4. Mortgage (= Debt Instrument) 

1. Definition: Conveyance of a security interest in land, intended by the parties to be collateral for the repayment of a debt

2. Types of Debt instrument

   1. Mortgage

      1. Definition: This is debt instrument,secured by a specified real estate property, that the borrower has a duty to pay back with a predetermined set of payments

      2. Factors:In order for a mortgage to be established there needs(a) debt by the debtor, and (b) voluntary lien (i.e., a right to keep possession of property belonging to another person until a debt owed by that person is discharged)on the land of the debtor to secure the debt 

      3. Rule

         1. Mortgage is given by the debtor ( = mortgagor) to the creditor ( = mortgagee)

         2. Mortgage typically must be in writing 

         3. Until the foreclosure (this will be explained in details later soon), the debtor-mortgagor has the title and right to possess the land, while the creditor-mortgagee has a lien

         4. If the loan is not paid in full later on, the sheriff will sell the land at court and order a foreclosure sale 

         5. Equitable Mortgage– Absolute deed with separate promise of re-conveyance (Example) Land to A, re-conveyance back to B when a debt is paid off

         6. Sale Leaseback with Option to Repurchase– Selling property with an option to repurchase when debt is paid off

   2. Transfer of Security Interest

      1. Definition: Public policy favors free alienability of Real Property interests. All parties to a mortgage can transfer their interests 

      2. Rule

         1. Transfer of the Property by Mortgagor ( = Grantor) 

            1. Whenever the grantor transfers title to the property, the grantee takes the property subject to the mortgage

            2. The grantee will not be personally liable on the mortgage unless the grantee assumes the mortgage

               1. Note that mortgage still has to be paid or it will foreclose on property. Thus, the grantee is subject to losing the property at a foreclosure sale unless the mortgage is settled 

               2. Any modification of the obligation by the creditor / mortgagee will release the original borrower of all liability

               3. Due on Sale Clause: If the mortgagor transfers the property without the consent of the mortgagee, the full amount of the loan becomes immediately due and payable (i.e., must be paid by the mortgagor)

         2. Transfer of the Note by Mortgagee ( = Creditor)

            1. The mortgagee can freely transfer the note (i.e.,one other than the original recipient who holds a legally effective negotiable instrument (such as a promissory note) and who has a right to collect from and no responsibility toward the issuer) a legal document that binds the borrow to repay the mortgage loan) by endorsing the note and delivering it to the transferee or executing a separate document of assignment

            2. The mortgage will always follow the note it secures to the transferee, unless the mortgagee expressly reserves the rights to the mortgage

            3. If the note is endorsed and delivered, the transferee is eligible to become a holder in due course(i.e.,one other than the original recipient who holds a legally effective negotiable instrument (such as a promissory note) and who has a right to collect from and no responsibility toward the issuer). This means that he or she takes the note free of any personal defenses (i.e., lack of consideration, fraud in the inducement, unconscionability, waiver, estoppel) that could have been raised against original mortgagee 

            4. However, holder is still subject to real defenses

               1. Alteration (i.e., fraudulently or materially altered the note) 

               2. Duress

               3. Fraud in the Factum (lie about the instrument) 

               4. Incapacity, Illegality, Infancy, Insolvency 

            5. To be treated as a holder in due course

               1. The note must be negotiable, made payable to the named mortgagee

                  1. Note that note is negotiable as signed document that promises a sum of payment to a specified person or the assignee. Negotiable instruments are transferable in nature, allowing holder to take the funds as cash or use them in a manner appropriate for the transaction or according to their preference

               2. The original note must be endorsed by named mortgagee

                  1. Note that endorse is when a loan keeper is changed, the promissory note is endorsed (signed over) to the new owner of the loan. In some cases, the note is endorsed in blank which makes it a bearer instrument under Article 3 of the Uniform Commercial Code. This means that any party that possesses the note has the legal authority to enforce it

               3. The original note must be delivered to the transferee

               4. The transferee must take the note in good faith without notice of any illegality

               5. The transferee must pay fair market value for the note, meaning some amount more than nominal 

   3. Foreclosure

      1. Definition: Judicial sale of the property at a public auction

      2. Rule

         1. Proceeds

            1. The sale proceeds go to satisfying the debt

            2. If the proceeds of the sale are less than the amount owed, the mortgage brings a deficiency action against debtor 

            3. If there is a surplus, junior liens ( = second liens) are paid in the order of priority and the remaining surplus goes back to the debtor

            4. Each claimant is entitled to satisfaction in full before a subordinated lien holder may take

         2. Priorities on Payment to Creditors

            1. Priorities between multiple mortgages will be first in time who record, first in right unless an applicable recording statute applies

            2. Creditors must record. Until properly recorded, no priority as to the creditors

         3. Priority Changes by Contract (= Voluntary Subordination) 

            1. A senior mortgage may agree to subordinate to a junior mortgage that comes later in time

            2. Purchase Money Mortgage(i.e., A purchase-money mortgage is a loan that the seller of a property issues to the buyer of a home as part of the property transaction. Also known as owner or seller financing, with purchase-money mortgage seller takes role of bank in offering the money to buy the home), a mortgage given in exchange for funds used to purchase the property

               1. Note that purchase money mortgage takes priority over any other mortgages executed at about the same time, even if the other mortgages are recorded first

