Real Estate Transactions: A Jump Start
rev. 5.15.2017
The Contract
The Real Estate Contract
1. Basic elements
2. Purchase of title
3. Implied covenant of marketable title
4. Real covenants and zoning
5. Conditions precedent
6. Equitable conversion
7. Closing
Amy Farrah Fowler and Sheldon Cooper vacationed for a week every year at Sheldon's
ski house. After fifteen years, Sheldon could no longer ski. While sitting around the
dinner table drinking wine, Sheldon agreed to sell the ski house to Amy. After
negotiating for over an hour, they agreed on a purchase price of $250,000. Amy wrote
Sheldon a check for $25,000. Sheldon cashed the check. Two weeks later, Amy moved
in some of her furniture and signed a contract with a builder to build a $20,000
redwood deck in the backyard. Sheldon died. In his will, he devised the ski house to
his nephew Leonard Hofstadter. Amy offered to tender $225,000 to Sheldon's
executor, however Leonard filed suit to eject Amy from the house. Should the court
rule in favor of Leonard?
A. Yes, because there was no contract for the sale of the house.
B. Yes, because the Statute of Frauds bars oral contracts for the sale of real property.
C. No, because the transaction falls under an exception to the Statute of Frauds.
D. No, because there was a binding oral contract for the sale of the house.
The Deed
1.
2.
3.
4.
Basic elements
Concept of delivery
The doctrine of merger
Estoppel by deed
2015 Houck  Elkin, Blackacre
2016 Romero  Houck, Blackacre
Who has title, Elkin or Houck?
Reilly was quite taken with her neighbors' new son, Carbonneau. She doted
on the child to such an extent that her own son, French, became quite
jealous. At a party given by Reilly in honor of Carbonneau’s graduation from
high school, she announced to all the guests that she had instructed her
attorney to draft a deed giving her property on the edge of the town golf
course to Carbonneau. Then, with a great flourish, Reilly signed the deed in
front of the entire assemblage. She then put the deed in her wall safe, "for
protection," she told everyone. Several years later, Reilly died suddenly while
on a camping trip with French. After the funeral, Carbonneau asked the
French for the deed, saying he thought it should be recorded before the
Reilly's estate went into probate. French insisted the deed no longer existed
and, further, that Reilly had later changed her mind about the conveyance
and tore up the deed. Carbonneau brought suit for equitable relief.
Who prevails? Why?
The Deed
5. Exoneration: death of the vendee
In her will, Vendee leaves her real property to her son and her personal
property to her daughter.
Real estate contract signed May 1; closing June 15. Purchase price is
$100,000. Vendee dies on June 1, before deed is delivered.
“equity regards as done that which will be done”
$100,000 comes from Vendee’s estate to purchase the property (the debt
must be exonerated). The daughter’s personal estate is depleted by
$100,000. Son receives the property free and clear.
We gave effect to the will.
The Deed
6. Ademption: death of the vendor
In her will, Vendor leaves her real property to her son and her personal
property to her daughter.
Real estate contract signed May 1; closing June 15. Purchase price is
$100,000. Vendor dies on June 1, before deed is delivered.
Even though vendor held legal title at her death, “equity regards as
done that which will be done” and the property is considered as
adeemed, meaning not in her estate at the time of her death. The son
does not receive the property—it’s gone. The daughter receives the
money.
7. Warranties of Title
Full or General Warranty Deeds: Contains all six common law covenants:
1.
2.
3.
4.
5.
6.
Covenant of seisin
Covenant of the right to convey
Covenant against encumbrances
Covenant of quiet enjoyment
Covenant of general warranty
Covenant of further assurances
Three Present (do not run with the land):
Seisin, right to convey, no encumbrances. “I own it, I have the right to transfer it, and there are no
outstanding interests that limit or financially diminish the value of it.”
Three Future (run with the land):
Quiet enjoyment, general warranty, further assurances. “You will not be disturbed by someone with
superior title, I’ll defend you against such claims and compensate you for any loss, and I will do anything
I can to perfect title.”
Special Warranty Deed
Contains all six covenants but vendor makes no
promises with respect to predecessors in title,
only that she has done nothing to detrimentally
affect title.
Quitclaim Deed
Contains no warranties of title.
“Whatever I have, I’m transferring to you.”
