Real Estate Transactions Case Outline
Contracts for the purchase and sale of real estate may involve many nuances. Litigation may arise over issues such as the validity of the contract and the scope of each party’s obligations. Mortgages and other methods of financing real estate transactions also may trigger disputes that come before courts. Most of these cases are decided at the state level, so rules may vary among jurisdictions. Below is an outline of key cases involving real estate transactions with links to the full text of virtually every case, provided free by Justia.
Duties of Brokers and Lawyers
A broker has certain fiduciary duties, such as loyalty, confidentiality, and disclosure of conflicts of interest. Ethical questions can arise when an attorney represents a client as both an attorney and a broker in the same transaction.
Dubbs v. Stribling & Associates 一 When a broker’s interests or loyalties are divided due to a personal stake in the transaction or representation of multiple parties, the broker must disclose to the principal the nature and extent of the broker’s interest in the transaction or the material facts illuminating the broker’s divided loyalties.
In re Roth 一 An attorney whose actions as a broker are undertaken pursuant to the “attorney” exemption to the licensing law may perform brokerage services that are only incidental to the normal practice of law, which cannot be the basis for a claim of compensation as a broker.
Forming a Real Estate Contract
Even if there is a meeting of the minds, each party must have the capacity to be bound for a contract to be valid. Letters of intent during contract negotiations may need to note that material terms remain to be negotiated to prevent them from binding the parties.
Smith v. Beatty 一 Weakness of mind alone, without fraud, does not appear to be a sufficient ground to invalidate an instrument. Also, a vendee who knows that there is a gold mine on the land is not compelled to disclose that fact to the vendor. However, if he is interrogated as to his knowledge of such a thing, and he then denies any knowledge of the mine, this denial will make the transaction fraudulent.
Beller & Gould v. Lisenby 一 There are three essential components to a contract for the sale of real estate: the memorandum of contract must specify the parties; the memorandum must sufficiently describe the subject matter of the contract; and the memorandum must name the consideration. The consideration need not be expressly stated if the memorandum of contract furnishes a key by which the amount of the purchase price can be ascertained.
Executing a Real Estate Contract
A contract must identify the parties, describe the property, state the price, and establish the intent to sell. The document also must describe any conditions that must be satisfied before the contract will be executed, such as mortgage financing conditions.
Roberts v. Karimi 一 An affidavit given by a defendant in an unrelated lawsuit 16 months after the defendant allegedly made an oral contract can constitute a writing sufficient to remove the oral contract from the statute of frauds.
Dweck v. Altman 一 A reasonable construction of a writing in which the only real property of which mention is made is that designated by street address as “513 Quentin Road Brooklyn - NY,” which designation appears below the name of the defendant, warrants the conclusion that the premises so described form the subject matter of the instrument as it relates to realty.
Cohn v. Geon International Corp. 一 The fact that the words “consented to” above the signature of a party were stricken did not conclusively establish that the party did not intend to be bound by all the essential terms, to which a handwritten note indicated that they had agreed.
Stambovsky v. Ackley 一 When a condition that has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care with respect to the subject transaction, non-disclosure constitutes a basis for rescission as a matter of equity.
Holscher v. James 一 The doctrine of equitable conversion applies only if nothing in the contract states otherwise.
Proctor v. Holden 一 Purchasers are not required as a matter of law to accept owner financing, and the rejection of owner financing in this case did not breach a financing contingency.
The Condition of the Property
A real estate contract should cover issues involving the quantity and quality of the property. For example, it should provide how much land will be transferred. Sellers must inform buyers about latent defects that a buyer could not reasonably discover. Some contracts contain “as is” provisions, but these may not completely shield a seller.
Pitre v. Twelve Oaks Trust 一 An “as is” provision in a contract for the sale of realty, by which the purchaser agrees to take the property in the condition in which it is, will not serve to preclude a purchaser from bringing an action for rescission or for damages if it is based on the seller’s fraudulent representation or concealment concerning the physical condition of the property.
Petrillo v. Bachenberg 一 Under the circumstances, the seller’s attorney had a duty not to misrepresent negligently the contents of a material document on which they knew or should have known that a potential buyer might rely to their financial detriment.
Van Camp v. Bradford 一 Latent defects give rise to a duty to disclose on the part of the seller and constitute an exception to the application of caveat emptor. When latent defects are coupled with misrepresentations or concealment, the doctrine of caveat emptor does not preclude recovery for fraud.