               2. Additionally, a sellers purchase money mortgage takes priority over a third parties purchase money mortgage

               3. And priority between two purchase money mortgage is determined by chronological order

         4. Changes in Senior Mortgage

            1. Any changes to a senior mortgage will not take priority over junior mortgage 

               1. Note that if a person borrows more money, that additional money takes last priority

            2. Foreclosure eliminates junior interest – Foreclosure wipes out all junior interests yet does not wipe out senior interest (i.e., interests wiped out – Liens, easements, leases) 

               1. Example)Say the total debt owed on the first mortgage is $200,000. There is a second mortgage for $70,000 and a $10,000 judgment lien. The home then sells for $280,000 at the foreclosure sale. The first-mortgage lender will be paid in full ($200,000). The second-mortgage lender will be paid in full as well ($70,000). The judgment creditor will be paid whatever is left ($10,000). In this case, all creditors were paid in full and zero debt remains. But if the property had sold for only $200,000 at the foreclosure sale, the total amount would go to the foreclosing lender. The second-mortgage lender and the judgment creditor would receive nothing and their liens would be wiped out in the foreclosure. But that doesn't mean that the debt disappears. When a first-mortgage lender forecloses, people often mistakenly think this means the second mortgage and any judgment liens have been satisfied as well—even if there were not sufficient funds to pay off the debts. They are then surprised when the second-mortgage holder or judgment creditor seeks to have the outstanding balance on their debt paid. Following a first-mortgage foreclosure, all junior liens (including a second mortgage and any junior judgment liens) are extinguished and the liens are removed from the property title. But the second-mortgage debt and creditor’s judgment remain, even though they're no longer attached to the foreclosed property. While the security for the debt has been eliminated, the obligations remain in place.If the second-6 mortgage lender doesn't receive enough money from the first-mortgage lender’s foreclosure to satisfy the debt (and assuming you've stopped making the payments), it can sue you in court for the difference, as long as state law doesn't prohibit this action

            3. Senior interest just continues in place (i.e. buyer at a foreclosure sale will take the property subject to the senior mortgage)

            4. Necessary Party– Because junior interests are wiped out, they are a necessary party to a foreclosure proceeding. If they are not made a party, then their junior interests are not eliminated 

               1. Note that a mortgage holder bringing a suit for foreclosure in court must join any "necessary" parties to the case. To understand what a necessary party is, it helps to remember that the purpose of a foreclosure sale is to sell the property as it was when the mortgage was first taken out. Anyone who acquired an interest in the property after the mortgage was taken out must be dealt with in court case before property can be sold. Necessary parties include parties who acquired easements, liens, leases after the mortgage being foreclosed was executed. They can be added, or "joined" to the case as parties without their consent. The intent is to terminate their interest in the property. If a party is not joined, then their interest in the property is not affected by the foreclosure, and the purchaser does not acquire an interest in the property fee of their rights. For example, if party A takes out a mortgage from party B and then takes out a second mortgage from party C, and party B decides to foreclose on the property and sell the property to party D at foreclosure, party B must extinguish interest of party C to sell property to party D. Otherwise party C can enforce mortgage on party D

            5. Payment of the Proceedsfrom a Foreclosure Sale

               1. Pay the costs of the foreclosure (i.e., attorney fees, appraiser fees)

               2. Pay off the mortgage that was foreclosed on

               3. Pay off Junior Interests in order of priority

               4. Pay any remaining balance to the mortgagor/debtor

            6. Anti Deficiency Statute (i.e., Deficiency Judgments): Allows the mortgagee to sue the debtor personally for the unpaid balance due on the note after a foreclosure sale

         5. Redemption

            1. Definition:The legal right of any mortgagor or borrower to reclaim property they would otherwise lose in foreclosure proceedings

            2. Redemption in Equity: At any time, right up until the moment of the foreclosure sale, the debtor can redeem the property by paying the amount that is due and payable, unless the mortgage contains an acceleration clause

            3. Acceleration Clause: A contract provision that allows a lender to require a borrower to repay all of an outstanding loan if certain requirements are not met. An acceleration clause outlines the reasons that the lender can demand loan repayment and the repayment required

               1. Under the clause, the debtor must pay the entire mortgage balance to redeem the property

            4. Waiver: The right to redemption cannot be waived in the original mortgage or deed of Trust, yet can be waived later if there is separate consideration for the waiver

            5. Statutory Right of Redemption: Statutory right to redeem the property for a fixed period of time after the foreclosure sale has occurred (i.e., usually 6 months)  

               1. Amount paid is usually the foreclosure sale pricerather than amount of original debt 

               2. Mortgagor will have the right to possess the land during the statutory period

            6. When a mortgagor redeems, the effect is to nullify the foreclosure sale

         6. Additional types of Security Interests

            1. Deed of Trust – A Deed of Trust is given by the debtor to a third party trustee, who holds the Deed of Trust until the loan is paid in full

               1. Note that if the loan is not paid, the trustee can obtain a court order for a foreclosure sale, or the trustee can sell the property by himself or herself at a public auction

            2. Land Sale Contract – Where the debtor signs a contract promising to make payments to the seller / lender, but the seller keeps title to the property until the loan is paid in full

            3. Forfeiture Clause– If a debtor misses a payment the seller can cancel the contract, keep all the monies paid to date, and retake the property

               1. A lot of installment land contracts provide for forfeitureIf the seller chooses to enforce a forfeiture clause, the seller is limited to that remedy and cannot obtain damages or specific performance

​

   5. Property Rights

1. Easement

   1. Definition of Easement: A non-possessory interest in  land (= property) that involves a right to use a land of another person (i.e., generally not revocable)

   2. Types of Easement

      1. Negative Easement: Commitment not to do certain activities with a certain piece of land (e.g., not to build a structure higher than four-story building in order not to block light, air, view, etc.)

