Property Law Spring 2017

Professor Marc H. Greenberg

Golden Gate University School of Law

Land Transfers Part 4

 Land Transfers Part 4
• Delivery without Handing Over– delivery is any act that evinces an
intent to be immediately bound by the transfer, ie: grantor executes a deed,
puts it into a safe deposit box at a bank, and leaves instructions to grantee to
pick up the box upon grantor’s death. Delivery takes place upon placement in
the box, and possession is transferred after death.
• Rosengrant v. Rosengrant
– The authors call this a “sad case” and a “rebuke to the legal and banking
profession”.
– Two issues: 1) Was the escrow revocable? Yes, based on Harold’s name
being placed on the envelope and the bank’s practice of giving the deed
back to him or others in his situation on request; and 2) Are revocable
escrows void? Yes, says the court, if the requirements of the Statute of
Wills aren’t met, because then the deed is not a valid will substitute.
– The authors disagree, arguing that a revocable deed in escrow should be
given the same effect as if the transfer was done via a revocable trust
 Land Transfers Part 4
• Revocable Trusts
–The revocable trust would have allowed the Rosengrants to achieve their goal.
The trustor typically retains a life estate, and at any time before death can revoke
the trust, voiding its terms. The trust bypasses probate, and so long as it is a
written instruments, satisfies the Statute of Frauds as well. No delivery is required
to effectuate it.
•Financing Real Estate Transactions
–Mortgages and the Mortgage Market
–The traditional mortgage was a fully amortized, fixed rate loan from a local
bank or S&L, with monthly payments made by the borrower for 15 or 30 years.
–The secondary mortgage market, marked by ARMs, stated income qualification,
teaser rates and zero-down financing, created the Alt-A and Subprime loan
markets, leading the way into the credit crunch of 2008 and the worst recession in
the U.S. and the world since the great Depression of the 1930s.
–Note the distinction between judicial and non-judicial foreclosures – and that the
former generally allows a deficiency judgment, and the latter does not. Anti-
deficiency statutes codify this limitation.
 Land Transfers Part 4
•Mortgage Foreclosure
–Murphy v. Fin. Dev. Corp.
•Does a mortgagee, seeking to sell property after a foreclosure, owe a
fiduciary duty to the defaulting borrower to get the best price for the
property, thereby protecting that borrower’s equity? Yes says the court.
While bad faith is hard to prove, failure to exercise due diligence can be
shown if only minimal efforts are made to market the property. Where
due diligence is not found, the measure of damages is the difference
between a fair price for the property and the price obtained at the
foreclosure sale. Note that the “fair price” does not have to be the fair
market value of the property, unless bad faith is also present. The
absence of bad faith also precludes attorney fees awards.
–Deeds in Lieu of Foreclosure – the deed in lieu option is a favored route
for defaulting borrowers and lenders – by surrendering the deed, the parties
forgo the time and expense of a foreclosure – and the borrower doesn’t face
a deficiency judgment – it does show up on the borrower’s credit rating.
 Land Transfers Part 3
• The Subprime Mortgage Crisis
– Commonwealth v. Fremont Investment & Loan
– This decision lays out the key elements of predatory loan practices
which, in this instance, supported an injunction that stopped defendant
from continuing its loan practices, and from foreclosing on properties
without court oversight.
– Note the four factors that the Court identifies as the hallmarks of
predatory lending practices.
– The Court notes that the only way these loans could have been paid off
is that after the teaser rate period expires, the borrowers either sell the
property and pay off the loan, based on the increase in sales prices they
were counting on, or they refinanced the loan and obtained better
terms. Both plans required the housing market to go up, and both failed
if the market went down, which is what happened. Fremont argued that
market growth was what “everyone” assumed would happen. Why did
that argument fail here?
 Land Transfers Part 4

• Mortgage Substitutes – The Installment Land Contract

– The installment land contract is akin to any other installment payment
contract – possession passes to the payee, but not title. So like buying a
car or rent-to-own furniture, the seller retains title and takes the property
back upon default, with no credit given or payments returned for money
paid up to that time. But does that really work in real property?
– Bean v. Walker – this Court says no. Notwithstanding the contract
terms, the fact that this transaction deals with land means the buyer has
an interest in property, and the status of the parties becomes mortgagor-
mortgagee. This means that the vendor may not enforce his rights by
ejectment – he must go through the foreclosure process, and is bound by
his fiduciary obligations in that process to recover his reasonable
damages, and pay any excess amount back to the buyer.
– The Court will allow forfeiture in an installment land contract, but only
under a very limited set of circumstances.