full Disclosure Act of 1968: (federal)
(1) Large parcels broken up and sold into subdivisions or commercial parcels must disclose information about the lots, which must be approved by the federal government, called a Statement of Record.  
(a) This requirement is only triggered if the developer uses any means of interstate commerce, including advertising, in more than one state.
(b) Heavily favors buyers; contains anti-fraud provisions and remedies;
(c) Highly complex; compliance is expensive for developers;
b. General Note on Disclosure:
(1) If it seems like something that should be disclosed, simply disclose it;
(2) It avoids lawsuits;
(3) It may be required by law anyway (state disclosure statutes are extensive in the area of real estate);
c. Representations vs. Warranties:
(1) Representations:
(a) What someone knows or believes they know about a property;
(2) Warranties:
(a) What someone guarantees is true or guarantees they will do regarding a property;
3. Physical Defects:
a. General Ω of  Caveat Emptor: a seller is generally under no duty to disclose material facts about the subject matter of a sale unless a specific exception exists;  (this is the old common law rule which has evolved significantly away from this default as residential property, in particular, has become more like a manufactured good than a uniquely constructed property);
b. Exceptions:
(1) "Latent Defects" (hidden or concealed defects) do give rise to a duty on the part of the seller to disclose to the buyer;
(a) Latent Defects combined with misrepresentations or concealment completely precludes use of the defense of Caveat Emptor;
4. Psychological Defects:
a. These are defects attached to the home from rapes, murders, or other serious crimes;
(1) legal question:  are these recognized in law?
(a) Some states (like Ohio) say that some such defects qualify as "latent defects" and thus an exception to the Caveat Emptor general rule;
(b) about half of the states have statutes that protect sellers and realtors from actions based on "psychological" or "stigma" defects;
(2) General approach:
(a) Some kind of misrepresentation on the part of the buyer must have taken place for such a defect to rise to the level of being "material" and thus actionable;
(b) If π says they are chemically sensitive, for example, and asks if the seller ever used bleach in the house and the owner says no (when, in fact, the seller did use bleach) this would be a misrepresentation and thus actionable.  (Note:  In this example, the defect is physical and not "psychological."  The point is that the defect must in some way alter the value of the property.)
b. Ohio approach:
(1) Van Camp v. Bradford:
(a) Plaintiff must affirmatively inquire about psychological defects; (only "material" defects can be actionable);
(b) Defendant must misrepresent or conceal known psychological defects;
I. such concealment must cause reliance upon the part of the buyer;
II. damage must result as a consequence of the fraudulent transaction;
5. "As Is" Clauses:
a. Permits seller to sell the property without a warranty (passive nondisclosure);
b. Does NOT permit the seller to positively misrepresent or conceal facts which are material and must be disclosed by law;
6. Implied Warranties:
a. Arise not from the contract, but from the circumstances under which the transaction takes place;
b. In common law jurisdictions, an Implied Warranty is a contract law term for certain assurances that are presumed to be made in the sale of products or real property, due to the circumstances of the sale. These assurances are characterized as warranties irrespective of whether the seller has expressly promised them orally or in writing. They include an implied warranty of fitness for a particular purpose, an implied warranty of merchantability for products, implied warranty of workmanlike quality for services, and an implied warranty of habitability for a home.
VI. Closing the Contract (Stage C of the Real Estate Transaction Timeline)
A. Two sub-phases to this phase:
1. Sub-phase 1:  Everything that goes into preparing for the completion of the exchange as contracted;
2. Sub-phase 2: paperwork that is required post-closing (e.g. recording of documents);
B. Buyer's Primary Document:  (and object of concern)
1. Deed of Conveyance:
a. Conveys full title to buyer;
b. Elements for a valid Deed of Conveyance:
(1) deed must be in writing;
(2) deed must name a grantor and grantee;
(3) deed must adequately describe the real property to the exclusion of all others;
(4) there must be an intent to convey by the grantor;
(5) there must be actual or constructive delivery of property;
(6) the grantee must accept the deed.
2. Recording:
a. Is done to protect the grantee's interest from various third parties (discussed in Chapter 10).