         1. Note that negative easement is also called a “restrictive covenant (i.e., a covenant (i.e., an agreement by legal contract) imposing a restriction on the use of property in order to preserve the value and enjoyment of the adjoining property))". Additionally, there is no automatic right to a negative easement. That is, a negative easement can be created expressly only by a writing signed by the grantor)  

      2. Affirmative Easement: Right to do certain activities on a certain piece of land

         1. Types of Affirmative Easement 

            1. Appurtenant Easement – Easement that directly benefits the use and enjoyment of a specific parcel of land. The land that enjoys the benefit of the land is called a “dominant tenement (i.e., a piece of land)” while the land that confers the benefit to its detriment is called “servient tenement” 

               1. Example) The private and public access land that leads to the street for a landlocked property (i.e., here, because of the private and public access land, the landlocked property has the benefit to have the access to the street. Thus, here the landlocked property is the “dominant tenement that is the benefited land”, while the private and public access land is the “servient tenement that is the burdened land”

               2. Transfer right as to Appurtenant Easement

                  1. The dominant tenement passes automatically to the new possessor who will possess the dominant tenement in the future (i.e., thus, as to the example above, the new possessor who will be living at the landlocked property (i.e., the dominant tenement that is the benefited land) in the future, will have the right to use the private and public access land (i.e., the servient tenement that is the burdened land) because the right to appurtenant easement will be transferred to the new possessor when he or she begins to live in the landlocked property)

                  2. The servient tenement passes automatically as well unless the new possessor is Bona Fide Purchaser (“BFP”) (i.e., a person who obtains property for value without notice of any problems with the title of the property) (i.e., here, unlike the new possessor of dominant tenement who benefits from the land, the new possessor of the servient tenement will not like the fact that another person will be using his or her land (i.e., for example, the private and public access land in the example above), thus, if in the case the new possessor of the servant tenement was a BFP, the servient tenement will not pass automatically to the BFP. That is, the new possessor of the dominant tenement will not be able to enjoy the benefit to use the servient tenement possessed by the BFP)

            2. In Gross Easement – Easement that confers a personal/financial advantage which burdens the land and is not related to the use or enjoyment of the land. Thus, under in gross easement, the related land is “servient tenement that is the burdened land”

               1. Example) A utility company to run a power line across a burdened piece of property (i.e., Here, the utility company is the benefited party, yet there is no piece of land that is benefited) 

               2. Transfer right as to In Gross Easement

                  1. Gross easement generally is not transferable, unless it is for commercial purpose. That is, as the example above, the utility company may be able to transfer its easement to commercial enterprise where two companies will combine and become one bigger company **

   3. Creation of Easement

      1. By Adverse Possession 

         1. Definition of Adverse Possession: A legal doctrine that allows a person to claim a property right in land possessed by another person

         2. Rule

            1. Person c claim property right in land possessed by another person when:

               1. the person used the land of another person open and notorious (i.e., apparent) while he or she is physically present on the land,

               2. the person used the land of another person exclusively with hostile (i.e., the person used the land of another person without the consent of the person) 

               3. the person used the land of another person continuously and uninterrupted, and 

               4. the person used the land of another person beyond the statutory of limitations period (i.e., a deadline for filing a lawsuit)  

                  1. In this case, through adverse possession, the easement is created

                     1. Note that ‘Tacking’ is permitted. While possession over a piece of land must be continuous for the statutory period of time, the possession does not always need to be by the same person in order to support an adverse possession claim. If two adverse possessors are in “privity (i.e., there is a direct connection between the two parties by blood, deed, contract, lease, will etc.)”, then most courts will allow the second adverse possessor to “tack (= connect)” his or her time on the land with the time spent by the first adverse possessor

                     2. Additionally, there is no adverse possession (i.e., the statutory of limitations period will not run) if the adverse possessor was disabled, infant, incompetent, or imprisoned at the time he or she entered the property of another 

      2. By Implication from Existing Use

         1. Rule

            1. An apparent and continuous use exists on the servient tenement (i.e., the burdened land), and 

            2. the use of the servient tenement is reasonably necessary for the dominant tenement (i.e., the benefited land)

               1. Note that the court will determine whether the parties intended to continue to use the servient tenement for the benefit of the dominant tenement 

                  1. In this case, through by implication from existing use, the easement is created **

      3. By Implication from Necessity 

         1. Right of way (i.e., a legal right to pass a property that belongs to another person in order to get to a place) will be implied by necessity if the dominant tenement has a no way out, unless it has access to the the servient tenement 

         2. The possessor of the servient tenement has the right to choose the location of the easement (i.e., where the dominant tenement can pass the location of the servient tenement) as long as it is reasonable

      4. Express Grant

         1. Grant an express deed (i.e., a legal document regarding the legal rights of the property) 

            1. Note that if the dominant estate (i.e., a person who possesses the dominant tenement) will be residing on the dominant tenement beyond one year, the deed must be in writing that complies with formal elements of a deed (i.e., the elements are, the deed must be (a) in writing, (b) signed by the servient estate (i.e., a person who possesses the servient tenement), and (c) there must be a description that explains the identity of the land. This will be explained in details later soon)

