Law of Property
This article will explain the broad areas that are covered by the law of property. The overview provides an introduction to the concepts and principles of law that govern estates in land, land conveyancing and security interests in real property. In addition, factors that affect the use of land are discussed including nuisance regulations, zoning regulations and the government's exercise of its eminent domain and regulatory takings powers. To help illustrate how the law of property applies to many common real estate transactions, a discussion of landlord-tenant relationships, the use and exploitation of natural resources and instances in which one person may gain rights in another's land is included. The following sections will explain these concepts in more detail.
Keywords Adverse Possession; Covenant; Easement; Estates in Land; Fixture; Gift; Lien; Mortgage; Personal Property; Real Property
Law: Law of Property
The law of property can be divided into two distinctive fields — real property and personal property. Real property is immovable, but personal property is movable. Thus, the law of real property governs laws regarding land and anything affixed to it as well as ownership and security interests in real estate whereas the law of personal property includes anything that is not real property, such as clothing, automobiles, financial instruments or other personal assets. However, while real property and personal property are generally distinctive areas, there are a few areas where there is a fine line distinction between the two. For instance, crops that grow organically on the ground are considered real property while crops that are planted by humans are considered personal property.
This article primarily focuses on the law of real property. When people discuss the law of property, they are typically referring to the law of real property. The laws governing real property are extensive because there are many different aspects of real property. The primary fields included in the law of real property are estates in land, conveyancing land, and security interests in real estate. In addition, significant factors can affect the right to use and enjoy property, such as nuisance regulations, zoning regulations and the right of the government to exercise its eminent domain or regulatory takings power. Also, the law of property plays an important role in many common matters involving real estate transactions, such as establishing and regulating landlord-tenant relationships and the use and exploitation of natural resources. Finally, property law also governs the areas of adverse possession and easements, which come into play when one person gains rights in land that belongs to another person. These major areas of the law of property will be discussed in more detail below.
Estates in Land
The law of real property is an area of law that has been greatly colored and shaped by both culture and the concept of land ownership over the centuries of history. Some cultures, such as the Anglo-Saxons of Great Britain or Native Americans that migrated and settled throughout North America, have viewed real property largely as communal property. In these cultures, members built communal structures where the entire community gathered to eat, celebrate, govern or take shelter from the environment or raiding armies. While individual families may have constructed temporary forms of individual housing, these cultures were often nomadic and thus they viewed their relationship to the land as fluid and a function of necessity. They worked and ate from the land where they lived and when necessity dictated that they relocate, they moved to a new area and settled on land that was conducive to their needs. Other non-nomadic cultures took a different view of land ownership and developed the concept of individual rights in plots of land. Still other cultures viewed the land as belonging to a king, ruler or patriarch of a region or to the aristocratic class that possessed sufficient wealth to own and maintain large plots of land.
In addition to these various concepts of land ownership, the law of property that took shape in the United States was also greatly influenced by the feudal institutions of England and Europe. Although feudalism took many forms, particularly during the Middle Ages, its basic structure included a lord, who was an aristocrat or a noble entitled to land ownership; vassals, whom the lord charged with managing sections of the land; and peasants, who actually worked the land. As this system became increasingly complicated and social classes became less stratified, the structure of feudalism faded into the system of estates in land that now govern ownership interests in real property in the United States. The following section provides a more in-depth explanation of the concept of estates in land.
Common Forms of Estates in Land
Under the system of feudalism, one person could be entitled to manage land as if he owned the land, although the property was actually owned by another individual. This concept separated land ownership from land possession. Over the years, various estates in land developed that defined the various rights to ownership and possession of land that were commonly used. Today, the basic form of interest in real property that gives the holder the right to both own and possess the land is known as a present possessory estate. For instance, a fee simple, which is how property is commonly held today and represents absolute ownership in property, is a form of a present possessory estate. However, another form of a present possessory estate is a life estate, which entitles the holder to present possession of land for the life of one or more persons, although the land reverts to the ownership and possession of another at the end of the person's life by whom the life estate is defined. For instance, Landowner A could convey property to Individual B for her life, with the estate reverting back to Landowner A upon Individual B's death.
In addition to a present possessory estate, another type of estate in land is a future interest. A future interest entitles its holder to the right or possibility of possession of an estate in land in the future. For instance, Landowner A may convey property to Individual B on the condition that the land not be used for specified purposes, and if the land is so used, its ownership will revert to Individual C. Thus, while a future interest is a legally protected right in property, there is no guarantee that the estate will become possessory because the land will not convert to Individual C unless Individual B violates the conditions of the conveyance set by Landowner A. While there are other types of estates in land, present possessory estates and future interests are the most common forms of land ownership and possession.
