Real Estate Law, 6 th Edition

1. by George J. Siedel, III and Robert J. Aalberts Real Estate Law, 6th Edition Slides prepared by Heidi Bulich Real Estate Law, 6th ed., by Siedel and Aalberts

2. What is Law? System of rules and principles devised by organized society for the purpose of controlling human conduct. Sources of Law US Constitution – Sets up 3 branches of government. Powers are express and implied. Bill of Rights Remaining amendments State Constitutions Statutes Judicial Administrative Real Estate Law Chapter 1 Real Estate Law, 6th ed., by Siedel and Aalberts

3. Common Law – court-made law Stare decisis – courts must rely on earlier decisions involving similar facts and higher court decisions trump Equity – to provide relief to parties who had just claims but who can not be adequately compensated with monetary damages Important Principles Chapter 1 Real Estate Law, 6th ed., by Siedel and Aalberts

4. The Court System Chapter 1 Real Estate Law, 6th ed., by Siedel and Aalberts

5. Property refers to rights and interests of ownership. Rights include: Possession Control within the law Enjoyment within the law Exclusion Ability to convey Nature of Property Chapter 2 Real Estate Law, 6th ed., by Siedel and Aalberts

6. Real Property – Immovable, fixed and permanent Governed by case law and state statutes Oftentimes conveyed with a deed Often taxed Personal property – everything that is not real – main characteristic – it is moveable, may be tangible or intangible Governed by UCC Article 2 Sometimes a bill of sale is required Oftentimes NOT taxed Real Property vs. Personal Property Chapter 2 Real Estate Law, 6th ed., by Siedel and Aalberts

7. Annexation= Attachment. Two types of annexation Permanent – Removal would cause serious damage i.e. furnace, pipes. Constructive – Property may not be physically attached, but look at its relationship with the real property i.e. screens for storm windows, garage door opener Fixtures Fixture – a tangible object – formerly treated as personal property but now has become so connected with the real property that it becomes real property Chapter 2 Real Estate Law, 6th ed., by Siedel and Aalberts

8. Adaptation – Adaptation of article to use in property i.e. plumbing apparatus designed for use in a plumbing system, air conditioning unit installed into a specific site. Some courts look to see if articles are necessary or beneficial to enjoyment of real estate. Intent – Most important. Did he/she intend to make article a permanent part of the real estate? Best if expressed in a contract. Cont. Fixtures Chapter 2 Real Estate Law, 6th ed., by Siedel and Aalberts

9. Important to distinguish personal property from fixtures: Different laws apply Means of conveying differ Fixtures are taxed Eminent Domain Mortgage instrument often describes a security interest in all mortgagor’s originally owned and “after acquired” real property – NOT personal property. Foreclosure sales – fixtures, not personal property are subject to sale Tenant fixtures Cont. Fixtures Chapter 2 Real Estate Law, 6th ed., by Siedel and Aalberts

10. Fructus naturales – Any plant with perennial roots (trees, shrubs, grasses) which is produced by the power of nature alone. Fructus industriales – Sometimes known as emblements. Plants which are sown annually and grown primarily by human labor (wheat, corn, soybeans). If real estate is sold – all unsevered growing things pass with the land. If growing crops are sold separately from land – UCC2-107 applies (sale of forestry rights, sale of potatoes) Growing Crops Chapter 2 Real Estate Law, 6th ed., by Siedel and Aalberts

11. If articles can be severed without material harm to real estate, then they are: Personal Property If material harm caused to real property if severed. . . Look to see WHO severed If severed by S – then personal property law govern If severed by B – then real property law governs UCC 2-107 Chapter 2 Real Estate Law, 6th ed., by Siedel and Aalberts

12. Emblements are annual crops produced by labor and industry. Doctrine applies in L – T situation. T in interest of fairness, keeps fruit of labor if: Period of Tenancy of uncertain duration Tenancy terminated by L or Act of God; and T can prove he or she planted crop during tenancy Doctrine of Emblements Chapter 2 Real Estate Law, 6th ed., by Siedel and Aalberts

13. Transfer of Real Estate – Unless specified in the purchase agreement to be personal property, will be considered real property and pass to the Buyer Tenant’s Fixtures – Some will be considered fixtures and remain on the property at the termination of the tenancy. If the tenant’s fixture is a trade fixture, agricultural fixture or a domestic fixture AND 1. Tenant can remove fixture without subjecting harm to premises; and 2. Articles are removed before surrendering premises to landlord, THEN : Article may be removed by tenant at termination of tenancy. CompetingInterests -- Fixtures Chapter 2 Real Estate Law, 6th ed., by Siedel and Aalberts