C. Closing:
1. A ceremony that brings the real estate contract to a conclusion;
a. Buyers and sellers provide proof that all of the conditions, promises, etc. have been fulfilled before conveying title;
2. Closing ensures that all documents are signed and complete;
a. Provides the opportunity for the parties to read the contracts (failure to do so constitutes waiver of the right to complain later -- typical contract law);
3. Monies change hands at this time; is disbursed;
D. Post-Closing:
1. Recording the Deed;
2. Title Company checks title before issuing Title Insurance Policy;
3. "Clean up" of documents;
E. Doctrine of Merger:
1. all promises prior to the closing are “merged” into the final documents taken at closing (thus, warranties in the instrument of conveyance replace the warranties that were in the contract);
2. all rights, warranties, and obligations from the executory contract are no longer operative between the parties;
a. at closing, the contract is no longer executory, it is "executed."
b. once closing occurs, the parties are left with only those rights, warranties, and promises expressed in the closing documents;
3. Doctrine of Merger is a presumption that assists with contract interpretation;
a. Merger presumes promises that precede the deed (during executory period) are performed and gone;
b. Merger is particularly with issues related to possession, title, quantity of property, and so forth which are described in the deed itself;
4. Some promises can't merge:
a. e.g. a right for the seller to have a right to repurchase the property later one;
5. Drafting Around Merger Doctrine:  there are ways to draft around the Doctrine of Merger by creating "collateral agreements" which are separate and independent of the conveyance of title;
a. e.g. a statement like this:  "This obligation shall survive closing and not merge in the deed."  This would preserve the agreement and the performance obligations of the parties after the closing as a separate contract from the deed.
6. Exceptions to Merger:
a. Ambiguity:
(1) if the contract terms are susceptible to multiple meanings, then the final document's terms are not merged with the executory contract;
b. Mutual Mistake:
(1) if the contract terms are drafted with mutual mistake of the contracting parties, then the final document's terms are not merged with the executory contract; the mistake must be MUTUAL meaning each party must misunderstand the other's intent;
F. Escrows:
1. Three Types of Escrow:
a. Loan Escrow:
(1) used by lenders to collect and hold money form the debtor for paying annual real property taxes and fire and hazard insurance premiums;
b. Escrow Closing:
(1) means the parties (buyer and seller) have appointed an escrow agent to conduct the closing;
(2) the escrow agent administers the contract of purchase and sale and has fiduciary duties to both the buyer and the seller;
c. Contingency Escrow:
(1) is a process to resolve a problem that arises at or before closing;
(2) usually a problems like a repair needed to be done by the seller will mean the escrow withholds payment of purchase funds from seller until the repair is completed;
VII. Contract Remedies
A. Damages & Forfeiture of Payments:
1. Damages (aka Direct Damages or Economic Damages):
a. Designed to make the injured party whole in the economic sense;
(1) recovery for loss of expectation of value on the transaction;
(a) measured by the difference between the contract sale price and the fair market value of the property at the time of the breach;
(2) out-of-pocket expenses;
(3) lost profits;
(4) et al.;
b. Loss of Earnest Money Deposit (Forfeiture of Payments):
(1) This is more common than a damages action, because it is usually provided for in the Executory Contract and avoids court costs; similar to a Liquidated Damages Clause;
(a) amount of earnest money varies and is negotiated at the beginning of the contract; usual range is 3 - 10% of the purchase price;
(b) if breach occurs the seller has the right to terminate the contract and retain the earnest money;
c. Liquidated Damages Clause:
(1) a contractual provision by which the parties stipulate to a fixed sum to be paid in the event of breach;
(2) this is primarily for the seller, but there can be such clauses inserted for the buyer as well;
(3) breach of contract is the trigger for a Liquidated Damages clause;
(4) the amount of damages must appear, to a court, to be reasonable in light of all the circumstances;
(a) an approximation of what the damages would be -- cannot be arbitrary (from Contract Law);
(5) This kind of clause substitutes for any other money damages (direct damages), but does not foreclose equitable remedies;
B. Equitable Remedies:
1. There are four major equitable remedies that courts award to protect parties in real estate transactions:
a. Specific Performance:
(1) Both sides can obtain this relief (buyer and seller);
(2) This is a court injunction that orders the breaching party to do what they contracted to do;
(a) The party requesting Specific Performance against the other side must be ready, willing, and able to perform (meaning the requesting party must have satisfied all contract conditions before they can demand this remedy); (aka coming to the court with "Clean Hands");
(b) the consequence of this means that the party requesting this, if the seller for example, must keep the property off of the market during the pendency of the lawsuit (which is quite burdensome);
(3) This is a rarely used equitable remedy in Property Transactions because of the length of time for a court proceeding to enforce this and the way it ties up both monies and property;
b. Reformation:
(1) If the language of a written contract has an error or mistake, one of the parties may seek a reformation.