            2. Additionally, the extent of easement (i.e., dominant tenement / servient tenement):

               1. is determined by the terms of the grant or conditions that created it

               2. the use of the easement may not be exceeded as to who (i.e., the servient tenement may be used only for the benefit of the dominant estate unless the contract agrees otherwise) and how (i.e., if the extent of the easement use is exceeded by the dominant estate (i.e., use a property that is not described in the contract), the use could be prohibited yet it will not terminate the easement) **

   4. Termination of Easement 

      1. Rule

         1. Easement could be terminated:

            1. by Destruction

               1. Definition of Destruction in the context of easement: Damage was done to the easement (i.e., dominant tenement & servient tenement) 

               2. Rule: The easement is terminated when there is an involuntary destruction of a formation in which the easement is located

            2. by Necessity

               1. Definition of Necessity in the context of easement: A requisite for a party who needs the servient tenement (i.e., the burdened land)

               2. Rule: The easement is terminated when the need of the servient tenement ends 

            3. by Release

               1. Definition of Release in the context of easement: Releasing the parties from a binding agreement

               2. Rule: The easement is terminated when there is a written release given by the easement holder to the servient estate (i.e., a person who possesses the servient tenement)

            4. by Merger 

               1. Definition of Merger in the context of easement: The dominant easement and the servient easement merges 

               2. Rule: The easement is terminated as soon as the title to the dominant tenement and the title to the servient tenement become vested in one person

            5. by Abandonment

               1. Definition of Abandonment in the context of easement: Terminate the use of the easement  

               2. Rule: The easement is terminated as long as the easement holder could demonstrate by physical action of intent to abandon the easement in order for the easement to be terminated 

            6. by Condemnation

               1. Definition of Condemnation in the context of easement: Taking a private property for public purpose 

               2. Rule: The easement is terminated when there is condemnation of the servient tenement

            7. by Adverse Use

               1. ​There are two types of Adverse Use​

                  1. by Adverse Possession

                     1. Definition of Adverse Possession in the context of easement: Adverse Possession (see above)

                     2. Rule: The easement is terminated if there is an adverse continuous interruption of the use of the easement for the statutory of limitations period, and after the period passes, the easement will no longer be an easement and will be a personal property of a party who used the easement adversely

                  2. by Prescription

                     1. Definition of Prescription in the context of easement: Adverse Possession (see above)

                     2. Rule: The easement is terminated if there is an adverse continuous interruption of the use of the easement for the statutory of limitations period, and after the period passes, the easement will no longer be an easement and will be a personal property of a party who used the easement adversely

                        1. Note that the difference between “Adverse Possession” and “Prescription” is that under the former, (a) the use of the property is exclusive to one party and (b) grants “title (i.e., a document that shows legal ownership to a property or asset) to the land; while under the latter, (a) the use of the property is not exclusive to one party and (b) simply grants rights to conduct an act on the property

                        2.  Example)

                           1. Adverse Possession: Fence has been built by X that encroaches onto the real property of H, which implies that a portion of the real property of H now falls into the personal use of X. If X makes exclusive use of that land for a designated period, such as watering the flowers and trees that are within the real property of H, then X may be able to make a claim for "adverse possession", which would grant X the “title” to the portion of real property that initially belonged to H. Here the real property of H was used exclusively by one party X

                           2. Prescription: If X has a driveway that H publicly uses to reach his or her property, then H may eventually be able to make a claim for "prescription (i.e., prescriptive easement)", which would allow the “right” of H to continue using the driveway of X, without actually gaining title to the property on which the driveway lies. Here the real property of X does not have to be exclusively used by H. That is other people could use the driveway of X as well

2. Profit & License

   1. Profit​

      1. Definition: Right of a person, which generally is not revocable like easement, to enter into a real property of another and take away natural resource (i.e., timber, coal) in the real property of another with permission 

      2. Rule

         1. The creation and termination of Profit is the same as the Easement (see above). However, under the Termination of Profit, it adds that the profit will be terminated if the use is beyond the extent the person is to use **

   2. License

      1. Definition: Revocable privilege to enter into a real property of another to do an unauthorized particular act with permission 

      2. Rule

         1. Unlike Easement (see above) & Profit (see above) , License is revocable by the person who granted the license, unless:

            1.  Estoppel

               1. Definition of Estoppel: A bar or impediment preventing a party from asserting a fact or a claim inconsistent with a position that party previously took, either by conduct or words, especially where the representation has been relied or acted upon by others

               2. Rule

                  1. The license may not be revoked if the person who is given a license has invested substantial fund or labor in reliance of the license

            2. License coupled with an interest

               1. Rule

                  1. The license may not be revoked if the permission to enter into a property of another by a person has an interest that the person could remove chattel (see above)

               2. Example) 

                  1. In order to implement effective insect and fire control, the association shall have the right, but not the duty, to enter into a dwelling unit, by personnel with tractors or other devices, for the purpose to remove, clear, cut or prune, which these acts shall not be deemed a trespass but shall be deemed a license coupled with an interest