A seller and a buyer executed a purchase-and-sale agreement that called for the buyer to
purchase a parcel of land for $60,000. The agreement stated that the seller warranted he held
marketable title to the property free of any liens. The seller gave the buyer a warranty deed, and
the buyer promptly recorded his title. Ten years later, the buyer found a notice posted on the
property. It stated that the bank was commencing foreclosure proceedings against a woman for
defaulting on a mortgage on the land. The buyer spoke to the bank and discovered that the seller
had indeed sold the land to the woman one hour before he completed the transaction with the
seller. Furthermore, the woman had recorded her deed before the seller recorded his. The
statute of limitations in contract suits is six years, and the adverse possession period is 25 years.
The buyer filed suit against the seller.
Who will prevail, and why?
a. The seller, because any breaches of the purchase and sale agreement merged with
the deed.
b. The seller, because the statute of limitations has passed.
c. The buyer, because the seller breached the implied warranty of marketability.
d. The buyer, because the seller breached the covenant of quiet enjoyment.
The Mortgage Concept
Elkin buys a house on a golf course for $500,000.
He puts $100,000 down and signs a promissory
note with First Bank to pay back $400,000 at 4%
interest.
Purchase Money Mortgage
PMM: Which Lien has Priority?
On February 1, Olivia Pope obtains a judgment lien for $15,000 against Huck.
On March 1, Cyrus Beene, the owner of Blackacre, and Huck enter into a
contract for the sale of Blackacre. The contract provides for a purchase price
of $50,000. Huck agrees to pay $10,000 in cash at the settlement date and
Beene agrees to take back a promissory note and mortgage on Blackacre for
the balance of the price. On April 1, the date of settlement, Beene conveys
Blackacre to Huck who pays $10,000 in cash to Beene. Several days later, Huck
delivers to Beene a promissory note for $40,000 secured by a mortgage on
Blackacre. At the time Beene takes the mortgage, Beene has actual
knowledge of Pope's judgment. Beene's mortgage is never recorded.
Title Theories
Lien: MR holds title and right to possession until
foreclosure; the ME holds a security interest. This is the
majority rule.
Title: ME retains title until mortgage is satisfied or
foreclosed. ME has the right of actual possession.
Intermediate: MR has title until default; after default,
title passes to ME.
Who cares?
Transfers by the Mortgagor
The Clean Method:
The End of the MR-ME Relationship
1. TE pays cash
2. Novation
Transfers by the Mortgagor
The Clean Method: Novation (substituted party)
Laurel owes Asher $100,000. Asher promises Laurel
that he will discharge the debt immediately if
Annalise will promise to pay Asher $100,000.
Annalise is substituted for Laurel; Laurel is
discharged.
The End of the MR-ME Relationship
3. Cancellation and release
4. Execution of a new mortgage
Two Important Concepts for the Dirty Method:
Suretyship and Subrogation
A surety is a person that assumes the
responsibility of paying a debt in case the debtor
defaults.
Subrogation is the process of substituting one
person in the place of another. The substituting
person succeeds to the claims and rights of the
substituted person.
The Dirty Method
TE takes “subject to”
Dembe borrows $100,000 from Red and gives Red a
promissory note for that amount, secured by a
mortgage on Dembe's house. Subsequently Dembe
sells the house to Elizabeth for $125,000. Elizabeth
pays Dembe $25,000 in cash and takes subject to the
mortgage.
Elizabeth defaults.
TE takes “subject to”
Donald Ressler borrows $100,000 from Red and gives Red a
promissory note for that amount, secured by a mortgage on Donald's
house. The note provides that Donald will not be personally liable on
the debt. Subsequently Donald sells the house to Aram, who is
Donald's son, for $125,000. Aram pays Donald $25,000 in cash, and
does not enter into an assumption of liability.
Thereafter Aram defaults in payment on the note. In order to protect
Aram from eviction as a result of Red's foreclosure of the mortgage,
Donald pays $ 100,000 to Red, thereby fully discharging the debt.
TE takes “subject to”
Red sells Blackacre to Tom Keen who doesn’t wish to be
personally liable for the mortgage. The FMV is $100,000
but it has a mortgage of $75,000 held by Harold Cooper.
Tom pays $25,000 and takes subject to the mortgage.
