Real Property: Acquisition and Disposition - Unit 11, Study notes of Agricultural engineering

Download Real Property: Acquisition and Disposition - Unit 11 and more Study notes Agricultural engineering in PDF only on Docsity! 1 Unit 11 – Real Property: Acquisition and Disposition ARE 306 I. Contracts for Sale of Land A contract of sale is an agreement to acquire or to dispose of property at some specified date. Both parties are bound by the terms of the contract. An option contract is one by which the owner of property (the optionee) agrees with another person (the optionee) that the optionee shall have the right to buy the optionor’s property at a fixed price within a certain time. The optionor is not bound to make the purchase. Subsequent negotiations and counteroffers do not constitute a rejection of the option by the offeree. When the option is properly exercised, the option contract becomes a contract to sell. The option contract must be recorded to give priority over lien holders and subsequent purchasers for value. The owner of property may grant preemptive rights to a prospective buyer by contract (called right of first refusal). The owner is not bound to sell, but if he does, he must give the other contracting party the first right to buy. In order to comply with the Rule against perpetuities, the right of first refusal must vest within 21 years or less after the death of a life in being at the time the contract is signed. If it does not, the contract is void even if an attempt at exercise is made earlier than that time. A contract of preemptive rights must contain a reasonable price provision linked to a fair market value or price that the owner is willing to accept from a third party. Real estate contracts can be classified as either interim or long-term. The interim contract is typically of short duration, maybe several months, and results in a transfer of legal title and possession at a specified future date. Under the Statute of Frauds, a contract for a sale of real property must be in writing to be enforceable. No particular form is required, and the writing will be sufficient for this purpose if it is signed by the party to be charged, there is a description of the subject property (a legal description is not required but is preferred), and all elements of the contract are present. The basic requirements for a real estate contract are described in the Rawls case: "A contract for the sale of real property must meet the following requirements: be in writing; signed by the parties; contain an adequate description of the real property; recite a sum of consideration; and contain all key terms and conditions of the agreement." As most real property is transferred under general warranty deeds it is necessary that the seller provide marketable title. To ensure this the closing attorney prepares an abstract that is a history of the property complete with any encumbrances or other title defects listed. In general the title is considered to be marketable if a title insurance company will cover the property without significant exceptions. There are two types of title insurance: lenders and owners. The former protects the lender for the balance of the loan remaining and the latter protects the purchaser for the amount of the purchase price. The title insurance company also agrees to pay for the cost of defending the title against a law suit by another claiming title. 2 If either party fails to perform (breaches the contract), the other has a right of action for specific performance, rescission and restitution, and/or damages. Under the parol evidence rule, evidence outside the four corners of the contract is not admissible unless it is offered to show fraudulent inducement, mutual mistake, or to resolve an ambiguity. A long-term contract for sale, often called an installment land contract, is used primarily as a financing device. The buyer becomes the beneficial owner and takes possession of the property but the seller retains legal title, usually for many years, until the final installment payment is made. The seller gets the income tax advantage of stretching out his recognition of capital gains. While the land is in the buyer’s possession, he must not allow waste of the property, and he is obligated to pay the property taxes. If the buyer departs substantially from the terms of the contract, the seller can forfeit the buyer’s interest and retake possession of the property. II. Deeds A deed is an instrument of writing which has been signed, sealed and delivered and serves to transfer an interest in real property from a grantor to a grantee. A general warranty deed not only conveys the land but it also contains assurances that the title is free from defects and encumbrances and that the grantor will protect the grantee from any claims that might arise from the grantor’s ownership interest. A special warranty deed promises that the title is free from defects and encumbrances that may have arisen since the grantor acquired title, but it does not promise that anyone else, other than the grantor, has not caused defects in the title. A quitclaim deed conveys only the interest of the grantor in a specific property, but it does not convey the land itself. There are no promises made in this deed regarding the title, and it is primarily used to clear titles. All who have even remote interests in the property, even if too small to have value, can relinquish that interest by means of a quitclaim deed. In order to have a valid deed, there must be a competent grantor and a grantee capable of holding title. In addition to the names of the grantor and the grantee, the deed must also contain a sufficient description of the property, the operative words of conveyance, and a proper execution by the grantor, including his signature and his seal. The final requirement for a valid deed is delivery of the deed to the grantee and his acceptance of it. North Carolina law requires the placement of an excise tax on the deed. The excise tax is assessed at $1.00 for each $500 (or fractional part thereof) of property transferred. This tax is still called the excise stamp tax because the tax, until recently, was assessed through the sale of stamps that were required to be affixed to the deed. The