14. Real Property – Deed is used between B & S. Mortgage is used between ME & B. Personal Property – Bill of Sale is used between B & S. Security agreement is used between B & (Seller or Lender) Fixture Financing When property is transferred, the following rules apply: Chapter 2 Real Estate Law, 6th ed., by Siedel and Aalberts

15. UCC – Compilation of commercial laws which were drafted by legal scholars. Adopted by every state except LA, therefore uniform laws in US regarding sale of personal property. Article 9 – Applies to “any transaction which is intended to create a security interest in personal property or fixtures.” To create a security interest, must obtainand perfect security interest. Important Definitions Chapter 2 Real Estate Law, 6th ed., by Siedel and Aalberts

16. In Personal Property TO OBTAIN: execute security agreement between B & (Seller or Lender) or take possession of article TO PERFECT: file financing statement (UCC-1) with Secretary of State. This gives secured party rights against third parties. PRIORITY – Determined by who files first In Real Property TO OBTAIN: Execute security agreement between B & (Seller or Lender) or take possession of article. TO PERFECT: file financing statement (UCC-1A) with Register of Deeds). This gives secured party rights against third parties. PRIORITY – Determined by: Against Concurrent or later creditors – WHO FILES FIRST Against all prior security interests, except construction mortgages – must be perfected at time fixture affixed or within 20 days to take priority over prior security interests (except construction mortgages) Creating Security Interests Chapter 2 Real Estate Law, 6th ed., by Siedel and Aalberts

17. ME vs. MR – Many mortgages cover fixtures, therefore, all articles annexed to real property become subject to lien of mortgage and cannot be removed by owner. Owner vs. Secured Party – If security agreement executed and no other creditors, no need to perfect and secured party may repossess articles. Secured Party vs. Other Creditors – See page 38. 3 Common Fixtures Scenarios Chapter 2 Real Estate Law, 6th ed., by Siedel and Aalberts

18. Airspace – Ownership of land generally includes ownership of airspace above its surface. Owner of air rights may sell rights separately from surface of real estate, i.e. high rise real estate projects. Subsurface Rights - Ownership of land generally includes ownership of subsurface space below its surface. Owner of these rights may sell rights separately from surface of real estate, i.e. sale of minerals, oil and gas. Special considerations for oil and gas leases -- Some states permit oil and gas to be sold as real property (ownership principle). Other states do not consider oil and gas owned until they are captured. Right to extract = personal property right (exclusive right). Scope of Real Property Chapter 3 Real Estate Law, 6th ed., by Siedel and Aalberts

19. Limited Resource – Who owns land under water? Who has right to use water? How should water be used? Navigable Water – If a stream or body of water may be used for commerce between or among the states, it is navigable water – it becomes a public river or highway. Michigan has “floating log” test. Ownership of Land Under Water – If you are a riparian owner, how far does your land extend? Water Rights Chapter 3 Real Estate Law, 6th ed., by Siedel and Aalberts

20. First Question: Is water navigable? If YES – STATE owns riverbed to “high water” mark If NO– You own to center of river, all submerged land and land on shore to “high water” mark. Cont. Water Rights Chapter 3 Real Estate Law, 6th ed., by Siedel and Aalberts

21. Distinguish ownership, use and control Ownership – Just discussed Use – Public has right to use all navigable water as long as federal and state laws not violated. BUT NOTE – Right to use navigable water does not include license to go on riparian owner’s land. Private owners control use of non-navigable waters. Control - Congress – over navigable waters which affect interstate commerce. States – all navigable waters which do not affect interstate commerce. Private owners – all non-navigable waters. Use of Water Chapter 3 Real Estate Law, 6th ed., by Siedel and Aalberts

22. Riparian Rights Theories 1. Natural Flow - each riparian owner entitled to have water maintained in “natural state”. “Artificial” wants OK as long as they do not materially change quantity or quality of water. (NOT Common) 2. Reasonable Use – each riparian owner allowed to use water benefits as long as owner does not interfere unreasonably with beneficial uses of other riparian owners. Prior Appropriation – FIRST come FIRST serve and first person must have used water Cont. Use of Water Chapter 3 Real Estate Law, 6th ed., by Siedel and Aalberts

23. Transferable rights related to the use of air. 1. Clean Air Act standards – 1990 Clean Air Act amendments established the Acid Rain Program – permanent cap on total amount of sulfur dioxide emitted by electric utilities nationwide (about ½ of amount emitted in 1980) 2. Since 1995 US companies permitted to trade units (called allowances) of certain air emissions. 3. Clear Skies Initiative. Pollution Credits Chapter 3 Real Estate Law, 6th ed., by Siedel and Aalberts