Tom walks away from the property.
1. Is Tom personally liable to Red?
2. Is Tom personally liable to Harold?
TE takes “subject to”
Dembe executes a $10,000 note and mortgage to Red.
Dembe then conveys to Elizabeth by deed which provides
that title is “subject to” the mortgage. Elizabeth fails to
pay the note. Red sues Dembe on the note w/o
foreclosing. Dembe pays Red $10,000 and is subrogated
to Red’s right to foreclose. Dembe forecloses; the
property is sold for $8,000. Dembe comes to you and asks
whether he may pursue a deficiency judgment against
Elizabeth for $2,000.
How much may Dembe recover?
(A) $10,000
(B)
$8,000
TE “assumes”
3rd Party Beneficiaries
Kevin borrows $100,000 secured by a mortgage from Randall. Kevin sells to
Beth for $125,000 who takes possession of the property and assumes the
mortgage meaning she agrees to make payments to Randall. Randall is the
3rd party beneficiary of the Kevin-Beth contract. If Beth defaults, what is her
liability? Kevin’s?
Beth
TE
Kevin
MR/TR
Randall
ME/3rd PB
TE “assumes”
Walter executes a $30,000 note and mortgage to Saul. Walter
conveys to Jesse by deed that provides Jesse assumes the debt.
Jesse fails to pay. Saul sues Walter on the note. Walter pays
Saul $30,000 and is subrogated to Saul’s right to foreclose.
Walter forecloses; the property is sold for $28,000. Walter comes
to you and asks whether he may pursue a deficiency judgment
against Jesse for $2,000.
“Subject to”
Summary
1. Not a promise from TE to pay mortgage debt. TE not personally liable on
the debt, but commonly pays the obligation to avoid losing the property to
foreclosure.
2. Upon default, ME may foreclose and have the encumbered property sold,
but ME may not proceed against subject to TE for deficiency judgment.
3. MR remains personally liable on the debt and is liable for any deficiency
resulting from the foreclosure sale.
4. If MR is forced to pay the entire debt, MR can foreclose in order to be
reimbursed to the extent of the value of the land (MR is subrogated to the
ME’s rights in the mortgage) but may not purse a deficiency judgment against
TE.
“Assumption of”
Summary
1. TE personally liable to ME for the mortgage debt (ME
is a third party beneficiary of the assumption contract
between MR and ME).
2. Upon default, the ME may foreclose and obtain a
deficiency judgment against TE. MR becomes surety,
liable for any deficiency resulting from a foreclosure
sale.
3. MR personally liable to ME for mortgage debt. The
MR who pays the debt is subrogated to ME’s rights in
the mortgage and note and may sue TE on the note or
foreclose (and obtain a deficiency judgment)
Due on Sale Clause
Provides at the option of the lender for
acceleration of the maturity of the loan upon
the sale of real property.
Mortgage Modification
First Bank held a $100,000 purchase money mortgage on
a cottage. Since the cottage was too small, the owner
took a $50,000 mortgage from Second Bank to build an
addition. The initial terms of the first mortgage included
a 5% interest rate for a term of 15 years. The owner was
having trouble making her payments. First Bank offered
to modify her loan. The modification increased the term
to 30 years and lowered the monthly payment
accordingly. The owner defaulted. Second Bank claimed
it’s mortgage had priority over First Bank.
Is Second Bank correct?
An owner has a home valued at $100,000 and owes Bank No. 1 $50,000 for a first
mortgage lien. The owner owes Bank No. 2 $40,000 for a second mortgage. The owner
applies to Bank No. 1 for additional funds to purchase a motor home, and the bank
provides the funds. Bank No. 1's mortgage is increased to $100,000 after it increases
the homeowner's mortgage. Should Bank No. 2 feel under-secured as the result of
Bank No. 1's increasing the amount added to the homeowner's mortgage?
A. Yes, because Bank No. 2 should have been required to authorize the additional
loan.
B. Yes, because the homeowner increased his loan obligation by $50,000.
C. No, because the homeowner increased the principal amount owed to Bank No. 1.
D. No, because the homeowner will have larger installment payments as the result of
the additional monies loaned.
Present Estates and Future Interests
Relax, this is not the Rule against Perpetuities…
O
absolute.
A for life, remainder to B in fee simple
What is A’s mortgage liability?