3. Covenant

   1. Definition of Covenant: Agreement, usually formal, between parties to do a specified act or not to do a specified act

      1. Definition of Covenant in the context of land ( = real property): Agreement to do an act (i.e., build a fence on the land) or not to do an act (i.e., not build a fence on the land) related to the land

   2. Types of Covenant

      1. Real Covenant

         1. Definition

            1. An agreement that concerns the use of land. They can either be an affirmative promise to do an act related the land (e.g., build a building on the land) or a negative promise to not to do an act related to the land (e.g., not to use the land for illegal event). Real covenant benefits and burdens the initial parties to the agreement as well as their predecessors

         2.  Elements

            1. Real covenant consists of two elements: the burden and the benefit

               1. Burden of a real covenant: The burden of a real covenant describes the duty to perform the promise. For example, If X owns a lake near the house of L, and If X promises L not to use the lake for commercial purpose (e.g., sell lake usage to fishermen), X now has a duty to honor his or her promise to L. In this case, the "burden" is X not to use his or her lake for commercial purpose

               2. Benefit of real covenant: The benefit of a real covenant describes the right to enforce the promise. Using the example above, L has the right to enforce the promise X has made. The "benefit" here is the power by L to limit what X does with his or her land, which in this case is to prevent commercial use of the lake

         3. Issue

            1. The issue now is what happens to a real covenant when the land is purchased by another person who is not the party to the initial real covenant

               1. Rule

                  1. Even if the possessor of the land alters, it is still possible for the burden and the benefit of a real covenant to remain with the later possessor. Here, key feature of whether the real covenant could remain with the later possessor or not is whether the real covenant runs with the land (i.e., the rights and covenants in a real estate deed that remains with the land regardless of who possess the land). Here, both the burden of real covenant and the benefit of the real covenant must run with the land. Namely, whoever later possess the land can be forced to honor the previously created real covenant between the initial two possessors if the burden of the real covenant and the benefit of the real covenant runs with the land. Yet, in order for either the burden or the benefit of a real covenant to run with the land, a few requirements must be met

               2.  Requirements 

                  1. Requirement in order for the burden of a real covenant to run

                     1. Form of Writing: The real covenant must be in a form of writing 

                     2. Touch and Concern the Land: The real covenant must relate to direct use and enjoyment of the land

                     3. Intent: The parties of the initial real covenant must have intended for the burden/benefit to run or pass down to the future possessor of the land

                        1. Example) X owns a house near the lake. X later will be giving the house to H. If X makes a promise to his or her neighbor L stating, "I promise J, another neighbor who is not a party to the contract, that I will not use the lake for commercial purpose (e.g., sell lake usage to fishermen)". Here, the promise is directed to J.  In contrast, if X states, "I promise I will not use the lake for commercial purpose".  Here, the promise is not directed to a verified person, and therefore it is possible that the promise was meant to run with the land. Thus, H, who will be the later possessor of the land, will be attached to the promise 

                     4. Horizontal Privity

                        1. Definition of Privity: Relationship between the parties that is recognized by law  

                        2. Rule of Horizontal Privity: This refers to a special relationship that exists between the parties of the initial real covenant

                     5. Vertical Privity: The possessor of the burdened land in the initial real covenant must have voluntarily transfer the land to the later possessor the burdened land

                     6. Notice: The later possessor must have had notice, or reason to have notice, that the real covenant existed at the time the later possessor took possession of the burdened estate 

                        1. Recording Acts ( = Notice) 

                           1. Definition: Law regulating recording of deeds and other interests in property in order to give notice to the later party that the property is taken. A recording act also determines priority between parties claiming interests in the same property

                           2. Rule:

                              1. The rule in determining which parties have priority between parties claiming interests in the same property, is generally first who record wins under certain condition

                              2. As to Bona Fide Purchaser (“BFP”), certain types of notice must be given to the BFP or conducted by the BFP:

                                 1. Actual notice: prior to delivery, the BFP directly learns of an earlier purchaser to the property BFP is consider purchasing

                                 2. Constructive/Inquiry notice: prior to delivery, the BFP conducts reasonable inspection and inquire into currently unexplained use of possession of the property the BFP is consider purchasing 

                                 3. Record notice: prior to delivery, the BFP finds out that an earlier deed, as to who possessed the property in the past, was properly recorded in the chain of title as to the property the BFP is consider purchasing 

                              3. Under the Recording Statutes there is:

                                 1. race statutes – whoever records first wins, regardless of whether the notice of prior conveyance was made to the purchaser or not under race statute

                                 2. notice statutes – first BFP who recorded first without notice of prior conveyance, in good faith, will take property over any BFP who has not recorded under notice statute

                                 3. race notice statutes – the person who records must be BFP and must record first, in order to take the property under race notice statute

                                 4. shelter rule – if BFP who recorded first, conveys the property to a person, the person will step into the shoes of the BFP, and will take the property

                  2.  Requirement in order for the benefit of a real covenant to run

                     1. Form of Writing (see above)

                     2. Touch and Concern the Land (see above)

                     3. Intent (see above)

                     4. Vertical Privity (see above) **

                        1. ​Note that the elements of horizontal privity and notice are not necessary for a benefit to run with the land. The reason notice is not necessary for the benefit to run with the land is because the buyer of the benefited person would clearly always want the benefit to run. Therefore, the fact that the buyer did not know of the benefit does not make it unfair for the benefit to run with the land. Conversely, it would be unfair if the burden ran with the land against a buyer of a burdened estate who had no notice of the covenant because knowledge of the covenant (i.e., that the land is burdened) may have influenced his or her decision to buy the land in the first place