24. Look to state law to determine when liens attach: Some states: when any construction began or materials first furnished; Others: when work completed; Others: when contract signed or work ordered; and Others: when notice of lien recorded. Priority Among Lien Holders Chapter 3 Real Estate Law, 6th ed., by Siedel and Aalberts

25. 4/15/02: Owner of vacant lot hires contractor to build home 5/15/02: Work begins 8/15/02 : Work completed 9/15/02 : House sold and mortgage to Last Bank. LB records mortgage. 11/2/02: Notice of lien recorded because seller never pd. contractor. Contractor had 90 days to record lien IN MOST STATES contractor has to be paid by bank or purchasers to avoid property from being sold. * In most states, mechanic’s liens have priority over mortgages. Cont. Priority Chapter 3 Real Estate Law, 6th ed., by Siedel and Aalberts

26. Comprehensive Environmental Response, Compensation & Liability Act of 1980 (CERCLA or Superfund) Federal statute for: 1. Cleanup of contaminated property, and 2. Allocation of liability for costs Retroactive, strict and where harm is indivisible, joint and several liability for costs of responding to a release. No showing of fault is required. Environmental Liens Chapter 3 Real Estate Law, 6th ed., by Siedel and Aalberts

27. Release has occurred or is threatened Response costs were incurred Person involved is 1 of the following: Current owner or operator of facility Former owner or operator of facility Person who arranges for transport, treatment or disposal of hazardous substances Transporter of hazardous substances Note: exceptions apply Liability Under Superfund Chapter 3 Real Estate Law, 6th ed., by Siedel and Aalberts

28. Purchasers of Property/Innocent Landowners Innocent owner did not know nor had reason to know it was there Importance of conducting Phase I and Phase II Assessments Property acquired after hazardous substance placed on property Secured Parties Court decisions finding secured lenders who acquired property through foreclosure or who have restrictive covenants in loan agreements to be “owners or operators” and liable under CERCLA. EPA issued Lender Liability Rule in 1992. Struck down by DC Circuit. 1996 Lender Liability Amendments passed by Congress - - codified the Lender Liability Rule Limited Defenses to Liability Chapter 3 Real Estate Law, 6th ed., by Siedel and Aalberts

29. Small Business Liability Relief and Brownsfield Revitalization Act 1. Signed by President Bush on January 11, 2002 2. Significant revision of Superfund law 3. 2 parts of Act. A. Part 1 – Establishes superfund liability exemptions for small businesses and nonprofit organization which ship only extremely small or de micromis quantities of hazardous substances to a site or whose contribution consists of “ordinary municipal solid waste”. B. Part 2 – Establishes first federal statutory brownsfield program which includes federal money for remediation of brownsfield sites, liability protection for new purchasers of contaminated site and more support for state brownsfield programs. Cont. Limited Defenses to Liability Chapter 3 Real Estate Law, 6th ed., by Siedel and Aalberts

30. Holder does not have an ownership interest in property, only a right to use These rights include: 1. Use and enjoy land on limited basis. 2. Entitled to protection from third parties. 3. Easement owner NOT subject to will of owner of land as with license holder 4. Easement can be conveyed. 5. Easement can be created in ways other than by written agreement. Easements Easement = interest in land which gives the owner the right to use real estate owned by another for a specified purpose Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

31. 3 Different Ways Property Can Be Used: EASEMENT - Steve (Servient Estate) owns property in fee simple, grants right-of-way easement to Diane (Dominant Estate). Gives her an easement, NOT a possessory interest in Steve's property.  - She may use road, but may NOT stop others from using it except to extent their use prevents her full enjoyment.   - Steve, as possessor, may exclude all others, except Diane, even though crossings pose no harm to Steve. - Steve may use road as long as it does not interfere with Diane. Cont. Easements Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

32. LEASE - Steve leases road to Diane -- transfers full possession. Diane can exclude Steve and all others from road. Steve transferred full possession to Diane, therefore she could have excluded Steve and all others from road during term of lease.  LICENSE - Steve grants Diane a right-of-way for 10 years -- NOT written down. Statute of Frauds requires grants of interests in land over one year MUST BE IN WRITING. Steve may rescind at any time. Cont. Easements Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

33. Affirmative and Negative Easements Affirmative - owner of easement has right to use land that is subject to easement. (i.e., construct sewer tunnel, walk on it.) Negative - owner of easement can prevent owner of land from performing certain acts on land. (i.e, negative easement to prevent sun.) Types of Easements Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