What is B’s mortgage liability?
H devises a 50-acre tract of land and cabin to his
wife, W for life, then to his child, C. W took out
a mortgage with First Bank to remodel the
cabin. FB recorded. After the cabin was
remodeled but before the mortgage was paid
off, W died. Who owns the property, First Bank
or C?
A widower entered into a mortgage in order to purchase his dream home. At the time
of his death, he was paying $1,200 in principal and approximately $1,000 in interest
each month. The widower's last will and testament bequeathed his home to his
brother for life, with a remainder to widower's daughter. The brother leased the house
to a friend for $800 per month. The brother paid $800 each month on the mortgage.
After about three months, the widower's daughter receives a notice from the bank for
foreclosure for the unpaid principal and interest of the mortgage each month. After
paying the unpaid principal and interest to avoid foreclosure and arguing with her
uncle for several months, the daughter sued her uncle for six months of principal on
the mortgage ($7,200) and a judgment from the court ordering her uncle to pay the
full principal and interest per month on the mortgage in the future.
How much is the widower's brother legally required to pay on the mortgage?
A.
$1,000 each month.
B.
$800 each month.
C.
$2,200 each month.
D.
$2,200 each month plus a one time payment of $7,200.
Rights and duties prior to foreclosure
1. Acceleration
2. The equitable right to redeem
Plus a right after foreclosure: Statutory redemption
The Equity of Redemption
The following language is contained in a mortgage on Blackacre:
"In the event Mortgagor defaults under this mortgage,
Mortgagor waives any right to be foreclosed and agrees that title
to the mortgaged real estate shall vest immediately and
automatically in Mortgagee."
Mortgagor fails to pay the debt promptly and Mortgagee
declares a default. Three months later, Mortgagor tenders the
full amount of the debt then due and owing.
The Equity of Redemption
The following language is contained in a mortgage on Blackacre:
"Mortgagor agrees that the right to redeem under this mortgage
shall terminate four months after Mortgagee declares a default
under this mortgage."
Mortgagor goes into default and, six months thereafter, tenders
to Mortgagee the full amount due and owing under the
mortgage.
Foreclosure:
Terminating the equitable right to redeem
Power of Sale
Judicial
Strict
Deed in lieu of
Distribution of the Proceeds
Homer and Marge Simpson failed to make timely
mortgage payments and eventually defaulted on their
loan. The ME, First Bank, foreclosed and sold the house
for $900,000. At the time of the sale, the couple owed
$950,000 on the loan. Costs, including attorney fees,
were $60,000. A second ME, Second Bank, held a second
loan for home improvement in the amount of $40,000.
How will the proceeds be distributed?
Priorities: Key Concepts
I. ME transfers the same quality of title it
encumbered when it originally placed the
mortgage on Blackacre.
II. If SR forecloses, property is transferred free of
junior mortgages.
III. JR may foreclose, but SR lien(s) remain.
IV. Subordination — An agreement whereby a
holder of a prior superior mortgage agrees to
subordinate or give up his or her priority
position to an existing or anticipated future
lien.
Foreclosure eliminates liens, not debt
The total debt owed on the first mortgage is
$200,000. There is a second mortgage for
$40,000 and a $10,000 judgment lien.
1. The home then sells for $250,000 at the
foreclosure sale.
2. The home sells for $200,000 at the
foreclosure sale.
SR forecloses
2010
OA Blackacre for $100,000
A arranges for financing from First Bank, a $80,000
mortgage.
2011
A borrows $10,000 from Second Bank to build an
addition.
2013
A executes a home equity loan for $15,000 from
Third Bank secured by a mortgage to buy a new car.
A defaults on all the mortgages and First Bank seeks
to foreclose.
(1) First Bank must notify the junior lienholders of
the foreclosure action. If the junior lienholders
are not notified, the junior lien(s) remain.
(2) First Bank is selling the state of title it
encumbered when it placed its mortgage on
Blackacre.
(3) First Bank will make a “credit bid” of $80,000 to
protect its security interest in the property.
JR forecloses
2010
OA Blackacre for $100,000
A arranges for financing from First Bank, a $80,000
mortgage.
2011
A borrows $10,000 from Second Bank to build an
addition. The loan is secured by a mortgage.