(a) typically, Reformation is only granted if the π can establish a Mutual Mistake;
c. Rescission:
(1) Most contracts include conditions that give parties an express right to terminate, or rescind, the contract;
(2) When such a provision is lacking, a court in Equity may grant Rescission based upon grounds such as:
(a) fraud;
(b) misrepresentation;
(c) mutual mistake of fact;
(3) Normally, Rescission is only granted if the problem is sufficiently material;
d. Equitable Liens:
(1) Liens created by operation of law as a consequence of the Doctrine of Equitable Conversion;
(a) Seller:  Obtains a Vendor's Lien on the title; prior to closing, this lien attaches to the Buyer's Equitable Title;  if the seller is not paid, this lien is then attached to the title conveyed by the deed;
(b) Buyer:  Obtains a Vendee's Lien to secure a return of the down payment or the payment of reliance damages in the event that the sale does not close;
C. Slander of Title and Lis Pendens:
1. Slander of Title:
a. a tort action to preserve the value of property;
b. if someone slanders the property in a way that impairs or harms its value, the property owner can sue for Slander of Title just as he could sue for slander of his own good name to preserve the value of the property;
2. Lis Pendens:
a. Latin for "suit pending";
b. a method of asserting a potential claim or conflicting interest against title to real estate when litigation is filed and pending;
(1) it is a notice filed in the public records for real estate;
c. Essentially, it's a way to put a "cloud" on the owner's title which effectively makes the property unmarketable until the pending suit is resolved; also makes it difficult or impossible to transfer or otherwise deal with the property;
D. Tort Remedies Related to the Contract:
1. Usually contract damages are only compensatory in nature;
2. Sometimes, however, tort damages can be obtained;
VIII. Allocating Title Risk
A. Title Under the Real Estate Contract:
1. Marketable Title (aka Merchantable Title):
a. Default Ω of Marketable Title: the buyer has a right to marketable title; considered an implied term & an implied condition of any executory contract;
b. Courts generally define Marketable Title  as an estate that is 100% free from Encumbrances;
(1) Often, courts cite precedents which say that a title which would expose a party to litigation is considered unmarketable;
(2) The key to what's NOT Marketable Title:  Does the potential defect expose the buyer to potential litigation or cost?
(a) If yes, then the title is NOT Marketable;
(b) If no, then the title is Marketable;
c. this right enables buyers to raise the following title issues in court:
(1) defects in the chain of title;
(2) outstanding possessory rights;
(3) future interests;
(4) mortgages, liens, easements;
(5) real covenants and equitable servitudes;
(6) zoning ordinances and other land use regulations;
(7) eminent domain;
(8) adverse possession claims;
(9) boundary disputes;
(10) access to land, et al.
d. the seller, by impliedly promising Marketable Title takes on the risk of defects;
(1) if there is a defect to title of some kind, the seller is responsible to cure or for damages;
(2) the buyer has the right to cancel the contract if marketable title is not supplied;
(a) Note:  Title need only be marketable at closing, not before; so breaches of contract are not recognized until then (gives seller time to cure);
I. In addition, land subject to a lien or mortgage can satisfy those encumbrances with the proceeds from the sale price;
2. Contract Title:
a. Some executory contracts define the quality of the title that the seller must furnish and the buyer must accept, called Contract Title;
(1) Contract Title may be more lenient or more strict that Marketable Title;
b. Two kinds of Contract Title:
(1) Insurable Title:
(a) a title insurance company has agreed in advance to provide insurance against the defects ever affecting the ownership or value of the property; in effect, the parties replace the courts, as arbiter or marketability, with the insurance company;
(2) Record Title:
(a) Record Title requires proof of the status of title, gathered solely from deeds and other instruments that are recorded in the public records for recording interests in real property;
(b) Marketable Title is not necessarily a Record Title; e.g. adverse possession can grant title without it being recorded in some jurisdictions;
3. Encumbrances and Encroachments:
a. Encumbrance:
(1) a nonpossessory right or interest in the property held by a third party that reduces the property's market value, restricts its use, or imposes an obligation on the property owner; e.g.:
(a) easements;
(b) real covenants;
(c) equitable servitudes;
(d) marital property rights;
(e) mortgage liens;
(f) tax liens;
(2) Some encumbrances are considered "beneficial" and therefore do not reduce the value of the property but often increase them and therefore do not make the property "Marketable" in terms of "Marketable Title."  Some "beneficial encumbrances":
(a) easements for sidewalks;
(b) easements for sewers;
(c) easements for other utilities;
(d) easements for access roads to your property;
(3) Note on Covenants, et al.:  Some encumbrances are covenants from previous generations.  For example, "property is conveyed so long as alcohol is never served on the property."  To remove such a covenant, if the original grantor is no longer around (dead), is done by going to court and initiating a Quiet Title Action to get the court to agree with the reasoning and remove the covenant.  Legislative action is another way (a statute which prohibits such covenants, for example).