Ownership of Estates in Land
Estates in land may be held individually or concurrently by several people. If an estate is held concurrently, all of the owners have the right to use and possess the land. For instance, one common form of a concurrent estate is a joint tenancy. “When two or more people own property as joint tenants and one owner dies, the other owners automatically gain ownership of the deceased owner’s share. For example, if a brother and sister own a house as joint tenants and the brother dies, the sister automatically becomes full owner” (“Joint tenancy,” 2007). This form of land ownership is often used because of its automatic right of survivorship. No will is required to transfer the property because ownership automatically vests in the surviving joint tenant and this feature eliminates the time and expense of probate. Another type of concurrent estate is known as tenancy by the entirety. This estate generally arises presumptively in any property that is conveyed to a husband and wife. Under a tenancy by the entirety, the husband and wife each have an undivided interest in the entire estate and a right of survivorship in the property. Thus, “both spouses have the right to enjoy the entire property, and when one spouse dies, the surviving spouse gets title to the property” (“Tenancy by entirety,” 2007).
Conveyancing is the name given to the process of transferring ownership of land from one person to another. There are three stages involved in the process of land conveyance. The first stage includes the time after an agreement in principle is reached between a buyer and a seller, but before the seller and buyer are bound by contract to proceed with the transaction. This may involve settling certain questions about condition of the property or financing terms. The second stage occurs after the contract has been signed but before the transaction has closed and property ownership actually transfers. Issues involving the condition of the property, repairs and financing also arise during this stage. Once the transaction has closed, the third stage involves the registration and completion of any documents that have been prepared relating to the transfer of ownership and recording these documents with the appropriate state or county office.
While these basic stages describe the process of the transfer of land ownership, there are a number of important points in this process during which disputes and legal questions commonly arise. The following sections will describe these issues in more detail.
Land Sale Contracts
Most transfers of land must be preceded by a contract of sale. The contract must generally be in writing, contain the signatures of the parties and set out the essential terms of the transaction including the names of the parties, an identifiable description of the property and the price of the property. In most jurisdictions, once the contract is signed, the doctrine of equitable conversion arises, which holds that purchaser of real property becomes the equitable owner of title to the property and is bound to complete the purchase of the land at the closing. The seller retains legal title of the property until the closing, but the seller's interest in the property is considered personal property. Thus, the seller is entitled only to the payment of money for the property rather than a right to possess the property.
This doctrine is important in terms of determining who bears the risk of loss of property after the contract is signed but before ownership of the property has transferred. Under the doctrine of equitable conversion, the risk of loss is transferred from the seller to the buyer when the contract is signed. This means that after the contract is signed, the buyer is locked into the agreed upon price even if the property is damaged or destroyed. Most buyers purchase insurance to protect their interest in the property and to mitigate their risk of loss. Also, buyers and sellers can determine their own terms by stipulating in the contract who will bear the risk of loss in the event the property suffers damage.
Every land sale contract contains an implied warranty that the seller of the property will provide marketable title to the property at closing. Marketable title means that the buyer may take the title of the property with reasonable assurance that there are no issues or defects in the chain of title that will present an unreasonable risk of litigation after closing. The implied warranty of marketable title protects buyers from "purchasing a lawsuit."
Some of the defects that could prevent a seller from obtaining marketable title include encumbrances on the chain of title such as mortgages, liens or unpaid taxes on the property. Also, if a property has some condition that has caused an existing violation of a zoning ordinance, this would also render the title unmarketable. However, the mere presence of a zoning restriction that governs or includes the property would not make title unmarketable without an actual violation of the zoning ordinance.
Even if there is a defect in the title that renders it unmarketable at the time the contract is signed, the buyer and seller may still move forward with their agreement to complete their transaction on the specified closing date. This is because sellers typically have until the date of closing to cure any title defects. Thus, if two weeks before the scheduled closing, a buyer discovers a zoning violation on the property or learns that the seller has obtained a second mortgage on the property, the buyer may not rescind the contract at that time. The seller has until the day of closing to resolve any issues that may cloud the marketability of the title. In addition, the seller may use the proceeds of the sale of the property to clear any mortgages that remain on the property. However, if the seller does not provide marketable title at closing or the seller knows the title is not marketable, the remedies to the buyer at that time include recission of the contract, monetary damages or the right to bring a lawsuit to quiet title or resolve any questions of ownership in the property. If, prior to closing, the seller is unaware that the title is unmarketable but the buyer learns of a defect in the title, the buyer must notify the seller that the title is unmarketable and give the seller a reasonable amount of time to cure the defect.