2013
A executes a home equity loan for $15,000 from
Third Bank secured by a mortgage to buy a new car.
A defaults on all the mortgages and Second
Bank seeks to foreclose.
(1) Second Bank must notify Third Bank of the
foreclosure action, but NOT First Bank.
(2) Second Bank is selling the state of title it
encumbered when it placed its mortgage on
Blackacre.
(3) JR’s don’t normally foreclose (but they may
on the bar exam).
May 18 Mortgages
Very Brief Review
1. Deeds and mortgages are interests in real estate
and must be in writing to satisfy the SOF.
2. The mortgage is a security interest for
repayment of a loan.
3. A landowner is free to mortgage the same
property to as many lenders as are willing to
make loans.
4. The equitable right of redemption allows the MR
in default to pay the ME up until the foreclosure
sale. This right to redeem MAY NOT be waived
in the mortgage document.
5. A purchase money mortgage is given to a lender
to the extent that the proceeds are used to
purchase real estate. A PMM, whether or not
recorded, has priority over any mortgage, lien,
or other claim that attaches to the real estate
but arose against MR prior to MR’s acquisition of
title to the real estate.
6. The MR may sell Blackacre free from the
mortgage (“clean method”) or with the
mortgage remaining on Blackacre (“dirty
method”).
7. If the mortgage remains on the property, the TE will
either take Blackacre subject to the mortgage or will
assume the mortgage. In either case, the MR is still
liable for the promises in the note and mortgage. The
issue is the liability of the TE.
8. A “subject to” TE has no personal liability to MR or
ME (but risks loss of title through foreclosure if the
secured obligation is not performed).
9. A TE who assumes the mortgage is personally liable to
the ME because the ME is a 3rd party beneficiary to
the assumption agreement between MR and ME.
10.A MR who is sued on the note is subrogated
(steps into the shoes of the bank) and may
foreclose. No deficiency judgment against a
“subject to” TE; deficiency judgement if TE
assumes the mortgage.
11.Mortgages may be modified as long as they do
not materially prejudice junior lien holders.
12.Life estate holder is liable for the interest;
remainderman for the principal.
13. Credit bidding: a secured creditor is allowed
to bid the amount of its debt as a “credit bid”
(not cash) which allows secured creditor to
protect its interest in the property/compete
with cash bidders.
Operation of the Recording System
May 18, 2017
• If a real property interest (e.g., deed, easement,
mortgage) is transferred, normally the document
is recorded.
• Provides notice to subsequent buyers/lenders
– Can see chain of title of seller
– Can see non-ownership interests (e.g., easements,
other servitudes)
– Can see other conveyances made by grantor
July 1, 2015: O to A
August 1, 2015: O to B
Recording Acts
• Protect buyers who record against other
(subsequent) transferees of the same property
– Often yields different results than 1st in time
– PMM have priority over prior liens but must be
recorded to protect against subsequent
transferees of the same property
– Most jurisdictions protect later bona fide
purchaser (BFP) for value against unrecorded
interests
BFP for VALUE: Definitions
Bona Fide Purchaser for Value = No notice of
prior transaction plus consideration
• “Doomed donee”
First Exception to General Rule: First
Purchaser for Value to Record Prevails
Race Statute: “No conveyance shall be valid as
against purchasers for value until it is recorded.”
1. Race
– 1st to Record Wins
O to A Blackacre
O to B Blackacre
B records.
Second Exception to General Rule: Subsequent Bona
Fide Purchaser Prevails
Notice: “Every conveyance not recorded is void as
against any subsequent purchaser in good faith and
for valuable consideration.”
2.
Notice
– Protects BFP for Value against prior unrecorded
interests regardless of when or if BFP records
– About half the states
O to A Blackacre (not recorded)
O to B Blackacre
Third Exception to General Rule: Subsequent
Bona Fide Purchaser Who Records First Prevails
Race-Notice: “Every conveyance not recorded is void as
against any subsequent purchaser in good faith and for
valuable consideration whose conveyance is first duly
recorded.”
3.
Race-Notice
–
–
Protects BFP for Value against prior unrecorded interests
only if BFP records 1st
About half the states
O to A Blackacre
O to B Blackacre
B records.
What Constitutes Notice?