      2. Equitable Servitude

         1. Definition:  An agreement that concerns the use of land. They can either be an affirmative promise to do an act related the land (e.g., build a building on the land) or a negative promise to not do an act related to the land (e.g., not to use the land for illegal event). An equitable servitude benefits and burdens the initial parties to the agreement as well as their predecessors

         2. Elements

            1. Equitable servitude constitutes of two elements: the burden and the benefit (see Elements of Real Covenant above)

         3. Issue

            1. The issue now is what happens to an equitable servitude when the land is purchased by another person who is not the party to the initial equitable servitude

               1. Rule (see Rule of Real Covenant above)

               2. Requirements

                  1. Requirement in order for the burden of a equitable servitude to run

                     1. Form of Writing: The equitable servitude must be in a form of writing 

                     2. Touch and Concern the Land: The equitable servitude must relate to direct use and enjoyment of the land

                     3. Intent: The parties of the initial equitable servitude must have intended for the burden/benefit to run or pass down to the future possessor of the land

                        1. X owns a house near the lake. X later will give the house to R. If X makes a promise to his or her neighbor Y stating, "I promise J, another neighbor who is not a party to the contract, that I will not use the lake for commercial purpose (e.g., sell lake usage to fishermen)". Here, the promise is directed to J.  In contrast, if X states, "I promise I will not use the lake for commercial purpose".  Here, the promise is not directed at a verified person, and therefore it is possible that the promise was meant to run with the land. Thus, R, who will be the later possessor of the land, will be attached to the promise 

                     4. Notice: The later possessor must have had notice, or reason to have notice, that the real covenant existed at the time that the later possessor took possession of the burdened estate 

                  2. Requirement in order for the benefit of a equitable servitude to run

                     1. Form of Writing (see above) 

                     2. Touch and Concern the Land (see above) 

                     3. Intent (see above)

         4. Defense of Real Covenant & Equitable Servitude 

            1. A party (i.e., the defendant) could claim equitable defenses that are usually affirmative defense (i.e., a defense that will negate criminal or civil liability of the D) asking the court to excuse an act because the party bringing the cause of action (i.e., the plaintiff) has acted in inequitable (i.e., unfair) way

            2. Types of Equitable Defense

               1. Acquiescence: This is when the non-breaching party (i.e., the plaintiff) by his or her conduct or express words impliedly consents to the actions of the breaching party (i.e., the defendant) 

               2. Laches: This is when the non-breaching party intentionally delays bringing a lawsuit for breach of contract resulting in prejudice to the breaching party

               3. Unclean Hands: The non-breaching party and the breaching party have both committed the same type of breach

               4. Estoppel: This is when the non-breaching party lures the breaching party into a disadvantageous legal position 

               5. Changed Conditions: The entire area has changed that it affects all 

         5. Termination of Real Covenant & Equitable Servitude

            1. Combination: Real Covenant or Equitable Servitude is terminated if the benefited land and the burdened land combines 

            2. Condemnation: Real Covenant or Equitable Servitude is terminated if the government took the property for public purpose

            3. Expiration: Real Covenant or Equitable Servitude expressly states that it terminates at a certain period or condition

            4. Written Release:  Real Covenant or Equitable Servitude is terminated if there is a written document that releases the parties from a binding agreement **

         6. Implied Reciprocal Negative Easement

            1. Definition:  Implied Reciprocal Negative Easement is where a common grantor develops a tract of land for sale in lots and intends to initiate a general common plan of development for the benefit of himself or herself and the purchasers of the lots, which includes uniform restriction (i.e., easements and covenants) in certain deeds (i.e., generally the grantor does not include the uniform restriction physically on all the lots, yet impliedly promise that all lots are bind to the uniform restriction as well)

               1. Note that the reason why it is ‘implied’ reciprocal negative easement, is because even if the deeds are not physically included in the contract of every deed of the lots that are within the common plan of the grantor, aforementioned, it is implied that the other lots that do not include the deeds physically are also bind to the deed because it is a general common plan the grantor intended to create a uniform restriction on all lots that are within the common plan

               2. Additionally, the uniform restriction under the deed enforce restrictions against the part of the tract still retained by the grantor as well as against the later purchased tract by a new purchaser that does not include the deeds with uniform restrictions yet has actual notice or constructive notice (see above) of the uniform restriction 

            2. Creation of Implied Reciprocal Negative Easement

               1. In order for an implied reciprocal negative servitude to be created,

                  1. first, the grantor must have had an intent to create a restriction on all lots under a common plan, whether the restriction  is physically included in the lot or not 

                  2. next, the covenant must be “reciprocal (i.e., benefits and burdens are included on each and every lot)” and “negative (i.e., restricts each use of the possessor of a lot)”

                  3. next, the restriction restricts the part of the lot the grantor still retains 

                  4. next, the later possessor who purchased a burdened land from the initial possessor as to one of the lots, even if no restriction actually are included in the deed of the burdened land, the later possessor must know about the restriction due to actual notice or constructive notice (see below)​

