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1.12.10

Chapter 1 & Chapter 10

 The basic real estate transaction

 Talking about a person who owns land

 We have O, who has ownership of land, which is called title, but O would rather have

money than the land. O can sell the land. All that O needs is a buyer who will pay the

price in exchange for the land.

 The first question is why does this have to be so complicated? An important thing is that

you are dealing with a large amount of money. Most people need to borrow money in

order to make the purchase. Therefore a lender may become involved.

 Our financial system encourages borrowing by allowing for tax benefits.

 Promissory notes are notes that reveal the promise made to the lender to repay the money

in exchange for a loan. If the note is non-negotiable, it is covered by the rule of common

law contracts. If the note is negotiable, it is covered by Article III of the UCC.

 Lenders use collateral to give themselves security. It makes them feel less nervous about

entering into the transaction with the buyer. If the lender feels secure, it may feel as

though it is less of a risk, and may be willing to enter into the transaction for cheaper.

 The lender can use the land as collateral. But no one can give a greater interest than he or

she has. So both the lender and the buyer are concerned with O’s title to the land. There

could be liens, covenants, or equitable servitudes attached to the land which could burden

it.

 Easement=it is a right to use the land. It is a non-possessory interest in the land. This is

an example of how the fee simple rights could be subtracted.

 Title can be divided based on time (present [fee simple] and future interests [remainders,

reversions, shifting or springing ])

 A person cannot convey a greater interest than he or she has. This is why both buyer and

lender are worried.

 The three acts of RET—you can organize this through using a timeline.

o 1.) Marketing period;

o 2.) Executory period (ends at the transfer of the deed) the parties do what they are

required to do under the contract “due diligence”acting in a way that is non-

negligent—doing what you are supposed to do in a particular situation. It is what

a reasonably prudent person would do under the circumstances. ;

o 3.) Closing (the deed gets recorded, the buyer takes possession)

 Fiduciary duty/relationship: the duty to put someone else’s interests ahead of your own.

It is a relationship based on trust and confidence. Primary one is between agent and

principal. “Fiduciary” is a very important concept. A lawyer may represent both parties

to a transaction only after a full and fair disclosure, but must withdraw if a conflict arises.

 Can a lawyer do business with clients? Without it looking self-dealing, probably not.

 Options: a contract to hold open an offer to enter into another contract for a stated period

of time. Options are used in many different types of transactions.

o A call option is an option to buy. Why do people use these as opposed to enter

into a contract right from the beginning? What happens if the option is exercised?

The offer that is accepted that was held open and a contract is created. From the

option being exercised comes another real estate contract. Does the option to buy

real estate have to be signed in writing by the party to be charged? No, because it

is not a contract for the sale of land. Contracts for the sale or transfer of an

interest in land MUST be in writing!!

o A put is an option to sell.

 A Commitment: this is not a technical contracts term. It can express a willingness but not

an obligation to do something in the future. Determining what exactly the word means in

a particular situation will require a facts and circumstances analysis

 Pre-Approval:

 Pre-Qualification:

 The Three C’s of LendingWhat a lender looks at when making reasonable decisions on

how to make loans:

o Credit

o Capacity

o Collateral

o (Character—what about this person makes him reliable?)

 Lying on a Mortgage Application—why could this be a problem?

o If you overestimate your income you may not be able to pay back the loan

o It can be both a federal and a state crime

o There is no escape through bankruptcy

o It is fraudulent—you are giving them false information that the lender is supposed

to be able to rely upon. Fraud is a basis for recission of the contract, and the

lender can demand the money back!

o You expose yourself to civil liability

01.19.09

Chapters 13 & 19

What is a mortgage?

-The use of real property to secure an obligation. It is the use of real property as

collateral to secure an obligation. But a more narrow definition depends on the

jurisdiction

History of the mortgage:

-O has acquired title to a piece of property. But O needed cash. A way to get this would

be to sell the land. But this would be bad because land was the source of all well and social

power. If you had ownership of land, you were someone important. Selling the land used to be

the last possible resort.

-But how could O get money without selling the land? One way was to borrow money

from a lender. The lender would make O a loan. But a lender would feel nervous about getting

repaid. This uncertainty would be the lender feel insecure. So the lender would want something

to provide security, safety. What O could do was pledge the land to the lender to secure the

promise to repay the money borrowed. Thus the land was almost given as a hostage. The word

used to describe this was called a “gage”=a pledge of land. A right to possession as a means of

security.

-Vif gage=a live pledge.

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1.12.10 Chapter 1 & Chapter 10                The basic real estate transaction Talking about a person who owns land We have O, who has ownership of land, which is called title, but O would rather have money than the land. O can sell the land. All that O needs is a buyer who will pay the price in exchange for the land. The first question is why does this have to be so complicated? An important thing is that you are dealing with a large amount of money. Most people need to borrow money in order to make the purchase. Therefore a lender may become involved. Our financial system encourages borrowing by allowing for tax benefits. Promissory notes are notes that reveal the promise made to the lender to repay the money in exchange for a loan. If the note is non-negotiable, it is covered by the rule of common law contracts. If the note is negotiable, it is covered by Article III of the UCC. Lenders use collateral to give themselves security. It makes them feel less nervous about entering into the transaction with the buyer. If the lender feels secure, it may feel as though it is less of a risk, and may be willing to enter into the transaction for cheaper. The lender can use the land as collateral. But no one can give a greater interest than he or she has. So both the lender and the buyer are concerned with O’s title to the land. There could be liens, covenants, or equitable servitudes attached to the land which could burden it. Easem ...
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