• Actual Notice
• Record Notice/constructive notice
• Inquiry Notice
Applying the Recording Acts
February 1: O conveys Blueacre to A, who does not
record
February 8: O purports to convey Blueacre to B, who pays
value (and who has no knowledge of A’s unrecorded
deed), but who does not record
February 10: A records her deed to Blueacre
February 12: B records his deed to Blueacre
• As between A and B,
who has the superior claim under a notice statute?
Race-notice statute?
Race statute?
Hypo: Consequences for failing to record
2010
OA Blackacre for $100,000
A arranges for financing from First Bank, an $80,000 mortgage which is duly recorded.
2011
A borrows $10,000 from Second Bank, secured by a mortgage, to build an addition. Second
Bank fails to record.
2013
A executes a home equity loan for $15,000 from Third Bank secured by a mortgage to buy a
new car. Third Bank records.
The recording statute in the jurisdiction reads: “No interest in real property shall be good
against subsequent purchasers for value and without notice unless duly recorded.”
Foreclosure sale nets $85,000. How will the money be distributed?
Hypo
2009
Sheldon obtains and records a judgment lien in the amount of $40,000 on any real
property Leonard acquires.
2010
Penny  Leonard Blackacre for $100,000
Leonard arranges for financing from First Bank, an $80,000 mortgage which is duly
recorded.
2011
Leonard borrows $10,000 from Second Bank, secured by a mortgage, to build an
addition. Second Bank fails to record.
2013
Leonard executes a home equity loan for $15,000 from Third Bank secured by a
mortgage to buy a new car. Third Bank records.
The recording statute in the jurisdiction reads:
“No interest in real property shall be good against
subsequent purchasers for value
and without notice unless duly recorded.”
Foreclosure sale nets $140,000.
How will the money be distributed?
Hypo
2009
Farrah Fowler obtains and records a judgment lien in the amount of $40,000 on any
real property Wolowitz acquires.
2010
Rajesh  Wolowitz Blackacre for $100,000
Wolowitz arranges for financing from First Bank, an $80,000 mortgage which is duly
recorded.
2011
Wolowitz borrows $10,000 from Second Bank, secured by a mortgage, to build an
addition. Second Bank records.
2013
Wolowitz executes a home equity loan for $15,000 from Third Bank secured by a
mortgage to buy a new car. Third Bank records.
The recording statute in the jurisdiction reads:
“No interest in real property shall be good
against subsequent purchasers for value and
without notice unless duly recorded.”
Foreclosure sale nets $150,000. How will the money be distributed?
Hypo
2009
Daenerys Targaryen obtains and records a judgment lien in the amount of $40,000 on any real
property Tyrion Lannister acquires.
2010
Missandei  Tyrion Blackacre for $100,000
Tyrion arranges for financing from First Bank, an $80,000 mortgage which is duly recorded.
2011
Tyrion borrows $10,000 from Second Bank, secured by a mortgage, to build an addition.
2013
Tyrion executes a home equity loan for $15,000 from Third Bank secured by a mortgage to buy a
new car.
2014
Third Bank Records
2015
Second Bank Records
The recording statute in the jurisdiction reads: “Every conveyance of real property is void as
against any subsequent purchaser taking for value and without notice whose conveyance is first
duly recorded.”
Foreclosure sale nets $140,000. How will the money be distributed?
Hypo
2010
Red  Dembe Blackacre for $100,000
Dembe arranges for financing from First Bank, an $80,000 mortgage which is duly recorded.
2011
Dembe borrows $10,000 from Second Bank, secured by a mortgage, to build an addition.
2013
Dembe executes a home equity loan for $15,000 from Third Bank secured by a mortgage to buy a new car.
2014
Third Bank Records
2015
Dembe executes a home equity loan from Fourth Bank for $5,000 to buy Penn State football tickets. Fourth
Bank records.
2016
Second Bank Records
The recording statute in the jurisdiction reads: “Every conveyance of real property is void as against any
subsequent purchaser for value and without notice whose conveyance is first duly recorded.”
Foreclosure sale nets $105,000. How will the money be distributed?