Turner v. Ferrin 一 Equity will provide a remedy when by mutual mistake the land contains materially more or less acreage than the parties believed. A slight disparity will justify equitable relief if the sale is by the acre, but if the sale is in gross, a great disparity must exist to authorize relief.
Richard v. A. Waldman & Sons, Inc. 一 Purchasers had reasonable grounds on which to attribute to the defendant, with its special means of knowledge as a developer of residential real estate, accuracy in what it represented as to the location of the structure on the lot, and they were entitled to rely on that representation. Thus, they could recover damages for misrepresentation without showing that the defendant actually knew of the falsity of its representation or alleging that it acted fraudulently or in bad faith.
Closings and Escrow
An escrow company is a neutral third party that collects certain funds and documents involved in the closing, which is the final stage of a real estate transaction. These may include earnest money, the loan documents, and the deed.
Miller v. Craig 一 When the judgment obtained by the purchaser against the vendors did not direct that any particular funds be paid to the purchaser, an agent breached his duties as an escrow agent by paying the amount that he was holding as an earnest money deposit to the purchaser without obtaining the permission of the vendors.
Regas v. Continental Casualty Co. 一 Attorneys’ conduct in writing a check on their escrow account to assist in the transfer of a client’s funds for a real estate closing constituted the practice of law. The management of all the requirements and execution of instruments necessary to close a real estate transaction demand legal skill and knowledge, as well as professional judgment.
Remedies for Contract Breaches
Most remedies are contract remedies, which are designed to make the non-breaching party whole. In limited situations, a party may pursue tort remedies based on a breach of an independent duty that is not based on the contractual relationship.
Zareas v. Smith 一 The seller’s expenses for normal maintenance and possession of the premises were not damages resulting from the purchaser’s breach and could not be charged to the purchaser.
Miami International Realty Co. v. Paynter 一 A plaintiff who seeks lost profits as a measure of damages must prove that such profits would have been received but for the injury caused by the defendant. Once the fact of damages is proved by a preponderance of the evidence, uncertainty as to the amount of damages will not bar recovery.
Sexton v. St. Clair Federal Savings Bank 一 A reasonable construction lender could easily foresee that a borrower could undergo extreme mental anguish if the lender breached a provision such as the provision that was allegedly breached in this case.
The Title System
Marketable title is usually defined as a title that is free from encumbrances and can be transferred. Issues that may affect marketability include adverse possession, encroachment, land use regulations, and encumbrances involving non-possessory rights or interests in the property held by third parties.
Tri-State Hotel Co., Inc. v. Sphinx Investment Co., Inc. 一 When a contract calls for the delivery of abstracts disclosing merchantable title, a purchaser will not be compelled to accept a title based on adverse possession.
Staley v. Stephens 一 Purchasers of real property who bargain for marketable title cannot be forced to accept property with an admitted cloud on the title.
Voorheesville Rod & Gun Club, Inc. v. E.W. Tompkins Co., Inc. 一 When a party agrees to purchase real estate that is restricted by laws or ordinances at the time, they are deemed to have entered into the contract subject to the same. The purchaser cannot thereafter be heard to object to taking the title because of those restrictions.
Booker T. Washington Construction & Design Co. v. Huntington Urban Renewal Authority 一 When a grantee of real property under a fee simple, general warranty deed contracts to sell the fee to a purchaser, but the grantee has only a life estate, if the purchaser sues the grantee for an inability to convey marketable title, the covenant of general warranty in the deed to the grantee is broken, and the covenantor, upon proper notice, is obligated to defend the title or be answerable to the grantee in damages.
Hanneman v. Downer 一 Surveyors may be held liable for the damages that result from their mistakes, misrepresentations, or negligence. A surveyor’s duty extends to subsequent purchasers who relied on the survey to their detriment.
Van Der Bent v. Gilling 一 Since a contract is a much less formal document than a deed, the same particularity of description is not required in the agreement, but the description must be sufficiently definite to permit the property to be located with reasonable certainty.
First American Title Insurance Co. v. First Title Service Co. of Florida Keys 一 When an abstract is prepared in the knowledge or under conditions in which an abstracter should reasonably expect that the employer is to provide it to third parties for the purposes of inducing them to rely on the abstract as evidence of title, the abstracter’s contractual duty to perform the service skillfully and diligently runs to the benefit of such known third parties.
Types of Housing Products
While the standard type of housing involved in real estate transactions is the single-family home, other options include condominiums and cooperatives. An owner of a condominium owns a unit and an undivided interest in the common areas, while an owner in a cooperative is merely a shareholder in the corporation that owns the building.