(a) In addition, local governments can condemn the property which extinguishes whatever encumbrances are upon the property;
b. Encroachment:
(1) is an unauthorized extension of an improvement across a boundary line;
(a) this constitutes trespass by the improver;
4. Effect of Public Regulation on Title:
a. Zoning and other forms of land use regulation often have critical impact on property value;
(1) when such realities are not dealt with in contract (to allocate the risk), parties often seek judicial protection by arguing the title is unmarketable as a result;
5. Buyer's Remedies for Title Defects:
a. when a buyer seeks damages because the seller cannot convey marketable title, many jurisdictions (but not all) follow the "English Rule" which changes the normal default rule of Contracts (which is:  when one party breaches, the other party is permitted to collect expectation damages if proven);
b. The English Ω:  
(1) Expectation damages are not allowed in cases of failure to deliver Marketable Title;
c. The American Ω:
(1) Expectation damages are allowed in cases of failure to deliver Marketable Title;
B. Deed Covenants of Title:
1. Deeds:
a. A Deed is an instrument that conveys an interest in real estate;
b. A new deed is drafted each time property is conveyed to reflect the current owner (grantor);
c. they must be signed (and signed by ALL owners, if there are more than one);
d. they must meet the requirements of the statute of frauds;
e. some states require witnesses, some do not;
f. consideration is NOT required for a valid conveyance of title;
2. Warranty Deeds and Quitclaim Deeds:
a. General Warranty Deed (aka Warranty Deed):
(1) An instrument that transfers real property from one person to another and in which the grantor promises that title is good and clear of any claims; and seller guarantees to defend the title against any defects or claims;
(2) under a General Warranty Deed there are no time restrictions as to the title defects that are subject to the warranties.  This gives the grantee (buyer) the maximum amount of protection, with the grantor (seller) taking on all the title risk.
(3) Note on Warranties and Time:
(a) The promise to warrant a deed theoretically exists forever for the grantor against any and all successive grantees;
(b) in practical terms, it rarely ever happens (often the original grantor is dead, et al.)
b. Special Warranty Deed (aka Limited Warranty Deed):
(1) offers less protection than a General Warranty Deed to the grantee (buyer);
(2) this kind of deed reflects a sharing of the title risk between the parties;
(3) the warranties under a Special Warranty Deed are limited to title matters arising while the grantor owned the property; in other words, the seller only promises to defend the title against defects or claims while they owned the property;
c. Quitclaim Deed:
(1) is a deed that has no covenants of title; basically says, "if I have any interest in this property, I give it to you;" means that the grantor may not even have an interest in the property at issue;
(2) the grantee (buyer) bears ALL the risk associated with the quality of title;
(a) if the property is subject to liens, encumbrances, or other title defects the grantor (seller) is not liable;
d. Bargain and Sale Deed:
(1) says that seller is conveying title to buyer but is guaranteeing nothing; will not defend title and so forth;
(2) only claim by seller is that they own the property ("seised");
e. Deed of Trust (Oregon, California, et al.):
(1) Financing device; not actually a deed in the typical sense;
(2) Deed of Trust grants legal title to the financing company as a Trustor; equitable title rests in the Trustee (mortgagee);
(a) the Trustor (the bank) holds the title until the borrower pays off the mortgage, at which time the Title is conveyed as a General Warranty Deed;
(3) The reason for these in Oregon is so that they can execute Non-Judicial Foreclosures;
3. Types of Covenants:
a. The Law of Deeds recognizes six covenants of title, each of which may be made General Warranty or Special Warranty with the  appropriate language;