Hypo
A builder is the record title owner of Ableacre. In order to finance some construction on
neighboring land that he also owns, the builder obtained a loan from a bank secured by a
mortgage on Ableacre executed in the name of the bank. Ableacre was in a lien theory
jurisdiction, where a mortgage is effected by an instrument that does not qualify as a deed. This
mortgage was not recorded. At a time when the builder was current on his payments to the bank,
he sold Ableacre to a buyer, for a reasonable price, via a warranty deed. The builder did not
inform the buyer of the outstanding mortgage on Ableacre, since he both intended to continue to
make the payments on the loan and assumed that the buyer knew of the mortgage. In fact, the
buyer had no knowledge of the mortgage. Several years later, the builder ran into hard times and
ceased to make payments on the loan. As a result, the bank brought a foreclosure action against
Ableacre and named the buyer one of the defendants. This was the first that the buyer had heard
of the mortgage. She immediately recorded her deed. The bank recorded its mortgage
immediately thereafter.
The buyer will not take title free and clear of the bank's mortgage interest under which of the
following recording statutes?
a. A recording statute that follows the common law.
b. A race recording statute.
c. A notice recording statute.
d. A race-notice recording statute.
The Shelter Rule
(N and RN Jurisdictions)
2015 Sheldon  Penny (does not record)
2016 Sheldon  Raj (BFP who records)
Who owns Blackacre, Penny or Raj?
2017 Raj  Wolowitz (Not a BFP)
Who owns Blackacre, Penny or Wolowitz?
Searching Title
Grantee Index (chain of title)
Grantor Index (adverse conveyances)
Lopatka
Reilly
Reilly
Purvis (easement)
Romero
Romero
Houck
Houck
Aber
Prospective buyer Elkin is thinking about purchasing Blackacre from Aber.
Special Problem #1: Wild Deed
(Document outside chain of title)
2012 O  A (not recorded)
2013 A  B (recorded)
2014 O  C (recorded)
Who has title, B or C?
Special Problem #2: Deed Recorded Too
Early (always estoppel by deed scenario)
2010 A  B (records)
2012 O  A (records)
B prevails over A under estoppel by deed.
2014 A  C
Who prevails, B or C?
Special Problem #3:
Deed Recorded Too Late
For issue perception, valid conveyance not recorded
until grantor has conveyed property a second time.
2010 O is record owner
2011 OA
2012 OB (not a BFP) records
2013 A records
2014 BC
Special Problem #4:
Circular Priority
For issue perception, purchase money mortgagee fails to record.
First Bank executes a $20,000 mortgage on Blackacre. NR.
Second Bank executes and records $15,000 mortgage on Blackacre
with actual notice.
Result: first in time b/c Second Bank is not a BFP. First Bank has priority.
Third Bank executes and records a $10,000 mortgage on Blackacre with
record notice of Second Bank’s mortgage but without any knowledge
of First Bank’s unrecorded mortgage.
Result: Third Bank is superior to First Bank but inferior to Second Bank.
Second is superior to Third but inferior to First. First is superior to
Second but inferior to Third.
Hypo #1
In 2010, Elkin is the true owner of Blackacre. In 2011, he conveys
Blackacre to Lopatka for valuable consideration. In 2012, Elkin conveys
Blackacre to Romero for valuable consideration. Romero has no
reason to know of the Elkin to Lopatka conveyance. In 2013, Romero
records his deed. In 2014, Lopatka records his deed. The recording act
in the jurisdiction in which these conveyances take place states: No
conveyance of real property shall be good against subsequent
purchasers for value and without notice unless the conveyance is
recorded. Whose title is superior, Lopatka’s or Romero’s?
A.
B.
C.
D.
Lopatka because he is first in time.
Romero because he purchased without notice of Lopatka’s deed.
Romero because he recorded first.
Romero because he purchased without notice and was the first to
record.
Hypo #2
In 2010, Elkin is the true owner of Blackacre. In 2011, he conveys
Blackacre to Lopatka for valuable consideration who never records the
deed. In 2012, Lopatka conveys Blackacre to Romero who immediately
records. In 2013, Elkin conveys Blackacre to Reilly, who has neither
actual nor inquiry notice of the other deeds. In 2014, Reilly records.
The recording act in the jurisdiction states: “Every conveyance not
recorded is void as against any subsequent purchaser in good faith and
for valuable consideration whose conveyance is first duly recorded.”
Who owns Blackacre?
A.
B.
C.
D.
Romero
Reilly
Lopatka
Elkin