1. Transfer of real property. Transfer of real property usually takes place in three ways.
a. By deed,
b. By will
c. Adverse possession.
2. Transfer of real property by deed. This is the most common method by which real
property is transferred from one person to another. Usually, the buyer and seller will sign a
contract for the sale of the property, and upon the payment of the purchase price, the deed to
the property is delivered by the seller to the buyer.
a. Contract rules. General contract laws govern the sale of real property.
b. Statute of Frauds. The Statute of Frauds applies to the sale of real property, and most
contracts will have to be evidenced by writing.
c. Marketable title. In a contract for the sale of real property, there is an implied
obligation that marketable title to the real property will be conveyed. Marketable title is a
title that is free from encumbrances (mortgage, easements, leases, etc.), defects in the
chain of title, and adverse possession and exercise of eminent domain.
d. Title search. It is customary for the purchaser of real property to conduct a title search.
This is a search of prior owners of the property to make sure that the current seller is
indeed the owner of the property.
e. Title insurance. Once a title search is conducted and it shows that the seller is indeed
the owner of the property, the buyer will purchase title insurance. This is a onetime
insurance purchase that will give to the buyer the purchase price if it turns out that the
seller was not the real owner of the property.
f. Warranty of habitability. In the past, the rule of caveat emptor applied to the sale of
real property. Unless the seller made specific guarantees with respect to the property, the
seller was not responsible for defective conditions. This rule has been changed in most
states especially where the seller is in the business of building and selling residential
dwellings. Most courts will find that an implied warranty that the dwelling is habitable
attaches to the sale contract.
3. Types of deeds. Three types of deeds are commonly used in conveying real property. Each
deed has special characteristics and rights.
a. Warranty deed. In this deed, the grantor (seller) promises that he or she has valid title
to the property, and will protect the buyer in the event there is a defect in the title. The
seller may also guarantee that the buyer will have quiet enjoyment of the property in
addition to other covenants.
b. Special warranty deed. A special warranty deed is much more restrictive in the protection it gives to the buyer. The seller guarantees that he or she did not take any
steps that would negatively affect the title to the property.
c. Quitclaim deed. In this deed, the seller says simply that he or she will transfer whatever
interest he or she has in the land to the buyer. This deed is used in situations where it
appears as though a person may have some interest in real property, and he or she will
relinquish his or her rights in the property by using this deed.
4. Formal requirement for the transfer of real property.
a. Deed. The transfer of property is completed using a written document which complies
with the Statute of Frauds. The deed will usually contain a description of the real
property that is being conveyed.
b. Delivery of the deed. The transfer of the property does not take place until the deed is
delivered from the grantor (seller) to the grantee (buyer) or the intent to do so is clearly
established. The best evidence of delivery is physical delivery of the deed. But if the
seller delivers the deed to an escrow agent, for example, the intent to deliver may be
established.
c. Recording of transfer. When property is sold, it is not necessary to record the transfer
in order for the transfer to be valid. It would be very foolish, however, not to record the
transfer.
1) Recording act. The purpose of recording a purchase in property is to prevent
someone from becoming a subsequent purchaser in good faith. If the same property
is sold to two different buyers by an unscrupulous seller, the second buyer who
bought the land without knowledge that the same land has already been sold is the
subsequent buyer (second buyer) in good faith (without knowledge of the prior sale).
In certain situations, the subsequent buyer in good faith will receive the property
ahead of the prior purchaser.
a) How the recording act works. Smith buys a piece of property. The seller,
Collins, sells the same property to Jones. If Smith had not recorded the sale,
when Jones had a title search done prior to buying it, it showed that Collins was
the owner of the property (Smith bought the land, but did not record), and Jones
went ahead and purchased the land from him. Jones, as the subsequent purchaser
in good faith, would probably prevail over Smith. On the other hand, if Smith
recorded his purchase he could not lose the property to Jones. When Collins tried
to sell the same property to Jones, Jones would order a title search which would
show that Smith was the real owner, not Collins.
5. Real property terminology.
a. Secured transaction. A secured transaction is one in which a property is used as
security or collateral to support the debt.
b. Mortgage. A mortgage is simply a security interest in a piece of property. When a
property is subject to a mortgage, this interest should be recorded so that the purchaser of
the property will be aware of the fact that the buyer may also inherit an unpaid debt along
with the property. The debtor is referred to as the mortgagor and the creditor is called the
mortgagee. c. Rights of the mortgagor. In most states, the mortgagor holds the title to the property. If
the property is sold along with the mortgage, the buyer is not responsible for the
mortgage unless he or she specifically agreed to assume this debt.
d. Foreclosure. This is an action whereby the mortgagee takes the property from the
mortgagor, ends the mortgagor’s rights in the property, and sells the property to pay the
mortgage debt. If the sale of the property is not sufficient to pay the mortgage, the
mortgagee may attach other assets of the mortgagor.
6. Adverse possession. In most states, a person (the adverse possessor) who openly and
continuously occupies and uses land of another person for a required period of time will
become the owner of the property.
a. Purpose: The law of adverse possession is designed to penalize owners of property who
do not make productive use of property (leaves the property unattended and dormant) and
to reward those who make productive use of property even if the property belongs to
another person.
b. Open use of property. The adverse possessor must use the property openly, giving
notice to the world that it is being used.
c. Continuous use. In most cases, the use must be for 20 years without interruption. In
some cases, the length of continuous use is as short as 5 years.
7. Public and private control. The state has the authority to regulate the use of private
property. In placing restrictions on how certain properties can be used, it is possible that the
regulation will diminish the value of the land. The state does not have to compensate the
owner for such diminished value.
a. Zoning. Zonings laws restrict the use of property by placing height limits on buildings,
designate a percentage of an area to be open spaces, restrict certain activities in
designated areas, etc.
b. Variance. A variance is simply an exception to the general zoning law so that height
limitation, for example, may be waived for a specific building.
c. Nonconforming use. This is simply a use of property that is inconsistent with existing
zoning regulations. This situation arises when a change is made in a zoning regulation
and an established business which was authorized under the old zoning regulation is no
longer in compliance. In such situations, the business is given a reasonable time before it
must discontinue.
d. Eminent domain. This is the power of the government to take private property for
public use. The owner of the property must receive compensation.
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