b. three are classified as Present Covenants, which speak only to the state of affairs at the moment the deed is delivered and the other three are called Future Covenants because they protect the grantee (buyer) from certain specified events that may occur after the deed is delivered in the future; Future Covenants unlike Present Covenants run with the land;
(1) Present Covenants:
(a) Seisin:
I. the grantor (seller) promises he is in actual possession, claiming a freehold estate;
II. today, most courts view the Covenant of Seisin as a promise of good title to the estate;
(b) Right to Convey:
I. the grantor (seller) promises that he has the legal right to convey the estate the deed purports to convey;
(c) Covenant Against Encumbrances:
I. the grantor (seller) promises that there are no encumbrances on the land;
(2) Future Covenants:
(a) Covenant of Quiet Enjoyment:
I. the grantor (seller) promises that the grantee (buyer) may possess and quietly enjoy the land;
A. this is violated 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;
(b) Covenant of Warranty:
I. the grantor (seller) warrants the title to the grantee (buyer);
II. in most states, this covenant has the same scope as the Covenant of Quiet Enjoyment;
(c) Covenant for Further Assurances:
I. the grantor (seller) promises to give whatever "further assurances" may be required in the future to vest the grantee (buyer) with the title the deed purports to convey;
IX. Land Descriptions
A. Types of Descriptions:
1. the land description, which must be in real estate contracts and deeds, is often called the Legal Description;
2. There are three methods of land description in widespread use today:
a. Metes and Bounds:
(1) describes every boundary line of a parcel of land;
(2) each boundary line is defined by length and "course" (direction given by reference to a compass);
b. Government Survey System:
(1) developed by Thomas Jefferson in 1785;
(2) divides land into townships and sections, using a system of square and rectangular grids;
(3) was extended by the federal government;
(4) the starting point is the intersection of a principal meridian (PM), a line of longitude, and a baseline (BL) which is a line of latitude; each PM and BL is identified by a distinctive number or name;
(a) there are 35 principal meridians and 35 baselines;
(5) Note:  This system does not exist in the original 13 colonies and some of the first eastern states, which used their own descriptive method;
c. Subdivision Maps or Plats (aka Partition Plats):
(1) much urban and suburban land, both residential and commercial, is described by this method;
(2) lots in a subdivision are described by referring to the recorded plat (which is linked up to a metes and bounds description);
(3) these descriptions make it easier to convey property by referring to a subdivision plat;
B. The Survey:
1. Survey:
a. the process of evaluating real property evidence in order to locate the physical limits of a particular parcel of land;
(1) Note:  lawyers should never use an engineering survey to provide legal advice as such surveys are not concerned with boundaries and legal descriptions; always use a boundary survey else you risk malpractice;
2. What has Priority in Surveys?:
a. Monuments, first;
b. Courses and Distances;
c. Acreage Description;
C. Legal Adequacy of Description:
1. Descriptions in Contracts of Sale:
a. when parties to a contract of sale describe the land by means other than a formal legal description, anything can happen in court;
b. a land description doesn't have to be perfect, it simply needs to be provable through extrinsic evidence;
X. Public Records
A. Competing Claims to Land:
1. The system of public records is a key way to resolve competing claims to land.  Title searches are key to determining if the Title in question is Marketable;
2. First Interest Common Law Default Ω:
a. Ω:  First in time, first in right.
(1) Meaning, that the beneficiary of the first recorded deed may foreclose and wipe out all junior deeds recorded later in time.  (e.g. A conveys to B.  A then conveys same property to C.  B has title under this rule.)