Once the closing occurs, the land sale contract merges with the deed, which essentially extinguishes the contract along with its implied warranty of marketability. Thus, after the closing, the buyer must look to the deed for any covenants that expressly warrant defects in the title. The deed is the document that actually transfers title to an interest in real property. To be effective, a deed must comply with certain formalities. For instance, it must be in writing, signed by the seller or grantor of the property and should identify the property and the parties to the transaction. The description of the property does not have to be as precise as the property description in a land sale contract, but it should not leave any doubt as to the property to be conveyed. A deed that is forged or obtained by deceit will be considered void and the deed will be set aside by the court, even if a buyer has already purchased the property. However, if a deed was executed by a minor or obtained by certain types of fraud, the deed will be considered voidable and a court will set it aside only if the property has not been purchased by a party who was unaware of the defects in the deed.
Today, there are three basic types of deeds that are used to convey most property interests-general warranty, special warranty and quitclaim deeds. These types of deeds differ in the extent to which they protect buyers by charging the seller of the property with certain responsibilities regarding the condition and habitability of the property. The general warranty deed generally contains a series of covenants that provide the buyer with certain assurances regarding the property. These covenants include the covenant of seisin, which ensures that the property is the grantor's to convey; the covenant of right to convey, stating that the grantor has the authority to transfer the property; and the covenant against encumbrances, which provides that there is no encumbrance or defect in the title. These three covenants can only be breached at the time of the closing. In addition, general warranty deeds also commonly include a covenant for quiet enjoyment, which provides that no third party has a lawful claim to the title, and a covenant of warranty, wherein the seller agrees to defend the buyer against a third party's claim to any interest in the property. If included in the general warranty deed, the covenant for further assurances provides that the grantor will take the steps necessary to perfect title to the property. The covenants of quiet enjoyment, warranty and further assurances can only be breached if the grantor's possession of the property is violated.
The special warranty deed is a special type of deed in which the grantor or guarantees the title against defects only arising during the period of his or her ownership of the property and not against defects that existed before that time. A quitclaim deed releases the grantor from any interest that he or she held in the property and provides the grantee no warranties or protections regarding the title or condition of the property. The parties to a contract may decide what type of deed they will use to transfer ownership in the property. However, buyers in particular must pay close attention to the type of deed that will be used and any protections it may or may not offer. Any covenants, or lack thereof, that are included in a deed are typically reflected in the price of the property in that the more assurances a grantor makes, the higher the sales price.
After the closing and the actual transfer of property occurs, every state has enacted legislation that requires the purchaser to file a record of the transaction, generally with the County Recorder or Recorder of Deeds, to provide constructive notice of the change in ownership or interest of a particular property. These statutes are known as recording acts. Recording acts generally require that all deeds, mortgages and certain types of leases be recorded. Recording acts help maintain an official record of the chain of title of ownership so that any person may research the chain of title to any piece of property to determine the extent of the interests and ownership in that property. This protects a subsequent bone fide purchaser, or a person who pays value for property and who has no notice of any prior ownership interests in it, from purchasing land only to learn later that a third party still maintains an ownership interest in the property.
There are three common types of recording acts that provide different types of protections for bona fide subsequent purchasers of property. However, the burden is on the party filing under the recording act to ensure that the transaction is covered by the statute and that the proper documents are timely filed. The recording acts are typically known as race, race-notice, and notice statutes. Under a pure race statute, the person who records first wins, even if the recorder had notice of a prior unrecorded conveyance. This means that if Landowner A conveys land to Individual B, and two weeks later conveys the same property to Individual C, Individual C will take title to the property if she records before Individual B, even if she knew that Landowner A had previously conveyed the property to Individual B. A race-notice type of act operates in the same way as the race statute, but only if the first recorder had no notice of any prior unrecorded conveyance.
Under a notice type of recording act, a subsequent bona fide purchaser would win over a prior purchaser who failed to record so long as the second purchaser had no knowledge of the prior conveyance at the time the purchase was made. For instance, if the first purchaser failed to record his or her deed at the time the second purchase is made and the second purchaser files her deed after the conveyance, she would win in a dispute over the ownership of the property.
Security Interests in Real Estate
There are several different types of security interests in real estate. A security interest gives a creditor the...
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