               2. Example) X is planning on to sell the lots, half with deed that includes the uniform restriction (i.e., deed restriction) against commercial use and the other half without the deed restriction under his or her common plan. R & J are the possessors of the lots with deed restriction, who has been residing in the lot at the time the common plan was created. V & Y are the possessors of the lots without deed restriction,  who has been residing in the lot at the time the common plan was created. H, is a later possessor of the lot without deed restriction, who has just begun to reside in the lot. H plans to build a gas station (i.e., commercial use) on the lot. Here, both R & J and V & Y, whether they have the deed restriction or not, can prevent H from building a gas station by inferring the deed restriction against his or her lot and take legal action against H in court as long as they have been living in the lot at the beginning of the common plan. The court held that there existed a restriction in the lot of H as well because the common plan of X had the intent to include the restrictions in all the lots even if not all the lots actually included the deed restriction like the one H had. And because no one else in the neighborhood was using their land for commercial use, H should have foreseen the restriction and must have had constructive/inquiry notice that he or she is not allowed to avail the lot as commercial use **

                  1. As to the "Defense" see Defense of Real Covenant & Equitable Servitude above

​

   6. Land Conveyance​

1. Land Contract

   1. Definition of Land Contract: Land contract exists from when it is signed, to when the deed is transferred at closing (i.e., a closing date when the land contract officially ends. That is, when the land is conveyed to the buyer)

   2. Definition of Deed: A legal document that transfers the title (i.e., the right to possess the property) of an asset to a new holder, granting them the privilege to be the possessor of the asset. The deed is the vehicle for transferring a title to the new holder of the asset, not the title itself

      1. Covenants for Title

         1. Definition: Assurance given to the buyer, that the grantor has the very estate in quantity and quality, which he or she purports to convey. This covenant for title is deemed to be broken, if the grantor does not have the very estate in quantity and quality, which he or she conveyed to the purchaser of the property

         2. Types of Covenants for Title

            1. Quitclaim Deed – Grantor makes no promises regarding title (i.e., because the grantor makes no promise as to the title conveyed, the buyer with a quitclaim deed is out of luck) 

            2. Special warranty deed – (i) Grantor promises that he or she has not conveyer property to anyone else until now, and the (ii) property is not encumbered(i.e., burdened with debts and claims) by the grantor(i.e., here, the grantor promises that property is not encumbered by himself or herself. That is, the grantor does not promise that the property is not encumbered by another person. Thus, under the special warranty deed, the buyer is out of luck if the property is encumbered by another person)

            3. General warranty deed – Grantor promises present covenants and future covenants

               1.  Present Covenants (i.e., present covenants generally are breached on delivery of the property by the grantor to the grantee(i.e., the person who receives the grant)):

                  1. right to convey – grantor promises he or she has the authority to transfer the property

                  2. seisin – grantor promises that he or she possesses the property

                  3. covenants against encumbrances – grantor promises that there is no physical encroachment (i.e.,a condition in real estate where a property possessor violates the property rights of his or her neighbor by building or extending a structure to the land or property of the neighbor) or title encumbrance(i.e. liability against real property such as lien(i.e., a claim or legal right against assets that are typically used to satisfy a debt), easement (see above), license (see above)) 

               2. Future covenants (i.e., future covenants are not breached until grantee is disturbed in his or her use of the possession granted by the grantor):

                  1. quiet enjoyment – promise grantee will not be disturbed in possession by a lawful claim of title of another person

                  2. general warranty – promise to defend grantee if there be any lawful claims of title to the property brought by another person

                  3. further assurances – promise to do whatever future acts reasonably necessary to perfect the title

   3. Requirement of Land Contract

      1. Rule

         1. In order for a land contract to be created, the contract needs to:

            1. be in writing and signed by the party to be bound (i.e., it must be signed by the person who will be receiving the land)

            2. identify the parties

            3. describe the property in details

            4. write down the purchase price 

         2. Land contract must be in writing

            1. Exception

               1. Even if the land contract was created verbally, not written, the land contract is enforceable if:​

                  1. the buyer takes possession of the land, and
                  2. (a) the buyer either pays all/part of the purchase price, or (b) make substantial improvement in the land

   4. Two implied promises in every land contract

      1. Promise that is made by the seller that he or she will deliver a marketable title (i.e., a title of the land that has no defects or claims by another party and is readily transferable) at the time of the closing date

         1. However, even if the seller fails to deliver a marketable title at the time of the closing date, the buyer must give the seller the time to cure within a reasonable time

            1. Note that land that is subject to adverse possession (see above) on the title, contingent remainder (see above), encumbrance (see above) that is not eliminated at the time of the closing, zoning violations (i.e., a property that does not meet the regulations as governed under the zoning regulation. This will be explained in details later soon) is an unmarketable title 

      2. Promise not to make any false statements of an important fact

         1. The seller will not be excused from liability for fraud or failure to disclose 

         2. A number of states hold sellers liable for failure to disclose latent (i.e., hidden) and important defects 

   5. Risk of loss under land contract

      1. Definition of Risk of Loss: Who has to pay (i.e., who has the risk of loss), if the goods are lost or destroyed without the fault of either party, after the sale has been completed and before the delivery of the goods have occurred 

      2. Rule

         1. As soon as the contract is signed, the buyer gets to possess the land subject to condition that the buyer pay purchase price at the closing date

            1. Note that even if the buyer passes away the payment of the purchase price must be rendered

         2. However, if the real property was destroyed between the period of the contract and closing through no fault of either party, the buyer gets to have the risk of loss (i.e., the buyer will be responsible for the destruction of the real property) unless contract says otherwise