(2) Stated another way, in property law, there is a general rule that an entity whose interest in a property is first established prevails over a party who subsequently acquires an interest in the property;
(3) Importance of the rule:
(a) still in effect where recording statutes don't change the result of recording issues;
(b) also, because this rule still applies to executory contracts as well;
3. Recording Acts:
a. All states have them.  Some common features:
(1) Recording Acts set up a system that provides for the recording of instruments that affect title to land;
(2) A deed or other instrument must be acknowledged before it qualifies for recording (most are acknowledged before a notary public);
b. Two basic functions:
(1) Title Assurance:
(a) provides a method for determining who owns a tract of land;
(2) Establish Priorities:
(a) Priority means that the law determines who among various claimants has the superior, prior interest;
B. Title Search Process:
1. Four common steps in Searching Title:
a. Chain of Title:
(1) Title Examiner must discover the Chain of Title;
(2) every parcel of land has a chain of title, the first link being the sovereign and the last link being the present owner;
(3) the best possible title search traces title back to the sovereign;
(a) most state statutes, however, only require a search that goes back a set period (typically 50-60 years);
b. Adverse Recorded Transfers:
(1) Title Examiner must look for Adverse Recorded Transfers by the present owner and by all prior owners in the chain of title;
(2) to find them, the searcher checks the records and deeds in the county where the land is located;
c. Study:
(1) Title Examiner should study full copies of all recorded instruments previously uncovered;
(2) deeds in the chain may contain reservations, exceptions, real covenants, or other matters;
(3) Formalities such as the parties' names, the land descriptions, et al. should be examined - they may reveal that some of the Adverse Transfers (if present) do not affect title because they are defective;
d. Consult Other Records:
(1) Title Examiner should consult other records, in addition to recorded  instruments, for Adverse Interests;
(2) federal claims, bankruptcy records, tax liens, mechanics liens, judgment liens, and lis pendens,  et al. are kept completely outside of the Recording System;
e. Note:
(1) Even after a thorough title search there are certain Title Risks that are impossible to discover, such as, forged deeds, fraudulent transactions, unrecorded interests, and improperly recorded interests;
C. Types of Recording Acts:
1. Recording statutes modify the Common Law Defautl Ω: First in time, first in right.
a. Subsequent takers of interests sometimes beat prior valid interest that are unrecorded;
2. Bona Fide Purchaser (BFP):
a. The recording statutes expand the First Interest Default Ω that a subsequent legal Bona Fide Purchaser cuts off a prior equity;
3. Three Basic Types of Recording Acts:
a. Race Statute (aka Pure Race Statute):
(1) in this system "the first to record wins."
(2) the first grantee to record wins, regardless of whether he has notice of the other claimant and regardless of which interest is prior in time;
(a) e.g.  if Oscar purports to sell a piece of land to Al for $100,000, and the next day purports to sell exactly the same piece of land to Bob for another $100,000, then whichever of the two buyers is the first to reach the recording office and have the sale recorded will be deemed the owner of the property. Thus, if Bob is the first to record the conveyance, he will be the owner even if he knew about the prior conveyance to Al. Race statutes are extremely rare because it is generally viewed as unfair to protect a party who had actual notice of a prior conveyance.
(3) only 3 states use this form:  Delaware, Louisiana, and North Carolina;
b. Notice Statute:
(1) in this system "the last Bona Fide Purchaser wins." (& has NO notice of any other interests in the property);
(2) a subsequent purchaser for value wins if, at the time of conveyance, that subsequent purchaser had no actual or constructive notice of the prior conveyance. In short, a subsequent bona fide purchaser wins;
(a) e.g. if Oscar purports to sell a piece of land to Al for $100,000, and the next day purports to sell exactly the same piece of land to Bob for another $100,000, then Bob will own the land so long as he was not aware of the prior sale to Al. However, note that if Al records his interest before Bob's purchase, this recordation will be deemed to give Bob constructive notice. If Bob purchases the land without notice, and Al then records his prior purchase before Bob records his own purchase, then Bob will still prevail in ownership of the land.
(3) Three types of Notice (all three satisfy any Notice requirements for Notice and Race-Notice statutes):
(a) Actual Notice:
I. the purchaser has actual knowledge of the prior interest;
(b) Constructive Notice:
I. the purchaser is deemed to have notice of all recorded interests, whether or not the grantee in fact searches title; (recording a title create Constructive Notice to all of that title);
(c) Inquiry Notice:
I. if the purchaser has knowledge of facts suggesting that someone might have an unrecorded interest, the grantee has a duty to inquire and is charged with knowing whatever that inquiry would have revealed;
c. Race-Notice Statute:
(1) in this system, which is a hybrid of the other two, "the first Bona Fide Purchaser to record wins."
(2) Under a race/notice statute, a subsequent purchaser wins if:
(a) at the time of conveyance, the subsequent purchaser had no actual or constructive notice of the prior conveyance; AND
(b) the subsequent purchaser records before the prior purchaser. In short, a subsequent purchaser in good faith wins only if he records before the prior purchaser does.