34. Easements Appurtenant and in Gross 1. Appurtenant - an easement which benefits easement owner in that easement owner uses land appurtenant to his land. Must have two tracts of land owned by different parties. Two tracts need NOT adjoin, though they generally do.  Servient estate -- tract over which easement runs. Dominant estate -- tract which benefits from easement. Is ALIENABLE and can be SUBDIVIDED Cont. Types of Easements Easement appurtenant is considered PART of the dominant estate. If dominant estate is conveyed, easement passes with title; HOWEVER, title to actual land over which easement runs is retained by owner of servient estate -- such as easement, "runs with the land.“ Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

35. Easement in Gross -- personal interest in or right to use land of another that is NOT appurtenant to ownership or possession of real estate. - ONLY have servient estate no dominant. (Alienability) Right to Convey Easement in Gross -- this right connected to the easement is dependent on whether the easement is commercial or noncommercial. Subdivision or Apportionment of Easement in Gross -- If easement in gross is transferable, can it be sold to more than one buyer? Look at intent of parties of original easement agreement. Cont. Types of Easements Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

36. EXPRESS – must satisfy formal requirements – in writing, signed, witnessed and recorded IMPLIED 1. By Reference to Easement or to Plot--where legal description identifies road or path as boundary and GR owns fee in such path, easement is path passes to GE. 2. By Prior Use -- Parties situated in such a way that easement could have been granted or reserved by express language, BUT NO STATEMENT made. Commonly occurs when owner of two tracts of land sells or mortgages one tract and does not mention an easement, BUT as a result of transaction, an easement is created. 3. By Necessity Creation of Easements Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

37. If owner of servient estate allows user to make improvements re: use, servient owner is estopped from denying existence of easement. ILLUSTRATION R owns sewer and water pipes in street running past his house and vacant land he owns. - sells lot to E, but says nothing of pipes. E builds house and R without objection watches E tie into sewer and water pipes. Thus, easement to use sewer and water created by estoppel.) Easement by Estoppel Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

38. General Rule: Scope of use is determined by how and for what reason the easement was created. Owner of easement cannot materially increase burden on servient estate or impose a new and additional burden. a. If conditions for use specifically provided in easement, use is limited to that use and those which are necessary to its proper enjoyment. b. General grant however, may be used any way as long as it is reasonable Extent of Easements Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

39. Easement Appurtenant - used only for benefit of dominant estate. May not be used for benefit of any other tract of land. Thus, land acquired by owner of dominant estate AFTER creation of easement, has no right to use easement. Note situations regarding development and subdivision of dominant estate. Easement by Prescription - use of easement after prescriptive period must remain almost the same as use at the beginning of prescriptive period. (i.e., private right-of-way acquired by prescription is limited to uses made during prescriptive period. Prescriptive easement to carry water in open ditch over another's property, does not include the right to carry same quantity in covered pipes in a closed ditch).No different or materially greater use may be made of easement except by further adverse use for a prescriptive period (i.e., in first example--if G continued to ride motorcycle for another 10 years--would have prescriptive easemt. to ride motorcycle.)  Cont. Extent of Easements Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

40. Easement by Prior Use - Look to prior use, may use easement for uses which existed at time original estate was severed AND all uses reasonably contemplated by parties. Easement by Necessity - Lasts as long as there is a necessity Express easements - Usually provided by terms. Cont. Extent of Easements Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

41. Since easement is a RIGHT to use another's land for a specific purpose, easement owner must use easement premises only for that purpose. (i.e., If I grant Bob an easement for ingress and egress over part of my land, Bob has no right to lay gas pipes in the easement.) Also use by easement owner must not interfere with landowner's use. (i.e., If I give Mary a driveway easement over my land, I do not expect her to park in my driveway all night and prevent me from entering my garage.) Use by Easement Owner Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

42. If I give Mary an easement over my property, who has duty to keep it in repair?  1. The fact that I gave an easement does not impose duty on me, the servient tenant, to repair easement.  2. Parties could agree in express easement who would be responsible.  3. If no express agreement, easement owner (Mary) does have duty to make easement usable. To repair existing road, trim encroaching trees, remove impediments.  4. In order for easement owner to perform duty to repair, has right to enter servient estate at all reasonable times to make repairs and maintenance.  a) This right called a "secondary easement" -- may be used only when necessary and in a reasonable manner so as to NOT burden owner of servient estate.  5. If both easement owner and landowner use road -- they share costs in proportion to use of road.  6. If easement owner allows right-of-way to fall into disrepair, no right to travel along another route.  BUT, IF:  7. If Landowner impedes easement owner from using easement, easement owner may travel around obstruction and over other land belonging to landowner. Duty to Repair Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