Holleman v. Mission Trace Homeowners’ Ass’n 一 While homeowners were granted a right and easement of enjoyment in and to the common area when they purchased their lots and homes in a subdivision, their rights are subject to reasonable rules and regulations adopted by the board of directors.
Crest Builders, Inc. v. Willow Falls Improvement Ass’n 一 A homeowners’ association validly amended its declaration of covenants and restrictions to terminate the rights of the developer to advertise and promote the units.
Cedar Cove Efficiency Condominium Association, Inc. v. Cedar Cove Properties 一 A condominium association is authorized to regulate and maintain the condominium’s aesthetics, including the building exteriors, so long as it exercises good business judgment. The business judgment rule will protect a board of directors if it has acted in a reasonable manner.
Kohler v. Snow Village, Inc. 一 To legitimately maintain and protect its interests, a cooperative corporation may place substantial restrictions on the right of an individual cooperator to alienate their property interest in the cooperative corporation.
Nevada Dept. of Commerce v. Carriage House Associates 一 A vacation license, which is a form of time-sharing that divides the occupancy rights to resort units among multiple parties, is a mere contractual right that fails to achieve the status of an interest in real property.
Royal Aloha Partners v. Real Estate Division 一 The Real Estate Division does not have the statutory authority to make rules concerning the sale of “right to use” memberships in condominium time-sharing plans.
Mortgage Issues
In a mortgage, a lender (mortgagee) lends money to a borrower (mortgagor) to purchase land, which becomes collateral on the loan. A mortgage involves two documents: the note and the mortgage agreement. Types of mortgages include fixed rate mortgages, buy-down mortgages, adjustable rate mortgages, balloon mortgages, reverse annuity mortgages, and purchase money mortgages.
Chetek State Bank v. Barberg 一 Tortious waste involves unreasonable conduct by the owner of real property that results in physical damage to the property and substantially diminishes the value of the property in which others have an interest. A failure to pay taxes and interest as required under a mortgage agreement did not state a claim for tortious waste.
Myers-Macomber Engineers v. M.L.W. Construction Corp. 一 A mortgagee who goes into possession of an incomplete condominium development upon default in the terms of a mortgage by the mortgagor does not owe a duty to use undistributed mortgage funds to satisfy the mortgagor’s unpaid debts.
Oryx Energy Co. v. Union National Bank of Texas 一 An absolute assignment of rents does not create a security interest but instead passes title to the rent contingent on default. Courts are reluctant to construe an assignment of rents clause as an absolute assignment for public policy reasons.
Chase Manhattan Bank v. Turabo Shopping Center, Inc. 一 To warrant the appointment of a receiver to manage and operate mortgaged property pending foreclosure, as well as only to collect its rents and profits, there must be at least a sufficient showing of something more than the inadequacy of the security and the doubtful financial standing of the debtor. (The court then listed several factors to consider in determining what “something more” means.)
ALH Holding Co. v. Bank of Telluride 一 When the priority of rights in real property is not dictated by the operation of the recording statute, the rule has long been that security interests, or mortgages, given in exchange for money applied to the purchase of the property have priority over all other liens.
Seidel v. 18 East 17th Street Owners, Inc. 一 The consequences to the lender of a usurious transaction can be harsh. The borrower is relieved of all further payment, including not only interest but also outstanding principal, and any mortgages securing payment are canceled. The borrower also can recover interest payments made in excess of the legal rate.
Swindell v. Federal National Mortgage Ass’n 一 The statutory penalty for usury required a defendant to forfeit all late payment charges to which it might otherwise have been entitled under the terms of the loan, but the defendant was not required to forfeit the interest due on the loan itself.
Pawtucket Institute for Savings v. Gagnon 一 In the event of any discrepancy between the terms of the mortgage and those contained in the separate instrument of indebtedness in respect to any material element of the secured claim, the mortgage recital must yield. Also, a mortgage is valid without any note or bond, so long as it secures an existing debt.
W.L. Development Corp. v. Trifort Realty, Inc. 一 A prior recorded mortgage for materials and labor provided for the construction of streets, road drainage, curbs, sewer lines, and gas and electric service mains in a real estate subdivision had priority over a subsequently filed mechanic’s lien.
This outline has been compiled by the Justia team for solely educational purposes and should not be treated as an independent source of legal authority or a summary of the current state of the law. Students should use this outline as a supplement rather than a substitute for course-specific outlines.