(3) e.g.  if Oscar purports to sell a piece of land to Al for $100,000, and the next day purports to sell exactly the same piece of land to Bob for another $100,000, then Bob will own the land only if he was not aware of the prior sale to Al, and if Bob actually records his interest before Al does.
d. Recordable Interests:
(1) Recordable Interest:  The Recording Act in effect, no matter which type, only protect the BFP against an off-the-record interest that is capable of being recorded;
(2) Non-Recordable Interest:
(a) There are two types of Non-recordable Interests that are interests in land which do not require recording:
I. interests that cannot be created by instrument (e.g. adverse possession, prescriptive easements, and marital property rights);
II. interests not eligible for recording (e.g. short-term leases);
(b) Consequence:  Non-recordable Interests in land mean that a purchaser is bound by them, even though their existence is not ascertainable by a search of the records;
D. Bona Fide Purchaser Status:
1. Notice from Records:
a. a purchaser has constructive notice of an interest that is validly recorded;
2. Defects in Recorded Instruments:
a. occasionally an instrument is recorded even though it does not meet the formal statutory requirements;
(1) most courts have concluded that a defective acknowledged deed does not impart constructive notice because it should not be recorded;
(2) So an instrument with a Patent Defect does NOT impart constructive notice;
(a) An instrument with a Latent Defect DOES impart constructive notice;
b. Kinds of Defects:
(1) Patent Defects:
(a) title defects that are apparent on the face of the instrument;
(2) Latent Defects:
(a) defects which cannot be detected by studying the instrument;
c. Void Deeds:
(1) Deeds that are forged;
(2) Deeds that were signed by the grantor but were not delivered to the grantee;
(a) are deemed Void;
I. meaning the original owner can recover the land (even though the grantee under the void deed has sold the land to a BFP);
d. Voidable Deeds:
(1) Some defects which are less serious can render the deed voidable but not void;
(a) e.g. if a grantor is induced by fraud to sign and deliver a deed, this makes the deed voidable, not void;
3. Notice from Possession:
a. In Notice and Race-Notice states, possession of the property at issue by someone other than the seller gives rise to a Duty of Inquiry;
(1) the purchaser is bound by whatever rights would have been uncovered by diligent inquiry of the possessor;
(2) Exception:
(a) When possession is consistent with record title, there is not duty of inquiry;
4. Shelter Rule: // Make sure to work through Hypos on this.
a. The shelter rule is a doctrine in the common law of property under which a grantee who has received an interest in property from a bona fide purchaser will also be protected as a bona fide purchaser, even if the grantee would not legally qualify for this status. The grantee is "sheltered" from other claims by the grantor's status as an actual bona fide purchaser.  //  Stated a different way:   A person whose grantor is a bona fide purchaser (BFP) protected by a recording statute has the same rights as his grantor, unless the person is the original grantor.
(1) Exceptions:
(a) Where the property is reconveyed by the good faith purchaser to an original grantor who had notice of an outstanding interest in the property.
(b) Where the property is conveyed by the good faith purchaser to a person who had violated a trust or duty with respect to the property.