43. Cessation of Purpose – terminates when purpose no longer exists Expiration of Period – Express easements freq. Have term -- when term expires, easement expires Merger – When 1 owner acquires both servient and dominant estates Abandonment – Requirement of intent Destruction of Servient Estate Estoppel Prescription Cessation of Necessity – Applies to easements implied by necessity Condemnation Release Termination of Easements Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

44. By Prescription --acquiring right to use land NOT by express agreement or agreement between parties, BUT by lapse of time and certain use of property during that time. REQUIREMENTS: 1. Use must be ADVERSE (hostile, open, notorious and visible)-- no permission by O -- NOT a neighborly accommodation. (i.e., A's driveway used by B to get car into B's backyard. Never got A's permission. Prescriptive easement, not a neighborly accommodation.) Prescriptive Easements Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

45. Cont. Requirements a. Hostile -- User does not recognize owner of land has authority to prevent his use--use is hostile in that he does not recognize authority of owner. i.e., Preshlock never thought Brenner could prevent his use of driveway. See case p. 99 b. Open, Notorious, Visible -- Use must be open, notorious and visible so that owner would learn about it if he kept informed about his property through ordinary inspections. p. 101 Downie Cont. Prescriptive Easements Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

46. Cont. Requirements 2. Use must be continuous and uninterrupted for the required period. (i.e., occasional entries on neighbor's land DO NOT ripen into a prescriptive easement.) ILLUSTRATIONS A owns house -- constructs garage. Builds driveway over part of B's lot without B's permission. After 20 years has prescriptive easement. A builds driveway over B's land -- uses it for five years without B's permission.  A sells land to C -- uses for 5 years. C sells to D -- uses for 10 years. D now has prescriptive easement. Prescriptive uses of A, B, C and D can be tacked - since easement benefitsTRACT A -- becomes easement appurtenant Cont. Prescriptive Easements Chapter 4 Real Estate Law, 6th ed., by Siedel and Aalberts

47. 4 Types of Freehold Estates 1. Fee Simple 2. Fee Simple Determinable 3. Fee Tail 4. Life Estate Estates in Land Chapter 5 Real Estate Law, 6th ed., by Siedel and Aalberts

48. Absolute ownership – greatest extent of ownership interest recognized by law 1. Holder is entitled to all rights of property ownership. 2. No time limit on existence -- upon death, passes to heirs. 3. Owner can dispose of property as she wishes 4. Only subject to government regulations and duties which arise out of tort law (i.e., nuisance) TO CREATE INTEREST IN FEE SIMPLE "TO BOB"--This is enough even if NOT expressed as estate in fee simple, most statues assume conveyance of fee simple estates Fee Simple Chapter 5 Real Estate Law, 6th ed., by Siedel and Aalberts

49. Occurs when fee simple is qualified by language which causes fee simple to end when a certain event occurs. Three types.   1. Fee Simple Determinable - fee simple estate continues as long as certain event continues or building remains, etc. (See pp. 130-131) Thus, when grantor conveys estate, there is a possibility estate would revert back to him or his heirs. POSSIBILITY OF REVERTER: (i.e., Bob holds land in fee simple. Conveys land to Ellen and her heirs as long as land is used to farm. Ellen has fee simple determinable and Bob has a Possibility of Reverter. Bob or his heirs will get land back automatically if Ellen or her heirs stop farming. Thus estate--fee simple determinable with Possibility of Reverter Fee Simple Defeasible Chapter 5 Real Estate Law, 6th ed., by Siedel and Aalberts

50. b. Fee Simple Subject to Executory Limitation - Fee simple estate ENDS when certain event automatically occurs and passes to 3rd person. (See pp. 130-131) c. Fee Simple Subject to a Condition Subsequent - Fee simple estate ends if a certain event occurs, but unlike above, where grantor automatically gets land, here, grantor MUST TAKE SOME ACTION TO RETAKE PROPERTY. (i.e., Go to court) (See p. 131). Grantor's interest is right of entry or power of termination. Thus, when grantor conveys estate, he has retained a POWER OF TERMINATION or a RIGHT OF RE-ENTRY. (i.e., Bob holds land in fee simple. Conveys to Ellen, but if liquor is ever sold on the land then Grantor may re-enter and repossess. Bob has a power of termination. Ellen has fee simple subject to condition subsequent.) Cont. Fee Simple Defeasible Chapter 5 Real Estate Law, 6th ed., by Siedel and Aalberts