   6. Liability of the seller for transferring a defective land

      1. Rule

         1. Under the “warranty of fitness or workmanlike quality”, a seller must act in a workmanlike manner. A workmanlike manner does not imply the best construction available; rather, it means that the work must be done in accordance with the accepted norms of the industry. Thus, under the “warranty of fitness or workmanlike quality”, the seller must act within the accepted norms in the real estate industry (e.g., the seller must not transfer a defective land), if not, the buyer may take legal action against the seller  

         2. The buyer may take legal action against the seller if he or she acted negligently in the process of the land contract. The negligent act of the seller could be:

            1. fraud – the seller negligently or knowingly made a false statement of a fact of a land to the buyer, in which the buyer relied and incurred damages 

            2. active concealment – the seller may be liable even without making any statements, if he or she tried to conceal the defects on purpose 

            3. failure to disclose – the seller has a duty to disclose important defects (i.e., the defects that will cause a buyer to reconsider the purchase), and latent defects (i.e., defects that are not discoverable by normal inspection) that the seller either knew or should have known about

            4. disclaimers – the seller generally cannot limit his or her liability under the land contract through disclaimer (i.e., a statement that is written by the seller to limit or even completely eliminate the legal liability that comes with the products) 

   7. Times is of the essence

      1. Rule

         1. Generally, under a land contract, court presumes that time is less likely to be the essence

         2. The contract can still be enforced within a reasonable time after the closing date 

            1. ​Note that there are times that the closing date must be enforced. That is, the closing date cannot be delayed if:

               1. in the land contract between parties, it states 'time is of the essence’, 

               2. one party gives the other party another notice that the time is of the essence, while the circumstances indicate that it was the intent of the parties to close at the exact date

   8. Remedies for Breach under the Land Contract

      1. Liquidated Damages

         1. Definition of Liquidated Damages: An amount of fund, agreed by the parties at the time of the contract was signed and entered into, that establishes the damages (i.e., the amount of the actual damages is predicted and estimated) that can be recovered in the event a party breaches the contract in the future

         2. Example) X has agreed to purchase the lake house of  R & J. As part of the agreement, X must put down a deposit of 2 % of the lake house price. Both parties agree that if either of them does not follow the terms of the contract, the other person gets the 2 % of the deposit. If X fails to follow through with the purchase, R & J gets to keep the 2 %. If R & J  decides that he or she does not want to sell her home to X, R & J must return the 2 % of the deposit 

      2. Rescission & Restitution Damages

         1. Definition of Rescission: The contract will be canceled

         2. Definition of Restitution Damages: When one party has benefited at the expense of another party, the wrongfully benefited party is required to repay the whole amount the other party has lost as a punishment for doing wrong to the P. Thus, when restitution is awarded, it is because the court is committed to preventing the D from unjustly enriched by the expense of the P. The P will recover from the D the amount he or she has lost in the process of land contract​​​

            1. Note that under the land contract, the P could either cancel the contract or receive restitution damages  ​

            2. Example) ​H has agreed to purchase the lake house of V & Y. Between the time of the land contract, L, relative of V & Y, visits the lake house, and paints on the wall of the house without permission of either party. In this case, H could cancel the contract with V & Y, or receive restitution damages (i.e., damages that is caused by the paint of L) from V & Y, whichever is agreeable under the contract  **

      3. Specific Performance

         1. The court will order a specific performance to the seller to give the required deed to the buyer 

      4.  Quiet the Title

         1. Quiet ( = Remove) any challenges or claims by another person, other than the buyer, to the title of the land 

   9. Closing of Land Contract

      1. Definition: This is when the deed is given to the buyer as promised and the contract ends 

         1. In order for the land contract to end, the legal title must be passed on to the lawyer. That is, the deed (i.e., the legal title) must be (a) lawfully executed and (b) delivered and accepted to the buyer

            1. Lawful Execution

               1. Deed must be in writing, signed by the grantor and sufficiently identify the property (i.e., consideration (see above) and recording (see below) is not required)

               2. However, the deed will be :

                  1. void by the court because of reasons (i.e., if the deed is not delivered, if the deed is delivered to a deceased person, if the description of the land in the deed is ambiguous, if the deed involves fraud, or the deed is forged)

                  2. voidable by the court due to a number of legal reasons if the party is under age, incompetent, made a mistake (see above), was under duress (i.e., by using a force or threat, force a person to do an act or illegal act against his or her will) or undue influence (i.e., unlike duress, it does not use force or threat, yet involves excessive pressure by the party in the dominant position on the party in the inferior position in deciding an issue)

                  3. reformed if there is a mutual mistake, unilateral mistake or misrepresentation in dealing with the deed 

                  4. not voided or reformed if the deed passes on to the a Bona Fide Purchaser ("BFP")

            2. Delivery & Accepted to the buyer

               1. Rule

                  1. When the deed is delivered, the grantor must have the present intent to pass the title to the grantee

                     1. Note that a physical transfer of the deed itself is not required

                  2. Grantee must have accepted the delivery (i.e., if the grantee expressly rejects the deed, no delivery made)

                  3. If there is a recording (see below) of the deed, there is a presumption that the deed has been delivered and accepted 

                  4. If there is a condition to satisfy by either party before the delivery of the deed, a grantor can revoke ( = cancel) the deed itself before the condition occurs​ **