5. Payment of Value:
a. the second requirement for a grantee to qualify as a Bona Fide Purchaser (BFP), in addition to lack of notice of the prior interest, is Payment of Value;
b. Two Issues of Value:
(1) Measurement:
(a) the Measurement issue related to how much Consideration is needed;
(b) this requirement is intended to disqualify a donee who receives a gift (by devise or deed);
(c) nominal consideration (like $10) is not usually sufficient to make a grantee a BFP;
I. the consideration doesn't have to be full market value, it just has to be substantial;  "substantial pecuniary value" which is a vague term and will have to argued on the facts;
(2) Timing:
(a) the standard traditional doctrine is that the purchase is not a BFP before he actually pays the consideration to the seller;
I. e.g. a buyer is not a BFP during the executory contract period even if earnest money has been paid; he is not a BFP until the full purchase price has been paid;
c. Morgagee as Purchaser:
(1) in all states, lenders as well as buyers qualify as BFPs;
E. Special Problems:  Interests that are Hard or Impossible to Find:
1. Wild Deed:
a. an instrument which is recorded and properly indexed, but it cannot be found by use of the name indexes because there is a missing link; e.g.  A>B recorded | B>C not recorded | C>D recorded (this one is considered the Wild Deed);
(1) Courts have treated these deeds as unrecorded even though they are recorded and indexed because they are impossible to find;
2. Late Recorded Deed:
a. a deed where there is a substantial gap in time between delivery and recordation and in the meantime the record owner has transferred ownership to someone else;
3. Early Recorded Deed:
a. a person transfers an interest in land he does not own and subsequently acquires an estate in that land;
4. Servitudes by Implication:
a. Easements and other kinds of servitudes which are created by existing use, easements by necessity, and reciprocal negative easements -- none of which are recorded;
XI. Title Products (the Final Products of a Title Search Process)
A. Final Products of a Title Search:
1. The final products of a title search are:
a. Title Abstracts;
b. Attorneys' Title Opinions & Certificates;
c. Title Insurance Policies;
2. Their purpose:
a. to provide assurance as to the accuracy of information related to title;
b. each gives a different set of rights to the buyer;
c. each provides a different set of risk protection;
B. Title Abstracts:
1. Title Abstract:
a. a written distillation of the record search process; evidence of the state of title (not an opinion about title);
(1) summary of all recorded deeds, other recorded items in the chain of title, including encumbrances and other interests;
b. in most states they are not prepared by attorneys, but by title professionals;
(1) Liability:
(a) a title abstractor's liability to a client for an erroneous abstract is generally based on negligence;
(b) only the purchaser of an abstract may sue for its contents - not third parties who are not in privity  of contract with the abstractor (usually);
I. some courts will extend the ability of third-parties to sue under some circumstances (negligent misrepresentation, et al.);
2. Purpose:
a. to give the buyer sufficient information to decide whether record title is acceptable;
C. Attorneys' Title Opinions & Certificates:
1. Attorney Title Opinions:
a. An opinion by an attorney that, based on the evidence the attorney has, that title appears to be marketable;
b. it does not guarantee to the client that title is, in fact, marketable;
2. Liability:
a. the fact that the opinion is just that, an opinion, means that the attorney is not necessarily liable just because the opinion has turned out to be wrong;
(1) the lawyer has to have been negligent in order to be liable for damages (and create reliance in the client or possibly a third-party);
D. Title Insurance:
1. Title Insurance:
a. Title Insurance is a form of title assurance that serves as an alternative to a Title Abstract and/or a lawyer's Title Opinion;
b. History:
(1) mortgages and home lending was the impetus for the development of Title Insurance;
c. Requirements:
(1) In Oregon, title companies must keep records of all of their Title searches and records;
(2) In Oregon, title companies must have enough money on hand to cover any losses;
2. Title Insurance Purposes:
a. the insurer searches the records and discloses its findings;
(1) same function as Title Abstracts and Attorney's Title Opinions;
b. it insures undisclosed risks;
c. often, there is a policy for the buyer as well as the lender (which are separate and distinct title insurance);
(1) seller often pays for the buyer's policy and the buyer ends up paying for the lender's policy;
3. Liability (key difference with the other two Title Products):
a. Title Abstracts and Attorney Title Opinions:  liability only if malpractice is proven; cf. to:
b. Title Insurance:  liability is absolute for insured defects (strict liability); the insurance company pays claims for losses stemming from insured risks regardless of whether it was at fault (negligent) in searching title;
(1) For these reasons:  a Real Estate Attorney should almost always use Title Insurance, rather than a Title Abstract or Attorney Title Opinion;
4. Components of Title Insurance:
a. Title Insurance Commitment:  (aka Title Insurance Binder or Preliminary Title Report)
(1) this is only issued after a Title Search is completed by the company;
(2) the Commitment is the insurance company's promise to issue a policy, provided that it receives the insurance premium and that other conditions are met;
b. Title Insurance Policy:
(1) A Title Insurance Policy only issues after closing;
(a) Premium:  Is only paid once and keeps you insured for the entire time that you own the property;
(2) most are standardized;
(3) unlike other insurance contracts, Title Insurance does not insure against future events;
(4) Key Parts:
(a) insuring provisions;
(b) conditions and stipulations;
(c) exclusions from coverage;  >>> not negotiable (during title commitment phase);
I. most common:  survey exception, zoning & building laws, rights of parties in possession not shown by public records, rights or claims insured party knows of prior to policy issuance, taxes or assessments for the current year, liens for work performed on the property;