property law: april 6 2010 class notes.

marketable title. 
frimberger v. anzellotti (n.b. -- headnotes for this case are huuugely important)
the property abutted certain land restrictions, and then by quick claim deed transferred to ansellotti. then ansellotti transferred the property to frimberger "free and clear, but subject to all zoning restrictions etc"

frimberger sues anzellotti instead of responding to the notice from the state environmental protection.

the existence of an environmental regulation that restricts use of land is not an encumberance. however, the violation against it is an encumberance. we think then that the plaintiff should be able to recover on this; however, the plaintiff did not win. 

why?
the court says that frimberger should have just done due diligence and surveyed the property before purchase. if this had been found out before the deed was delivered, then the buyer could have said "fix or i walk" because this was a violation. or he could have said "let's go ahead with the deal" and would have taken on the burden.

the court says that frimberger could have protected himself via terms in the contract. how?

merger: the parties' agreements of the contract expire once the contract is executed as a deed and you're only left with the covenants of the deed itself.

since the buyer didn't do either of these things before accepting the deed, is this now just his problem? is encumberance the same thing before the deed is delivered as it is after the deed is delivered?

latent defect: if you were reasonably diligent, we would not have expected you to find this defect.
where else have we seen an issue with the property that would not have reasonably been discovered (a latent defect)? reste realty

was this violation a latent defect? YES - why?

what type of interests will be encumberances? lien, mortgage or security interest in the property (a right to recover a debt owed), a life estate, a lease or any other kind of legal estate in land less than the estate conveyed, easements and servitudes (interests you can hold in land that belongs to someone else). (LNH2)

encumberance is a present interest, and the breach must exist at the time of conveyance (LNH3)

if you're going to accept title to which there may be a latent defect, protect yourself. and if you haven't, you might be SOL. caveat extempor. why don't we say this about the executory phase? because at this point, the parties are still contracting and this is easier to do before the deed is delivered than after.

that is the distinction between frimberger and lohmeyer: the pre-delivery objectives and post-delivery objectives.

however, let's say that the object is not status quo ante but instead to meet their expectation interest?

pre-closing, as opposed to the delivery: maybe the parties can come to some arrangement of how to make the bargain go forward, in the most cost effective way.

the court's reasoning seems to be around this: that the cost doesn't constitute an uncertainty because it would put more uncertainty in the system of title assurance than we are willing to accept (LNH6, LNH12)

delivery.
the requirement for deeds is similar to gifts: there can be an intermediary, other delivery arrangements. the question is whether the facts give evidence that there was a present intent to make a transfer, which is distinguished from a future intent?

present covenant: not a promise that can be breached at some point in the future, it must be breached when delivered. not breached in running with the land, but breached under a cause of action and can be passed along with the deed to any other person (NYS is one of these juris where the cause of action passes with title to successive purchasers)

mortgages. 
terminology and mechanics:
mortgagor (the buyer) will get $$ for giving promissory note and mortgage to the mortgagee (lender). this gives a security interest in the property to the lender, who holds a lien in case the mortgagor should default.

foreclosure: the mortgagee obtains a judicial order to force the sale of the mortgaged property and to recover the debt owed under the note from the proceeds of the forclosed sale. most will allow the mortgagee to recover interest, principle, costs, and anything else ancillary.

this is a big deal of forcing the sale of other people's property! there's a lot of protections for mortgagors, including that "the mortgagee must find as fair a price as possible for the sale" -- this is tricky, because

deficiency judgments.
during the great depression, there were anti-deficiency statutes enacted to keep the mortgagee from being able to take any assets more than the mortgaged property. some tie this, some limit the amount

non-recourse mortgage.

short-sale. a settlement, the mortgagee will allow the mortgagor to sell and discharge the mortgage with the sale price.

problems. p. 545
B and S buying 200K house. take out 1st mortgage for 150K and 2nd mortgage for 50K. they default on the first and the mortgagee forecloses. the foreclosure sale will take 100K. the first mortgagee gets the 100K, but still is owed 50K. the 2d mortgagee is not paid at all.

house sells for 160K: 1M is paid 150, and 2M will get 10K remainder. the buyers take nothing.

B and S makes payments on the first mortgage, but default on the second. what will happen?
the second mortgagee can

who bids at the foreclosure sale? the mortgagee, because then the mortgagee can get the full value back (??????)

so then in a multiple mortgaging: who has an incentive to bid on the property? the first mortgagee. REO (real estate owned). because this allows them to control the accounting value and the terms to which they will wind down the bad loan -- they can hold the property until the market improves, or restore the property, etc. AND the biggest incentive is to be able to just pay themselves.

previously, you would have a borrower/lender, now we have borrower/originator. the broker works with the different originators (lenders) and matches them with borrowers that meet their requirements, and make the deal. the originator takes an open mortgage and then sells the mortgage. notes and mortgages were sold and bought like commodities.

recording statutes.
- protection of bona fide creditors/purchasers
  race statute
  notice statute
  race notice statute
under a notice statute, your act of recording gives actual notice to the world and gives them protection.
under a race/notice statute, the person who is second in time must record their interest before the person who is first in time records theirs.
NYS is race/notice: must have good faith and must record first

title insurance.
problem 1:
O to A, not recorded
O dies intestate, leaving H as heir
H to B, a bona fide purchaser without notice, and B records
who has the superior claim, A or B?
B has the superior title because he was a bona fide purchaser, gave valuable consideration and recorded.
but O had already passed FSA in this property to A!

it's not that A didn't acquire anything, or that the conveyance is void, it's just that it can't be enforced against B, a bfp who is first to record under the recording statute.

but how can H pass title to B anyway? H never recorded title - how is B's interest superior? security of title, which rests on people recording their interests

problem 2:
O to A, doesn't record
O to B, a bfp, doesn't record (at this point, B has superior title because bfp)
A records. (doesn't matter in a notice juris because B doesn't have to record first)
A to C, a bfp. (A has conveyed interest to C, so now, as to B and C who prevails? C, because they are both bfp and C has recorded title)
B records.
C records. (this just protects C going forward.)

in a notice jurisdiction, C has the superior title.
in a race/notice jurisdiction, who has the superior title?
O to A, doesn't record
O to B, a bfp, doesn't record (at this point, we don't know)
A records. (now A has superior claim)

A to C, a bfp. (A has conveyed interest to C, so now, as to B and C who prevails? C, we don't know)

B records. (B's interest is void against A, because A already recorded. C conveys his interest from A.)
C records. (this just protects C going forward.)

this problem illustrates the shelter rule: any subsequent purchasers come under the shelter of protection